ASTROTECH CORP
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2015
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number: 001-34426
Astrotech Corporation
(Exact name of registrant as specified in its charter)
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Washington
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91-1273737
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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401 Congress Avenue, Suite 1650
Austin, Texas 78701
(Address of principal executive offices and zip code)
(512) 485-9530
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
þ
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
¨
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
þ
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes
¨
No
þ
As of
November 6, 2015
, the number of shares of the registrant’s common stock outstanding was:
20,700,673
.
2
ASTROTECH CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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Page
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3
ASTROTECH CORPORATION AND SUBSIDIARIES
(In thousands, except share data)
(Unaudited)
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September 30, 2015
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June 30,
2015 |
||||||
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||||||||
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Assets
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Current assets
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Cash and cash equivalents
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$
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1,356
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$
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2,330
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Short-term investments
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21,193
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23,161
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Accounts receivable, net of allowance
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221
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198
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Inventory
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783
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509
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Indemnity receivable
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6,100
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6,100
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Prepaid expenses and other current assets
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580
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296
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Total current assets
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30,233
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32,594
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Property and equipment, net
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3,631
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3,108
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Long-term investments
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6,257
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8,516
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Total assets
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$
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40,121
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$
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44,218
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Liabilities and stockholders’ equity
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Current liabilities
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Accounts payable
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$
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261
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$
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398
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Accrued liabilities and other
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1,501
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1,801
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Income tax payable
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—
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190
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Total current liabilities
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1,762
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2,389
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Other liabilities
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146
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101
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Total liabilities
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1,908
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2,490
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Commitments and contingencies (Note 15)
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Stockholders’ equity
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Preferred stock, no par value, convertible, 2,500,000 authorized shares; no issued and outstanding shares, at September 30, 2015 and June 30, 2015
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—
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—
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Common stock, no par value, 75,000,000 shares authorized; 21,864,548 shares issued at September 30, 2015 and June 30, 2015; 20,700,673 and 20,743,973 shares outstanding at September 30, 2015 and June 30, 2015, respectively
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189,096
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189,007
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Treasury stock, 1,163,875 and 1,120,575 shares at cost at September 30, 2015 and June 30, 2015, respectively
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(2,789
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)
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(2,672
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)
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Additional paid-in capital
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1,193
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1,139
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Accumulated deficit
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(149,386
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)
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(146,022
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)
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Accumulated other comprehensive loss
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(111
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)
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(23
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)
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Equity attributable to stockholders of Astrotech Corporation
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38,003
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41,429
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Noncontrolling interest
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210
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299
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Total stockholders’ equity
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38,213
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41,728
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Total liabilities and stockholders’ equity
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$
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40,121
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$
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44,218
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See accompanying notes to unaudited condensed consolidated financial statements.
4
ASTROTECH CORPORATION AND SUBSIDIARIES
(In thousands, except per share data)
(Unaudited)
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Three Months Ended
September 30, |
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2015
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2014
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Revenue
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$
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—
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$
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320
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Cost of revenue
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—
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277
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Gross profit
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—
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43
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Operating expenses:
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Selling, general and administrative
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2,286
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1,960
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Research and development
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1,264
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692
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Total operating expenses
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3,550
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2,652
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Loss from operations
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(3,550
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)
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(2,609
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)
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Interest and other expense, net
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99
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12
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Loss from continuing operations before income taxes
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(3,451
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)
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(2,597
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)
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Income tax (expense) benefit
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(2
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)
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1,325
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Loss from continuing operations
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(3,453
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)
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(1,272
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)
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Discontinued operations (Note 3)
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Income from discontinued operations
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—
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1,303
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Income tax expense
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—
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(2,378
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)
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Gain on sale of discontinued operations
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—
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25,630
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Income from discontinued operations
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—
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24,555
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Net (loss) income
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(3,453
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)
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23,283
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Less: Net loss attributable to noncontrolling interest
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(89
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)
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—
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Net (loss) income attributable to Astrotech Corporation
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(3,364
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)
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23,283
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Less: Deemed dividend to State of Texas
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—
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531
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Net (loss) income attributable to common stockholders
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$
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(3,364
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)
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$
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22,752
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Amounts attributable to Astrotech Corporation:
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Loss from continuing operations, net of tax
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$
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(3,364
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)
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$
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(1,272
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)
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Income from discontinued operations, net of tax
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—
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24,555
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Net (loss) income attributable to Astrotech Corporation
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$
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(3,364
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)
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$
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23,283
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Weighted average common shares outstanding:
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Basic and diluted
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20,705
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19,548
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Basic and diluted net (loss) income per common share:
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Net loss attributable to Astrotech Corporation from continuing operations
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$
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(0.16
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)
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$
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(0.09
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)
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Net income from discontinued operations
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—
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1.25
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Net (loss) income attributable to Astrotech Corporation
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$
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(0.16
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)
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$
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1.16
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Other comprehensive income, net of tax:
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Available-for-sale securities:
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Net unrealized loss, net of tax benefit of $33
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$
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(61
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)
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$
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—
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Reclassification adjustment for realized losses included in net (loss) income, net of tax of $2
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4
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—
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Total comprehensive (loss) income
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$
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(3,421
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)
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$
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23,283
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See accompanying notes to unaudited condensed consolidated financial statements.
5
ASTROTECH CORPORATION AND SUBSIDIARIES
(In thousands)
(Unaudited)
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Three Months Ended
September 30, |
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2015
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2014
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Cash flows from operating activities:
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Net (loss) income
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$
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(3,453
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)
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$
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23,283
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Less: Income from discontinued operations
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—
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(24,555
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)
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Net loss from continuing operations
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(3,453
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)
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(1,272
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)
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Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
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Stock-based compensation
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143
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1
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Amortization
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20
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—
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Depreciation
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102
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85
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Changes in assets and liabilities:
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Accounts receivable
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(23
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)
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(267
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)
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Accounts payable
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(137
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)
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(778
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)
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Other assets and liabilities
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(800
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)
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(571
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)
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Income taxes payable
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(190
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)
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1,053
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Net cash used in operating activities-continuing operations
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(4,338
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)
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(1,749
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)
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Net cash used in operating activities-discontinued operations
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—
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(1,370
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)
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Net cash used in operating activities
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(4,338
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)
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(3,119
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)
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Cash flows from investing activities:
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Sale of available-for-sale investments
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2,625
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—
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Maturities of held-to-maturity securities
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1,494
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—
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||||
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Purchases of property and equipment
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(638
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)
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(46
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)
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||||
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Net cash provided by (used in) investing activities-continuing operations
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3,481
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(46
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)
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Net cash provided by investing activities-discontinued operations
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—
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52,591
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Net cash provided by investing activities
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3,481
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52,545
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Cash flows from financing activities:
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Repayment of State of Texas funding, including deemed dividend
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—
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(2,331
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)
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Payments for shares bought back
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(117
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)
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—
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Net cash used in financing activities-continuing operations
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(117
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)
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(2,331
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)
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Net cash used in financing activities-discontinued operations
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—
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(5,655
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)
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Net cash used in financing activities
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(117
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)
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(7,986
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)
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Net change in cash and cash equivalents
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(974
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)
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41,440
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Cash and cash equivalents at beginning of period
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2,330
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3,831
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Cash and cash equivalents at end of period
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$
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1,356
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$
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45,271
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Supplemental disclosures of cash flow information:
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Cash paid for interest
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$
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—
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$
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63
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Income taxes paid
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$
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198
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$
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—
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||
See accompanying notes to unaudited condensed consolidated financial statements.
