SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2018
or
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission file number 001-34426
Astrotech Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware |
|
91-1273737 |
State or Other Jurisdiction of Incorporation or Organization |
|
I.R.S. Employer Identification No. |
|
|
|
201 West 5th Street, Suite 1275, Austin, Texas |
|
78701 |
Address of Principal Executive Offices |
|
Zip Code |
(512) 485-9530
Registrant’s Telephone Number, Including Area Code
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
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 ☑ 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 ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☐ |
Non-accelerated filer |
|
☐ (Do not check if a smaller reporting company) |
|
Smaller reporting company |
|
☑ |
Emerging growth company |
|
☐ |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
APPLICABLE ONLY TO CORPORATE ISSUERS
As of May 7, 2018, the number of shares of the registrant’s common stock outstanding was: 4,113,068.
ASTROTECH CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
|
|
|
|
Page |
|
|
3 |
||
|
|
|
|
|
|
|
3 |
||
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|
18 |
|
|
|
24 |
||
|
|
24 |
||
|
|
|
|
|
|
|
25 |
||
|
|
|
|
|
|
|
25 |
||
|
|
25 |
||
|
|
31 |
||
|
|
31 |
||
|
|
31 |
||
|
|
31 |
||
|
|
32 |
ITEM 1. Condensed Consolidated Financial Statements
ASTROTECH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
|
|
March 31, 2018 |
|
|
June 30, 2017 |
|
||
Assets |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
633 |
|
|
$ |
2,184 |
|
Short-term investments |
|
|
5,647 |
|
|
|
10,900 |
|
Accounts receivable, net of allowance |
|
|
4 |
|
|
|
146 |
|
Inventory, net |
|
|
9 |
|
|
|
166 |
|
Prepaid expenses and other current assets |
|
|
269 |
|
|
|
269 |
|
Total current assets |
|
|
6,562 |
|
|
|
13,665 |
|
Property and equipment, net |
|
|
2,618 |
|
|
|
3,180 |
|
Long-term investments |
|
|
50 |
|
|
|
1,990 |
|
Other assets, net |
|
|
81 |
|
|
|
— |
|
Total assets |
|
$ |
9,311 |
|
|
$ |
18,835 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
124 |
|
|
$ |
259 |
|
Payroll related accruals |
|
|
398 |
|
|
|
907 |
|
Accrued liabilities and other |
|
|
406 |
|
|
|
641 |
|
Income tax payable |
|
|
2 |
|
|
|
2 |
|
Total current liabilities |
|
|
930 |
|
|
|
1,809 |
|
Other liabilities |
|
|
216 |
|
|
|
256 |
|
Total liabilities |
|
|
1,146 |
|
|
|
2,065 |
|
Commitments and contingencies (Note 13) |
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
Preferred stock, no par value, convertible, 2,500,000 shares authorized, no shares issued and outstanding, at March 31, 2018 and June 30, 2017, respectively |
|
|
— |
|
|
|
— |
|
Common stock, no par value, 15,000,000 shares authorized; 4,505,473 and 4,508,509 shares issued at March 31, 2018 and June 30, 2017, respectively; 4,107,538 and 4,111,281 shares outstanding at March 31, 2018 and June 30, 2017, respectively |
|
|
190,544 |
|
|
|
190,382 |
|
Treasury stock, 397,935 and 397,228 shares at cost at March 31, 2018 and June 30, 2017, respectively |
|
|
(4,124 |
) |
|
|
(4,121 |
) |
Additional paid-in capital |
|
|
1,708 |
|
|
|
1,483 |
|
Accumulated deficit |
|
|
(179,911 |
) |
|
|
(170,913 |
) |
Accumulated other comprehensive loss |
|
|
(52 |
) |
|
|
(61 |
) |
Total stockholders’ equity |
|
|
8,165 |
|
|
|
16,770 |
|
Total liabilities and stockholders’ equity |
|
$ |
9,311 |
|
|
$ |
18,835 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
ASTROTECH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share data)
(Unaudited)
|
|
Three Months Ended March 31, |
|
|
Nine Months Ended March 31, |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Revenue |
|
$ |
— |
|
|
$ |
411 |
|
|
$ |
41 |
|
|
$ |
1,937 |
|
Cost of revenue |
|
|
— |
|
|
|
161 |
|
|
|
24 |
|
|
|
1,211 |
|
Gross profit |
|
|
— |
|
|
|
250 |
|
|
|
17 |
|
|
|
726 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
1,363 |
