UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2014
OR
o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission File Number: 001-34426
Astrotech Corporation
(Exact name of registrant as specified in its charter)
Washington |
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91-1273737 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
401 Congress Avenue, Suite 1650
Austin, Texas 78701
(Address of principal executive offices and zip code)
(512) 485-9530
(Registrant’s telephone number, including area
code)
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes þ
No o
Indicate by check mark whether
the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ
No o
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o
No þ
As of November 7, 2014, the number of shares of the registrant’s common
stock outstanding was: 19,697,627
ASTROTECH CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
ASTROTECH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
| |
September 30, 2014 | | |
June 30, 2014 | |
| |
(unaudited) | |
Assets | |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 45,271 | | |
$ | 3,831 | |
Accounts receivable, net of allowance | |
| 327 | | |
| 59 | |
Prepaid expenses and other current assets | |
| 1,132 | | |
| 389 | |
Discontinued operations – current assets | |
| — | | |
| 1,405 | |
Total current assets | |
| 46,730 | | |
| 5,684 | |
Property and equipment, net | |
| 1,168 | | |
| 1,211 | |
Indemnity receivable | |
| 6,100 | | |
| — | |
Discontinued operations – net of current assets | |
| — | | |
| 33,887 | |
Total assets | |
$ | 53,998 | | |
$ | 40,782 | |
| |
| | | |
| | |
Liabilities and stockholders’ equity | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 217 | | |
$ | 996 | |
Accrued liabilities and other | |
| 1,326 | | |
| 1,753 | |
Income tax payable | |
| 1,053 | | |
| — | |
Discontinued operations – current liabilities | |
| — | | |
| 7,344 | |
Total current liabilities | |
| 2,596 | | |
| 10,093 | |
Other liabilities | |
| 148 | | |
| 152 | |
Discontinued operations – net of current liabilities | |
| — | | |
| 237 | |
Total liabilities | |
| 2,744 | | |
| 10,482 | |
| |
| | | |
| | |
Stockholders’ equity | |
| | | |
| | |
Preferred stock, no par value, convertible, 2,500,000 authorized shares, no issued and outstanding shares, at September 30, 2014 and June 30, 2014 | |
| — | | |
| — | |
Common stock, no par value, 75,000,000 shares authorized; 19,864,787 and 19,856,454 shares issued at September 30, 2014 and June 30, 2014 | |
| 183,866 | | |
| 183,866 | |
Treasury stock, 311,660 shares at cost | |
| (237 | ) | |
| (237 | ) |
Additional paid-in capital | |
| 1,141 | | |
| 1,671 | |
Accumulated deficit | |
| (133,516 | ) | |
| (156,800 | ) |
Noncontrolling interest | |
| — | | |
| 1,800 | |
Total stockholders’ equity | |
| 51,254 | | |
| 30,300 | |
Total liabilities and stockholders’ equity | |
$ | 53,998 | | |
$ | 40,782 | |
See accompanying notes to unaudited condensed consolidated
financial statements.
ASTROTECH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
| |
Three Months Ended September 30, | |
| |
2014 | | |
2013 | |
| |
(unaudited) | |
Revenue | |
$ | 320 | | |
$ | — | |
Cost of revenue | |
| 277 | | |
| — | |
Gross profit | |
| 43 | | |
| — | |
Operating expenses: | |
| | | |
| | |
Selling, general and administrative | |
| 1,960 | | |
| 1,551 | |
Research and development | |
| 692 | | |
| 805 | |
Total operating expenses | |
| 2,652 | | |
| 2,356 | |
Loss from operations | |
| (2,609 | ) | |
| (2,356 | ) |
Interest and other expense, net | |
| 12 | | |
| 12 | |
Loss from continuing operations before income taxes | |
| (2,597 | ) | |
| (2,344 | ) |
Income tax benefit | |
| 1,325 | | |
| 1,173 | |
Loss from continuing operations | |
| (1,272 | ) | |
| (1,171 | ) |
Discontinued operations (Note 2) | |
| | | |
| | |
Income from operations of ASO business (including gain from sale
of $25.6 million) | |
| 26,933 | | |
| 3,352 | |
Income tax expense | |
| (2,378 | ) | |
| (1,173 | ) |
Income from discontinued operations | |
| 24,555 | | |
| 2,179 | |
Net income | |
| 23,283 | | |
| 1,008 | |
Less: Net loss attributable to noncontrolling interest | |
| — | | |
| (245 | ) |
Net income attributable to Astrotech Corporation | |
$ | 23,283 | | |
$ | 1,253 | |
| |
| | | |
| | |
Amounts attributable to Astrotech Corporation: | |
| | | |
| | |
Income (loss) from continuing operations, net of tax | |
$ | (1,272 | ) | |
$ | (926 | ) |
Income from discontinued operations, net of tax | |
| 24,555 | | |
| 2,179 | |
Net income attributable to Astrotech Corporation | |
$ | 23,283 | | |
$ | 1,253 | |
| |
| | | |
| | |
Weighted average common shares outstanding: | |
| | | |
| | |
Basic and diluted | |
| 19,548 | | |
| 19,470 | |
| |
| | | |
| | |
Basic and diluted net income (loss) per common share: | |
| | | |
| | |
Net income (loss) attributable to Astrotech Corporation from continuing operations | |
$ | (0.09 | ) | |
$ | (0.05 | ) |
Net income from discontinued operations | |
| 1.25 | | |
| 0.11 | |
Net income attributable to Astrotech Corporation | |
$ | 1.16 | | |
$ | 0.06 | |
See accompanying notes to unaudited condensed consolidated
financial statements.