6
ASTROTECH CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(1) General Information
Description of the Company
– Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” “the Company,” “we,” “us,” or “our”), a Washington corporation organized in 1984, is an Austin, Texas based holding company that leverages management’s entrepreneurial expertise in turnarounds, start-ups, and mergers and acquisitions to commercialize emerging disruptive technologies through its closely held subsidiaries with a focus on adding value for our shareholders.
Basis of Presentation
– The accompanying unaudited condensed consolidated financial statements have been prepared by Astrotech Corporation in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the
three months ended September 30, 2015
are not necessarily indicative of the results that may be expected for the year ending
June 30, 2016
. These financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended
June 30, 2015
.
Accounting Pronouncements
– In May 2014, the Financial Accounting Standards Board (“FASB”) issued FASB Accounting Standards Update (“ASU”) No. 2014-9, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605,
Revenue Recognition
. The core principle of ASU 2014-9 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle. ASU 2014-9 requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU 2014-9 was to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In 2015, the FASB issued ASU 2015-14 which delayed the required adoption date for public entities to periods beginning after December 15, 2017, although early adoption to the original effective date under ASU 2014-9 is permitted. Once implemented, the Company can use one of two retrospective application methods for prior periods. Earlier application is not permitted. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This ASU requires management to evaluate whether there are conditions or events that raise substantial doubt about the ability of a company to continue as a going concern for one year from the date the financial statements are issued or within one year after the date that the financial statements are available to be issued when applicable. Further, the ASU provides management guidance regarding its responsibility to disclose the ability of a company to continue as a going concern in the notes to the financial statements. This ASU is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption of ASU 2014-15 is not expected to have an impact on our financial statements; we will adopt this ASU in fiscal year 2017.
In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurements of Inventory.” This ASU requires management to evaluate inventory at the lower of cost and net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Earlier application is permitted by all entities as of the beginning of an interim or annual reporting period. The Company is in the process of assessing the impact, if any, on its consolidated financial statements.
Segment Information
– With the sale of the Astrotech Space Operations (“ASO”) business (see Note 3), the Company now operates a single reportable business unit, Astro Scientific (formerly known as Spacetech). Since only one of the Company’s three distinct opportunities has material operations, all financial segment information required by FASB ASC 280 can be found in the consolidated financial statements.
Astro Scientific
Astro Scientific is a technology incubator designed to commercialize emerging disruptive technologies. This business unit is currently pursuing three distinct opportunities:
7
1
st
Detect
1
st
Detect develops, manufactures, and sells chemical analyzers that streamline processes for industrial use in the food and beverage, semiconductor, pharmaceutical, research, and environmental markets as well as for government applications used in explosive and chemical warfare detection for the Department of Homeland Security and the military. Our chemical analyzers can identify chemicals with more accuracy and precision than competing analyzers given their extreme sensitivity and specificity. By leveraging technology initiated by an engagement with the National Aeronautics and Space Administration (“NASA”) to develop a mass spectrometer for the International Space Station (“ISS”), the Company has developed a series of analyzers that enable real time analytics that we believe to be significantly smaller, lighter, faster, and less expensive than competing analyzers.
Our product portfolio currently consists of the following products:
|
•
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MMS-1000™ - the MMS-1000™ is a small, low power desktop analyzer designed for the laboratory market.
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•
|
OEM-1000 - the OEM-1000 is an original equipment manufacturer (“OEM”) component that is designed to be integrated into customers’ specific packaging and enclosures, and is well suited to be integrated with application specific sampling or separation technology.
|
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•
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iONTRAC - the iONTRAC is a process analyzer utilizing an enhanced version of our core technology, which includes the addition and integration of gas chromatography and continuous 24/7 operational features.
|
Astrogenetix
Astrogenetix is a biotechnology company that is applying a fast-track on-orbit discovery platform using the International Space Station to develop vaccines and other therapeutics. NASA has engaged the Center for Vaccine Development at the University of Maryland, one of the leading vaccinology institutions in the world, to aid in the filing of an Investigational New Drug (“IND”) application for Salmonella. NASA is providing much of the necessary funding for this research, meaning little investment is required of Astrogenetix as efforts are concentrated on filing the IND. We have negotiated a Space Act Agreement with NASA for a minimum of twenty-eight additional space flights following the successful filing of the IND application.
Astral Images
Astral Images (“Astral”) was created to commercialize decades of image research from the laboratories of IBM and Kodak combined with classified satellite technology from government laboratories. Astral sells film-to-digital image enhancement, defect removal and color correction software, and post processing services providing economically feasible conversion of television and feature 35mm and 16mm films to the new 4K ultra-high definition (“UHD”), high-dynamic range (“HDR”) format necessary for the new generation of digital distribution.
(2) Investments
We use specific identification when determining realized gains and losses on our available-for-sale securities. The following tables summarize unrealized gains and losses related to our investments:
|
Available-for-Sale
|
September 30, 2015
|
|||||||||||||||
|
(In thousands)
|
Adjusted
|
Unrealized
|
Unrealized
|
Fair
|
||||||||||||
|
|
Cost
|
Gain
|
Loss
|
Value
|
||||||||||||
|
Mutual Funds - Corporate & Government Debt
|
$
|
14,619
|
|
$
|
—
|
|
$
|
(111
|
)
|
$
|
14,508
|
|
||||
|
Total
|
$
|
14,619
|
|
$
|
—
|
|
$
|
(111
|
)
|
$
|
14,508
|
|
||||
For information on the unrealized holding losses on available-for-sale investments reclassified out of accumulated other comprehensive income (loss) into the consolidated statements of income, see “Note 10: Other Comprehensive Income (Loss).”
8
|
Held-to-Maturity
|
September 30, 2015
|
|||||||||||||||
|
(In thousands)
|
Carrying
|
Unrealized
|
Unrealized
|
Fair
|
||||||||||||
|
Value
|
Gain
|
Loss
|
Value
|
|||||||||||||
|
Fixed Income Bonds
|
$
|
3,515
|
|
$
|
—
|
|
$
|
(26
|
)
|
$
|
3,489
|
|
||||
|
Time Deposits
|
9,427
|
|
10
|
|
(7
|
)
|
9,430
|
|
||||||||
|
Total
|
$
|
12,942
|
|
$
|
10
|
|
$
|
(33
|
)
|
$
|
12,919
|
|
||||
There were
no
investments at
September 30, 2014
.