|
|
|
1,633 |
|
|
|
4,397 |
|
|
|
5,817 |
|
Research and development |
|
|
1,495 |
|
|
|
1,561 |
|
|
|
4,721 |
|
|
|
4,107 |
|
Total operating expenses |
|
|
2,858 |
|
|
|
3,194 |
|
|
|
9,118 |
|
|
|
9,924 |
|
Loss from operations |
|
|
(2,858 |
) |
|
|
(2,944 |
) |
|
|
(9,101 |
) |
|
|
(9,198 |
) |
Interest and other income, net |
|
|
3 |
|
|
|
99 |
|
|
|
103 |
|
|
|
232 |
|
Loss before income taxes |
|
|
(2,855 |
) |
|
|
(2,845 |
) |
|
|
(8,998 |
) |
|
|
(8,966 |
) |
Income tax benefit |
|
|
— |
|
|
|
(2 |
) |
|
|
— |
|
|
|
(2 |
) |
Net loss |
|
|
(2,855 |
) |
|
|
(2,847 |
) |
|
|
(8,998 |
) |
|
|
(8,968 |
) |
Less: Net loss attributable to noncontrolling interest |
|
|
— |
|
|
|
(47 |
) |
|
|
— |
|
|
|
(150 |
) |
Net loss attributable to Astrotech Corporation |
|
$ |
(2,855 |
) |
|
$ |
(2,800 |
) |
|
$ |
(8,998 |
) |
|
$ |
(8,818 |
) |
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
4,060 |
|
|
|
4,033 |
|
|
|
4,059 |
|
|
|
4,095 |
|
Basic and diluted net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Astrotech Corporation |
|
$ |
(0.70 |
) |
|
$ |
(0.69 |
) |
|
$ |
(2.22 |
) |
|
$ |
(2.15 |
) |
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Astrotech Corporation |
|
$ |
(2,855 |
) |
|
$ |
(2,800 |
) |
|
$ |
(8,998 |
) |
|
$ |
(8,818 |
) |
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (loss) gain |
|
|
(32 |
) |
|
|
18 |
|
|
|
(67 |
) |
|
|
(21 |
) |
Reclassification adjustment for realized loss |
|
|
42 |
|
|
|
— |
|
|
|
76 |
|
|
|
60 |
|
Total comprehensive loss |
|
$ |
(2,845 |
) |
|
$ |
(2,782 |
) |
|
$ |
(8,989 |
) |
|
$ |
(8,779 |
) |
See accompanying notes to unaudited condensed consolidated financial statements.
4
ASTROTECH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
Nine Months Ended March 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(8,998 |
) |
|
$ |
(8,968 |
) |
Adjustments to reconcile net loss from operations to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
387 |
|
|
|
1,035 |
|
Amortization |
|
|
19 |
|
|
|
25 |
|
Depreciation |
|
|
576 |
|
|
|
524 |
|
Net loss on sale of available-for-sale investments |
|
|
76 |
|
|
|
60 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
142 |
|
|
|
(27 |
) |
Cost, estimated earnings and billings, net on uncompleted contracts |
|
|
— |
|
|
|
451 |
|
Accounts payable |
|
|
(135 |
) |
|
|
36 |
|
Other assets and liabilities |
|
|
(708 |
) |
|
|
407 |
|
Net cash used in operating activities |
|
|
(8,641 |
) |
|
|
(6,457 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Sale of available-for-sale investments |
|
|
5,458 |
|
|
|
3,744 |
|
Maturities of available-for-sale securities |
|
|
1,649 |
|
|
|
4,536 |
|
Purchases of property and equipment |
|
|
(14 |
) |
|
|
(486 |
) |
Net cash provided by investing activities |
|
|
7,093 |
|
|
|
7,794 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Payments for purchase of treasury stock |
|
|
(3 |
) |
|
|
(1,283 |
) |
Net cash used in financing activities |
|
|
(3 |
) |
|
|
(1,283 |
) |
Net change in cash and cash equivalents |
|
|
(1,551 |
) |
|
|
54 |
|
Cash and cash equivalents at beginning of period |
|
|
2,184 |
|
|
|
4,399 |
|
Cash and cash equivalents at end of period |
|
$ |
633 |
|
|
$ |
4,453 |
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
— |
|
|
$ |
— |
|
Income taxes paid |
|
$ |
— |
|
|
$ |
— |
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
ASTROTECH CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Description of the Company – Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” “the Company,” “we,” “us” or “our”), a Delaware corporation organized in 1984, is an innovative science and technology development and commercialization company that invents, acquires, and commercializes technological innovations sourced from internal research, universities, laboratories, and research institutions, and then funds, manages, and builds start-up companies for profitable divestiture to market leaders to maximize shareholder value.
