NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of the Company and Operating Environment
Astrotech Corporation (Nasdaq: ASTC) (Astrotech, the Company, we, us or our), a State of Washington corporation, is a commercial aerospace company that was formed in 1984 to leverage the environment of space for commercial purposes. For nearly 30 years, the Company has remained a crucial player in space commerce activities. We have supported the launch of 23 shuttle missions and more than 300 spacecraft. Weve designed and built space hardware and processing facilities and constructed world-class processing facilities. We currently own, operate and maintain world-class spacecraft processing facilities; prepare and process scientific research from microgravity and develop and manufacture sophisticated chemical sensor equipment.
Our Business Units
Astrotech Space Operations (ASO)
ASO provides support to its government and commercial customers as they successfully process complex communication, earth observation and deep space satellites in preparation for their launch on a variety of launch vehicles. Processing activities include satellite ground transportation; pre-launch hardware integration and testing; satellite encapsulation, fueling, launch pad delivery; and communication linked launch control. Our ASO facilities can process five-meter class satellites accommodating the majority of U.S. based satellites. ASOs service capabilities include designing and building spacecraft processing equipment and facilities. In addition, ASO provides propellant services including designing, building and testing propellant service equipment for fueling spacecraft. ASO accounted for 99% of our consolidated revenues for the period ended June 30, 2013. Revenue for our ASO business unit is generated primarily from various fixed-priced contracts with launch service providers in both government and commercial markets and the design, fabrication and use of critical space launch equipment. The services and facilities we provide to our customers support the final assembly, checkout, and countdown functions required to launch a spacecraft. The revenue and cash flows generated from our ASO operations are primarily related to the number of spacecraft launches and the fabrication of the GSE for the U.S. Government.
Spacetech
Our other business unit is a technology incubator designed to commercialize space-industry technologies. This business unit is currently pursuing two distinct opportunities:
1
st
Detect
The Company develops, manufactures and sells ultra
-
small mass spectrometers and related equipment. Mass spectrometers, in general, measure the mass and relative abundance of ions in a sample to create a mass spectrum. This resulting mass spectrum is a unique fingerprint for each chemical that can be compared to a reference library of mass spectra to verify the identity of a sample. Mass spectrometers can identify chemicals with more accuracy and precision than competing instruments given their extreme sensitivity and specificity and they are a staple of almost all analytical laboratories. By leveraging technology initiated by an engagement with NASA to develop a mass spectrometer for the International Space Station, the Company has developed a series of instruments that are significantly smaller, lighter, faster and less expensive than competing mass spectrometers, and significantly more sensitive and accurate than other competing chemical detectors. Our efforts have resulted in a technology that can provide mass spectrometry performance in real-time or in the field.
The MMS-1000
TM
is a small, low power mass spectrometer designed initially for the laboratory market. The unique design of this unit enables mass spectrometric quality chemical analysis in a small package (about the size of a shoebox) that operates off less power than a typical light bulb. This allows high quality chemical analysis to be performed in locations where mass spectrometers have not been used before, such as directly on the factory floor or in the battlefield, without compromising the quality of the analysis.
37
The OEM-1000 is a mass spectrometer component that was developed for applications where customers need the high quality analysis provided by a mass spectrometer but in a platform that can be integrated into customer specific packages. The OEM-1000 uses the same high performance analyzer as the MMS-1000
TM
but is provided as an open platform for customers and development partners to integrate with their complementary technologies, with application-specific sample preparation, inlets and software.
Astrogenetix
Astrogenetix is a biotechnology company formed to commercialize products processed in the unique environment of microgravity. Astrogenetix pursued an aggressive space access strategy to take advantage of the Space Shuttle program prior to its retirement in 2011. This strategy gave Astrogenetix unprecedented access to research in microgravity, as the Company flew experiments twelve times over a three year period. Astrogenetix and the team are currently researching a Salmonella vaccine as part of its ongoing commercialization strategy. Concurrently, the team is evaluating a vaccine target for MRSA based on discoveries made in microgravity. In December 2011, the Company negotiated a Space Act Agreement with NASA for a minimum of twenty eight additional space flights.
Liquidity
Our future capital requirements will depend on a number of factors, including our success in developing and expanding markets for our products, payments under possible future strategic arrangements, continued progress of our research and development of potential products, the need to acquire licenses to new technology, costs associated with increasing our manufacturing and development facilities, costs associated with strategic acquisitions including integration costs and assumed liabilities, litigation expense, the status of competitive products and potential cost associated with both protecting and defending our intellectual property. Additionally, actions taken as a result of the ongoing internal evaluation of our business could result in expenditures not currently contemplated in our estimates for 2014. We believe, however, that our existing cash and cash equivalents are sufficient to fund our operating expenses, capital equipment requirements and other expected liquidity requirements for the coming year. Factors that could affect our capital requirements, in addition to those listed above include continued collections of accounts receivable consistent with our historical experience, uncertainty surrounding mission launch schedules, and our ability to manage product development efforts.
At June 30, 2013, we had cash and cash equivalents of $5.1 million and our working capital was approximately $4.3 million.
The Companys debt repayments are due as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
Fiscal Year
|
|
Fiscal Year
|
|
Fiscal Year
|
|
6/30/2013
|
|
2014
|
|
2015
|
|
2016
|
Term Note
|
$
|
6,042
|
|
$
|
387
|
|
$
|
403
|
|
$
|
5,252
|
Our bank financing facilities contain certain affirmative and negative covenants with which we must comply, including the maintenance by us of a debt service coverage ratio of not less than 1.00 to 1.00, maintaining a tangible net worth of not less than $32.50 million, and a maintaining a leverage ratio of not greater than .50 to 1.00. These financial covenants are applicable to the results of ASO. In the event we are not in compliance with a covenant, the bank may, among other things, accelerate all outstanding borrowings, cease extending credit or foreclose on collateral. During fiscal year 2013, we were not in compliance with our debt service coverage ratio and we obtained a waiver from the bank that indefinitely waived this event of default with respect to the periods we were in non-compliance. As of June 30, 2013, we were in compliance with our affirmative and negative debt covenants. However, our financial projections for fiscal year 2014 indicated that we will likely not be in compliance with our debt service coverage ratio and minimum tangible net worth covenants by the third quarter ended March 31, 2014. On October 11, 2013, we amended the debt agreement with our bank that updated the following with respect to our debt covenants: 1) provided a credit of $0.50 million and $2.25 million for the third and fourth quarter of fiscal year 2014, respectively, to our debt service coverage calculation, 2) reduced our minimum tangible net worth requirement to $32.0 million for the third and fourth fiscal quarter of fiscal year 2014, and 3) required that we maintain a minimum cash balance at the bank of $2.0 million through June 30, 2014 and $0.75 million thereafter. Under the terms of the amendment, we expect to be compliant with our affirmative and negative covenants through June 30, 2014. Therefore, we have classified our debt as noncurrent for any principal payments due after June 30, 2014.