We have certain financial instruments on our condensed consolidated balance sheet related to interest bearing time deposits and fixed income bonds. These held-to-maturity time deposits are included in “Short-term investments” if the maturities at the end of the reporting period were 360 days or less or “Long-term investments” if the maturities at the end of the reporting period were over 360 days. Fixed income bonds, maturing over the next one to four years, are comprised of investments in various corporations with ratings of BBB- or better.
|
Carrying Value
|
||||||||||||||||
|
Short-Term Investments
|
Long-Term Investments
|
|||||||||||||||
|
(In thousands)
|
September 30, 2015
|
June 30, 2015
|
September 30, 2015
|
June 30, 2015
|
||||||||||||
|
Mutual Funds - Corporate & Government Debt
|
$
|
14,508
|
|
$
|
17,227
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Time deposits
|
||||||||||||||||
|
Maturities from 1-90 days
|
950
|
|
1,496
|
|
—
|
|
—
|
|
||||||||
|
Maturities from 91-360 days
|
5,735
|
|
4,438
|
|
—
|
|
—
|
|
||||||||
|
Maturities over 360 days
|
—
|
|
—
|
|
2,742
|
|
4,990
|
|
||||||||
|
Fixed Income Bonds
|
||||||||||||||||
|
Maturities from 1-3 years
|
—
|
|
—
|
|
2,427
|
|
2,073
|
|
||||||||
|
Maturities from 3-5 years
|
—
|
|
—
|
|
1,088
|
|
1,453
|
|
||||||||
|
Total
|
$
|
21,193
|
|
$
|
23,161
|
|
$
|
6,257
|
|
$
|
8,516
|
|
||||
(3) Discontinued Operations & Gain on the Sale of the ASO Business Unit
In August 2014, the Company completed the previously announced sale of substantially all of its assets used in the Company’s former ASO business unit (the “Asset Sale”) to Lockheed Martin Corporation (“the Buyer”) for an agreed upon sales price of
$61.0 million
, less a working capital adjustment. The sales price was
$59.3 million
, which includes a working capital adjustment of
$1.7 million
. As of
September 30, 2015
, the Company has received cash of
$53.2 million
and has recorded a receivable of
$6.1 million
for the indemnity holdback. The indemnity holdback is being held in escrow under the terms of an escrow agreement until February 2016 (the 18-month anniversary of the consummation of the transaction). The Company believes it will fully realize the indemnity holdback in February 2016. The ASO business consisted of (i) ownership, operation, and maintenance of spacecraft processing facilities in Titusville, Florida and Vandenberg Air Force Base, California (“VAFB”); (ii) supporting government and commercial customers processing complex communication, earth observation, and deep space satellite launches; (iii) designing and building spacecraft processing equipment and facilities; and (iv) providing propellant services including designing, building, and testing propellant service equipment for fueling spacecraft.
Additionally, as part of the Asset Sale, the Company used a portion of the proceeds to pay off the outstanding balance of its term loan of
$5.7 million
, which was secured by certain assets of the ASO business. As such, 100% of the interest expense on the debt was allocated to discontinued operations in the amount of
$0
and
$62 thousand
for the
three months ended September 30, 2015
and
2014
, respectively.
The sale of our former ASO business, which was previously reported within our former ASO business unit segment, resulted in a pre-tax gain of
$25.4 million
(
$20.6 million
after-tax) for the year ended June 30, 2015. The pre-tax gain on this sale reflects the excess of the sum of the cash proceeds received over the net book value of the net assets of the Company’s former ASO business.
9
The total pre-tax gain on the sale for the year ended June 30, 2015, includes the following (in thousands):
|
Cash proceeds from the sale of the ASO business
|
$
|
53,189
|
|
|
|
Receivable for indemnity holdback
|
6,100
|
|
||
|
Liabilities assumed by the Buyer
|
2,478
|
|
||
|
Net book value of assets sold
|
(36,175
|
)
|
||
|
Other
|
(156
|
)
|
||
|
Gain on sale of our former ASO business
|
$
|
25,436
|
|
|
The Company and the Buyer entered into a transition services agreement to which the Company and the Buyer agreed to provide the other party with certain services, including, among others, services related to benefits, human resources and payroll administration, cash management, financial statements, and compliance, each of a type currently provided by or for the Company or our former ASO business unit prior to the Asset Sale. Pursuant to the transition services agreement, the Company agreed to provide services to the Buyer for a period of up to
one year
, and the Buyer agreed to provide services to the Company for a period of up to
six months
. Each party had the option to extend the term of the services provided by the other party for a period of
one year
. No such extension was executed by either party.
While we are a party to the transition services agreement, we have determined that the continuing cash flows generated by this agreement did not constitute significant continuing involvement in the operations of our former ASO business. As such, the operating results and cash flows related to our former ASO business have been separately reflected as discontinued operations for the
three months ended September 30, 2014
.
The following table provides a reconciliation of the major components of income of our former ASO business to the amounts reported in the condensed consolidated statements of operations (in thousands):
|
|
Three Months Ended
September 30, |
|||||||||||
|
|
2015
|
2014
|
||||||||||
|
Major line items constituting income of discontinued operations
|
|
|
|
|
||||||||
|
Revenue
|
$
|
—
|
|
$
|
2,807
|
|
||||||
|
Cost of revenue
|
—
|
|
(1,313
|
)
|
||||||||
|
Selling, general and administrative
|
—
|
|
(128
|
)
|
||||||||
|
Other expense, net
|
—
|
|
(63
|
)
|
||||||||
|
Gain on sale of discontinued operations (1)
|
—
|
|
25,630
|
|
||||||||
|
Income tax expense
|
—
|
|
(2,378
|
)
|
||||||||
|
Gain on discontinued operations
|
$
|
—
|
|
$
|
24,555
|
|
||||||
|
1.
|
An adjustment of
$194 thousand
was made during the last quarter of fiscal year 2015.
|
(4) Receivables – Indemnity Holdback Related to the Asset Sale
In August 2014, the Company completed the Asset Sale. The net purchase price was
$59.3 million
, which included a working capital adjustment of
$1.7 million
. As of
September 30, 2015
, the Company received cash of
$53.2 million
and recorded a receivable of
$6.1 million
for the indemnity holdback. As of the date of this quarterly report on Form 10-Q, no claims have been asserted against the indemnity holdback. The indemnity holdback amount, minus any amounts previously released in respect of indemnity claims or held back with respect to pending claims, will be released within three days after the 18
th
month anniversary of the closing of the Asset Sale pursuant to the terms of an escrow agreement.
(5) Noncontrolling Interest
During the third quarter of 2015, Astral Images was created in conjunction with a noncontrolling interest, resulting in Astrotech owning
72%
of Astral. The Company applies noncontrolling interest accounting, which requires us to clearly identify the noncontrolling interest in the condensed consolidated balance sheets and condensed consolidated statements of operations. We disclose three measures of net income (loss): net income (loss), net (loss) attributable to noncontrolling interest, and net income (loss) attributable to Astrotech Corporation. Our operating cash flows in our condensed consolidated statements of cash flows
10
reflect net income (loss) while our basic and diluted net income (loss) per share calculations reflect net income (loss) attributable to Astrotech Corporation.
On August 28, 2014, we repaid the State of Texas Emerging Technology Fund
$2.3 million
to settle their
$1.8 million
interest in 1
st
Detect (see Note 12 for more information).
The following table breaks down the changes in Stockholders’ Equity in the
first
quarter of fiscal year
2016
(in thousands):
|
Astrotech Corp Stockholders' Equity
|
Noncontrolling Interest in Subsidiary
|
Total Stockholders' Equity
|
||||||||||
|
Balance at June 30, 2015
|
$
|
41,429
|
|
$
|
299
|
|
$
|
41,728
|
|
|||
|
Stock based compensation
|
143
|
|
—
|
|
143
|
|
||||||
|
Share repurchases
|
(117
|
)
|
—
|
|
(117
|
)
|
||||||
|
Net change in available-for-sale securities
|
(88
|
)
|
—
|
|
(88
|
)
|
||||||
|
Net income attributable to Astrotech Corporation
|
(3,364
|
)
|
—
|
|
(3,364
|
)
|
||||||
|
Net loss attributable to noncontrolling interest
|
—
|
|
(89
|
)
|
(89
|
)
|
||||||
|
Balance at September 30, 2015
|
$
|
38,003
|
|
$
|
210
|
|
$
|
38,213
|
|
|||
(6) Net Income (Loss) per Share
Basic net income (loss) per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed based on the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method and the if-converted method. Dilutive potential common shares include outstanding stock options and share-based awards.