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. 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 nine months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending June 30, 2018. 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, 2017. On Monday, October 16, 2017, the Company effectuated a reverse stock split of its shares of Common Stock whereby every five (5) pre-split shares of Common Stock were exchanged for one (1) post-split share of the Company's Common Stock (“Reverse Stock Split”). No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who would otherwise have held a fractional share of the Common Stock received a cash payment in lieu thereof. Numbers presented in these financial statements have been adjusted to reflect the Reverse Stock Split.
Accounting Pronouncements – In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, Revenue Recognition (as updated by ASU 2015-14 in August 2015, ASU 2016-08 in March 2016, and ASU 2016-20 in December 2016). The core principle of ASU 2014-09 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 2014-09 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 2014-09 was to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. ASU 2015-14 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 2014-09 is permitted. Once implemented, the Company can use one of two retrospective application methods for prior periods. Earlier application is not permitted.
The Company has been assessing the impact of the new revenue recognition standard on its relationships with its clients. We have hired an outside consultant to help with the adoption of this standard. The Company will evaluate each contract as it commences in order to ensure its compliance with the new revenue standard. The Company will adopt this standard in fiscal year 2019.
The Company has not yet determined the impacts of all the disclosure requirements and specifically is assessing the manner in which it will disaggregate its revenue to illustrate how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Additionally, while the Company is in the process of assessing its accounting and forecasting processes to ensure its ability to record, report, forecast, and analyze results under the new standard, it is not expecting significant changes to its business processes or systems.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under ASC 820, “Fair Value Measurements,” and as such these investments may be measured at cost. ASU 2016-01 will be effective for the Company’s fiscal year beginning July 1, 2018, and subsequent interim periods. The adoption of ASU 2016-01 is not expected to have an impact on the Company’s financial statements. The Company will adopt this ASU in fiscal year 2019.
6
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is assessing the impact the adoption of ASU 2016-02 will have on its financial statements and plans to adopt this ASU in fiscal year 2019.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current generally accepted accounting standards, and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current generally accepted accounting standards; however, ASU 2016-13 will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. This amendment affects loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of this standard will have on its financial statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance is expected to reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as a modification. Changes to the terms or conditions of a share-based payment award that do not impact the fair value of the award, vesting conditions, and the classification as an equity or liability instrument will not need to be assessed under modification accounting. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. Accordingly, the adoption of ASU 2017-09 will not have an effect on the Company's historical financial statements. The Company is currently evaluating the effect of this standard on future consolidated financial statements.
Our Business Units
Astro Scientific
Astro Scientific is a technology incubator that commercializes innovative technologies. Subsidiaries 1st Detect Corporation (“1st Detect”) and Astrogenetix, Inc. (“Astrogenetix”) currently reside in Astro Scientific:
1st Detect - 1st Detect is a manufacturer of advanced chemical detection technology that detects and identifies trace amounts of explosives and narcotics. The Company offers technology that outperforms currently deployed competitive trace detection solutions by offering:
|
• |
A higher probability of detection with a near-zero false alarm rate |
|
• |
A considerably expanded library of explosives, narcotics, and other compounds of interest |
|
• |
A target library that can be instantaneously updated or expanded in the field without requiring hardware configuration changes |
|
• |
Improved throughput at security or inspection checkpoints |
|
• |
Competitive pricing to current solutions |
7
Our efforts have resulted in a platform technology that has many diverse market opportunities, with the initial focus remaining on the explosives trace detection (“ETD”) market where ion mobility spectrometers (“IMS”) are currently the leading technology. With 25,000 IMS instruments installed in the field, most are nearing their end of life. We believe these IMS systems have many shortcomings - most notably their limited library of detectable compounds, inability to adapt quickly to emerging threats, limited probability of detection, and significant false positive rates that extend security or inspection checkpoint wait times.