38
We believe we have sufficient liquidity and backlog to fund ongoing operations for at least the next fiscal year. We expect to utilize existing cash and proceeds from operations to grow our core business offering in ASO and to support strategies for Spacetech.
(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 majority-owned subsidiaries that are required to be consolidated. All significant intercompany transactions have been eliminated in consolidation.
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 reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.
Credit Risk
The Company maintains funds in bank accounts that, at times, may exceed the limit insured by the Federal Deposit Insurance Corporation, or FDIC. In October 2008, the FDIC increased its insurance to $250,000 per depositor, and to an unlimited amount for non-interest bearing accounts. 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.
Revenue Recognition
Astrotech recognizes revenue employing several generally accepted revenue recognition methodologies across its business units. The methodology used is based on contract type and the manner in which products and services are provided.
Revenue generated by Astrotechs payload processing facilities is recognized ratably over the occupancy period of the satellite while in the Astrotech facilities. The percentage-of-completion method is used for all construction contracts where incurred costs can be reasonably estimated and successful completion can be reasonably assured at inception. Changes in estimated costs to complete and provisions for contract losses are recognized in the period they become known. Revenue for the sale of commercial products is recognized at shipment.
A Summary of Revenue Recognition Methods
|
|
|
|
|
Services/Products Provided
|
|
Contract Type
|
|
Method of Revenue Recognition
|
Payload Processing Facilities
|
|
Firm Fixed Price Mission Specific
|
|
Ratably, over the occupancy period of a satellite
within the facility from arrival through launch
|
|
|
|
|
|
Construction Contracts
|
|
Firm Fixed Price
|
|
Percentage-of-completion based on costs incurred
|
|
|
|
|
|
Engineering Services
|
|
Cost Reimbursable
Award/Fixed Fee
|
|
Reimbursable costs incurred plus award/fixed fee
|
|
|
|
|
|
Commercial Products
|
|
Specific Purchase
Order Based
|
|
At shipment
|
|
|
|
|
|
Grant
|
|
Cost Reimbursable
Award
|
|
As costs are incurred for related research and
development expenses
|
39
Deferred Revenue
Deferred revenue represents amounts collected from customers for projects, products, or services expected to be provided at a future date. Deferred revenue is shown on the balance sheet as either a short-term or long-term liability, depending on when the service or product is expected to be provided.
Research and Development
Research and development costs are expensed as incurred.
Net Loss Per Share
Basic net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share includes all common stock options and other common stock equivalents that potentially may be issued as a result of conversion privileges (see Note 12).
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 Companys accounts receivable, net of the allowance for doubtful accounts, represents their estimated net realizable value. We estimate the 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.
Property and Equipment
Property and equipment are stated at cost. 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. Our payload processing facilities are depreciated using the straight-line method over their estimated useful lives ranging from 16 to 40 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.
As required by our customers, we purchase equipment or enhance our facilities to meet specific customer requirements. These enhancements or equipment purchases are compensated through our contract with the customer. The difference between the amount reimbursed and the cost of the enhancements is recognized as revenue.
Deferred Financing Costs
Deferred financing costs represent loan origination fees paid to the lender and related professional fees. These costs are amortized on a straight-line basis over the term of the respective loan agreements which approximates the interest method.
Impairment of Long-Lived Assets
We review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future 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.
40
Notes Receivable
The carrying value of the Companys notes receivable, net of the allowance for doubtful accounts, represents their estimated net realizable value. We estimate the allowance for doubtful accounts based on type of customer, age of outstanding notes 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. Notes receivable balances deemed uncollectible are written off against the allowance and note receivable balances deemed less than likely to be fully collected at maturity are reserved. In fiscal year 2012, we fully reserved our outstanding notes receivable of $0.7 million. As of June 30, 2013 there have been no payments made on the note.
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, notes payable and accrued liabilities. The carrying amounts of these assets and liabilities, in the opinion of Companys management, approximate their fair value.
Operating Leases
The Company leases space under operating leases. Lease agreements often include rent holidays, rent escalation clauses and contingent rent provisions for percentage of gross sales in excess of specified levels, as defined in the respective lease agreements. Most of the Companys lease agreements include renewal periods at the Companys option. The Company recognizes rent holiday periods 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 amortize 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 the stock options is estimated using expected dividend yields of the Companys stock, the expected volatility of the stock, the expected length of time the options remain outstanding and 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 estimates forfeitures using historical forfeiture rates for previous grants of equity instruments. The fair value of awards that are expected to vest is recorded as an expense over the vesting period.
Noncontrolling Interest
Noncontrolling interest accounting is applied for any entities where the Company maintains more than 50% and less than 100% ownership. The Company clearly identifies the noncontrolling interest in the balance sheets and income statements. We also disclose three measures of net loss: net loss, net loss attributable to noncontrolling interest, and net loss attributable to Astrotech Corporation. Our operating cash flows in our consolidated statements of cash flows reflect net loss, while our basic and diluted earnings per share calculations reflect net loss attributable to Astrotech Corporation.