ASTROTECH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
| |
Three Months Ended September 30, | |
| |
2014 | | |
2013 | |
| |
(unaudited) | |
Cash flows from operating activities: | |
| | | |
| | |
Net income | |
$ | 23,283 | | |
$ | 1,008 | |
Less: Income from discontinued operations | |
| (24,555 | ) | |
| (2,179 | ) |
Net loss from continuing operations | |
| (1,272 | ) | |
| (1,171 | ) |
Adjustments to reconcile net loss from continuing operations
to net cash used in operating activities: | |
| | | |
| | |
Stock-based compensation | |
| 1 | | |
| 16 | |
Depreciation and amortization | |
| 85 | | |
| 83 | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (267 | ) | |
| (355 | ) |
Accounts payable | |
| (778 | ) | |
| (69 | ) |
Deferred revenue | |
| — | | |
| 319 | |
Other assets and liabilities | |
| (571 | ) | |
| (72 | ) |
Income tax | |
| 1,053 | | |
| — | |
Net cash used in operating
activities-continuing operations | |
| (1,749 | ) | |
| (1,249 | ) |
Net cash provided
by (used in) operating activities-discontinued operations | |
| (1,370 | ) | |
| 208 | |
Net cash used in operating activities | |
| (3,119 | ) | |
| (1,041 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchases of property and equipment, net | |
| (46 | ) | |
| (41 | ) |
Net cash used in investing activities-continuing operations | |
| (46 | ) | |
| (41 | ) |
Net cash provided by investing activities-discontinued operations | |
| 52,591 | | |
| 499 | |
Net cash provided by investing activities | |
| 52,545 | | |
| 458 | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Repayment of State of Texas funding, including deemed dividend | |
| (2,331 | ) | |
| — | |
Net cash used in financing activities-continuing operations | |
| (2,331 | ) | |
| — | |
Net cash used in investing activities-discontinued operations | |
| (5,655 | ) | |
| (95 | ) |
Net cash used in financing activities | |
| (7,986 | ) | |
| (95 | ) |
| |
| | | |
| | |
Net change in cash and cash equivalents | |
| 41,440 | | |
| (678 | ) |
Cash and cash equivalents at beginning of period | |
| 3,831 | | |
| 5,096 | |
Cash and cash equivalents at end of period | |
$ | 45,271 | | |
$ | 4,418 | |
See accompanying notes to unaudited condensed consolidated
financial statements.
ASTROTECH CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(1) General Information
Description of the Company
– Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” “the Company,” “we,” “us”
or “our”), a Washington corporation, is a company that was formed in 1984 to leverage the environment of space for
commercial purposes. For 30 years, the Company remained a crucial player in space commerce activities which supported the launch
of 23 shuttle missions and more than 300 spacecraft. We currently prepare and process scientific research in microgravity and develop
and manufacture sophisticated, next generation chemical sensor equipment.
Basis of Presentation
– The accompanying unaudited condensed consolidated financial statements have been prepared by Astrotech Corporation in accordance
with United States generally accepted accounting principles (“GAAP”) for interim financial information and the rules
and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring
entries) considered necessary for a fair presentation have been included. Operating results for the three months ended September
30, 2014 are not necessarily indicative of the results that may be expected for the year ending June 30, 2015. These financial
statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report
on Form 10-K for the year ended June 30, 2014.
Discontinued Operations
– On August 22, 2014, the Company completed the previously announced sale (“Asset Sale”) of substantially
all of its assets used to conduct the Company's former Astrotech Space Operations (“ASO”) business unit (the “ASO
business”) to Lockheed Martin Corporation (the “Buyer”) for an agreed upon purchase price of $61.0
million, less a working capital adjustment. As of September 30, 2014, the estimated purchase price is $59.3 million, which
includes a working capital adjustment of $1.7 million. As of September 30, 2014, the Company has received cash of $52.6 million
and has recorded receivables of $0.6 million for the working capital holdback and $6.1 million for the indemnity holdback.
In connection with the sale of our former ASO business unit, the outstanding debt of ASO was repaid with a portion of the proceeds.
The condensed consolidated financial statements separately report discontinued operations, reflecting the former ASO business,
and the results of continuing operations. The condensed consolidated financial statements as of June 30, 2014 and for the three
month period ended September 30, 2013 have been reclassified to present the operations of the Company’s former ASO business
unit as discontinued operations. Disclosures included herein pertain to the Company’s continuing operations unless noted
otherwise (See Note 2 for more information).
Accounting Pronouncements
– In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This ASU provides a single comprehensive revenue
recognition model for all contracts with customers. The principle for recognizing revenue is clarified as the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. This ASU provides a five-step analysis to determine how revenue is recognized. The provisions of the
ASU are effective for interim and annual periods beginning after December 15, 2016. The Company is currently evaluating the impact
of the pending adoption of this ASU on its financial statements.
In April 2014, the FASB issued ASU No. 2014-08, “Reporting
Discontinued Operations and Disclosures of Disposals of Components of an Entity”, which changes the criteria for disposals
to qualify as discontinued operations and requires new disclosures about disposals of both discontinued operations and certain
other disposals that do not meet the new definition. Early adoption of this ASU is permitted and is effective prospectively for
fiscal years, and interim periods within those years, beginning after December 15, 2014. The Company is currently evaluating the
impact of the pending adoption of this ASU on its financial statements.
Segment Information
– With the sale of the Company’s former ASO business, the Company now operates a single reportable business unit, Spacetech.
Since the Company operates in one segment, all financial segment information required by FASB ASC 280 can be found in the condensed
consolidated financial statements.
Spacetech is a technology incubator designed to commercialize
space-industry technologies. This business unit is currently pursuing two distinct opportunities:
1st Detect
1st Detect
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 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 the National Aeronautics and Space Administration (“NASA”) to develop a mass spectrometer
for the International Space Station (“ISS”), the Company has developed a series of 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 at a lower price point. Our efforts have resulted in a technology that can provide mass spectrometry
analytics in real-time for explosive device detection in airports and the battlefield, industrial quality and process control,
environmental field applications and laboratory research.
The MMS-1000TM 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 requires 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. The OEM-1000 is a mass spectrometer
component that is designed to be integrated into customers’ complementary technology. The OEM-1000 has recently been integrated
into a Thermogravimetric Analyzer (“TGA”) manufactured by RIGAKU of Tokyo, Japan, one of the leading instrumentation
companies in Asia. The integrated instrument named Thermo iMS2 is the world’s first integrated TGA with MS/MS capabilities
and is expected to be well received by the international research and development markets.
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 NASA space shuttle program prior to its retirement in 2011. This strategy gave Astrogenetix unprecedented
access to research in microgravity, as we flew experiments twelve times over a three year period. In collaboration with NASA,
NASA has engaged leading vaccine development experts through a premier educational institution to independently evaluate Astrogenetix’s
platform with specific direction to aid in the filing of an Investigational New Drug (“IND”) application for
Salmonella. Given that NASA is providing much of the necessary funding for this research, additional investment in Astrogenetix
has been scaled back considerably as efforts are concentrated on filing this IND. The team is also evaluating a vaccine target
for Methicillin-Resistant Staphylococcus Aureus (“MRSA”) based on discoveries made in microgravity. We have negotiated
a Space Act Agreement with NASA for a minimum of twenty eight additional space flights following the successful filing of the
IND for Salmonella.