As the current generation of IMS technology is replaced, we are positioning the Company to be the best next-generation solution for this market. Following a successful demo of our technology to U.S. Department of Homeland Security (“DHS”) and Transportation Security Administration (“TSA”) personnel in late 2017, we recently announced that the TRACER 1000 has entered in the Developmental Testing and Evaluation (“DT&E”) process at the DHS’s Transportation Security Laboratory (“TSL”). Successful completion and passing of the DT&E phase would lead to TSL Certification – a significant endorsement that foreign governments and other U.S. government agencies consider when procuring ETDs. Certification is also a major step towards being listed on the TSA’s Qualified Products List (“QPL”), and subsequently being deployed in airports throughout the U.S. In addition, we also recently announced that the TRACER 1000 has been accepted into the TSA’s Air Cargo Screening Technology Qualification Test (“ACSQT”) program, representing a major step toward inclusion on TSA’s exclusive Air Cargo Screening Technology List (“ACSTL”) and having the TRACER 1000 deployed at airports and cargo facilities worldwide to screen both checked luggage and other air cargo. It has been designed to enable air carriers, freight forwarders, shippers, and independent cargo facilities to stay ahead of evolving threats while optimizing cargo throughput.
Astrogenetix - Astrogenetix is applying a fast-track, on-orbit discovery platform using the International Space Station to develop vaccines. The Center for Vaccine Development at the University of Maryland (“UMD”), one of the leading vaccinology institutions in the world, independently validated our target vaccine for Salmonella through funding provided by NASA. We are currently looking for funding to finance the pursuit of an Investigational New Drug (“IND”) application with the U.S. Food and Drug Administration (“FDA”).
Astral Images Corporation
Astral Images - Astral Images Corporation (“Astral”) is a developer of advanced film restoration and enhancement software. The Company offers significant cost savings to content owners who traditionally employ a laborious, inconsistent, and expensive manual frame-by-frame restoration process. At 24 frames-per-second, a full-length movie can easily have in excess of 200,000 frames, making manual conversion prohibitively expensive in some instances. Movie studios are at the precipice of a large shift to 4K and/or high dynamic range (“HDR”) (collectively known as ultra-high definition (“UHD”)) content, and therefore, film assets will need to be rescanned and restored in order to remain relevant in the next generation of video content distribution through over the top (“OTT”) providers such as Netflix, Amazon Prime, and Hulu. Astral is positioned to lead this shift using its powerful artificial intelligence (“AI”)-driven algorithms that remove dust, scratches, and defects from film while converting the content to a digital format with significantly enhanced resolution. In addition, the intelligent software automatically restores the film’s original color, optimizing the content to be viewed in 4K. Coupled with Astral’s HDR technology, which maximizes the contrast ratio, or the difference in light intensity from the darkest blacks and brightest whites, and a significantly expanded color gamut (1.06 billion available colors instead of 16 million), Astral’s technology yields a result that is optimized for today’s most state of the art televisions.
This same technology is being applied to film held at film archives and museums with significant film collections throughout the world. This market is less driven by optimizing content for the latest standards and more concerned with preserving their treasured film assets. Film degrades over time, colors fade, buckling occurs, the film becomes brittle and eventually turns to dust, and in some cases, it becomes combustible. Astral provides an ideal solution for such entities as they tend to be more cost conscious than film studios, and Astral’s automated process is much less expensive than their alternative – manual restoration.
Financial Condition
The Company’s consolidated financial statements for the three and nine months ended March 31, 2018 have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of March 31, 2018, the Company has working capital of $5.6 million. The Company reported a net loss of $11.6 million for the fiscal year 2017 and a net loss of $9.0 million for the nine months ended March 31, 2018, along with net cash used in operating activities of $8.8 million for the fiscal year 2017 and net cash used in operating activities of $8.6 million for the nine months ended March 31, 2018. This raises substantial doubt about the Company’s ability to continue as a going concern, but the Company remains resolute in identifying the optimal solution to its liquidity issue.