State of Texas Funding
The Company accounts for the State of Texas funding in its majority owned subsidiary 1
st
Detect as a contribution of capital and has reflected the disbursement in the equity section of the consolidated balance sheet. While the award agreement includes both a common stock purchase right and a note payable to the State of Texas, the economic substance of the transaction is that the State of Texas has purchased shares of 1
st
Detect in exchange for the granted award.
The common stock purchase right gives the State of Texas the ability to purchase common stock in 1
st
Detect, at par value per share, at the earlier of: (1) the first Qualifying Financing Event or (2) eighteen months (recent extensions were granted by the State of Texas, see Note 15). As of June 30, 2012, no Qualifying Financing Event has occurred.
41
There are no cash payments due under the note unless there is an event of default, and the terms that allow for the note to be cancelled after the passage of a set amount of time. The purpose of the note is to provide recourse for the State of Texas if 1
st
Detect fails to fulfill the purpose of the grant, which is primarily to provide for economic development within the State of Texas. If an event of default should occur, the Company would calculate and expense accrued interest and reclassify principal from equity to notes payable in the consolidated financial statements as amounts due to the State of Texas. Management considers the likelihood of an event of default to be remote. As of June 30, 2013, no default events have occurred.
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.
Accounting Pronouncements
Accounting Standards Recently Adopted
Accounting Standards Update ("ASU") 2011-04, Fair Value Measurement ("Topic 820") Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 amends Topic 820, Fair Value Measurements and Disclosures, to converge the fair value measurement guidance in U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2011-04 clarifies the application of existing fair value measurement requirements, changes certain principles in Topic 820 and requires additional fair value disclosures. ASU 2011-04 is effective for annual periods beginning after December 15, 2011, and did not have any impact on the Companys financial statements.
(3) Noncontrolling Interest
In January 2010, restricted shares of Astrotech subsidiaries, 1
st
Detect and Astrogenetix, were granted to certain employees, directors and officers (see Note 10), resulting in Astrotech owning less than 100% of the subsidiaries. The Company applied non-controlling interest accounting for the fiscal years ended June 30, 2013 and 2012, which requires us to clearly identify the non-controlling interest in the consolidated balance sheets and consolidated income statements. We disclose three measures of net loss: net loss, net loss attributable to noncontrolling interest, and net loss attributable to Astrotech Corporation. Our operating cash flows in our consolidated statements of cash flows reflect net loss, while our basic and diluted earnings per share calculations reflect net loss attributable to Astrotech Corporation.
|
|
|
|
|
|
|
2013
|
|
2012
|
Beginning balance
|
$
|
2,730
|
|
$
|
1,921
|
Net loss attributable to noncontrolling interest
|
|
(538)
|
|
|
(620)
|
State of Texas funding (See Note 15)
|
|
|
|
|
900
|
Capital Contribution
|
|
596
|
|
|
500
|
Stock based compensation expense
|
|
|
|
|
29
|
Ending balance
|
$
|
2,788
|
|
$
|
2,730
|
The capital contribution is made by the Company in order to fund the net losses of the noncontrolling interest.
As of June 30, 2013, the Companys share of income and losses is 86% for 1
st
Detect and 84% for Astrogenetix.
42
(4) Accounts Receivable
As of June 30, 2013, and 2012, accounts receivable consisted of the following (in thousands):
|
|
|
|
|
|
|
2013
|
|
2012
|
U.S. Government contracts:
|
|
|
|
|
|
Billed
|
$
|
1,013
|
|
$
|
456
|
Unbilled
|
|
1,976
|
|
|
150
|
Total U.S. Government contracts
|
$
|
2,989
|
|
$
|
606
|
|
|
|
|
|
|
Commercial contracts:
|
|
|
|
|
|
Billed
|
$
|
2,076
|
|
$
|
1,070
|
Unbilled
|
|
252
|
|
|
250
|
Total commercial contracts
|
$
|
2,328
|
|
$
|
1,320
|
|
|
|
|
|
|
Total accounts receivable
|
$
|
5,317
|
|
$
|
1,926
|
The Company anticipates collecting all unreserved receivables within one year. Unbilled accounts receivable represents revenue earned in excess of contracted billing milestones. The accuracy and appropriateness of our direct and indirect costs and expenses under government cost-plus contracts, and therefore, our accounts receivable recorded pursuant to such contracts, are subject to extensive regulation and audit by the U.S. Defense Contract Audit Agency (DCAA) or by other appropriate agencies of the U.S. Government. Such agencies have the right to challenge our cost estimates or allocations with respect to any government contract. In the opinion of management, any adjustments likely to result from remaining inquiries or audits of its contracts would not have a material adverse impact on our financial condition or results of operations.
The following table summarizes the changes in our allowance for doubtful accounts (in thousands):
|
|
|
|
|
|
|
2013
|
|
2012
|
Beginning balance
|
$
|
(54)
|
|
$
|
|
Provision for uncollectable accounts, net of recoveries
|
|
(4)
|
|
|
(54)
|
Write- off of uncollectable accounts
|
|
|
|
|
|
Ending balance
|
$
|
(58)
|
|
$
|
(54)
|
(5) Property and Equipment
As of June 30, 2013 and 2012, property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
June 30,
|
|
2013
|
|
2012
|
Flight Assets
|
$
|
44,757
|
|
$
|
44,757
|
Payload Processing Facilities
|
|
45,866
|
|
|
44,766
|
Furniture, Fixtures, Equipment & Leasehold Improvements
|
|
19,973
|
|
|
18,335
|
Capital Improvements in Progress
|
|
39
|
|
|
930
|
Gross Property and Equipment
|
|
110,635
|
|
|
108,788
|
Accumulated Depreciation
|
|
(73,600)
|
|
|
(71,518)
|
Property and Equipment, net
|
$
|
37,035
|
|
$
|
37,270
|
Depreciation and amortization expense of property and equipment for the years ended June 30, 2013 and 2012 was $2.1 million and $2.2 million, respectively. In the year ended June 30, 2012, the Company evaluated the future use of two historical SPACEHAB modules. Due to the retirement of the space shuttle program in the United States and the lack of alternative uses which could potentially generate cash flow, the Company recorded a non-cash impairment of $0.2 million for the two SPACEHAB modules as the full aggregate carrying amount was deemed no longer recoverable.
