NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2019 and 2018
(1) Description of the Company and Operating Environment
Astrotech Corporation (NASDAQ: ASTC) (“Astrotech,” “the Company,” “we,” “us” or “our”), a Delaware corporation organized in 1984, is a science and technology development and commercialization company that launches, manages, and builds scalable companies based on innovative technology in order to maximize shareholder value.
Business Overview
Segment Information – The Company operates two reportable business units, 1st Detect Corporation (“1st Detect”) and Astral Images Corporation (“Astral”). Since the Company operates in two segments, all financial segment information required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, Segment Reporting (“FASB ASC 280”) can be found in Note 14, Segment Information.
1st Detect Corporation
1st Detect - 1st Detect has developed the TRACER 1000™ for use at airports, secured facilities, and borders worldwide. On June 19, 2018, the Company announced that the TRACER 1000 had entered the European Civil Aviation Conference (“ECAC”) Common Evaluation Process (“CEP”) to obtain certification in Europe. On December 12, 2018, the Company announced that the TRACER 1000 passed the ECAC CEP tests for airport checkpoint screening of passengers. On January 9, 2019, the Company subsequently announced that the TRACER 1000 passed the CEP tests for airport cargo screening. On February 21, 2019, the Company announced that 1st Detect received ECAC certification for both passenger and cargo screening for the TRACER 1000. Finally, on June 26, 2019, the Company announced the official launch of the TRACER 1000.
In addition, on March 27, 2018, the Company announced that the TRACER 1000 was accepted into Transportation Security Administration’s (“TSA”) Air Cargo Screening Technology Qualification Test (“ACSQT”) and, on April 4, 2018, the Company announced that the TRACER 1000 began testing with TSA for passenger screening at airports. Both programs are currently progressing as expected; however, there is no assurance that the TRACER 1000 will be approved by either TSA program.
Astral Images Corporation
Astral Images - Astral is a developer of advanced film restoration and enhancement software. Astral’s intelligent algorithms remove dust, scratches, and defects from film while converting the content to a digital format with significantly enhanced resolution. In addition, Astral employs artificial intelligence (“AI”) to automatically extend the color gamut and enhance the dynamic range to be viewed in 4K and/or high-dynamic range (“HDR”), collectively known as ultra-high definition (“UHD”).
Although we believe Astral has developed valuable technology fortified by patents and trade secrets, the potential market has not evolved as quickly as anticipated. Due to funding constraints, the Company’s primary focus remains on the pursuit of opportunities for 1st Detect. Consequently, headcount and expenditures at Astral have been minimized and new development is exclusively focused on strategic initiatives that would facilitate the realization of Astral’s value.
(2) Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Astrotech Corporation and its wholly-owned subsidiaries that are required to be consolidated. All intercompany transactions have been eliminated in consolidation.
On 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
34
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.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that directly affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Management continuously evaluates its critical accounting policies and estimates, including those used in evaluating the recoverability of long-lived assets, recognition of revenue, valuation of inventory, and the recognition and measurement of loss contingencies, if any. Actual results may vary.
Revenue Recognition
Astrotech recognizes revenue employing the generally accepted revenue recognition methodologies described under the provisions of FASB ASC Topic 606 “Revenue from Contracts with Customers,” which was adopted by the Company in fiscal year 2019. The methodology used is based on contract type and how products and services are provided. The guidelines of Topic 606 establish a five-step process to govern the recognition and reporting of revenue from contracts with customers. The five steps are: (i) identify the contract with a customer, (ii) identify the performance obligations within the contract, (iii) identify fixed or determinable price, (iv) allocate the transaction price to the performance obligations within the contract, and (v) recognize revenue when or as the performance obligations are satisfied.
An additional factor is reasonable assurance of collectability. This necessitates deferral of revenue recognition until collection has occurred or collection is reasonably assured. In fiscal years 2019 and 2018, we had two revenue sources and, in both arrangements, revenue was recognized at a point in time consistent with the guidelines in Topic 606.
Research and Development
Research and development costs are expensed as incurred. Research and development costs are used to improve system functionality, streamline and simplify the user experience, and extend our capabilities into customer-defined, application-specific opportunities. Other research and development activities include building innovative solutions consisting of customized off-the-shelf hardware and internally-developed, reliable AI software and services. Furthermore, the Company aggressively seeks patent protection from the U.S. Patent & Trademark Office and foreign patent offices.
Net Loss per Common Share
Basic net loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share as the potential dilutive shares are considered to be anti-dilutive. For more information, see Note 11.
Cash and Cash Equivalents
The Company considers short-term investments with original maturities of three months or less to be cash equivalents. Cash equivalents are comprised primarily of operating cash accounts, money market investments, and certificates of deposits.