The following table reconciles the numerators and denominators used in the computations of both basic and diluted net income (loss) per share (in thousands, except per share data):
|
|
Three Months Ended
September 30, |
|||||||||||
|
|
2015
|
2014
|
||||||||||
|
Numerator:
|
|
|
|
|
||||||||
|
Amounts attributable to Astrotech Corporation, basic and diluted:
|
|
|
|
|
||||||||
|
Loss from continuing operations before income taxes
|
$
|
(3,451
|
)
|
$
|
(2,597
|
)
|
||||||
|
Income tax (expense) benefit
|
(2
|
)
|
1,325
|
|
||||||||
|
Loss from continuing operations, net of tax
|
(3,453
|
)
|
(1,272
|
)
|
||||||||
|
Less: Net loss attributable to noncontrolling interest
|
(89
|
)
|
—
|
|
||||||||
|
Income from discontinued operations, net of tax
|
—
|
|
24,555
|
|
||||||||
|
Net (loss) income attributable to Astrotech Corporation
|
(3,364
|
)
|
23,283
|
|
||||||||
|
Less: State of Texas deemed dividend (Note 12)
|
—
|
|
531
|
|
||||||||
|
Net (loss) income attributable to Astrotech Corporation applicable to common shareholders
|
$
|
(3,364
|
)
|
$
|
22,752
|
|
||||||
|
Denominator:
|
|
|
|
|
||||||||
|
Denominator for basic and diluted net income (loss) per share attributable to Astrotech Corporation — weighted average common stock outstanding
|
20,705
|
|
19,548
|
|
||||||||
|
Basic and diluted net income (loss) per common share:
|
|
|
|
|
||||||||
|
Net loss attributable to Astrotech Corporation from continuing operations
|
$
|
(0.16
|
)
|
$
|
(0.09
|
)
|
||||||
|
Net income from discontinued operations
|
—
|
|
1.25
|
|
||||||||
|
Net (loss) income attributable to Astrotech Corporation applicable to common shareholders
|
$
|
(0.16
|
)
|
$
|
1.16
|
|
||||||
11
Options to purchase
1,117,750
shares of common stock at exercise prices ranging from
$0.32
to
$3.20
per share outstanding for the
three months ended September 30, 2015
were not included in diluted net loss per share, as the inclusion of the potential common shares would have had an anti-dilutive effect on the loss from continuing operations.
(7) Revenue Recognition
Astrotech recognizes revenue employing several generally accepted revenue recognition methodologies. The methodology used is based on contract type and the manner in which products and services are provided.
Revenue is recognized when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when pervasive evidence of an arrangement exists, delivery has occurred or services have been provided, and collectability is reasonably assured.
In October 2010, our former ASO business entered into a financing facility with a commercial bank providing a
$7.0 million
term loan and a
$3.0 million
revolving credit facility. The
$7.0 million
term loan was to terminate in
October 2015
and the
$3.0 million
revolving credit facility expired in
October 2012
. The bank financing facilities were secured by the assets of our former ASO business, including accounts receivable, and required us to comply with designated covenants. On August 22, 2014, the Company used a portion of the proceeds from the Asset Sale to pay off the outstanding balance of its term loan of
$5.7 million
which is reported in the statement of cash flows as discontinued operations. The Company has
no
outstanding debt as of
September 30, 2015
.
(9) Fair Value Measurement
The accounting standard for fair value measurements defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. The standard is applicable whenever assets and liabilities are measured and included in the financial statements at fair value.
The fair value hierarchy established in the standard prioritizes the inputs used in valuation techniques into three levels as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
The following table presents the carrying amounts, estimated fair values, and valuation input levels of certain financial instruments as of
September 30, 2015
and
June 30, 2015
:
|
September 30, 2015
|
||||||||||||||||||||
|
Carrying
|
Fair Value Measured Using
|
Fair
|
||||||||||||||||||
|
(in thousands)
|
Amount
|
Level 1
|
Level 2
|
Level 3
|
Value
|
|||||||||||||||
|
Available-for-Sale Securities
|
||||||||||||||||||||
|
Mutual Funds - Corporate & Government Debt
|
$
|
14,508
|
|
$
|
14,508
|
|
$
|
—
|
|
$
|
—
|
|
$
|
14,508
|
|
|||||
|
Held-to-Maturity Securities
|
||||||||||||||||||||
|
Bonds: 1-3 years
|
2,427
|
|
—
|
|
2,410
|
|
—
|
|
2,410
|
|
||||||||||
|
Bonds: 3-5 years
|
1,088
|
|
—
|
|
1,079
|
|
—
|
|
1,079
|
|
||||||||||
|
Time deposits: 1-90 days
|
950
|
|
—
|
|
949
|
|
—
|
|
949
|
|
||||||||||
|
Time deposits: 91-360 days
|
5,735
|
|
—
|
|
5,740
|
|
—
|
|
5,740
|
|
||||||||||
|
Time deposits: over 360 days
|
2,742
|
|
—
|
|
2,741
|
|
—
|
|
2,741
|
|
||||||||||
|
Total
|
$
|
27,450
|
|
$
|
14,508
|
|
$
|
12,919
|
|
$
|
—
|
|
$
|
27,427
|
|
|||||
12
|
June 30, 2015
|
||||||||||||||||||||
|
Carrying
|
Fair Value Measured Using
|
Fair
|
||||||||||||||||||
|
(in thousands)
|
Amount
|
Level 1
|
Level 2
|
Level 3
|
Value
|
|||||||||||||||
|
Available-for-Sale Securities
|
||||||||||||||||||||
|
Mutual Funds - Corporate & Government Debt
|
$
|
17,227
|
|
$
|
17,227
|
|
$
|
—
|
|
$
|
—
|
|
$
|
17,227
|
|
|||||
|
Held-to-Maturity Securities
|
||||||||||||||||||||
|
Bonds: 1-3 years
|
2,073
|
|
—
|
|
2,057
|
|
—
|
|
2,057
|
|
||||||||||
|
Bonds: 3-5 years
|
1,453
|
|
—
|
|
1,438
|
|
—
|
|
1,438
|
|
||||||||||
|
Time deposits: 1-90 days
|
1,496
|
|
—
|
|
1,496
|
|
—
|
|
1,496
|
|
||||||||||
|
Time deposits: 91-360 days
|
4,438
|
|
—
|
|
4,440
|
|
—
|
|
4,440
|
|
||||||||||
|
Time deposits: over 360 days
|
4,990
|
|
—
|
|
4,993
|
|
—
|
|
4,993
|
|
||||||||||
|
Total
|
$
|
31,677
|
|
$
|
17,227
|
|
$
|
14,424
|
|
$
|
—
|
|
$
|
31,651
|
|
|||||
The value of our available-for-sale investments is based on pricing from third party pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs). Our held-to-maturity investments are recorded at amortized costs, as management’s intent is to hold such investments until maturity. The fair value of our held-to-maturity investments with maturities less than 90 days is considered the amortized value; the fair value measurements used for bonds and time deposits with maturities greater than 90 days is considered Level 2 and uses pricing from third party pricing vendors who use quoted prices for identical or similar securities in both active and inactive markets.