Liquidity and Capital Resources
– 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. In addition, actions taken as a result of the ongoing internal evaluation of our business could result in expenditures
not currently contemplated in our estimates for 2015. 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 and our ability to manage product development efforts.
At September 30, 2014, we had cash and cash equivalents
of $45.3 million and our working capital was approximately $44.1 million, which excludes an indemnity cash holdback receivable
of $6.1 million being held in escrow as part of the sale of our ASO business. The indemnity cash holdback may be received
no later than February 2016 subject to certain conditions in the asset purchase agreement (see Note 3 for more information).
We believe we have sufficient liquidity to continue
to fund our expenses, capital requirements and other expected liquidity requirements over the next fiscal year.
(2) Discontinued Operations & Gain on the Sale of the ASO Business
Unit
On August 22, 2014, the Company completed
the previously announced sale of substantially all of its assets used to conduct the Company's former ASO business unit
to Lockheed Martin Corporation for an agreed upon purchase price of $61.0 million, less a working capital adjustment.
As of September 30, 2014, the estimated purchase price is $59.3 million, which includes a working capital adjustment of
$1.7 million. As of September 30, 2014, the Company has received cash of $52.6 million and has recorded receivables of
$0.6 million for the working capital holdback, which is classified in other current assets, and $6.1 million for the
indemnity holdback. The working capital holdback will be settled in the next twelve months, once both sides agree on the
final net working capital amount as of the date of the transaction. The indemnity holdback is being held in escrow under the
terms of an escrow agreement until February 2016 (the 18-month anniversary of the consummation of the transaction). The
Company believes it will fully realize the indemnity holdback in February 2016. Our former ASO business consists of
(i) ownership, operation and maintenance of spacecraft processing facilities in Titusville, Florida and Vandenberg Air Force
Base, California (“VAFB”), (ii) supporting government and commercial customers processing complex communication,
earth observation and deep space satellite launches, (iii) designing and building spacecraft processing equipment and
facilities and (iv) providing propellant services including designing, building and testing propellant service equipment for
fueling spacecraft.
Additionally, as part of the Asset Sale, the Company
used a portion of the proceeds to pay off the outstanding balance of its term loan of $5.7 million, which was secured by our former
ASO business’ assets. As such, 100% of interest expense on the debt was allocated to discontinued operations in the amount
of $62 thousand and $65 thousand for the three months ended September 30, 2014 and 2013, respectively.
The sale of our former ASO business, which was previously
reported within our former ASO business unit segment, resulted in a pre-tax gain of $25.6 million ($23.7 million after-tax)
for the three months ended September 30, 2014. The pre-tax gain on this sale reflects the excess of the sum of the cash proceeds
received over the net book value of the net assets of the Company’s former ASO business. The total pre-tax gain on the sale
for the three months ended September 30, 2014, includes the following (in thousands):
Cash proceeds from the sale of the ASO business | |
$ | 52,591 | |
Receivable for working capital holdback | |
| 598 | |
Receivable for indemnity holdback | |
| 6,100 | |
Liabilities assumed by the Buyer | |
| 2,478 | |
Net book value of assets sold | |
| (36,175 | ) |
Other | |
| 38 | |
Gain on sale of our former ASO business | |
$ | 25,630 | |
The Company and the Buyer entered into a transition
services agreement to which the Company and the Buyer agreed to provide the other party with certain services, including, among
others, services related to benefits, human resources and payroll administration, cash management, financial statements and compliance,
each of a type currently provided by or for the Company or our former ASO business unit prior to the Asset Sale.
The Company has agreed to provide services to the Buyer for a period of up to one year and the Buyer has agreed to provide services
to the Company for a period of up to six months. Each party has the option to extend the term of the services provided by the
other party for a period of one year. The services provided may be terminated by the party receiving such services on an individual
basis upon 30 days’ notice to the providing party. The party receiving services shall pay the providing party, as consideration
for such services, on a time and materials basis, fees based upon an agreed upon set fringe rate and fee rate and the salary of
the employee of the providing party who is providing such services.
While we are a party to the transition services
agreement, we have determined that the continuing cash flows generated by this agreement did not constitute significant continuing
involvement in the operations of our former ASO business. As such, the net assets, operating results and cash flows related to
our former ASO business have been separately reflected as discontinued operations for the three months ended September 30, 2014
and 2013.
The following table provides a reconciliation
of the major assets and liabilities of our former ASO business to the amounts reported in the condensed consolidated balance sheet:
| |
June 30,
2014 |
Carrying amounts of major classes of assets included as part of discontinued
operations | |
| | |
Accounts receivable, net | |
$ | 1,220 | |
Prepaid expenses and other current assets | |
| 185 | |
Property and equipment, net | |
| 33,858 | |
Other assets, net | |
| 29 | |
Total assets of discontinued operations | |
$ | 35,292 | |
| |
| | |
Carrying amounts of major classes of liabilities included as part of
discontinued operations | |
| | |
Accounts payable | |
$ | 184 | |
Accrued liabilities and other | |
| 632 | |
Deferred revenue | |
| 873 | |
Term note payable | |
| 5,655 | |
Deferred revenue | |
| 237 | |
Total liabilities of discontinued operations | |
$ | 7,581 | |
The following table provides a reconciliation of the
major components of income of our former ASO business to the amounts reported in the condensed consolidated statements of operations:
| |
Three Months Ended September 30, | |
| |
2014 | | |
2013 | |
Major line items constituting income of discontinued operations | |
| | | |
| | |
Revenue | |
$ | 2,807 | | |
$ | 6,689 | |
Cost of revenue | |
| (1,313 | ) | |
| (3,086 | ) |
Selling, general and administrative | |
| (128 | ) | |
| (187 | ) |
Interest and other expense, net | |
| (63 | ) | |
| (64 | ) |
Gain on sale of discontinued operations | |
| 25,630 | | |
| — | |
Income tax expense | |
| (2,378 | ) | |
| (1,173 | ) |
Income of discontinued operations | |
$ | 24,555 | | |
$ | 2,179 | |
Revenue generated by our former ASO business unit
payload processing facilities was recognized ratably over the occupancy period of the satellite while in those facilities from
arrival through launch. Those contracts were firm fixed price mission specific contracts. The percentage-of-completion method
was used for all contracts where incurred costs could be reasonably estimated and successful completion could be reasonably assured
at inception. Changes in estimated costs to complete and provisions for contract losses were recognized in the period they become
known. Below is a summary of revenue recognition methods under our former ASO business unit:
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 |
(3) Receivables – Working Capital and Indemnity Holdback Related
to the Asset Sale
On August 22, 2014, the Company completed the previously
announced sale of substantially all of its assets used to conduct the Company's former ASO business unit to Lockheed Martin Corporation
for an agreed upon purchase price of $61.0 million, less a working capital adjustment. As of September 30, 2014, the
estimated purchase price is $59.3 million, which includes a working capital adjustment of $1.7 million. As of September 30, 2014,
the Company has received cash of $52.6 million and has recorded receivables of $0.6 million for the working capital holdback,
which is classified in other current assets, and $6.1 million for the indemnity holdback.