Accounts Receivable
The carrying value of the Company’s accounts receivable, net of an allowance for doubtful accounts, represents their estimated net realizable value. Astrotech estimates an allowance for doubtful accounts based on type of customer, age of outstanding receivable, historical collection trends, and existing economic conditions. If events or changes in circumstances indicate that a specific receivable balance may be unrealizable, further consideration is given to the collectability of those balances, and the allowance is adjusted accordingly. Receivable balances deemed uncollectible are written off against the allowance. The Company anticipates collecting all unreserved receivables within one year. As of June 30, 2019 and 2018, there was no allowance for doubtful accounts deemed necessary.
35
Inventory
The Company computes inventory cost on a first-in, first-out basis, and inventory is valued at the lower of cost or net realizable value. The valuation of inventory also requires the Company to estimate obsolete and excess inventory as well as inventory that is not of saleable quality.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. All furniture, fixtures, and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets, which is generally five years. Purchased software is typically depreciated over three years. Leasehold improvements are amortized over the shorter of the useful life of the improvement or the term of the lease. Repairs and maintenance are expensed when incurred.
Impairment of Long-Lived Assets
The Company continuously evaluates its long-lived assets for impairment to assess whether the carrying amount of an asset may not be recoverable. Our evaluation is based on an assessment of potential indicators of impairment, such as an adverse change in the business climate that could affect the value of an asset, current or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of an asset, and a current expectation that, more likely than not, an asset will be disposed of before the end of its previously estimated useful life. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Recoverability of long-lived assets is dependent on a number of conditions, including uncertainty about future events and demand for our services.
During the fourth quarter of fiscal year 2018, the Company determined that there was an impairment indicator associated with the Color ICE™ software platform and scanner of Astral (“Astral assets”). During the quarter, management’s push to sell a newer version of Astral’s Color ICE™ software to a major scanning company was postponed, possibly indefinitely. In addition, even though the Company secured its first contract that utilized Astral’s latest software, the contract yielded minimal revenues. In light of the Company’s limited resources, expenses in Astral have been reduced and efforts have been scaled back until the market begins to develop. Due to the delay in the development of the market which has to date not yielded significant revenues, management believes that, for the foreseeable future, it is probable that Astral net cash flows will continue to fall short of the value of the Astral assets. Management therefore recorded an impairment charge of $1.6 million in fiscal year 2018. As of June 30, 2019 and 2018, the fair value of these assets was immaterial.
On June 1, 2018, the Company entered into its third amendment of the original lease for the 1st Detect facility removing 8,118 square feet from its leased space. Management therefore wrote-off the leasehold improvements and other assets associated with this reduction of square footage. The total amount associated with this impairment recognized during the year ended June 30, 2018 was $114 thousand. See Note 13 for more information relating to the amended lease agreement. There was no impairment of long-lived assets recognized during the year ended June 30, 2019.
Fair Value of Financial Instruments
Astrotech’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities. Management believes the carrying amounts of these assets and liabilities approximates their fair value due to their liquidity. For more information about the Company’s accounting policies surrounding fair value investments, see Note 6.
Available-for-Sale Investments
Investments that are designated as available-for-sale are reported at fair value, with unrealized gains and losses recorded in accumulated other comprehensive loss. The Company determines the cost of investments sold based on a first-in, first-out cost basis at the individual security level. The Company also considers specific adverse conditions related to the financial health of, and the business outlook for, the investee, which may include industry and sector performance, changes in technology, operational and financing cash flow factors, and changes in the investee’s credit rating. The Company records
36
other than temporary impairments on marketable equity securities and marketable equity method investments in gains (losses) on equity investments, net of previously recorded gains (losses). For more information on investments, see Note 4.
Operating Leases
The Company leases space under operating leases. Lease agreements often include tenant improvement allowances, rent holidays, and rent escalation clauses, as defined in the respective lease agreements. The Company’s lease agreements include renewal periods at the Company’s option. The Company recognizes rent holiday periods, tenant improvement allowances, and scheduled rent increases on a straight-line basis over the lease term beginning with the date the Company takes possession of the leased property. The Company records tenant improvement allowances and rent holidays as deferred rent liabilities on the consolidated balance sheets and amortizes the deferred rent over the terms of the lease to rent expense on the consolidated statements of operations.
Share-Based Compensation
The Company accounts for share-based awards to employees based on the fair value of the award on the grant date. The fair value of stock options is estimated using the expected dividend yields of the Company’s stock, the expected volatility of the stock, the expected length of time the options remain outstanding, and the risk-free interest rates. Changes in one or more of these factors may significantly affect the estimated fair value of the stock options. The Company recognizes forfeitures as they occur. The fair value of awards that are likely to meet goals, if any, are recorded as an expense over the vesting period. For more information, see Note 9.
Income Taxes
The Company accounts for income taxes under the liability method, whereby deferred tax asset or liability account balances are determined based on the difference between the financial statement and the tax bases of assets and liabilities using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Treasury Stock
The Company records treasury stock at the cost to acquire it and includes treasury stock as a component of stockholders’ equity.