Management’s Plans to Continue as a Going Concern
8
Management continues to pursue many options for its capital requirements to maximize shareholder value. These include, but are not limited to, selling the Company or a portion thereof, debt financing, equity financing, merging, or engaging in a strategic partnership. Astrotech’s consolidated financial statements as of March 31, 2018 do not include any adjustments that might result from the substantial doubt about the Company’s ability to continue as a going concern.
We use the specific identification method when determining realized gains and losses on our available-for-sale securities. The following tables summarize unrealized gains and losses related to our investments:
|
|
March 31, 2018 |
|
|||||||||||||
Available-for-Sale |
|
Adjusted |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
(In thousands) |
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
||||
Mutual Funds - Corporate & Government Debt |
|
$ |
3,570 |
|
|
$ |
— |
|
|
$ |
(42 |
) |
|
$ |
3,528 |
|
Fixed Income Bonds |
|
|
1,631 |
|
|
|
— |
|
|
|
(8 |
) |
|
|
1,623 |
|
Time Deposits |
|
|
548 |
|
|
|
— |
|
|
|
(2 |
) |
|
|
546 |
|
Total |
|
$ |
5,749 |
|
|
$ |
— |
|
|
$ |
(52 |
) |
|
$ |
5,697 |
|
|
|
June 30, 2017 |
|
|||||||||||||
|
|
Adjusted |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
||||
Mutual Funds - Corporate & Government Debt |
|
$ |
9,104 |
|
|
$ |
— |
|
|
$ |
(61 |
) |
|
$ |
9,043 |
|
Fixed Income Bonds |
|
|
3,048 |
|
|
|
— |
|
|
|
— |
|
|
|
3,048 |
|
Time Deposits |
|
|
799 |
|
|
|
— |
|
|
|
— |
|
|
|
799 |
|
Total |
|
$ |
12,951 |
|
|
$ |
— |
|
|
$ |
(61 |
) |
|
$ |
12,890 |
|
For information on the unrealized holding losses on available-for-sale investments reclassified out of accumulated other comprehensive loss into the consolidated statements of income, see “Note 9: Other Comprehensive Loss.”
We have certain financial instruments on our condensed consolidated balance sheet related to interest-bearing time deposits and fixed income bonds. These 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 investments, maturing over the next one to three years, comprise a set of highly diversified bonds issued by various corporations and entities that in aggregate represent an above average investment-grade fixed income portfolio.
The following table presents the carrying amounts of certain financial instruments as of March 31, 2018, and June 30, 2017:
|
|
Carrying Value |
|
|||||||||||||
|
|
Short-Term Investments |
|
|
Long-Term Investments |
|
||||||||||
(In thousands) |
|
March 31, 2018 |
|
|
June 30, 2017 |
|
|
March 31, 2018 |
|
|
June 30, 2017 |
|
||||
Mutual Funds - Corporate & Government Debt |
|
$ |
3,528 |
|
|
$ |
9,043 |
|
|
$ |
— |
|
|
$ |
— |
|
Time deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities from 91-360 days |
|
|
496 |
|
|
|
250 |
|
|
|
— |
|
|
|
— |
|
Maturities over 360 days |
|
|
— |
|
|
|
— |
|
|
|
50 |
|
|
|
549 |
|
Fixed Income Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities less than 1 year |
|
|
1,623 |
|
|
|
1,607 |
|
|
|
— |
|
|
|
— |
|
Maturities from 1-3 years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,441 |
|
Total |
|
$ |
5,647 |
|
|
$ |
10,900 |
|
|
$ |
50 |
|
|
$ |
1,990 |
|
9
As the Company focuses on development of the TRACER 1000, inventory associated to its prior iterations of our technology was written-off during the second quarter of fiscal 2018. In addition, materials purchases are currently being expensed until inventory accounting is warranted by future product sales.