The working capital holdback will be settled in the
next twelve months, once both sides agree on the final net working capital amount as of the date of the transaction. If the final
net working capital amount is greater than the estimated net working capital amount, the difference shall be paid to the Company
by the Buyer with simple interest thereon from the closing date to the date of payment at a floating rate per annum equal to the
Interest Rate and such payment shall include the adjustment holdback amount and interest from the closing
date in the manner calculated for the difference. If the final net working capital amount
is less than the estimated net working capital amount, the difference shall be paid to Buyer
by the Company with simple interest thereon from the closing date to the date of payment at a floating rate
per annum equal to the Interest Rate first, out of the adjustment holdback amount, and if there are insufficient
funds in the adjustment holdback amount, directly by the Company. Any such payment shall be made in
immediately available funds not later than five business days after the determination of the final net
working capital amount by wire transfer to a bank account designated in writing by the party entitled to
receive the payment.
The indemnity holdback of $6.1 million is being held
in escrow under the terms of an escrow agreement until February 2016 (the 18-month anniversary of the consummation of the transaction).
Within three business days after the 18-month anniversary of the closing date, the then-available indemnity escrow holdback
(less any pending Buyer claims), will be released and paid to the Company. The Company is currently not aware of
any pending Buyer claims.
(4) Noncontrolling Interest
In January 2010, restricted shares of Astrotech subsidiaries,
1st Detect and Astrogenetix, were granted to certain employees, directors and officers, resulting in Astrotech owning
less than 100% of the subsidiaries. The Company applied noncontrolling interest accounting from January 2010 through June 2014,
which required us to clearly identify the noncontrolling interest in the condensed consolidated balance sheets and condensed consolidated
statements of operations. We disclose three measures of net income (loss): net income (loss), net income (loss) attributable to
noncontrolling interest, and net loss attributable to Astrotech Corporation. Our operating cash flows in our condensed consolidated
statements of cash flows reflect net income (loss); while our basic and diluted net income (loss) per share calculations reflect
net income (loss) attributable to Astrotech Corporation.
During June 2014, the Company completed an internal
reorganization involving both 1st Detect and Astrogenetix which resulted in the two entities becoming wholly-owned
subsidiaries of the Company, and which was effected through the relinquishment by certain employees of equity grants previously
issued to them in 1st Detect and Astrogenetix. The noncontrolling interest balance of $1.8 million at June 30, 2014
represented an interest held by the State of Texas Emerging Technology Fund and was settled in the three months ended September
30, 2014 for $2.3 million (See Note 10 for more information).
(5) Net Income (Loss) per Share
Basic net income per share is computed on the basis
of the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed
based on the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding
during the period using the treasury stock method and the if-converted method. Dilutive potential common shares include outstanding
stock options and share-based awards. The following table reconciles the numerators and denominators used in the computations of
both basic and diluted net income per share (in thousands, except per share data):
| |
Three Months Ended September 30, | |
| |
2014 | | |
2013 | |
Numerator: | |
| | | |
| | |
Amounts attributable to Astrotech Corporation, basic and diluted: | |
| | | |
| | |
Loss from continuing operations, net of tax | |
$ | (1,272 | ) | |
$ | (926 | ) |
Income from discontinued operations, net of tax | |
| 24,555 | | |
| 2,179 | |
Net income attributable to Astrotech Corporation | |
| 23,283 | | |
| 1,253 | |
State of Texas deemed dividend (Note 10) | |
| (531 | ) | |
| — | |
Net income attributable to Astrotech Corporation applicable to common shareholders | |
$ | 22,752 | | |
$ | 1,253 | |
| |
| | | |
| | |
Denominator: | |
| | | |
| | |
Denominator for basic net income (loss) per share attributable to Astrotech Corporation — weighted average common stock outstanding | |
| 19,548 | | |
| 19,470 | |
Dilutive common stock equivalents — common stock options and share-based awards | |
| — | | |
| — | |
Denominator for diluted net income (loss) per share attributable to Astrotech Corporation — weighted average common stock outstanding and dilutive common stock equivalents | |
| 19,548 | | |
| 19,470 | |
| |
| | | |
| | |
Basic and dilutive net income (loss) per common share: | |
| | | |
| | |
Net loss attributable to Astrotech Corporation from continuing operations | |
$ | (0.09 | ) | |
$ | (0.05 | ) |
Net income from discontinued operations | |
| 1.25 | | |
| 0.11 | |
Net income attributable to Astrotech Corporation applicable
to common shareholders | |
$ | 1.16 | | |
$ | 0.06 | |
Options to purchase 872,150 shares of common stock
at exercise prices ranging from $0.32 to $14.30 per share outstanding for the three months ended September 30, 2014 were not included
in diluted earnings per share, as the inclusion of the potential common shares would have had an anti-dilutive effect
on loss from continuing operations. In addition, options to purchase 1,173,650 shares of common stock at exercise prices
ranging from $0.32 to $24.10 per share outstanding for the three months ended September 30, 2013, were not included in
diluted net income per share, as the impact to diluted net income per share is anti-dilutive.
(6) Revenue Recognition
Astrotech recognizes revenue employing several generally
accepted revenue recognition methodologies across its business unit. The methodology used is based on contract type and the manner
in which products and services are provided.
Revenue is recognized when it is realized or realizable
and earned. The Company considers revenue realized or realizable and earned when pervasive evidence of an arrangement exists,
delivery has occurred or services have been provided, and collectibility is reasonably assured.
(7) Debt
In October 2010, our former ASO business 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 was to terminate in October 2015, and the $3.0 million revolving credit facility expired in October
2012. The bank financing facilities were secured by the assets of our former ASO business, including accounts receivable, and
required us to comply with designated covenants. On August 22, 2014, the Company used a portion of the proceeds from the Asset
Sale to pay off the outstanding balance of its term loan of $5.7 million, which is reported in the statement of cash flows as
discontinued operations. The Company has no outstanding bank debt as of September 30, 2014.