Accounting Pronouncements
In February 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-02: Leases (Topic 842) (“ASU 2016-02”) and ASU 2018-10: Codification Improvements to Topic 842, Leases (“ASU 2018-10”). These ASUs require that a lessee recognize on its balance sheet, a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For leases with a term of 12 months or fewer, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. For statement of operations purposes, leases are still required to be classified as either operating or financing. Operating leases will result in straight-line expense while financing leases will result in a front-loaded expense pattern.
Astrotech has two existing facility leases and several small equipment leases. The headquarters lease expires in 2023 and the 1st Detect lease expires in 2020. The Company has completed its evaluation of the provisions of this standard and concluded that the adoption of this standard will place approximately $1.8 million of right-of-use assets on the consolidated balance sheet with an $1.8 million offset to lease liability reported in current and long-term liabilities. The initial $0.2 million adjustment resulting from implementation of this standard will reduce liabilities and reduce beginning accumulated deficit. This effect includes 1st Detect occupying comparable space to its current location with a new five-year lease; however, the Company did not include any future commitments beyond April 2020 for the 1st Detect facility in Note 13.
Topic 842 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. The Company will adopt Topic 842 for its fiscal year 2020, which begins on July 1, 2019. As allowed by the
37
guidance, the Company will elect the transition option which does not require restatement of prior periods. The Company will also elect the practical expedients which does not require the Company to reassess initial direct costs, classification of existing leases, or whether any existing contracts may contain an imbedded lease.
The adoption of Topic 842 will place a material amount of assets and offsetting liabilities on the balance sheet, but will not have a material impact on its statement of operations or total cash flows.
(3) Going Concern
Financial Condition
The Company’s consolidated financial statements for the year ended June 30, 2019 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 June 30, 2019, the Company has working capital of $1.9 million. The Company reported a net loss of $7.5 million for the fiscal year 2019 and a net loss attributable to the Company of $13.3 million for the fiscal year 2018, along with net cash used in operating activities of $8.5 million for the fiscal year 2019 and net cash used in operating activities of $10.8 million for the fiscal year 2018. This raises substantial doubt about the Company’s ability to continue as a going concern within one year after the audited financial statements are issued.
Management’s Plans to Continue as a Going Concern
The Company remains resolute in identifying the optimal solution to its liquidity issue. The Company is currently evaluating several potential sources for additional liquidity. These include, but are not limited to, selling the Company or a portion thereof, debt financing, equity financing, merging, or engaging in a strategic partnership. On July 3, 2018, management filed Form S-3 to raise funds through the capital markets. On October 9, 2018, the Company raised $3.0 million in a private placement of equity securities to the Company’s Chairman of the Board and Chief Executive Officer, Thomas B. Pickens III, and a long-term accredited investor in the Company. On April 17, 2019, the Company raised $2.0 million in a private placement of equity securities to Mr. Pickens, and a long-term accredited investor in the Company. As of June 30, 2019, the Company has received net proceeds of approximately $1.0 million through the sale of shares of common stock through an “at-the-market offering” program (the “ATM Offering”). The Company is currently evaluating potential offerings of any combination of common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities, or any combination of the foregoing, either individually or as units comprised of one or more of the other securities. However, additional funding may not be available when needed or on terms acceptable to us. If we are unable to generate funding within a reasonable timeframe, we may have to delay, reduce or terminate our research and development programs, limit strategic opportunities, or curtail our business activities. Astrotech’s consolidated financial statements as of June 30, 2019 do not include any adjustments that might result from the outcome of this uncertainty.
(4) Investments
As of June 30, 2019, the Company did not hold any investments. The following table summarizes unrealized gains and losses related to our investments as of June 30, 2018:
|
|
June 30, 2018
|
|
Available-for-Sale
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
(In thousands)
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
Mutual Funds - Corporate & Government Debt
|
|
$
|
1,751
|
|
|
$
|
—
|
|
|
$
|
(23
|
)
|
|
$
|
1,728
|
|
Fixed Income Bonds
|
|
|
1,333
|
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
1,328
|
|
Time Deposits
|
|
|
548
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
545
|
|
Total
|
|
$
|
3,632
|
|
|
$
|
—
|
|
|
$
|
(31
|
)
|
|
$
|
3,601
|
|
As of June 30, 2018, the Company had certain financial instruments on its 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 one to three years, comprised a set of highly diversified bonds issued by various corporations and entities that in aggregate represented an above average investment-grade fixed income portfolio.