43
(6) Note Receivable
On April 28, 2005 the Company consummated the sale and simultaneous leaseback of its Cape Canaveral Florida Spacehab Payload Processing Facility (SPPF). The sales price of the building was $4.8 million. The Company received $4.1 million in cash of which $0.3 million was used for expenses related to the transaction. The Company also received a note, secured by a second mortgage on the SPPF, for $0.7 million due December 2010. The Company deferred approximately $0.5 million of gain from the sale leaseback transaction and recognized it as an offset to rent expense over the five-year lease term.
The Company leased the building back from the owner under an agreement that initially expired on December 31, 2010. In November 2010, the Company renewed its lease with the owner for an additional two year term extending the lease to December 31, 2012. Simultaneously, the Company extended the full repayment date of the note to December 31, 2012.
The owner of SPPF does not have sufficient resources to repay the Companys note. As a result, the Company recorded a full reserve in fiscal year 2012 against the collection of the note. Management has confirmed that the owner of the SPPF has been actively marketing the facility for sale. At this time, the SPPF is currently for sale with no offers pending. As of June 30, 2013, there have been no payments made on the note.
(7) Debt
In October 2010, we entered into a financing facility with a commercial bank providing a $7.0 million term loan note and a $3.0 million revolving credit facility. The $7.0 million term loan terminates in October 2015, and the $3.0 million revolving credit facility, which expired in October 2012. The term loan requires monthly payments of principal plus interest at the rate of prime plus 0.25%, but not less than 4.0%. The bank financing facilities are secured by the assets of ASO, including accounts receivable, and require us to comply with designated covenants. The balance of the $7.0 million term loan at June 30, 2013 was $6.0 million.
Our bank financing facilities contain certain affirmative and negative covenants with which we must comply, including the maintenance by us of a debt service coverage ratio of not less than 1.00 to 1.00, maintaining a tangible net worth of not less than $32.50 million, and a maintaining a leverage ratio of not greater than .50 to 1.00. These financial covenants are applicable to the results of ASO. In the event we are not in compliance with a covenant, the bank may, among other things, accelerate all outstanding borrowings, cease extending credit or foreclose on collateral. During fiscal year 2013, we were not in compliance with our debt service coverage ratio and we obtained a waiver from the bank that indefinitely waived this event of default with respect to the periods we were in non-compliance. As of June 30, 2013, we were in compliance with our affirmative and negative debt covenants. However, our financial projections for fiscal year 2014 indicated that we will likely not be in compliance with our debt service coverage ratio and minimum tangible net worth covenants by the third quarter ended March 31, 2014. On October 11, 2013, we amended the debt agreement with our bank that updated the following with respect to our debt covenants: 1) provided a credit of $0.50 million and $2.25 million for the third and fourth quarter of fiscal year 2014, respectively, to our debt service coverage calculation, 2) reduced our minimum tangible net worth requirement to $32.0 million for the third and fourth fiscal quarter of fiscal year 2014, and 3) required that we maintain a minimum cash balance at the bank of $2.0 million through June 30, 2014 and $0.75 million thereafter. Under the terms of the amendment, we expect to be compliant with our affirmative and negative covenants through June 30, 2014. Therefore, we have classified our debt as noncurrent for any principal payments due after June 30, 2014.
(8) 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 1Quoted prices in active markets for identical assets or liabilities.
44
Level 2Inputs 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 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table presents the carrying amounts, estimated fair values and valuation input levels of certain of the Companys financial instruments as of June 30, 2013 and 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Valuation
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Inputs
|
Note payable
|
$
|
6,042
|
|
|
6,042
|
|
$
|
6,414
|
|
$
|
6,414
|
|
Level 2
|
Total
|
$
|
6,042
|
|
|
6,042
|
|
$
|
6,414
|
|
$
|
6,414
|
|
|
The carrying value of the Companys debt at June 30, 2013 approximates fair value based on rates available for similar debt available to comparable companies in the marketplace. The carrying amounts of the Companys Level 1 securities include cash and cash equivalents.
(9) Business and Credit Risk Concentration
A substantial portion of our revenue has been generated under contracts with the U.S. Government. During the year ended June 30, 2013 and 2012, approximately 66% and 68%, respectively, of our revenues were generated by various NASA and U.S. Government contracts or subcontracts. Accounts receivable totaled $5.3 million at June 30, 2013 of which 56% was attributable to the U.S. Government. Accounts receivable totaled $1.9 million at June 30, 2012 of which 31% was attributable to the U.S. Government.
The Company maintains funds in bank accounts that may exceed the limit insured by the Federal Deposit Insurance Corporation, or FDIC. In October 2008, the FDIC increased its insurance to $250,000 per depositor, and to an unlimited amount for non-interest bearing accounts. 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.
(10) Common Stock Incentive, Stock Purchase Plans and Other Compensation Plans
At June 30, 2013, 1,440,001 shares of Common Stock were reserved for future grants of stock incentive grants under the Companys four stock incentive plans.
The 1994 Plan (1994 Plan)
Under the terms of the 1994 Plan, the number and price of the stock incentive awards granted to employees is determined by the Board of Directors and such grants vest, in most cases, incrementally over a period of four years and expire no more than ten years after the date of grant. At the time of approval, 395,000 shares of our common stock were reserved for issuance under this plan. As of June 30, 2013, there are no shares available for grant. Based on the Articles of the 1994 stock incentive plan, no awards shall be granted more than ten years after the effective date of the plan unless amended.
The Directors Stock Option Plan (Directors Plan)
Options under the Directors Plan vest after one year and expire seven years from the date of grant. At the time of approval, 50,000 shares of our common stock were reserved for issuance under this plan. As of June 30, 2013, there are 41,500 shares available for future grant.