(8) Fair Value Measurement
The accounting standard for fair value measurements
defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair
value measurements. The standard is applicable whenever assets and liabilities are measured and included in the financial statements
at fair value.
The fair value hierarchy established in the standard
prioritizes the inputs used in valuation techniques into three levels as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable,
either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active;
or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities.
Level 3—Unobservable inputs that are supported
by little or no market activity and are significant to the fair value of the assets or liabilities.
On August 22, 2014, the Company used a portion
of the proceeds from the Asset Sale to pay off the outstanding balance of its term loan of $5.7 million.
The following table presents the carrying amounts,
estimated fair values and valuation input levels of certain of the Company’s financial instruments as of September 30, 2014
and June 30, 2014 (in thousands):
| |
September 30, 2014 | | |
June 30, 2014 | | |
| |
| |
Carrying | | |
Fair | | |
Carrying | | |
Fair | | |
Valuation | |
| |
Amount | | |
Value | | |
Amount | | |
Value | | |
Inputs | |
Note Payable | |
$ | — | | |
$ | — | | |
$ | 5,655 | | |
$ | 5,655 | | |
| Level 2 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
The carrying amounts of the Company’s Level 1
securities include cash and cash equivalents. The Company has no Level 2 or Level 3 assets or liabilities.
(9) Credit Risk Concentration Involving Cash
The Company maintains funds in bank accounts that
may exceed the limit insured by the Federal Deposit Insurance Corporation (“FDIC”) of $250,000 per depositor. The risk of loss attributable to these uninsured balances is mitigated by depositing funds in what we believe to be
high credit quality financial institutions. The Company has not experienced any losses in such accounts.
(10) State of Texas Funding
In March 2010, the Texas Emerging Technology Fund awarded
1st Detect $1.8 million for the development and marketing of the Miniature Chemical Detector, a portable mass spectrometer
designed to provide mass spectrometry analytics in real-time for explosive device detection in airports and the battlefield, industrial
quality and process control, environmental field applications and laboratory research.
The proceeds from the award could only be used to
fund development of the Miniature Chemical Detector at 1st Detect, not for repaying existing debt or for use in other
Company subsidiaries. In exchange for the award, 1st Detect granted a common stock purchase right and a note payable
to the State of Texas. The economic substance of the transaction was that the State of Texas had purchased shares of 1st
Detect in exchange for the granted award. The note, which was treated economically as purchased shares and reflected in
the equity section of the condensed consolidated balance sheet, equaled the disbursements to 1st Detect to date and
accrued interest at 8% per year. On August 28, 2014, 1st Detect settled the funding and common stock repurchase right
with a payment of $2.3 million. The Company has accounted for the difference between the $2.3 million paid and the $1.8 million
received as a deemed dividend in its calculation of earnings per share.
(11) Equity and Other Long Term 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 September 30, 2014, there are no shares available
for grant. Based on the terms of the 1994 Plan, no awards shall be granted more than ten years after the effective
date of the plan unless amended.
The Directors’ Stock Option Plan (“Director’s Plan”)
Options under the Director’s 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 September 30, 2014, there are 45,000 shares available for future grant.
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, directors and consultants. 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 (“SARs”) and restricted stock to employees, directors and consultants of the Company.
Stock options previously awarded vested upon the Company’s stock achieving a closing price of $1.63 on October 21, 2013,
and expire ten years from grant date or upon employee or director termination. Restricted shares awarded will vest 33.33% per
year over a three year period and expire upon employee or director termination. There have been no SARs granted under
the 2008 Plan. As of September 30, 2014, there are 362,501 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. On June 26, 2014, an additional 2,000,000 shares of our 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 options, SARs and restricted stock to employees, directors and consultants of the Company. Stock options previously awarded
vested upon the Company’s stock achieving a closing price of $1.63 on October 21, 2013, and expire ten years from the grant
date or upon employee or director termination. There have been no SARs or restricted stock granted under the 2011 Plan.
As of September 30, 2014, there are 3,266,000 shares available for grant under the 2011 Plan.
At September 30, 2014, 3,673,501 shares of Common
Stock were reserved for future grants of stock incentive grants under the Company’s four stock incentive plans.
(12) Income Taxes
The Company accounts for income taxes under the asset
and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences
between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established, when necessary,
to reduce deferred tax assets to amounts that are more likely than not to be realized. As of September 30, 2014, the Company
has established a full valuation allowance against all of its net deferred tax assets to the extent they will not be utilized
to offset the gain and income from discontinued operations.
To the extent that a loss or credit carryover can be
utilized to offset the gain and income from discontinued operations, it has been recognized as a tax benefit to be applied against
the current tax otherwise resulting from discontinued operations.
To the extent that a taxable loss from the current
year can be utilized to offset the tax otherwise resulting from discontinued operations, it has been recognized as a tax benefit
from continuing operations.
The disposition of the ASO business resulted in
the recognition of a taxable gain of approximately $27.0 million. The Company will utilize losses generated during its current
fiscal year ending June 30, 2015, as well as loss carryovers and credits that are unrestricted by IRC Section 382 (which
limits the utilization of loss carryovers). As of September 30, 2014, the Company expects that it will be able to offset all but
$2.8 million of the gain. Any additional losses incurred during the current fiscal year ending June 30, 2015, will reduce the
taxable gain and the taxes associated with that gain. The Company is currently unable to reasonably estimate the impact of any
additional losses that may occur during the remainder of its fiscal year ending June 30, 2015. As of September 30, 2014, it is
expected that the net federal and state tax impact of the disposition gain (net of the losses incurred during the three months
ended September 30, 2014, and the tax attribute carryovers from prior years) is $1.1 million.
FASB ASC 740, Income Taxes (FASB ASC 740) 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 has an unrecognized tax benefit of $0.1 million for the three months ended September 30, 2014 and 2013.
For the three months ended September 30, 2014 and 2013,
the Company’s effective tax rate differed from the federal statutory rate of 35%, primarily due to recording changes to the
valuation allowance placed against its net deferred tax assets.
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.
(13) Commitments and Contingencies
The Company is subject to various lawsuits and other
claims in the normal course of business. In addition, from time to time, the Company receives communications from government or
regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which
the Company operates.
The Company establishes reserves for the estimated
losses on specific contingent liabilities, for regulatory and legal actions where the Company deems a loss to be probable and the
amount of the loss can be reasonably estimated. In other instances, the Company is not able to make a reasonable estimate of liability
because of the uncertainties related to the outcome or the amount or range of potential loss.