The following table summarizes the components of our inventory balances, net of allowance of $7 thousand and $116 thousand at March 31, 2018, and June 30, 2017, respectively:
(In thousands) |
|
March 31, 2018 |
|
|
June 30, 2017 |
|
||
Raw materials |
|
$ |
8 |
|
|
$ |
109 |
|
Work in process |
|
|
1 |
|
|
|
57 |
|
Total inventory |
|
$ |
9 |
|
|
$ |
166 |
|
Astral was created in conjunction with a noncontrolling interest, resulting in Astrotech initially owning 72% of Astral; the Company now owns 100% of Astral.
The following table details the contributions from the Company and the minority interest owner and the Company’s ownership percentage of Astral:
(In thousands) |
|
ASTC Contribution |
|
|
Minority Owner |
|
|
ASTC Ownership (1) |
|
|||
Initial investment |
|
$ |
1,422 |
|
|
$ |
422 |
|
|
|
72 |
% |
Additional contributions made in fiscal year 2015 |
|
|
1,000 |
|
|
|
— |
|
|
|
83 |
% |
Additional contributions made in fiscal year 2016 |
|
|
3,000 |
|
|
|
— |
|
|
|
92 |
% |
Additional contributions made in fiscal year 2017 |
|
|
3,500 |
|
|
|
(422 |
) |
|
|
100 |
% |
Total Contributions |
|
$ |
8,922 |
|
|
$ |
— |
|
|
|
|
|
(1) Astrotech acquired full ownership of Astral Images in fiscal year 2017.
The Company previously applied noncontrolling interest accounting, which required us to clearly identify the noncontrolling interest in the consolidated statements of operations. The Company previously disclosed three measures of net loss: net loss, net loss attributable to noncontrolling interest, and net loss attributable to Astrotech Corporation. The Company’s operating cash flows in its consolidated statements of cash flows reflect net loss, while our basic and diluted earnings per share calculations reflect net loss attributable to Astrotech Corporation.
The following table breaks down the changes in Stockholders’ Equity for the nine months ended March 31, 2018:
(In thousands) |
|
Total Stockholders' Equity |
|
|
Balance at June 30, 2017 |
|
$ |
16,770 |
|
Stock based compensation |
|
|
387 |
|
Share repurchases |
|
|
(3 |
) |
Net change on available-for-sale investments |
|
|
9 |
|
Net loss attributable to Astrotech Corporation |
|
|
(8,998 |
) |
Balance at March 31, 2018 |
|
$ |
8,165 |
|
Basic net loss per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed based on the weighted average number of common shares outstanding plus the effect of potentially dilutive common shares outstanding during the period using the treasury stock method and the if-converted method. Potentially dilutive common shares include outstanding stock options and share-based awards.
10
The following table reconciles the numerators and denominators used in the computations of both basic and diluted net loss per share:
|
|
Three Months Ended March 31, |
|
|
Nine Months Ended March 31, |
|
||||||||||
(In thousands, except per share data) |
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Astrotech Corporation, basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
$ |
(2,855 |
) |
|
$ |
(2,845 |
) |
|
$ |
(8,998 |
) |
|
$ |
(8,966 |
) |
Income tax benefit |
|
|
— |
|
|
|
(2 |
) |
|
|
— |
|
|
|
(2 |
) |
Net loss |
|
|
(2,855 |
) |
|
|
(2,847 |
) |
|
|
(8,998 |
) |
|
|
(8,968 |
) |
Less: Net loss attributable to noncontrolling interest |
|
|
— |
|
|
|
(47 |
) |
|
|
— |
|
|
|
(150 |
) |
Net loss attributable to Astrotech Corporation |
|
$ |
(2,855 |
) |
|
$ |
(2,800 |
) |
|
$ |
(8,998 |
) |
|
$ |
(8,818 |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net loss per share attributable to Astrotech Corporation — weighted average common stock outstanding |
|
|
4,060 |
|
|
|
4,033 |
|
|
|
4,059 |
|
|
|
4,095 |
|
Basic and diluted net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Astrotech Corporation |
|
$ |
(0.70 |
) |
|
$ |
(0.69 |
) |
|
$ |
(2.22 |
) |
|
$ |
(2.15 |
) |
All unvested restricted stock awards for the nine months ended March 31, 2018, are not included in diluted net loss per share, as the impact to net loss per share would be anti-dilutive. Options to purchase 362,171 shares of common stock at exercise prices ranging from $1.60 to $16.00 per share outstanding as of March 31, 2018, were not included in diluted net loss per share, as the impact to net loss per share would be anti-dilutive.