45
2008 Stock Incentive Plan (2008 Plan)
The 2008 Plan was created to promote growth of the Company by aligning the long-term financial success of the Company with the employees, consultants and directors. At the time of approval, 5,500,000 shares of our common stock were reserved for issuance under this plan. The 2008 Plan, administered by the Compensation Committee of the Board of Directors, provides for granting of incentive awards in the form of stock options, stock appreciation rights (RSAs) and restricted stock to employees, directors and consultants of the Company. Stock options awarded will vest upon the Companys stock achieving a closing price of $1.50 and expire ten years from grant date or upon employee or director termination. Restricted shares awarded will vest 33.33% a year over a three year period and expire upon employee or director termination. There have been no RSAs granted from the 2008 Plan. As of June 30, 2013, there are 342,501 shares available for grant under the 2008 Plan.
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 our business strategy. At the time of approval, 1,750,000 shares of our common stock were reserved 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 options, stock appreciation rights (RSAs) and restricted stock to employees, directors and consultants of the Company. Stock options awarded will vest upon the Companys stock achieving a closing price of $1.50 and expire ten years from the grant date or upon employee or director termination. Additionally, a single 200,000 stock option grant was awarded to a third party consultant intended to provide incentive which is aligned with management and the shareholders. Vesting for these option shares will occur once certain performance conditions have been fulfilled. There have been no RSAs or restricted stock granted from the 2011 Plan. As of June 30, 2013, there are 1,056,000 shares available for grant under the 2011 Plan.
1
st
Detect 2011 Stock Incentive 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 our business strategy. At the time of approval, 2,500 shares of 1
st
Detect stock were reserved for issuance under this plan. The 2011 Plan, administered by the Board of Directors of 1
st
Detect, provides for granting of incentive awards in the form of stock options to certain directors, officers and employees of 1
st
Detect. The awards vest upon certain performance conditions being met and expire ten years from the grant date. The stock options have an exercise price equal to the fair market value of 1
st
Detects common stock on the date of grant as determined by an independent valuation firm. As of June 30, 2013, there are 1,800 shares available for grant under the 2011 Plan.
Astrogenetix
On January 19, 2010, an independent committee of the Board of Directors of Astrogenetix, a subsidiary of the Company, approved a grant of 1,550 restricted stock shares and 2,050 stock purchase warrants to certain officers, directors and employees of Astrogenetix, of which 375 and 50 have subsequently been cancelled. The awards vested 50% a year over a two-year period. The restricted stock awards are equal to the fair market value of Astrogentixs common stock on the date of grant as determined by an independent valuation firm. The Company utilized the Black-Scholes methodology in determining the fair market value of the warrants.
46
Stock Option Activity Summary
The Companys stock options activity for year ended June 30, 2012 and 2013 was as follows:
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
|
|
|
(in thousands)
|
|
Exercise Price
|
Outstanding at June 30, 2011
|
|
377
|
|
$
|
1.28
|
Granted
|
|
779
|
|
|
0.79
|
Exercised
|
|
|
|
|
|
Cancelled or expired
|
|
(15)
|
|
|
12.66
|
Outstanding at June 30, 2012
|
|
1,141
|
|
|
0.79
|
Granted
|
|
330
|
|
|
1.20
|
Exercised
|
|
(119)
|
|
|
0.34
|
Cancelled or expired
|
|
(177)
|
|
|
0.85
|
Outstanding at June 30, 2013
|
|
1,175
|
|
|
0.94
|
The aggregate intrinsic value of options exercisable at June 30, 2013 was $0.1 million as the fair value of the Companys common stock is more than the exercise prices of these options.
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of exercise prices
|
|
Number
Outstanding
|
|
Options
Outstanding
Weighted-
Average
Remaining
Contractual
Life (years)
|
|
Weighted-
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Options
Exercisable
Weighted-
Average
Exercise
Price
|
$0.32 0.45
|
|
228,750
|
|
5.26
|
|
$
|
0.38
|
|
228,750
|
|
$
|
0.38
|
$0.71 0.71
|
|
405,400
|
|
8.21
|
|
|
0.71
|
|
|
|
|
|
$1.03 24.10
|
|
541,000
|
|
7.45
|
|
|
1.36
|
|
11,000
|
|
|
11.94
|
$0.32 24.10
|
|
1,175,150
|
|
7.29
|
|
$
|
0.94
|
|
239,750
|
|
$
|
0.91
|
Compensation costs recognized related to vested stock option awards during the year ended June 30, 2013, and 2012 was $0.1 million and $0.1 million, respectively. At June 30, 2013 and 2012, there was $0.5 million and $0.3 million, respectively, of total unrecognized compensation cost related to non-vested stock option awards, which is expected to be recognized over a weighted-average period of 7.9 years.
Restricted Stock
At June 30, 2013, and 2012, there was $0.1 million and $0.1 million of unrecognized compensation costs related to restricted stock, respectively, which is expected to be recognized over a weighted average period of 1.2 years.
The Companys restricted stock activity for the year ended June 30, 2012 and 2013, was as follows:
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted
Average
Grant-Date
Fair Value
|
Non-vested at June 30, 2011
|
1,365
|
|
$
|
1.14
|
Issued
|
25
|
|
|
0.75
|
Vested
|
(699)
|
|
|
1.14
|
Cancelled or expired
|
(13)
|
|
|
1.22
|
Non-vested at June 30, 2012
|
678
|
|
$
|
1.12
|
Issued
|
|
|
|
|
Vested
|
(528)
|
|
|
1.13
|
Cancelled or expired
|
(133)
|
|
|
1.15
|
Non-vested at June 30, 2013
|
17
|
|
$
|
0.75
|
47
Stock Options 1
st
Detect
At June 30, 2013 and 2012, there was $0.1 million and $0.1 million of unrecognized compensation costs related to options and warrants, respectively, which is expected to be recognized over a weighted average period of 8.2 years.
The Companys stock activity for the year ended June 30, 2012 and 2013 was as follows:
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Shares
|
|
Exercise Price
|
Outstanding at June 30, 2011
|
|
1,820
|
|
$
|
212.00
|
Granted
|
|
965
|
|
|
212.00
|
Exercised
|
|
|
|
|
|
Cancelled or expired
|
|
(55)
|
|
|
212.00
|
Outstanding at June 30, 2012
|
|
2,730
|
|
$
|
212.00
|
Granted
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
Cancelled or expired
|
|
(255)
|
|
|
212.00
|
Outstanding at June 30, 2013
|
|
2,475
|
|
$
|
212.00
|
Restricted Stock 1
st
Detect
At June 30, 2013 and 2012 the awards were fully vested and there is no additional compensation expense to be recognized related to restricted stock.