Litigation, Investigations and Audits
– We are not party to, nor are our properties the subject of, any material pending legal proceedings, other than as set forth
below:
Astrotech was named as a party to a suit filed in
the Circuit Court of the Eighteenth Judicial Circuit for Brevard County, Florida. This was an action for foreclosure of
certain real estate and for debt. The Company was named as a party because it held an inferior lien against the
property at issue and had to be named in the foreclosure action. No monetary relief was requested from Astrotech at
the time. During the three months ended September 30, 2014, the Company received a lump sum payment of $50 thousand, less legal
fees, along with a release of liability in exchange for a release of its inferior mortgage. In October 2014, the underlying lawsuit
was voluntarily dismissed and the case was closed.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal
and state securities laws. Forward-looking statements may include the words “may,” “will,” “plans,”
“believes,” “estimates,” “expects,” “intends” and other similar expressions. Such
statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected
in the statements. Such risks and uncertainties include, but are not limited to:
| • | The effect of economic conditions in the United States or other nations that could impact our ability to sell our products
and services or gain customers; |
| • | Our ability to raise sufficient capital to meet our long and short-term liquidity requirements; |
| • | Our ability to successfully pursue our business plan and execute our strategy; |
| • | Whether we will fully realize the economic benefits under our customer contracts; |
| • | Technological difficulties and potential legal claims arising from any technological difficulties; |
| • | Product demand and market acceptance risks, including our ability to develop and sell products and services to be used by governmental
or commercial customers; |
| • | Uncertainty in government funding and support for key programs, grant opportunities or procurements; |
| • | The impact of competition on our ability to win new contracts; |
| • | Uncertainty in securing reliable and consistent access to space, including the International Space Station (“ISS”); |
| • | Delays in the timing of performance under our contracts;
and |
| • | Our ability to meet technological development milestones
and overcome development challenges. |
Although we believe that the assumptions underlying
our forward-looking statements are reasonable, any of the assumptions could be inaccurate, therefore we cannot assure you that
the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the significant
uncertainties inherent in our forward-looking statements, the inclusion of such information should not be regarded as a representation
by us or any other person that our objectives and plans will be achieved. Some of these and other risks and uncertainties that
could cause actual results to differ materially from such forward-looking statements are more fully described in our 2014 Annual
Report on 10-K, elsewhere in this Quarterly Report on Form 10-Q or in the documents incorporated by reference herein. Except as
may be required by applicable law, we undertake no obligation to publicly update or advise of any change in any forward-looking
statement, whether as a result of new information, future events or otherwise. In making these statements, we disclaim any obligation
to address or update each factor in future filings with the Securities and Exchange Commission (“SEC”) or communications
regarding our business or results, and we do not undertake to address how any of these factors may have caused changes to discussions
or information contained in previous filings or communications. In addition, any of the matters discussed above may have affected
our past results and may affect future results, so that our actual results may differ materially from those expressed in this Quarterly
Report on Form 10-Q and in prior or subsequent communications.
ITEM 2. | | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
The following information should be read in conjunction
with the unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Report.
Business Overview
Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,”
“the Company,” “we,” “us” or “our”), a Washington corporation, is a company that
was formed in 1984 to leverage the environment of space for commercial purposes. For 30 years, the Company remained a crucial
player in space commerce activities which supported the launch of 23 shuttle missions and more than 300 spacecraft. We currently
prepare and process scientific research in microgravity and develop and manufacture sophisticated, next generation chemical sensor
equipment.
On August 22, 2014, the Company completed the
previously announced sale (“Asset Sale”) of substantially all of its assets used to conduct the Company's former
Astrotech Space Operations (“ASO”) business unit (“the ASO business”) to Lockheed Martin Corporation
for an agreed upon purchase price of $61.0 million, less a working capital adjustment. As of September 30, 2014,
the estimated purchase price is $59.3 million, which includes a working capital adjustment of $1.7 million. As of September
30, 2014, the Company has received cash of $52.6 million and has recorded receivables of $0.6 million for the working capital
holdback, which is classified in other current assets, and $6.1 million for the indemnity holdback. The working capital
holdback will be settled in the next twelve months, once both sides agree on the final net working capital amount as of the
date of the transaction. The indemnity holdback is being held in escrow under the terms of an escrow agreement until February
2016 (the 18-month anniversary of the consummation of the transaction). The Company believes it will fully realize the
indemnity holdback in February 2016. Our former ASO business consists of (i) ownership, operation and maintenance of
spacecraft processing facilities in Titusville, Florida and Vandenberg Air Force Base, California (“VAFB”), (ii)
supporting government and commercial customers processing complex communication, earth observation and deep space satellite
launches, (iii) designing and building spacecraft processing equipment and facilities and (iv) providing propellant services
including designing, building and testing propellant service equipment for fueling spacecraft.
With the sale of the Company’s former ASO business,
the Company now operates a single reportable business unit, Spacetech, and its efforts are focused on the following:
| • | Working with development
partners to build industry specific applications using our sensor equipment; |
| • | Enhancing the capabilities
of our sensors; |
| • | Commercializing unique
space-based technologies; |
| • | Developing
next generation vaccines using the unique environment of microgravity. |
Spacetech
Spacetech is a technology incubator designed to commercialize
space-industry technologies. Spacetech is currently pursuing two distinct opportunities:
1st Detect
1st Detect
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 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 the National Aeronautics and Space Administration (“NASA”) to develop a mass spectrometer
for the International Space Station (“ISS”), the Company has developed a series of 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 at a lower price point. Our efforts have resulted in a technology that can provide mass spectrometry
analytics in real-time for explosive device detection in airports and the battlefield, industrial quality and process control,
environmental field applications and laboratory research.
The MMS-1000TM 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 requires 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. The OEM-1000 is a mass spectrometer
component that is designed to be integrated into customers’ complementary technology. The OEM-1000 has recently been integrated
into a Thermogravimetric Analyzer (“TGA”) manufactured by RIGAKU of Tokyo, Japan, one of the leading instrumentation
companies in Asia. The integrated instrument named Thermo iMS2 is the world’s first integrated TGA with MS/MS capabilities
and is expected to be well received by the international research and development markets.