38
The following table presents the carrying amounts of certain financial instruments as of June 30, 2019, and June 30, 2018:
|
|
Carrying Value
|
|
|
|
Short-Term Investments
|
|
|
Long-Term Investments
|
|
(In thousands)
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
Mutual Funds - Corporate & Government Debt
|
|
$
|
—
|
|
|
$
|
1,728
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Time Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities from 91-360 days
|
|
|
—
|
|
|
|
495
|
|
|
|
—
|
|
|
|
—
|
|
Maturities over 360 days
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
Fixed Income Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities less than 1 year
|
|
|
—
|
|
|
|
1,328
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
3,551
|
|
|
$
|
—
|
|
|
$
|
50
|
|
(5) Property and Equipment
As of June 30, 2019 and 2018, property and equipment consisted of the following:
|
|
June 30,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Furniture, Fixtures, Equipment & Leasehold Improvements
|
|
$
|
2,487
|
|
|
$
|
2,554
|
|
Software
|
|
|
326
|
|
|
|
326
|
|
Capital Improvements in Progress
|
|
|
—
|
|
|
|
—
|
|
Gross Property and Equipment
|
|
|
2,813
|
|
|
|
2,880
|
|
Accumulated Depreciation
|
|
|
(2,344
|
)
|
|
|
(2,147
|
)
|
Property and Equipment, net
|
|
$
|
469
|
|
|
$
|
733
|
|
Depreciation and amortization expense of property and equipment was $0.3 million for the year ended June 30, 2019 and $0.7 million for the year ended June 30, 2018.
(6) Fair Value of Financial Instruments
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 that are significant to the fair value of the assets or liabilities.
39
As of June 30, 2019, the Company did not hold any investments. The following table presents the carrying amounts, estimated fair values, and valuation input levels of certain financial instruments as of June 30, 2018:
|
|
June 30, 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
|
|
$
|
1,728
|
|
|
$
|
1,728
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,728
|
|
Bonds: less than 1 year
|
|
|
1,328
|
|
|
|
—
|
|
|
|
1,328
|
|
|
|
—
|
|
|
|
1,328
|
|
Time deposits: 91-360 days
|
|
|
495
|
|
|
|
—
|
|
|
|
495
|
|
|
|
—
|
|
|
|
495
|
|
Time deposits: over 360 days
|
|
|
50
|
|
|
|
—
|
|
|
|
50
|
|
|
|
—
|
|
|
|
50
|
|
Total
|
|
$
|
3,601
|
|
|
$
|
1,728
|
|
|
$
|
1,873
|
|
|
$
|
—
|
|
|
$
|
3,601
|
|
The value of 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.
(7) Other Comprehensive Loss
Changes in the balances of each component included in accumulated other comprehensive loss for the year ended June 30, 2019 are presented below.
(In thousands)
|
|
Accumulated Other Comprehensive Loss
|
|
Unrealized Loss in Investments
|
|
|
|
|
Balance at June 30, 2018
|
|
$
|
(31
|
)
|
Reclassification to net loss for realized losses
|
|
|
31
|
|
Balance at June 30, 2019
|
|
$
|
—
|
|
(8) Business Risk and Credit Risk Concentration Involving Cash
For the fiscal year ended June 30, 2019, the Company had two customers that together comprised all of the Company’s revenue. All of the Company’s revenue for the fiscal year ended June 30, 2018 came from two different customers. The following table summarizes the concentrations of sales for the Company’s customers:
|
|
Year Ended June 30, 2019
|
|
|
Year Ended June 30, 2018
|
|
|
|
Percentage of Total Sales
|
|
|
Percentage of Total Sales
|
|
Post-Production Film Company #1
|
|
|
—
|
|
|
|
48
|
%
|
Aerospace Manufacturing Company
|
|
|
—
|
|
|
|
52
|
%
|
Post-Production Film Company #2
|
|
|
31
|
%
|
|
|
—
|
|
Mini Mass Spectrometer Distributor
|
|
|
69
|
%
|
|
|
—
|
|
The Company maintains funds in bank accounts that may exceed the limit insured by the Federal Deposit Insurance Corporation (the “FDIC”). The risk of loss attributable to these uninsured balances is mitigated by depositing funds in what the Company believes to be high credit quality financial institutions. The Company has not experienced any losses in such accounts.
40
(9) Common Stock Incentive, Stock Purchase Plans, and Other Compensation Plans
2011 Stock Incentive Plan (“2011 Plan”)
The 2011 Plan was designed to increase shareholder value by compensating employees over the long term. The plan is to be used to promote long-term financial success and execution of the Company’s business strategy. At the time of approval, 350,000 shares of Astrotech’s common stock were reserved for issuance under this plan. On June 26, 2014, an additional 400,000 shares of Astrotech’s common stock were approved for issuance under this plan. On December 7, 2017, an additional 225,000 shares of Astrotech’s common stock were approved for issuance under this plan. On December 7, 2018, an additional 537,197 shares of Astrotech’s common stock were approved for issuance under this plan. The 2011 Plan, administered by the Compensation Committee of the Board of Directors, provides for granting of incentive awards in the form of stock, stock options, stock appreciation rights, and restricted stock to employees, directors, and consultants of the Company. As of June 30, 2019, there were 611,182 shares available for grant under the 2011 Plan.