Stock Options Astrogenetix
At June 30, 2013 and 2012 the warrants were fully vested and there is no additional compensation expense to be recognized related to warrants.
The Companys stock options activity for the year ended June 30, 2013 was as follows:
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Shares
|
|
Exercise Price
|
Outstanding at June 30, 2011
|
|
2,050
|
|
$
|
167.00
|
Granted
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
Cancelled or expired
|
|
(50)
|
|
|
167.00
|
Outstanding at June 30, 2012
|
|
2,000
|
|
$
|
167.00
|
Granted
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
Cancelled or expired
|
|
|
|
|
|
Outstanding at June 30, 2013
|
|
2,000
|
|
$
|
167.00
|
Restricted Stock Astrogenetix
At June 30, 2013 and 2012 the awards were fully vested and there is no additional compensation expense to be recognized related to restricted stock.
48
Fair Value of Stock Based Compensation
Stock-based compensation costs are generally based on the fair value calculated from the Black-Scholes or Binomial option-pricing model on the date of grant for stock options. The fair values of stock are amortized as compensation expense on a straight-line basis over the vesting period of the grants. The assumptions used are summarized in the following table:
|
|
|
|
|
|
|
|
|
Astrotech
|
|
|
|
Year ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Expected Dividend Yield
|
|
0
|
%
|
|
0
|
%
|
Expected Volatility
|
|
0.71
|
|
|
0.77
|
|
Risk-Free Interest Rates
|
|
0.20
|
%
|
|
0.21
|
%
|
Expected Option Life (in years)
|
|
10.00
|
|
|
10.00
|
|
|
|
|
|
|
|
|
The expected dividend yield is based on our 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%.
|
|
|
|
|
|
|
|
We estimated volatility using our historical share price performance over the last two years. Management believes the historical estimated volatility is materially indicative of expectations about expected 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.
|
|
|
|
|
|
|
|
The expected life is calculated using the contractual term of the options as well as an analysis of the Companys historical exercises of stock options.
|
|
|
|
|
|
|
|
|
|
Spacetech
|
|
|
|
Year ended June 30,
|
|
|
|
2013
(1)
|
|
|
2012
|
|
Expected Dividend Yield
|
|
|
|
|
0
|
%
|
Expected Volatility
|
|
|
|
|
0.33
|
|
Risk-Free Interest Rates
|
|
|
|
|
0.09
|
%
|
Expected Option Life (in years)
|
|
|
|
|
10.00
|
|
|
|
|
|
|
(1)
|
|
No options were issued in the year ended June 30, 2013.
|
|
|
|
|
|
|
|
The expected dividend yield is based on our 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%.
|
|
|
|
|
|
|
|
We estimated volatility using industry competitors historical share price performance over the last two years. Management believes the historical estimated volatility is materially indicative of expectations about expected 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.
|
|
|
|
|
|
|
|
The expected life is calculated using the contractual term of the options as well as an analysis of the Companys historical exercises of stock options.
|
Securities Repurchase Program
In March 2009, the Company repurchased 300,000 shares of Common Stock at a price of $0.40 per share, pursuant to the securities repurchase program. As of June 30, 2011, we had repurchased 311,660 share of Common Stock at a cost of $0.2 million, which represents an average cost of $0.76 per share, and $1.1 million of Senior Convertible Notes. As a result, the Company is authorized to repurchase an additional $5.7 million of securities under this program.
49
Common stock repurchases under the Companys securities repurchase program may be made from time-to-time, in the open market, through block trades or otherwise in accordance with applicable regulations of the Securities and Exchange Commission. Depending on market conditions and other factors, these purchases may be commenced or suspended at any time or from time-to-time without prior notice. Additionally, the timing of such transactions will depend on other corporate strategies and will be at the discretion of the management of the Company.
(11) 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, 2013, the Company has established a full valuation allowance against all of its net deferred tax assets.
FASB ASC 740, Income Taxes (FASB ASC 740) addresses the accounting for uncertainty in income taxes recognized in an entitys financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company has an unrecognized tax benefit of $0.1 million for the years ended June 30, 2012 and 2013.
For the years ended June 30, 2013 and 2012, the Companys effective tax rate differed from the federal statutory rate of 35%, primarily due to recording changes to the valuation allowance placed against its net deferred tax assets.
The Company files income tax returns in the U.S. federal jurisdiction and in various states. Due to the Companys loss carryover position, it is subject to U.S. federal and state income tax examination adjustments to its carryover benefits generated after 1999.
Currently, the Company is under examination by the Internal Revenue Service for its 2008 through 2010 tax year.