(10) Other Comprehensive Income (Loss)
Changes in the balances of each component included in accumulated other comprehensive income (loss) (“accumulated OCI”) for the
three months ended September 30, 2015
, are presented below. The amounts below are pre-tax.
|
(In thousands)
|
Accumulated Other Comprehensive Income (Loss)
|
|||
|
Unrealized Gain in Mutual Fund Investments
|
||||
|
Balance at June 30, 2015
|
$
|
(23
|
)
|
|
|
Current period change in other comprehensive income (loss) before reclassifications
|
(94
|
)
|
||
|
Reclassification to net (loss) income for realized losses
|
6
|
|
||
|
Balance at September 30, 2015
|
$
|
(111
|
)
|
|
(11) Business Risk and Credit Risk Concentration Involving Cash
All of the Company’s revenue during the previous fiscal year came from
one
customer.
The Company maintains funds in bank accounts that may exceed the limit insured by the Federal Deposit Insurance Corporation (“FDIC”) of
$250,000
per depositor. The risk of loss attributable to these uninsured balances is mitigated by depositing funds in what we believe to be high credit quality financial institutions. The Company has not experienced any losses in such accounts.
(12) State of Texas Funding
In March 2010, the Texas Emerging Technology Fund awarded 1
st
Detect
$1.8 million
for the development and marketing of the Miniature Chemical Detector, a portable mass spectrometer designed to provide mass spectrometry analytics in real time for explosive device detection in airports and the battlefield, industrial quality and process control, environmental field applications, and laboratory research. In exchange for the award, 1
st
Detect granted a common stock purchase right and a note payable to the State of Texas. The economic substance of the transaction was that the State of Texas had purchased shares of 1
st
Detect in exchange for the granted award. The note, which was treated economically as purchased shares and reflected in the equity section of the condensed consolidated balance sheet, equaled the disbursements to 1
st
Detect to date and accrued interest at
8%
per year. On August 28, 2014, 1
st
Detect settled the funding and common stock repurchase right with a payment of
$2.3 million
. The Company has accounted for the difference between the
$2.3 million
paid and the
$1.8 million
received as a deemed dividend in its calculation of earnings per share.
13
(13) Common Stock Incentive, Stock Purchase Plans and Other Compensation Plans
Stock Option Activity Summary
The Company’s stock option activity for
three months ended September 30, 2015
was as follows:
|
Shares
(in thousands)
|
Weighted Average
Exercise Price
|
|||||
|
Outstanding at June 30, 2015
|
1,128
|
|
$
|
1.53
|
|
|
|
Granted
|
—
|
|
—
|
|
||
|
Exercised
|
—
|
|
—
|
|
||
|
Canceled or expired
|
(10
|
)
|
0.45
|
|
||
|
Outstanding at September 30, 2015
|
1,118
|
|
$
|
1.54
|
|
|
The aggregate fair value of options exercisable at
September 30, 2015
was
$0.5 million
as the fair value of the Company’s common stock is more than the exercise prices of these options. The aggregate fair value of all options outstanding at
September 30, 2015
was
$0.9 million
.
The table below details the Company’s stock options outstanding as of
September 30, 2015
:
|
Range of exercise prices
|
Number
Outstanding
|
Options
Outstanding
Weighted-
Average
Remaining
Contractual
Life (years)
|
Weighted-
Average
Exercise
Price
|
Number
Exercisable
|
Options
Exercisable
Weighted-
Average
Exercise
Price
|
|||||||||||
|
$0.32 – 0.71
|
438,750
|
|
4.91
|
$
|
0.60
|
|
438,750
|
|
$
|
0.60
|
|
|||||
|
$1.20 – 2.60
|
570,000
|
|
8.10
|
1.94
|
|
282,500
|
|
1.20
|
|
|||||||
|
$3.20 – 3.20
|
109,000
|
|
9.52
|
3.20
|
|
—
|
|
—
|
|
|||||||
|
$0.32 – 3.20
|
1,117,750
|
|
6.57
|
$
|
1.54
|
|
721,250
|
|
$
|
0.83
|
|
|||||
Compensation costs recognized related to stock option awards were
$54 thousand
and
$0
for the
three months ended September 30, 2015
and
2014
, respectively. There were
no
options granted during the
three months ended September 30, 2015
and
2014
.
Restricted Stock
No
restricted stock was granted, vested, canceled, or expired during the
three months ended September 30, 2015
. Stock compensation expense related to restricted stock was
$89 thousand
and
$1 thousand
for the
three months ended September 30, 2015
and
2014
, respectively.
Treasury Stock
On December 12, 2014, the Board of Directors amended the stock repurchase program to allow for the repurchase of up to
$5 million
more treasury shares until December 31, 2015. During the
three months ended September 30, 2015
, the Company repurchased
43 thousand
shares at a cost of
$117 thousand
. As of
September 30, 2015
we have repurchased
1.2 million
shares at a cost of
$2.8 million
. There were
no
stock repurchases during the
three months ended September 30, 2014
.
(14) Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. As of
September 30, 2015
, the Company established a full valuation allowance against all of its net deferred tax assets.
14
To the extent that a loss from continuing operations can be utilized to offset the income otherwise resulting from discontinued operations, it has been recognized as a tax benefit from continuing operations. To the extent that a loss or credit carryover can be utilized to offset the income from discontinued operations, it has been recognized as a tax benefit from discontinued operations.
For the
three months ended September 30, 2015
and
2014
, the Company incurred pre-tax losses from continuing operations in the amount of
$3.5 million
and
$2.6 million
, respectively. The total effective tax rate for continuing operations was approximately
0%
and
51%
for the
three months ended September 30, 2015
and
2014
, respectively.
For the
three months ended September 30, 2015 and 2014
, the Company’s effective tax rate differed from the federal statutory rate of
35%
, primarily due to recording changes to the valuation allowance placed against its net deferred tax assets.
FASB ASC 740, Income Taxes (“FASB ASC 740”) addresses the accounting for uncertainty in income tax recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company has an unrecognized tax benefit of
$0.1 million
for the
three months ended September 30, 2015
and
2014
.
Loss carryovers are generally subject to modification by tax authorities until three years after they have been utilized; as such, the Company is subject to examination for the fiscal years ended 2000 through present for federal purposes and fiscal years ended 2006 through present for state purposes.
(15) Commitments and Contingencies
The Company is subject to various lawsuits and other claims in the normal course of business. In addition, from time to time, the Company receives communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which the Company operates.
The Company establishes reserves for the estimated losses on specific contingent liabilities, for regulatory and legal actions where the Company deems a loss to be probable and the amount of the loss can be reasonably estimated. In other instances, the Company is not able to make a reasonable estimate of liability because of the uncertainties related to the outcome or the amount or range of potential loss.
Litigation, Investigations and Audits
– We are not party to, nor are our properties the subject of, any material pending legal proceedings, other than as set forth below:
Astrotech was previously named as a party to a suit filed in the Circuit Court of the Eighteenth Judicial Circuit for Brevard County, Florida. This is an action for foreclosure of certain real estate and for debt. The Company was named as a party because it held an inferior lien against the property at issue and had to be named in the foreclosure action. No monetary relief was requested from Astrotech. In July 2014, the Company received a lump sum payment of
$50 thousand
, less legal fees, along with a release of liability in exchange for a release of its inferior mortgage. In October 2014, the underlying lawsuit was voluntarily dismissed and the case was closed.