Stock Option Activity Summary
The Company’s stock option activity for the years ended June 30, 2019 and 2018 was as follows:
|
|
Shares
(In thousands)
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at June 30, 2017
|
|
|
365
|
|
|
$
|
6.25
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Canceled or expired
|
|
|
(4
|
)
|
|
|
5.30
|
|
Outstanding at June 30, 2018
|
|
|
361
|
|
|
$
|
5.48
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(3
|
)
|
|
|
2.25
|
|
Canceled or expired
|
|
|
(34
|
)
|
|
|
3.51
|
|
Outstanding at June 30, 2019
|
|
|
324
|
|
|
$
|
5.71
|
|
The aggregate intrinsic value of options exercisable at June 30, 2019 was $0 as the fair value of the Company’s common stock is less than the exercise prices of these options. The aggregate intrinsic value of all options outstanding at June 30, 2019 was $0.
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
|
|
$2.83 – 3.55
|
|
|
70,500
|
|
|
|
2.98
|
|
|
$
|
3.39
|
|
|
|
70,500
|
|
|
$
|
3.39
|
|
$5.30 – 5.85
|
|
|
123,653
|
|
|
|
7.86
|
|
|
|
5.48
|
|
|
|
79,575
|
|
|
|
5.48
|
|
$6.00 – 8.35
|
|
|
130,000
|
|
|
|
5.40
|
|
|
|
7.19
|
|
|
|
86,000
|
|
|
|
6.59
|
|
$2.83 – 8.35
|
|
|
324,153
|
|
|
|
5.81
|
|
|
$
|
5.71
|
|
|
|
236,075
|
|
|
$
|
5.25
|
|
Compensation costs recognized related to vested stock option awards during the years ended June 30, 2019 and 2018 were $0.2 million and $0.3 million, respectively. At June 30, 2019, there was $0.1 million of total unrecognized compensation cost related to non-vested stock option awards, which is expected to be recognized over a weighted average period of 0.9 years.
41
Restricted Stock
The Company’s restricted stock activity for the years ended June 30, 2019 and 2018, was as follows:
|
|
Shares
(In thousands)
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Outstanding at June 30, 2017
|
|
|
56
|
|
|
$
|
9.95
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(16
|
)
|
|
|
13.37
|
|
Canceled or expired
|
|
|
(12
|
)
|
|
|
8.35
|
|
Outstanding at June 30, 2018
|
|
|
28
|
|
|
$
|
10.16
|
|
Granted
|
|
|
209
|
|
|
|
3.40
|
|
Exercised
|
|
|
(4
|
)
|
|
|
8.86
|
|
Canceled or expired
|
|
|
(25
|
)
|
|
|
4.55
|
|
Outstanding at June 30, 2019
|
|
|
208
|
|
|
$
|
4.06
|
|
Compensation costs recognized related to vested restricted stock awards during the years ended June 30, 2019 and 2018 were $0.1 million and $0.2 million, respectively. At June 30, 2019, there was $0.5 million of unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted average period of 2.5 years.
Fair Value of Stock-Based Compensation
Stock-based compensation costs are generally based on the fair value calculated from the Black-Scholes model on the date of grant of stock options. The fair values of stock options are amortized as compensation expense on a straight-line basis over the vesting period of the grants. The Company recognizes forfeitures as they occur. The assumptions used for the years ended June 30, 2019 and 2018 and the resulting estimates of weighted-average fair value per share of options granted or modified are summarized in the following table:
|
|
Year Ended June 30, 2019
|
|
|
Year Ended June 30, 2018
|
|
Expected Dividend Yield
|
|
—
|
|
|
—
|
|
Expected Volatility
|
|
|
100
|
%
|
|
|
113
|
%
|
Risk-Free Interest Rates
|
|
|
2.00
|
%
|
|
|
2.86
|
%
|
Expected Option Life (in years)
|
|
|
3.50
|
|
|
|
3.50
|
|
Weighted-average grant-date fair value of options awarded
|
|
$
|
3.01
|
|
|
$
|
2.83
|
|
|
•
|
The expected dividend yield is based on the Company’s current dividend yield and the best estimate of projected dividend yield for future periods within the expected life of the option, which is currently 0%.
|
|
•
|
The Company estimated volatility using the historical share price performance over the expected life. Management believes the historical estimated volatility is materially indicative of expectations about future volatility.
|
|
•
|
The estimate of the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.
|
|
•
|
For the years ended June 30, 2019 and June 30, 2018, the Company used the simplified method of calculating the expected life of the options.
|
(10) 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 June 30, 2019 and 2018, the Company had established a full valuation allowance against all of its net deferred tax assets.
For the fiscal year ended June 30, 2019, the Company incurred losses from operations in the amount of $8.4 million. The total effective tax rate is approximately 10% for the fiscal year. There is no current state tax expense.
42
FASB ASC 740, Income Taxes addresses the accounting for uncertainty in income taxes 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 had no unrecognized tax benefit for the years ended June 30, 2019 and 2018.
For the years ended June 30, 2019 and 2018, the Company’s effective tax rate differed from the federal statutory rate of 21% & 28% respectively, primarily due to the valuation allowance placed against its net deferred tax assets and the recognition of the AMT credit for the fiscal year 2019.