The components of income tax expense (benefit) from continuing operations are as follows (in thousands):
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2013
|
|
2012
|
Current
|
|
|
|
|
|
Federal
|
$
|
|
|
$
|
|
State and local
|
|
|
|
|
17
|
Foreign
|
|
|
|
|
|
|
$
|
|
|
$
|
17
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
Federal
|
|
|
|
|
|
State and local
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
Total Tax Expense
|
$
|
|
|
$
|
17
|
A reconciliation of the reported income tax expense to the amount that would result by applying the U.S. Federal statutory rate to the income (loss) before income taxes to the actual amount of income tax expense (benefit) recognized follows (in thousands):
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2013
|
|
2012
|
Expected expense (benefit)
|
$
|
(253)
|
|
$
|
(1,161)
|
State tax expense
|
|
|
|
|
17
|
Change in temporary tax adjustments not recognized
|
|
167
|
|
|
744
|
Stock compensation
|
|
|
|
|
352
|
Other permanent items
|
|
86
|
|
|
65
|
Total
|
$
|
|
|
$
|
17
|
50
The Companys deferred tax assets as of June 30, 2013 and 2012 consist of the following (in thousands):
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2013
|
|
2012
|
Deferred tax assets:
|
|
|
|
|
|
Net operating loss carryforwards
|
$
|
13,274
|
|
$
|
13,021
|
Alternative minimum tax credit carryforwards
|
|
671
|
|
|
671
|
Accrued expenses and other timing
|
|
683
|
|
|
823
|
Total gross deferred tax assets
|
$
|
14,628
|
|
$
|
14,515
|
Less valuation allowance
|
|
(13,540)
|
|
|
(13,261)
|
Net deferred tax assets
|
$
|
1,088
|
|
$
|
1,254
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Property and equipment, principally due to differences in depreciation
|
|
(1,088)
|
|
|
(1,254)
|
Total gross deferred tax liabilities
|
$
|
(1,088)
|
|
$
|
(1,254)
|
Net deferred tax assets (liabilities)
|
$
|
|
|
$
|
|
The valuation allowance increased by approximately $0.3 million for the year ended June 30, 2013. The valuation allowance increased by approximately $1.1 million for the year ended June 30, 2012. The Company adjusted the value of its deferred tax assets (before valuation allowance) in order to reflect tax return filings occurring since the prior year provision. Since the Company reflects a full valuation allowance against its deferred tax assets, there has been no income tax impact from these changes.
At June 30, 2013, the Company had accumulated net operating loss carryforwards of approximately $36.6 million for Federal income tax purposes ($12.8 million, tax effected) that are available to offset future regular taxable income. These net operating loss carryforwards expire between the years 2021 and 2034. Utilization 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.
The Company also has accumulated state net operating loss carryforwards of approximately $9.3 million ($0.4 million, tax effected) that are available to offset future state taxable income. These net operating loss carryforwards expire between the years 2019 and 2034. These losses may also be subject to utilization limitations; as such, the benefit from these losses may not be realized.
The Company is currently under examination by the Internal Revenue Service for the fiscal years ended June 30, 2008 through 2010. Loss carryovers are generally subject to modification by tax authorities until 3 years after they have been utilized; as such, the Company is subject to examination for the fiscal years ended 2000 through present for federal purposes and fiscal years ended 2006 through present for state purposes.
The Company has a temporary credit for business loss carryovers that may be utilized to offset its Texas margin tax. The credit amount is $0.2 million ($0.1 million, tax effected). These credits may be used to offset $13,000 of state tax liability each year and expire annually if not utilized.
The Company has $0.7 million of alternative minimum tax credit carryforwards available to offset future regular tax liabilities.
The Company files consolidated returns for federal, California, 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, 2013, the Company provided a full valuation allowance of approximately $13.5 million against its net deferred tax assets.
51
Uncertain Tax Positions
The Companys change in uncertain tax benefit reserves during 2013 and 2012 were as follows (in thousands):
|
|
|
|
|
|
|
2013
|
|
2012
|
Balance at July 1
|
$
|
64
|
|
$
|
60
|
Additions for tax positions of current period
|
|
|
|
|
|
Additions for tax positions of prior years
|
|
4
|
|
|
4
|
Decreases for tax positions of prior years
|
|
|
|
|
|
Balance at June 30
|
$
|
68
|
|
|
64
|
As of June 30, 2013, total uncertain tax positions related to state income taxes amounted to $68,000. Should the tax positions prove successful, the Companys tax expense would be reduced by $42,000 (net of federal benefit). We recognize interest and penalties related to income tax matters in income tax expense. During the years ended June 30, 2013 and 2012, we recognized interest expense related to uncertain tax positions of approximately $4,000 and $4,000, respectively.
(12) Net Loss Per Share
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 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, convertible debt, 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 June 30,
|
|
2013
|
|
2012
|
Numerator:
|
|
|
|
|
|
Net loss attributable to Astrotech, basic
|
$
|
(185)
|
|
$
|
(2,713)
|
Net loss attributable to Astrotech, diluted
|
$
|
(185)
|
|
$
|
(2,713)
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Denominator for basic net loss per share weighted average common stock outstanding
|
|
19,328
|
|
|
18,544
|
Dilutive common stock equivalents common stock options and share-based awards
|
|
|
|
|
|
Denominator for diluted net loss per share weighted average common stock outstanding and dilutive common stock equivalents
|
|
19,328
|
|
|
18,544
|
Basic net loss per share
|
$
|
(0.01)
|
|
$
|
(0.15)
|
Diluted net loss per share
|
$
|
(0.01)
|
|
$
|
(0.15)
|
Options to purchase 1,175,150 shares of common stock at exercise prices ranging from $0.32 to $24.10 per share outstanding for the year ended June 30, 2013, were not included in diluted net loss per share, as the impact to net loss per share is anti-dilutive.
Options to purchase 1,140,750 shares of common stock at exercise prices ranging from $0.30 to $24.10 per share outstanding for the year ended June 30, 2012, were not included in diluted net loss per share, as the impact to net loss per share is anti-dilutive.
(13) Employee Benefit Plans
We have a defined contribution retirement plan, which covers substantially all employees and officers. For the years ended June 30, 2013 and 2012, we have contributed the required match of $0.2 million and $0.3 million, respectively, to the plan. We have the right, but not an obligation, to make additional contributions to the plan in future years at the discretion of the Companys Board of Directors. We have not made any additional contributions for the years ended June 30, 2013 and 2012.
52
(14) Commitments and Contingencies
In addition to the term loan (see Note 7), the Company is obligated under non-cancelable operating leases for equipment, office space and the land for a payload processing facility. Future minimum payments under the term loan and non-cancelable operating leases are as follows (in thousands):
|
|
|
|
Year ending June 30,
|
|
|
|
|
|
|
2014
|
|
$
|
777
|
2015
|
|
|
559
|
2016
|
|
|
5,411
|
2017
|
|
|
162
|
2018
|
|
|
166
|
2019 and thereafter
|
|
|
|
Total
|
|
$
|
7,075
|
Rent expense was approximately $0.7 million for the year ended June 30, 2013 and approximately $0.8 million for the year ended June 30, 2012. The Company received sublease payments of $0.1 million for the year ended June 30, 2013 and $0.1 million for the year ended June 30, 2012.