15
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. Forward-looking statements may include the words “may,” “will,” “plans,” “believes,” “estimates,” “expects,” “intends,” and other similar expressions. Such statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in the statements. Such risks and uncertainties include, but are not limited to:
|
•
|
The effect of economic conditions in the United States or other nations that could impact our ability to sell our products and services or gain customers;
|
|
•
|
Our ability to raise sufficient capital to meet our long and short-term liquidity requirements;
|
|
•
|
Our ability to successfully pursue our business plan and execute our strategy;
|
|
•
|
Whether we will fully realize the economic benefits under our customer contracts;
|
|
•
|
Technological difficulties and potential legal claims arising from any technological difficulties;
|
|
•
|
Product demand and market acceptance risks, including our ability to develop and sell products and services to be used by governmental or commercial customers;
|
|
•
|
Uncertainty in government funding and support for key programs, grant opportunities, or procurements;
|
|
•
|
The impact of competition on our ability to win new contracts;
|
|
•
|
Delays in the timing of performance under our contracts; and
|
|
•
|
Our ability to meet technological development milestones and overcome development challenges.
|
Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate, therefore we cannot assure you that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in our forward-looking statements, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Some of these and other risks and uncertainties that could cause actual results to differ materially from such forward-looking statements are more fully described in our
2015
Annual Report on Form 10-K, elsewhere in this Quarterly Report on Form 10-Q, or in the documents incorporated by reference herein. Except as may be required by applicable law, we undertake no obligation to publicly update or advise of any change in any forward-looking statement, whether as a result of new information, future events, or otherwise. In making these statements, we disclaim any obligation to address or update each factor in future filings with the Securities and Exchange Commission (“SEC”) or communications regarding our business or results, and we do not undertake to address how any of these factors may have caused changes to discussions or information contained in previous filings or communications. In addition, any of the matters discussed above may have affected our past results and may affect future results, so that our actual results may differ materially from those expressed in this Quarterly Report on Form 10-Q and in prior or subsequent communications.
16
The following information should be read in conjunction with the unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Report.
Business Overview
Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” “the Company,” “we,” “us,” or “our”), a Washington corporation organized in 1984, is an Austin, Texas based holding company that leverages management’s entrepreneurial expertise in turnarounds, start-ups, and mergers and acquisitions to commercialize emerging disruptive technologies through its closely held subsidiaries with a focus on adding value for our shareholders.
With the sale of the Company’s former Astrotech Space Operations (“ASO”) business, the Company now operates a single reportable business unit, Astro Scientific (formerly known as Spacetech), and its efforts are focused on the following:
|
•
|
Working with customers and development partners to satisfy application specific chemical detection objectives using our advanced chemical analyzers;
|
|
•
|
Extending our intellectual property portfolio by enhancing and refining our chemical analyzer technology;
|
|
•
|
Enabling film restoration, enhancement, and digitization using an automated process that revives the original color and removes dust, scratches, and defects from film to restore it to its original condition;
|
|
•
|
Facilitating the shift from 2K resolution to ultra-high definition (“UHD”), high-dynamic range (“HDR”) 4K resolution, the format in which the next generation of digital video content will be distributed to the home; and
|
|
•
|
Developing next generation vaccines using the unique environment of microgravity.
|
Astro Scientific
Astro Scientific is a technology incubator designed to commercialize emerging disruptive technologies. Astro Scientific is currently pursuing three distinct opportunities:
1
st
Detect
1
st
Detect develops, manufactures, and sells chemical analyzers that streamline processes for industrial use in the food and beverage, semiconductor, pharmaceutical, research, and environmental markets as well as for government applications used in explosive and chemical warfare detection for the Department of Homeland Security and the military. Our chemical analyzers can identify chemicals with more accuracy and precision than competing analyzers given their extreme sensitivity and specificity. By leveraging technology initiated by an engagement with the National Aeronautics and Space Administration (“NASA”) to develop a mass spectrometer for the International Space Station, the Company has developed a series of analyzers that enable real time analytics that we believe to be significantly smaller, lighter, faster, and less expensive than competing analyzers.
Our efforts have resulted in a technology that has been or will be deployed in the following areas:
|
•
|
Explosive device detection in airports - we believe our analyzers have at least 100 times the specificity of the current generation of screening devices, meaning significantly fewer false alarms and a higher probability of threat detection. Our solution also has better resolution, translating into the detection of a broader range of compounds, which allows us to see not only traditional explosives, but also homemade and improvised explosives, which has proved challenging for the current technology.
|
|
•
|
Military - our technology is extremely sensitive, so we believe we can detect chemical warfare agents in much lower concentrations than incumbent technologies. The high level of specificity of our instrumentation not only improves detection of traditional threats, but also detects next generation chemical agents not easily detectable by current instrumentation. We expect that our products will be used to verify decontamination of previously contaminated sites, to positively identify a suspect compound following an alarm on a less sophisticated instrument, and to evaluate a blast site for the type of explosive used.
|
|
•
|
Industrial process controls - we are enabling cost effective real-time in-situ analysis for the first time. While competing technologies can alarm when there is an anomaly in a process, our technology can provide production or line managers real-time insights about those deviations to enable quicker decisions.
|
17
|
•
|
Food and beverage - we are also enabling cost effective real-time in-situ analysis for what we believe to be the first time in the food and beverage industry. Not only does our instrumentation provide a full set of information to more thoroughly analyze results when there is a deviation in quality, but we provide objectivity that is not possible with human taste testers.
|
|
•
|
Semiconductor - our products can easily detect excursion events. Most incumbent technologies are tuned to actively look for a particular known potential contaminant. Rather than being limited to one or a small set of potential contaminants, our instrument can warn of virtually any potential contaminant, often exposing excursions that would have otherwise gone undetected, making our product a much more robust solution.
|
|
•
|
Oil and gas - given the sensitivity and speed of our technology, we believe we can detect smaller leaks in a pipeline sooner than the competition and we can more completely characterize production and potential production.
|
|
•
|
Laboratory research - we believe our products are significantly less expensive than the competition and have a minimal footprint, making our products a great solution for entities with limited funding and counter space.
|
|
•
|
Petrochemical and refining - our products are able to provide real-time information upon which automated or human decisions may be made regarding product quality, efficiency of production, and feedstock performance.
|
Our product portfolio currently consists of the following products:
|
•
|
MMS-1000™ - the MMS-1000™ is a small, low power desktop mass spectrometer designed for the laboratory market. The unique design of this unit enables fast, quality chemical analysis, requires minimal benchtop space (about the size of a shoebox), requires less power than a typical light bulb, and unlike traditional instruments, requires no consumables or special infrastructure.
|
|
•
|
OEM-1000 - the OEM-1000 is an original equipment manufacturer (“OEM”) component that drives the MMS-1000™. It is designed to be integrated into customers’ specific packaging and enclosures and is well suited to be integrated with application specific sampling or separation technology. A variant, the OEM-1000PI has recently been integrated into a Thermogravimetric Analyzer (“TGA”) manufactured by RIGAKU Corp. of Tokyo, Japan, one of the leading instrumentation companies in Asia. The integrated instrument named Thermo iMS2 is the world’s first integrated TGA with tandem mass spectrometry (“MS/MS”) capabilities and is expected to be well received by the international research and development markets. A further variant of the OEM-1000 has been selected by Battelle, a leading supplier of military chemical detection equipment, for integration into the Next Generation Chemical Detector (“NGCD”), a program under development by the Department of Defense’s Joint Program Executive for Chemical and Biological Defense.