The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. In the second quarter of fiscal year 2018, the Company revised its estimated annual effective rate to reflect a change in its federal statutory rate from 35% to 21%. The rate change was effective on January 1, 2018; therefore, the Company’s blended statutory tax rate for the fiscal year ended June 30, 2018 was 28%. Note that the Company currently has net operating loss carryovers. A valuation allowance has been recorded to fully reserve for net operating loss carryovers, other carryovers, and book/tax differences on the balance sheet.
SAB 118 Measurement Period
The Company applied the guidance in SAB 118 when accounting for the enactment-date effects of the Tax Cuts and Jobs Act in 2017 and throughout 2018. At June 30, 2018, the Company had not completed its accounting for all the enactment-date income tax effects of the Tax Cuts and Jobs Act under ASC 740, Income Taxes, for remeasurement of deferred tax assets and liabilities. As of December 22, 2018, the Company completed its accounting for all of the enactment-date income tax effects of the Tax Cuts and Jobs Act. As further discussed below, during fiscal year 2019, the Company recognized adjustments of $509 thousand to the provisional amounts recorded at June 30, 2019 and included these adjustments as a component of gross deferred taxes before valuation allowance.
Deferred Tax Assets and Liabilities
As of June 30, 2018, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future (which was generally 21%), by recording a provisional amount of $8.5 million. Upon further analysis of certain aspects of the Tax Cuts and Jobs Act and refinement of calculations during the year ended June 30, 2019, the Company adjusted its provisional amount by $509 thousand, which is included as a component of gross deferred taxes before valuation allowance.
Loss carryovers are generally subject to modification by tax authorities until three years after they have been utilized.
The components of income tax benefit from operations are as follows:
|
|
Year Ended June 30,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
858
|
|
|
$
|
—
|
|
State and local
|
|
|
—
|
|
|
|
—
|
|
Total current tax benefit
|
|
$
|
858
|
|
|
$
|
—
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
State and local
|
|
|
—
|
|
|
|
—
|
|
Total deferred tax benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
Total tax benefit
|
|
$
|
858
|
|
|
$
|
—
|
|
43
A reconciliation of the reported income tax benefit to the amount that would result by applying the U.S. Federal statutory rate to the loss before income taxes to the actual amount of income tax benefit recognized follows:
|
|
Year Ended June 30,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Expected benefit
|
|
$
|
1,763
|
|
|
$
|
3,647
|
|
State tax (expense) benefit
|
|
|
—
|
|
|
|
—
|
|
Change in valuation allowance
|
|
|
(1,325
|
)
|
|
|
(3,608
|
)
|
AMT credit refund
|
|
|
—
|
|
|
|
—
|
|
Other permanent items
|
|
|
(9
|
)
|
|
|
(39
|
)
|
Total income tax benefit
|
|
$
|
429
|
|
|
$
|
—
|
|
The Company’s deferred tax assets as of June 30, 2019 and 2018 consist of the following:
|
|
Year Ended June 30,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
17,738
|
|
|
$
|
15,976
|
|
Alternative minimum tax credit carryforwards
|
|
|
—
|
|
|
|
857
|
|
Accrued expenses and other timing
|
|
|
1,100
|
|
|
|
983
|
|
Total gross deferred tax assets
|
|
$
|
18,838
|
|
|
$
|
17,816
|
|
Less — valuation allowance
|
|
|
(18,903
|
)
|
|
|
(17,518
|
)
|
Net deferred tax assets
|
|
$
|
(65
|
)
|
|
$
|
298
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment, principally due to differences in depreciation
|
|
$
|
65
|
|
|
$
|
(298
|
)
|
Total gross deferred tax liabilities
|
|
|
65
|
|
|
|
(298
|
)
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company files consolidated returns for federal, Florida, and Texas income and franchise taxes. In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the net deferred tax assets will be utilized to offset future tax liabilities. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of June 30, 2019, the Company provided a full valuation allowance of approximately $18.9 million against its net deferred tax assets. This deferred tax asset will be presented as a long-term tax receivable.
The valuation allowance increased by approximately $1.4 million for the year ended June 30, 2019. Since the Company reflects a full valuation allowance against its deferred tax assets, there has been no income tax impact from these changes. The Tax Cuts and Jobs Act enacted on December 22, 2017 repealed the alternative minimum tax and any available alternative minimum tax credit will be refunded according to the guidelines of the Tax Cuts and Jobs Act. The alternative minimum tax credit is limited to 50% of the available balance each year for tax years 2018 to 2020 and any remaining balance is fully refundable for tax year 2021. The alternative minimum tax credit amount available is $858 thousand and the current year credit is $429 thousand.