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 NASA space shuttle program prior to its retirement in 2011. This strategy gave Astrogenetix unprecedented
access to research in microgravity, as we flew experiments twelve times over a three year period. In collaboration with NASA,
NASA has engaged leading vaccine development experts through a premier educational institution to independently evaluate Astrogenetix’s
platform with specific direction to aid in the filing of an Investigational New Drug (“IND”) application for
Salmonella. Given that NASA is providing much of the necessary funding for this research, additional investment in Astrogenetix
has been scaled back considerably as efforts are concentrated on filing this IND. The team is also evaluating a vaccine target
for Methicillin-Resistant Staphylococcus Aureus (“MRSA”) based on discoveries made in microgravity. We have negotiated
a Space Act Agreement with NASA for a minimum of twenty eight additional space flights following the successful filing of the
IND for Salmonella.
Business Developments
Sale of Astrotech Space Operations business (“Asset Sale”)
On August 22, 2014, the Company completed the previously
announced sale of substantially all of its assets used to conduct the Company's former ASO business unit to Lockheed Martin Corporation
for an agreed upon purchase price of $61.0 million, less a working capital adjustment. As of September 30, 2014, the
estimated purchase price is $59.3 million, which includes a working capital adjustment of $1.7 million. As of September 30, 2014,
the Company has received cash of $52.6 million and has recorded receivables of $0.6 million for the working capital holdback,
which is classified in other current assets, and $6.1 million for the indemnity holdback. The working capital holdback will
be settled in the next twelve months, once both sides agree on the final net working capital amount as of the date of the transaction.
The indemnity holdback is being held in escrow under the terms of an escrow agreement until February 2016 (the 18-month anniversary
of the consummation of the transaction). The Company expects to fully realize the indemnity holdback in February 2016. Our former
ASO business consists of (i) ownership, operation and maintenance of spacecraft processing facilities in Titusville, Florida and
Vandenberg Air Force Base, California (“VAFB”), (ii) supporting government and commercial customers processing complex
communication, earth observation and deep space satellite launches, (iii) designing and building spacecraft processing equipment
and facilities and (iv) providing propellant services including designing, building and testing propellant service equipment for
fueling spacecraft.
During the first quarter of fiscal 2015, we recorded
a pre-tax gain of $25.6 million ($23.7 million, after tax) on the Asset Sale. All of the operations of our former ASO business,
which were previously reported within our former ASO business unit segment, have been reclassified as discontinued operations
in our unaudited condensed consolidated financial statements for the quarter ended September 30, 2014 and 2013 and as of June
30, 2014. See Note 2 to our unaudited condensed consolidated financial statements for more information regarding the Asset Sale
and the use of related proceeds.
Payoff of Term Loan
On August 22, 2014, the Company used a portion of
the proceeds from the Asset Sale to pay off the outstanding balance of its term loan of $5.7 million. The
Company has no outstanding bank debt as of September 30, 2014.
Payoff of Texas Emerging Technology Fund Award
On August 28, 2014, the Company used a portion
of the proceeds from the Asset Sale to settle its funding from the State of Texas Emerging Technology Fund for $2.3 million.
Critical Accounting Policies
The discussion and analysis of our financial condition
and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in
accordance with GAAP for interim financial statements. The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Estimates and assumptions are reviewed periodically. Actual results may differ from these estimates under different assumptions
or conditions.
With the sale of our former ASO business unit,
several of our critical accounting policies will no longer be applicable in subsequent fiscal years. Management will update its
disclosure of our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition
and Results of Operations in our 2015 Annual Report on Form 10-K.
Results of Operations
Quarter ended September 30, 2014 compared to Quarter ended September
30, 2013:
Selected consolidated financial data for the quarter
ended September 30, 2014 and 2013 is as follows (dollars in thousands):
| |
Quarter Ended
September 30, |
| |
2014 | |
2013 |
Revenue | |
$ | 320 | | |
$ | — | |
Cost of revenue | |
| 277 | | |
| — | |
Gross profit | |
| 43 | | |
| — | |
Gross margin | |
| 13 | % | |
| — | % |
Selling, general and administrative | |
| 1,960 | | |
| 1,551 | |
Research and development | |
| 692 | | |
| 805 | |
Operating expenses | |
$ | 2,652 | | |
$ | 2,356 | |
Interest and other expense, net | |
| (12 | ) | |
| (12 | ) |
Income tax benefit | |
| (1,325 | ) | |
| (1,173 | ) |
Loss from continuing operations | |
$ | 1,272 | | |
$ | 1,171 | |
Discontinued operations | |
| | | |
| | |
Income from operations of former ASO business | |
| 26,933 | | |
| 3,352 | |
Income tax expense | |
| (2,378 | ) | |
| (1,173 | ) |
Income from discontinued operations | |
$ | 24,555 | | |
$ | 2,179 | |
Net income | |
$ | 23,283 | | |
$ | 1,008 | |
Less: Net loss attributable to noncontrolling interest | |
| — | | |
| (245 | ) |
Net income attributable to Astrotech Corporation | |
$ | 23,283 | | |
$ | 1,253 | |
Revenue – Total
revenue increased $320 thousand during the first quarter of fiscal 2015 compared to the first quarter of fiscal 2014 due to the
first phase of a new subcontract agreement with a third party on the Next Generation Chemical Detector (“NGCD”) program.
Gross Profit –
Gross profit increased $43 thousand during the first quarter of fiscal 2015 compared to the first quarter of fiscal 2014 due to
our increase in revenue as described above.
Operating Expenses –
Our operating expenses increased $296 thousand, or 12.6%, during the first quarter of fiscal 2015 compared to the same
period in the prior fiscal year. Significant changes to operating expenses included the following:
| · | Selling,
general and administrative expense increased by $409 thousand primarily driven by transaction-related
costs within our Corporate operations, as well as higher employee-related
costs due to additional headcount within our 1st Detect business unit. |
| · | Research
and development expense decreased by $113 thousand primarily driven by a shift of direct
material and labor costs to cost of revenue and lower subcontractor costs due
to higher employee headcount, offset by higher R&D material costs, new software licensing,
and increased utilities expense. |
Income Taxes on Continuing
Operations – Our income tax benefit increased $152 thousand due to lower losses on continuing operations
during the first quarter of fiscal 2015 compared to the same period in the prior fiscal year.