|
|
•
|
iONTRAC - the iONTRAC is a process analyzer utilizing an enhanced version of our core mass spectrometer technology, which includes the addition and integration of gas chromatography and continuous 24/7 operational features. The iONTRAC provides real-time in-situ monitoring of industrial processes and we are targeting customers in petrochemical processing, food and beverage manufacturing, critical infrastructure protection, and semiconductor clean-room environmental monitoring. The instrument is designed to autonomously monitor processes and to provide reports using industry standard factory management system (“FMS”) infrastructure.
|
Astrogenetix
Astrogenetix is a biotechnology company that is applying a fast-track on-orbit discovery platform using the International Space Station to develop vaccines and other therapeutics. NASA has engaged the Center for Vaccine Development at the University of Maryland, one of the leading vaccinology institutions in the world, to aid in the filing of an Investigational New Drug (“IND”) application for Salmonella. NASA is providing much of the necessary funding for this research, meaning little investment is required of Astrogenetix as efforts are concentrated on filing the IND. We have negotiated a Space Act Agreement with NASA for a minimum of twenty-eight additional space flights following the successful filing of the IND for Salmonella.
Astral Images
Astral Images, Inc. (“Astral”) was created to commercialize decades of image research from the laboratories of IBM and Kodak combined with classified satellite technology from government laboratories. Astral sells film-to-digital image enhancement, defect removal and color correction software, and post processing services providing economically feasible conversion of television and feature 35mm and 16mm films to the new 4K UHD HDR format necessary for the new generation of digital distribution. Due to a significant shift in the film scanning industry, most film assets will need to go through an upgrade to 4K to remain relevant for over-to-top distribution as television manufacturers sell more 4K televisions and consumer demand for such content accelerates.
18
Astral is positioned to be a leader in digital conversion and repair of feature films, film based television series, sporting events shot on film, film libraries, film archives, and consumer media.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. 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. Estimates and assumptions are reviewed periodically. Actual results may differ from these estimates under different assumptions or conditions.
Management believes there have been no significant changes during the three months ended
September 30, 2015
to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our
2015
Annual Report on Form 10-K.
Results of Operations
Selected consolidated financial data for the quarter ended
September 30, 2015
and
2014
is as follows (in thousands):
|
|
Quarter Ended September 30,
|
|||||||
|
|
2015
|
2014
|
||||||
|
Revenue
|
$
|
—
|
|
$
|
320
|
|
||
|
Cost of revenue
|
—
|
|
277
|
|
||||
|
Gross profit
|
—
|
|
43
|
|
||||
|
Gross margin
|
—
|
%
|
13
|
%
|
||||
|
Selling, general and administrative
|
2,286
|
|
1,960
|
|
||||
|
Research and development
|
1,264
|
|
692
|
|
||||
|
Operating expenses
|
3,550
|
|
2,652
|
|
||||
|
Loss from operations
|
(3,550
|
)
|
(2,609
|
)
|
||||
|
Other income, net
|
99
|
|
12
|
|
||||
|
Income tax (expense) benefit
|
(2
|
)
|
1,325
|
|
||||
|
Loss from continuing operations
|
(3,453
|
)
|
(1,272
|
)
|
||||
|
Discontinued operations
|
|
|
|
|
||||
|
Income from discontinued operations
|
—
|
|
1,303
|
|
||||
|
Income tax (expense)
|
—
|
|
(2,378
|
)
|
||||
|
Gain on sale of discontinued operations
|
—
|
|
25,630
|
|
||||
|
Income from discontinued operations
|
—
|
|
24,555
|
|
||||
|
Net (loss) income
|
(3,453
|
)
|
23,283
|
|
||||
|
Less: Net loss attributable to noncontrolling interest
|
(89
|
)
|
—
|
|
||||
|
Net (loss) income attributable to Astrotech Corporation
|
$
|
(3,364
|
)
|
$
|
23,283
|
|
||
Revenue
– Total revenue
decreased
$320 thousand
, or
100%
, during the
first
quarter of fiscal
2016
, compared to the
first
quarter of fiscal
2015
. During the
first
quarter of fiscal
2016
, we had no revenue as research-based milestones associated with unit sales continue to be booked as an offset of R&D expense. In the prior year, we had revenue of
$320 thousand
associated with the first phase of a new subcontract agreement with a third party on the NGCD program.
Gross Profit
– Gross profit
decreased
$43 thousand
, or
100%
, during the
first
quarter of fiscal
2016
compared to the
first
quarter of fiscal
2015
due to the decrease in revenue as described above. Also during the
first
quarter of fiscal
2016
, cost of revenues
decreased
to no cost of revenues from
$277 thousand
in the
first
quarter of fiscal
2015
.
Operating Expenses
– Our operating expenses
increased
$898 thousand
, or
34%
, during the
first
quarter of fiscal
2016
compared to the
first
quarter of fiscal
2015
. Significant changes to operating expenses included the following:
19
|
•
|
Selling, general and administrative expense
increased
by
$326 thousand
, or
17%
, primarily driven by additional headcount during the quarter.
|
|
•
|
Research and development expense
increased
$572 thousand
, or
83%
, primarily driven by additional headcount during the quarter.
|
Income Taxes on Continuing Operations
– Our income tax benefit
decreased
$1.3 million
, or
100%
, due to the allocation method of taxes between continuing and discontinued operations in the prior fiscal year.
Discontinued Operations
– Discontinued operations includes the reclassification of operations of the Company’s former ASO business unit for the three months ended
September 30, 2014
. There was no activity in discontinued operations for the three months ended
September 30, 2015
.
Liquidity and Capital Resources
The following is a summary of the change in our cash and cash equivalents (in thousands):
|
|
Three Months Ended
September 30, |
|||||||||||
|
|
2015
|
2014
|
change
|
|||||||||
|
Cash flows from continuing operations:
|
|
|
|
|
|
|
||||||
|
Net cash used in operating activities
|
$
|
(4,338
|
)
|
$
|
(1,749
|
)
|
$
|
(2,589
|
)
|
|||
|
Net cash provided by (used in) investing activities
|
3,481
|
|
(46
|
)
|
3,527
|
|
||||||
|
Net cash used in financing activities
|
(117
|
)
|
(2,331
|
)
|
2,214
|
|
||||||
|
Net cash used in continuing operations
|
(974
|
)
|
(4,126
|
)
|
3,152
|
|
||||||
|
Cash flows from discontinued operations:
|
|
|
|
|
|
|
||||||
|
Net cash used in operating activities
|
—
|
|
(1,370
|
)
|
1,370
|
|
||||||
|
Net cash provided by investing activities
|
—
|
|
52,591
|
|
(52,591
|
)
|
||||||
|
Net cash used in financing activities
|
—
|
|
(5,655
|
)
|
5,655
|
|
||||||
|
Net cash provided by discontinued operations
|
—
|
|
45,566
|
|
(45,566
|
)
|
||||||
|
Net change in cash and cash equivalents
|
$
|
(974
|
)
|
$
|
41,440
|
|
$
|
(42,414
|
)
|
|||
Cash and Cash Equivalents and Short-Term Investments
As of
September 30, 2015
, we held cash and cash equivalents and short-term investments of
$22.5 million
, and our working capital was approximately
$28.5 million
. As of
June 30, 2015
, we had cash and cash equivalents and short-term investments of
$25.5 million
and our working capital was approximately
$30.2 million
. Cash and cash equivalents and short-term investments decreased by approximately
$2.9 million
as of
September 30, 2015
, as compared to
June 30, 2015
, due to normal operating activity.