At June 30, 2019, the Company had net operating loss carryforwards of approximately $77.7 million with approximately $57.7 million ($12.1 million, tax effected) for federal income tax purposes that are available to offset future regular taxable income set to expire between the years of 2020 and 2037. The Company also had net operating loss carryforwards with indefinite lives of approximately $20.0 million ($4.2 million, tax effected) for federal income tax purposes that are available to offset future regular taxable income. For net operating losses with indefinite carryforward lives, generated beginning after December 31, 2017, the Tax Cuts and Jobs Act limits the amount of net operating losses to be utilized and deducted by the taxpayer to 80% of the taxpayer’s taxable income. Utilization of some of these net operating losses is limited due to the changes in stock ownership of the Company associated with the October 2007 Exchange Offer; as such, the benefit from these losses may not be realized.
At June 30, 2019, the Company also has accumulated state net operating loss carryforwards of approximately $42.6 million ($1.4 million, tax effected) that are available to offset future state taxable income. These net operating loss carryforwards expire between the years 2026 and 2038. These losses may also be subject to utilization limitations; as such, the benefit from these losses may not be realized.
44
The Company has a temporary credit for business loss carryovers that may be utilized to offset its Texas margin tax. At June 30, 2019, the credit amount is $0.5 million ($0.3 million, tax effected). These credits may be used to offset $13 thousand of state tax liability each year and will expire in 2027.
At June 30, 2019, the Company has $0.4 million of alternative minimum tax credit carryforwards available to offset future regular tax liabilities.
Uncertain Tax Positions
The Company had no uncertain tax positions at June 30, 2019 and 2018.
The Company recognizes interest and penalties related to income tax matters in income tax expense, as incurred. For the years ended June 30, 2019 and 2018, the Company did not recognize any interest expense for uncertain tax positions.
(11) Net Loss per Share
Basic 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 on the basis of the weighted average number of shares of common stock 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 shared-based awards.
Reconciliation and the components of basic and diluted net loss per share are as follows (in thousands, except per share data):
|
|
Year Ended
|
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,534
|
)
|
|
$
|
(13,251
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net loss per share — weighted average common stock outstanding
|
|
|
4,940
|
|
|
|
4,061
|
|
Basic and diluted net loss per common share:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1.53
|
)
|
|
$
|
(3.26
|
)
|
All unvested restricted stock awards for the years ended June 30, 2019 and 2018 are not included in diluted net loss per share, as the impact to net loss per share is anti-dilutive. Options to purchase 324,153 shares of common stock at exercise prices ranging from $2.83 to $8.35 per share outstanding for the year ended June 30, 2019 and options to purchase 361,128 shares of common stock at exercise prices ranging from $1.60 to $16.00 per share outstanding for the year ended June 30, 2018 were not included in diluted net loss per share, as the impact to net loss per share is anti-dilutive.
(12) Employee Benefit Plans
Astrotech has a defined contribution retirement plan, which covers substantially all employees and officers. For each of the years ended June 30, 2019 and 2018, the Company has contributed the required match of $0.2 million to the plan. The Company has the right, but not an obligation, to make additional contributions to the plan in future years at the discretion of the Company’s Board of Directors. The Company has not made any additional contributions for the years ended June 30, 2019 and 2018.
45
(13) Commitments and Contingencies
The Company is obligated under non-cancelable operating leases for equipment and office space. Future minimum payments under the operating leases are as follows (in thousands):
For the Year Ended June 30,
|
|
|
|
|
2020
|
|
$
|
344
|
|
2021
|
|
|
198
|
|
2022
|
|
|
204
|
|
2023
|
|
|
210
|
|
2024
|
|
|
143
|
|
Thereafter
|
|
|
—
|
|
Total
|
|
$
|
1,099
|
|
Rent expense was approximately $0.3 million and $0.4 million for the years ended June 30, 2019 and 2018, respectively.
Astrotech Corporation leases office space consisting of 5,219 square feet in Austin, Texas and houses executive management, finance and accounting, marketing and communications as well as the staff of our Astral subsidiary. The lease began in November 2016 and expires in December 2023 with a provision to renew and extend the lease for the entire premises for one renewal term of five years. Astrotech must, in writing, advise the landlord of its intention to renew the lease at least eight months before the expiration of its current lease in order to renew the lease.
In May 2013, 1st Detect completed build-out of a new 16,540 square foot leased research and development and production facility in Webster, Texas. This new facility is equipped with state-of-the-art laboratories, a clean room, a production shop, and offices for staff. The term of the lease is 62 months and includes options to extend for two additional five-year periods. In February 2015, 1st Detect exercised its right of first refusal on the adjoining space of 9,138 square feet. The original lease began in May 2013 and was to expire in June 2018; these dates were amended in October 2014 with the amended lease beginning February 1, 2015, and expiring April 30, 2020, with provisions to renew and extend the lease for the entire premises, but not less than the entire premises, for two renewal terms of five years each. On June 1, 2018, the Company entered into its third amendment of the original lease removing 8,118 square feet from its leased space, leaving leased premises with a total square footage of 17,560.
In July 2015, Astral subleased premises consisting of approximately 4,000 square feet in Austin, Texas. The lease terminated at the end of June 2018.