Astrotech recognizes revenue employing two generally accepted revenue recognition methodologies. The methodology used is based on contract type and the manner in which products and services are provided.
Production Unit Sales and Software Licensing Agreements
When revenue for sale of manufactured product is commenced or when we license our software for use, we will recognize it when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when a firm sales contract or invoice is in place, delivery has occurred or services have been provided, and collectability is reasonably assured.
Construction-Type and Production-Type Contracts
Most of the Company’s revenue is derived from contracts to manufacture mass spectrometers to a buyer’s specification. These contracts are accounted for under the provisions of FASB ASC Topic 605-35 “Revenue Recognition: Construction-Type and Production-Type Contracts.” These contracts are fixed-price and are recorded on the percentage-of-completion basis using the ratio of costs incurred to estimated total costs at completion as the measurement basis for progress toward completion and revenue recognition. Any losses identified on contracts are recognized immediately. Contract accounting requires significant judgment relative to assessing risks, estimating contract costs, and making related assumptions for schedule and technical issues. With respect to contract change orders, claims, or similar items, judgment must be used in estimating related amounts and assessing the potential for realization. These amounts are only included in contract value when they can be reliably estimated and realization is probable.
The Company enters into fixed-priced subcontracts on government projects. Revenue from certain long-term, integrated project management contracts to provide new prototypes and completion services is reported on the percentage-of-completion method of accounting. At the outset of each contract, we prepare a detailed analysis of our estimated cost to complete the project, and our progress is based on the percentage of projected cost incurred. Risks related to service delivery, usage, productivity, and other factors are considered in the estimation process. The recording of profits and losses on long-term contracts requires an estimate of the total profit or loss over the life of each contract. This estimate requires consideration of total contract value, change orders, and claims, less costs incurred and estimated costs to complete. Anticipated losses on contracts are recorded in full in the period in which they become evident. Profits are recorded based upon the total estimated contract profit times the current percentage complete for the contract.
11
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 tables present the carrying amounts, estimated fair values, and valuation input levels of certain financial instruments as of March 31, 2018, and June 30, 2017:
|
|
March 31, 2018 |
|
|||||||||||||||||
|
|
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 |
|
$ |
3,528 |
|
|
$ |
3,528 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,528 |
|
Bonds: 0-1 year |
|
|
1,623 |
|
|
|
— |
|
|
|
1,623 |
|
|
|
— |
|
|
|
1,623 |
|
Time deposits: 91-360 days |
|
|
496 |
|
|
|
— |
|
|
|
496 |
|
|
|
— |
|
|
|
496 |
|
Time deposits: over 360 days |
|
|
50 |
|
|
|
— |
|
|
|
50 |
|
|
|
— |
|
|
|
50 |
|
Total |
|
$ |
5,697 |
|
|
$ |
3,528 |
|
|
$ |
2,169 |
|
|
$ |
— |
|
|
$ |
5,697 |
|
|
|
June 30, 2017 |
|
|||||||||||||||||
|
|
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 |
|
$ |
9,043 |
|
|
$ |
9,043 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,043 |
|
Bonds: 0-1 year |
|
|
1,607 |
|
|
|
— |
|
|
|
1,607 |
|
|
|
— |
|
|
|
1,607 |
|
Bonds: 1-3 years |
|
|
1,441 |
|
|
|
— |
|
|
|
1,441 |
|
|
|
— |
|
|
|
1,441 |
|
Time deposits: 91-360 days |
|
|
250 |
|
|
|
— |
|
|
|
250 |
|
|
|
— |
|
|
|
250 |
|
Time deposits: over 360 days |
|
|
549 |
|
|
|
— |
|
|
|
549 |
|
|
|
— |
|
|
|
549 |
|
Total |
|
$ |
12,890 |
|
|
$ |
9,043 |
|
|
$ |
3,847 |
|
|
$ |
— |
|
|
$ |
12,890 |
|
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). The fair value of our bonds and time deposits 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.
12
Changes in the balances of each component included in accumulated other comprehensive loss for the nine months ended March 31, 2018, are presented below.