Operating Activities
Net cash used in operating activities from continuing operations increased to
$4.3 million
for the
three months ended September 30, 2015
, compared to
$1.7 million
for the
three months ended September 30, 2014
, which was primarily the result of increased losses from operations of
$2.2 million
and increase in income tax payable of
$1.2 million
, partially offset by
$0.6
million change in accounts payable and
$0.2 million
change in accounts receivable.
Investing Activities
Cash provided by investing activities from continuing operations increased
$3.5 million
for the
three months ended September 30, 2015
, compared to the
three months ended September 30, 2014
. Cash from the sale and maturity of investments has been used to fund continuing operations.
20
Financing Activities
Cash used in financing activities from continuing operations decreased
$2.2 million
for the
three months ended September 30, 2015
, compared to the
three months ended September 30, 2014
. The decrease was due to the payoff of equity funding from the State of Texas Emerging Technology Fund for $2.3 million during the
three months ended September 30, 2014
. This was partially offset by the
$0.1 million
used for shares that the Company repurchased during the
three months ended September 30, 2015
.
Discontinued Operations
There was no cash provided by or used in operating activities from discontinued operations during the
three months ended September 30, 2015
, compared to net cash used in operating activities from discontinued operations of
$1.4 million
for the
three months ended September 30, 2014
. The change was related to the sale of our former ASO business unit during the prior fiscal year.
There was no cash provided by or used in investing activities from discontinued operations during the
three months ended September 30, 2015
, compared to net cash used in investing activities from discontinued operations of
$52.6 million
for the
three months ended September 30, 2014
, which was due to the sale of our former ASO business.
There was no cash provided by or used in financing activities from discontinued operations during the
three months ended September 30, 2015
, compared to net cash used in financing activities from discontinued operations of
$5.7 million
for the
three months ended September 30, 2014
. This decrease was related to the payoff of our term loan that was secured by the assets of our former ASO business unit, following the sale of the ASO business.
Liquidity
As of
September 30, 2015
, we had cash and cash equivalents and short-term investments of
$22.5 million
and our working capital was approximately
$28.5 million
, which includes an indemnity cash holdback receivable of
$6.1 million
being held in escrow as part of the sale of our ASO business. The indemnity cash holdback, or portion thereof, may be received in February 2016 subject to certain conditions in the asset purchase agreement entered into in connection with the sale of the ASO business.
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 capabilities, costs associated with strategic acquisitions including integration costs and assumed liabilities, and the status of competitive products and potential cost associated with both protecting and defending our intellectual property. In addition, actions taken as a result of the ongoing internal evaluation of our business could result in expenditures not currently contemplated in our estimates for
2016
. 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 believe we have sufficient liquidity to continue to fund our operating expenses, capital requirements, and other expected liquidity requirements over the next fiscal year.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. As of
September 30, 2015
, the Company has established a full valuation allowance against all of its net deferred tax assets.
To the extent that a loss from continuing operations can be utilized to offset the income otherwise resulting from discontinued operations, it has been recognized as a tax benefit from continuing operations. To the extent that a loss or credit carryover can be utilized to offset the income from discontinued operations, it has been recognized as a tax benefit from discontinued operations.
For the
three months ended September 30, 2015
and
2014
, the Company incurred pre-tax losses from continuing operations in the amount of
$3.5 million
and
$2.6 million
, respectively. The total effective tax rate for continuing operations was approximately
0%
and
51%
for the
three months ended September 30, 2015
and
2014
, respectively.
For the
three months ended September 30, 2015 and 2014
, the Company’s effective tax rate differed from the federal statutory rate of
35%
, primarily due to recording changes to the valuation allowance placed against its net deferred tax assets.
21
FASB ASC 740, Income Taxes (“FASB ASC 740”) addresses the accounting for uncertainty in income tax recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company has an unrecognized tax benefit of
$0.1 million
for the
three months ended September 30, 2015
and
2014
.
Loss carryovers are generally subject to modification by tax authorities until three years after they have been utilized; as such, the Company is subject to examination for the fiscal years ended 2000 through present for federal purposes and fiscal years ended 2006 through present for state purposes.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of
September 30, 2015
.
22
Not applicable to smaller reporting companies.
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report. Based on the evaluation and criteria of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) during the quarter ended
September 30, 2015
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
23
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
September 30, 2015
, 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.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this Item.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers (amounts in thousands of dollars, except share data and per share amounts).
On December 16, 2014, we announced a share repurchase program pursuant to which our Board of Directors authorized the repurchase of up to
$5 million
of our outstanding common stock shares. As of
September 30, 2015
, we had repurchased approximately
$0.5 million
worth of Astrotech Corporation common stock as part of the current share buyback program. To date, we have approximately
$2.8 million
worth of Astrotech stock in treasury stock.
The following table identifies all repurchases during the
three months ended September 30, 2015
.
|
Fiscal Month
|
Total Number of Shares Purchased
|
Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
|
||||||||||
|
July 1, 2015 through September 30, 2015
|
43,300
|
|
$
|
2.69
|
|
43,300
|
|
$
|
4,508,325
|
|
||||
|
Total
|
43,300
|
|
$
|
2.69
|
|
43,300
|
|
|||||||
Not applicable.
Not applicable.
Not applicable.
24
The following exhibits are filed herewith:
|
Exhibit No.
|
|
Description
|
Incorporation by Reference
|
||
|
|
|
|
|||
|
3.1
|
|
Amended and Restated Bylaws of Astrotech Corporation
|
Filed herewith.
|
||
|
4.1
|
|
Astrotech Corporation amended and restated 2008 Stock Incentive Plan
|
Incorporated by reference from the Company’s Form 8-K filed on August 11, 2015.
|
||
|
31.1
|
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
|
Filed herewith.
|
|
|
|
|
|
|
||
|
31.2
|
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
|
Filed herewith.
|
|
|
|
|
|
|
||
|
32.1
|
|
|
Certification pursuant to Rule 13a-14(b) of the Securities and Exchange Act of 1934.
|
Filed herewith.
|
|
|
|
|
|
|
||
|
101
|
|
|
The following financial information from the Company’s Quarterly Report on Form 10-Q, for the period ended September 30, 2015, formatted in eXtensible Business Reporting Language: (i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Operations, (iii) Unaudited Condensed Consolidated Statements of Cash Flows, (iv) Notes to Unaudited Condensed Consolidated Financial Statements.
(1)
|
Filed herewith.
|
|
(1) Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
Astrotech Corporation
|
|
|
|
|
|
|
|
Date: November 10, 2015
|
|
/s/ Eric Stober
|
|
|
|
|
Eric Stober
|
|
|
|
|
Chief Financial Officer
|
|
25
TABLE OF CONTENTS
Part I: Financial InformationItem 1. Condensed Consolidated Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart Ii: Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosureItem 5. Other InformationItem 6. Exhibits