Employment Contracts
The Company has entered into an employment contract with a key executive. Generally, certain amounts may become payable in the event the Company terminates the executive’s employment.
Legal Proceedings
The Company is not party to, nor are its properties the subject of, any material pending legal proceedings.
(14) Segment Information
The Company currently has two reportable business units: 1st Detect Corporation and Astral Images Corporation.
1st Detect Corporation
1st Detect is a manufacturer of advanced chemical detection technology that detects and identifies trace amounts of explosives and narcotics.
Astral Images Corporation
Astral Images is a developer of advanced film restoration and enhancement software.
46
All intercompany transactions between business units have been eliminated in consolidation.
Key financial metrics of the Company’s segments for the years ended June 30, 2019 and 2018 are as follows:
|
|
Year Ended June 30, 2019
|
|
(In thousands)
|
|
Revenue
|
|
|
Depreciation
|
|
|
Loss on Impairment of Long-Lived Assets
|
|
|
Loss Before
Income Taxes
|
|
1st Detect
|
|
$
|
87
|
|
|
$
|
233
|
|
|
$
|
—
|
|
|
$
|
(7,526
|
)
|
Astral Images
|
|
|
40
|
|
|
|
29
|
|
|
|
—
|
|
|
|
(866
|
)
|
Total
|
|
$
|
127
|
|
|
$
|
262
|
|
|
$
|
—
|
|
|
$
|
(8,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2018
|
|
(In thousands)
|
|
Revenue
|
|
|
Depreciation
|
|
|
Loss on Impairment of Long-Lived Assets
|
|
|
Loss Before
Income Taxes
|
|
1st Detect
|
|
$
|
46
|
|
|
$
|
392
|
|
|
$
|
(114
|
)
|
|
$
|
(9,582
|
)
|
Astral Images
|
|
|
40
|
|
|
|
357
|
|
|
|
(1,579
|
)
|
|
|
(3,669
|
)
|
Total
|
|
$
|
86
|
|
|
$
|
749
|
|
|
$
|
(1,693
|
)
|
|
$
|
(13,251
|
)
|
|
|
June 30, 2019
|
|
(In thousands)
|
|
Fixed
Assets, Net
|
|
|
Total Capital
Expenditures
|
|
|
Total Assets
|
|
1st Detect
|
|
$
|
452
|
|
|
$
|
—
|
|
|
$
|
3,668
|
|
Astral Images
|
|
|
17
|
|
|
|
—
|
|
|
|
24
|
|
Total
|
|
$
|
469
|
|
|
$
|
—
|
|
|
$
|
3,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
(In thousands)
|
|
Fixed
Assets, Net
|
|
|
Total Capital
Expenditures
|
|
|
Total Assets
|
|
1st Detect
|
|
$
|
699
|
|
|
$
|
8
|
|
|
$
|
5,075
|
|
Astral Images
|
|
|
34
|
|
|
|
11
|
|
|
|
65
|
|
Total
|
|
$
|
733
|
|
|
$
|
19
|
|
|
$
|
5,140
|
|
(15) Subsequent Events
Subsequent to year-end and as of September 24, 2019, the Company has sold an additional 146,466 shares of common stock pursuant to the ATM Offering. In connection with the sales of these shares of common stock, the Company has received net proceeds of $327,891. The weighted-average sale price per shares was $2.24.
On September 5, 2019, the Company entered into a private placement transaction with Thomas B. Pickens III, the Chief Executive Officer and Chairman of the Board of Directors of the Company for the issuance and sale of a secured promissory note (the “Note”) to Mr. Pickens with a principal amount of $1,500,000. Interest on the Note shall accrue at 11% per annum. The principal amount and accrued interest on the Note shall become due and payable on September 5, 2020 (the “Maturity Date”). The Company may prepay the principal amount and all accrued interest on the Note at any time prior to the Maturity Date. In connection with the issuance of the Note, the Company, along with 1st Detect Corporation and Astrotech Technologies, Inc. (the “Subsidiaries”), entered into a security agreement, dated as of September 5, 2019, with Mr. Pickens (the “Security Agreement”), pursuant to which the Company and the Subsidiaries granted to Mr. Pickens a security interest in all of the Company’s and the Subsidiaries’ Collateral, as such term is defined in the Security Agreement. In addition, the Subsidiaries jointly and severally agreed to guarantee and act as surety for the Company’s obligation to repay the Note pursuant to a subsidiary guarantee (the “Subsidiary Guarantee”).
On September 20, 2019, the Company announced the launch of a new subsidiary company, Agriculture Technology Corporation (“AG-TECH”), in response to a growing number of inquiries from the agriculture industry requiring detection of trace levels of harmful pesticides in agricultural products. AG-TECH licenses its AG-LAB-1000 technology from another newly formed subsidiary of the Company, Astrotech Technology, Inc. (“ATI”). ATI also licenses its mass spectrometry technology to 1st Detect for use in its TRACER 1000.
47