(In thousands) |
|
Accumulated Other Comprehensive Loss |
|
|
Unrealized Loss in Investments |
|
|
|
|
Balance at June 30, 2017 |
|
$ |
(61 |
) |
Current period change in other comprehensive loss before reclassifications |
|
|
(67 |
) |
Reclassification to net loss for realized losses |
|
|
76 |
|
Balance at March 31, 2018 |
|
$ |
(52 |
) |
(10) Business Risk and Credit Risk Concentration Involving Cash
During the three months ended March 31, 2018, the Company did not recognize any revenue, compared to the three months ended March 31, 2017, during which the Company had two customers that together comprised 100% of the Company’s revenue. During the nine months ended March 31, 2018, the Company recognized revenue from one customer, compared to the nine months ended March 31, 2017, during which the Company recognized revenue from the same two customers referenced above. The following tables summarize the concentrations of sales and trade accounts receivable percentages for the Company’s customers:
|
|
Three months ended March 31, 2018 |
|
|
Three months ended March 31, 2017 |
|
||
|
|
Percentage of Total Sales |
|
|
Percentage of Total Sales |
|
||
Next Generation Chemical Detector Partner |
|
|
— |
% |
|
|
19 |
% |
Department of Homeland Security Science and Technology Directorate Partner |
|
|
— |
% |
|
|
79 |
% |
|
|
Nine months ended March 31, 2018 |
|
|
Nine Months Ended March 31, 2017 |
|
||
|
|
Percentage of Total Sales |
|
|
Percentage of Total Sales |
|
||
Next Generation Chemical Detector Partner |
|
|
— |
% |
|
|
46 |
% |
Department of Homeland Security Science and Technology Directorate Partner |
|
|
— |
% |
|
|
53 |
% |
Large Post-Production Film Company |
|
|
100 |
% |
|
|
— |
% |
|
|
March 31, 2018 |
|
|
June 30, 2017 |
|
||
|
|
Percentage of Trade A/R |
|
|
Percentage of Trade A/R |
|
||
Department of Homeland Security Science and Technology Directorate Partner |
|
|
— |
% |
|
|
100 |
% |
The Company maintains funds in bank accounts that may exceed the limit insured by the Federal Deposit Insurance Corporation (“FDIC”) of $250 thousand 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.
(11) Common Stock Compensation
Stock Option Activity Summary
The Company’s stock option activity for the nine months ended March 31, 2018, is as follows:
|
|
Shares (in thousands) |
|
|
Weighted Average Exercise Price |
|
||
Outstanding at June 30, 2017 |
|
|
365 |
|
|
$ |
6.07 |
|
Granted |
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
— |
|
Canceled or expired |
|
|
3 |
|
|
|
5.30 |
|
Outstanding at March 31, 2018 |
|
|
362 |
|
|
$ |
5.48 |
|
13
The aggregate intrinsic value of options exercisable at March 31, 2018, was $14 thousand as the fair value of the Company’s common stock is more than the exercise prices of these options. The remaining share-based compensation expense of $421 thousand related to stock options will be recognized over a weighted-average period of 2.09 years.
The table below details the Company’s stock options outstanding as of March 31, 2018:
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 |
|
|||||
$1.60 – 3.55 |
|
|
93,950 |
|
|
|
3.38 |
|
|
$ |
3.06 |
|
|
|
89,217 |
|
|
$ |
3.07 |
|
$5.30 – 8.35 |
|
|
267,621 |
|
|
|
7.92 |
|
|
|
6.30 |
|
|
|
86,000 |
|
|
|
6.59 |
|
$16.00 – 16.00 |
|
|
600 |
|
|
|
7.02 |
|
|
|
16.00 |
|
|
|
600 |
|
|
|
16.00 |
|
$1.60 – 16.00 |
|
|
362,171 |
|
|
|
6.74 |
|
|
$ |
5.48 |
|
|
|
175,817 |
|
|
$ |
4.84 |
|
Compensation costs recognized related to stock option awards were $93 thousand and $17 thousand for the three months ended March 31, 2018, and 2017, respectively and $226 thousand and $50 thousand for the nine months ended March 31, 2018 and 2017, respectively.
Restricted Stock
The Company’s restricted stock activity for the nine months ended March 31, 2018, is as follows:
|
|
Shares (in thousands) |
|