ASO presently leases the 60-acre site located on VAFB in California, where we own four buildings totaling over 50,000 square feet of space. The Company has extended the original land lease, which expired in September 2013. The new lease expires in September 2018, with provisions to extend the lease at the request of the lessee and the concurrence of the lessor.
Legal Proceedings
On January 10, 2013, a lawsuit was filed against Astrotech Corporation by John Porter, the former Senior Vice President, Chief Financial Officer, Treasurer and Secretary of the Company. In the lawsuit, Mr. Porter alleges various breaches of contract claims in connection with his termination from the Company on August 3, 2012. Mr. Porter seeks monetary damages of at least $639,808. The Company intends to vigorously defend the lawsuit filed by Mr. Porter.
On February 20, 2013, a shareholder derivative lawsuit was filed in the District Court of Travis County, Texas against the current directors and chief executive officer of Astrotech Corporation and against the Company, as nominal defendant. The complaint alleges, among other things, that the directors and chief executive officer breached fiduciary duties to the Company in connection with certain corporate transactions, including loans to subsidiaries and purchases of outstanding shares of the Companys common stock. The Company intends to vigorously defend the lawsuit.
State of Texas Funding
In March 2010, the Texas Emerging Technology Fund awarded 1
st
Detect $1.8 million for the development and marketing of the Miniature Chemical Detector, a portable mass spectrometer designed to serve the industrial, environmental, security and healthcare markets (See Note 15). As of June 30, 2012, 1
st
Detect had received $1.8 million in disbursements. The disbursed amount of $1.8 million represents a contingency through March 2020, the date of cancellation. If an event of default should occur, the Company would calculate and expense accrued interest and reclassify principal from equity to notes payable in the consolidated financial statements as amounts due to the State of Texas. Management considers the likelihood of an event of default to be remote. As of June 30, 2013, no default events have occurred.
Employment Contracts
The Company has entered into employment contracts with certain of its key executives. Generally, certain amounts may become payable in the event the Company terminates the executives employment.
53
(15) State of Texas Funding
In March 2010, the Texas Emerging Technology Fund awarded 1
st
Detect $1.8 million for the development and marketing of the Miniature Chemical Detector, a portable mass spectrometer designed to serve the industrial, environmental, security and healthcare markets. In exchange for the award, 1
st
Detect granted a common stock purchase right and a note payable to the State of Texas. As of June 30, 2012, 1
st
Detect had received $1.8 million in disbursements. The proceeds from the award can only be used to fund development of the Miniature Chemical Detector at 1
st
Detect, not for repaying existing debt or for use in other Company subsidiaries.
The common stock purchase right is exercisable at the first Qualifying Financing Event (QFE), which is essentially a change in control or third party equity investment in 1
st
Detect. The number of shares available to the State of Texas, at the price of par value, is calculated as the total disbursements (numerator) divided by the stock price established in the QFE (denominator). If the first QFE does not occur within eighteen months of the agreement effective date, which has been extended to June 30, 2014 as a result of recent extensions granted by the State of Texas, the number of shares available for purchase will equal the total disbursements (numerator) divided by $100 (denominator). As of June 30, 2013, no QFE has occurred.
The note equals the disbursements to 1
st
Detect to date, accrues interest at 8% per year and cancels automatically at the earlier of (1) selling substantially all of the assets of 1
st
Detect, (2) selling more than 50% of common stock of 1
st
Detect, or (3) in March 2020. No payments of interest or principal are due on the note unless there is a default, which would occur if 1
st
Detect moves its operations or headquarters outside of Texas at any time before March 2020. 1
st
Detect has the option to pay back the principal plus accrued interest by June 30, 2014, but repayment does not cancel the State of Texas common stock purchase right.
Management considers the likelihood of voluntarily repaying the note or of a default event as remote due to the fact that the covenants that would necessitate repayment are within the control of the Company. As such, the $1.8 million, which was received in two installments of $0.9 million and $0.9 million, was accounted for as a contribution to equity in the periods ended June 30, 2012 and 2010 respectively. As of June 30, 2013, no default events have occurred.
(16) Segment Information
Managements primary financial and operating reviews focus on ASO, the core business unit. All intercompany transactions between business units have been eliminated in consolidation.
Key financial metrics for the year ended June 30, 2013 and 2012 of the Companys segments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
June 30, 2013
|
|
June 30, 2012
|
Revenue and Income
|
|
|
|
|
Income (loss)
|
|
|
|
|
Income (loss)
|
(in thousands)
|
|
Revenue
|
|
before income taxes
|
|
Revenue
|
|
before income taxes
|
ASO
|
|
$
|
23,862
|
|
|
3,121
|
|
$
|
25,817
|
|
$
|
1,039
|
Spacetech
|
|
|
133
|
|
|
(3,844)
|
|
|
321
|
|
|
(4,355)
|
Total
|
|
$
|
23,995
|
|
|
(723)
|
|
$
|
26,138
|
|
$
|
(3,316)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
June 30, 2013
|
|
June 30, 2012
|
Assets
(in thousands)
|
|
Fixed
Assets, net
|
|
Total Assets
|
|
Fixed
Assets, net
|
|
Total Assets
|
ASO
|
|
$
|
35,625
|
|
|
46,159
|
|
$
|
36,997
|
|
$
|
48,867
|
Spacetech
|
|
|
1,410
|
|
|
1,843
|
|
|
273
|
|
|
1,182
|
Total
|
|
$
|
37,035
|
|
|
48,002
|
|
$
|
37,270
|
|
$
|
50,049
|
54
(17) Related Party Transactions
Director Compensation
In August 2009, the Board of Directors granted 525,000 total restricted shares valued at $0.6 million to directors from the 2008 Stock Incentive Plan. The restricted shares vest 33.33% a year for three years and expire upon termination. Compensation expense of $0.1 million and $0.2 million was recorded in the year ended June 30, 2013 and 2012, respectively, for these awards.