Discontinued
Operations – Discontinued operations includes the reclassification of operations of the Company’s former ASO
business unit for the three months ended September 30, 2013. Income from discontinued operations increased $22.4 million
during the first quarter of fiscal 2015 compared to the same period in the prior year. Significant changes included the following:
| · | Gain
on the Asset Sale of $25.6 million ($23.7 million after-tax) which reflects the excess
of the sum of the cash proceeds received over the net book value of the net assets of
the Company’s former ASO business unit. |
| · | Operating
income from discontinued operations decreased by $2.0 million as our former ASO business
unit’s operating results were only included through August 21, 2014 in the
three months ended September 30, 2014, compared to a full quarter in the three months
ended September 30, 2013. |
| · | Income
tax expense increased $1.2 million primarily driven by taxes of $1.9 million on the gain
of the Asset Sale, offset by a decrease in operating income tax expense of $0.6 million
related to the shorter period of operations during the first quarter of fiscal 2015 compared
to the same period in the prior fiscal year. |
Liquidity and Capital Resources
The following is a summary of the change in our cash and cash equivalents
(in thousands):
| |
Three Months Ended September 30, | |
| |
2014 | | |
2013 | | |
change | |
Cash flows from continuing operations: | |
| | | |
| | | |
| | |
Net cash used in operating activities | |
$ | (1,749 | ) | |
$ | (1,249 | ) | |
$ | (500 | ) |
Net cash used in investing activities | |
| (46 | ) | |
| (41 | ) | |
| (5 | ) |
Net cash used in financing activities | |
| (2,331 | ) | |
| — | | |
| (2,331 | ) |
Net cash used in continuing operations | |
| (4,126 | ) | |
| (1,290 | ) | |
| (2,836 | ) |
| |
| | | |
| | | |
| | |
Cash flows from discontinued operations: | |
| | | |
| | | |
| | |
Net cash provided by (used in) operating activities | |
| (1,370 | ) | |
| 208 | | |
| (1,578 | ) |
Net cash provided by investing activities | |
| 52,591 | | |
| 499 | | |
| 52,092 | |
Net cash used in financing activities | |
| (5,655 | ) | |
| (95 | ) | |
| (5,560 | ) |
Net cash provided by discontinued operations | |
| 45,566 | | |
| 612 | | |
| 44,954 | |
| |
| | | |
| | | |
| | |
Net change in cash and cash equivalents | |
$ | 41,440 | | |
$ | (678 | ) | |
$ | 42,118 | |
Cash and Cash Equivalents
At September 30, 2014, we had cash and cash equivalents
of $45.3 million and our working capital was approximately $44.1 million. At September 30, 2013, we had cash and cash equivalents
of $4.4 million and our working capital was approximately $3.6 million. Net change in cash and cash equivalents increased
by approximately $42.1 million during the three months ended September 30, 2014 as compared to the three months ended September
30, 2013 due to the sale of our former ASO business.
Operating Activities
Net cash used in operating activities from continuing
operations increased to $1.7 million for the three months ended September 30, 2014 compared to $1.2 million for the three months
ended September 30, 2013, which was primarily the result of a net income tax liability of $1.1 million associated with both the
losses on our current operations and the gain on the sale of our former ASO business unit as the ASO business unit’s
operating results were only included through August 21, 2014 in the three months ended September 30, 2014, offset by larger decreases
in accrued expenses compared to the same period in the prior fiscal year.
Net cash used in operating activities from discontinued
operations was $1.4 million for the three months ended September 30, 2014 compared to net cash provided by operating activities
from discontinued operations of $0.2 million for the three months ended September 30, 2013. The change was related to the sale
of our former ASO business unit prior to the end of our fiscal quarter.
Investing Activities
Cash used in investing activities from continuing operations
for the three months ended September 30, 2014 did not change significantly compared to the three months ended September 30, 2013.
Cash provided by investing activities from discontinued
operations increased to $52.6 million for the three months ended September 30, 2014 compared to $0.5 million for the three months
ended September 30, 2013, which was due to the sale of our former ASO business.
Financing Activities
Cash used in financing activities from continuing
operations increased $2.3 million for the three months ended September 30, 2014 compared to the three months ended September
30, 2013. The increase was due to the payoff of funding from the State of Texas Emerging Technology Fund for $2.3 million.
Cash used in financing activities from discontinued
operations increased to $5.7 million for the three months ended September 30, 2014 compared to $0.1 million for the three months
ended September 30, 2013. This increase was related to the payoff of our term loan that was secured by the assets of our former
ASO business unit.
Debt
Credit Facilities
In October 2010, our former ASO business 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 was to terminate in October 2015, and the $3.0 million revolving credit facility expired in October
2012. On August 22, 2014, the Company used a portion of the proceeds from the sale of its former ASO business to pay off the outstanding
balance of its term loan of $5.7 million.
Liquidity
At September 30, 2014, we had cash and cash equivalents
of $45.3 million and our working capital was approximately $44.1 million.
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. In addition, actions taken as a result of the ongoing internal evaluation
of our business could result in expenditures not currently contemplated in our estimates for 2015. 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 and our ability to manage product
development efforts.
On August 22, 2014, the Company completed the sale
of substantially all of its assets used to conduct the Company's Astrotech Space Operations business unit to Lockheed Martin
Corporation for an agreed upon purchase price of $61.0 million, less a working capital adjustment. As of September
30, 2014, the estimated purchase price is $59.3 million, which includes a working capital adjustment of $1.7 million. As of September
30, 2014, the Company has received cash of $52.6 million and has recorded receivables of $0.6 million for the working capital
holdback and $6.1 million for the indemnity holdback. The working capital holdback will be settled in the next twelve months,
once both sides agree on the final net working capital amount as of the date of the transaction. The indemnity holdback is being
held in escrow under the terms of an escrow agreement until February 2016 (the 18-month anniversary of the consummation of the
transaction). A portion of the proceeds from the sale were used to pay off the term loan of $5.7 million and to settle the Company’s
funding from the State of Texas Emerging Technology Fund for $2.3 million. The remaining funds will fund current operations and
support strategies for our remaining business unit, Spacetech.
We believe we have sufficient liquidity to continue
to fund our operating expenses, capital requirements and other expected liquidity requirements over the next fiscal year.
Income Taxes
The Company accounts for income taxes under the asset
and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences
between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established, when necessary,
to reduce deferred tax assets to amounts that are more likely than not to be realized. As of September 30, 2014, the Company
has established a full valuation allowance against all of its net deferred tax assets to the extent they will not be utilized
to offset the gain and income from discontinued operations.
To the extent that a loss or credit carryover can be
utilized to offset the gain and income from discontinued operations, it has been recognized as a tax benefit to be applied against
the current tax otherwise resulting from discontinued operations.
To the extent that a taxable loss from the current
year can be utilized to offset the tax otherwise resulting from discontinued operations, it has been recognized as a tax benefit
from continuing operations.
The disposition of the ASO business resulted in
the recognition of a taxable gain of approximately $27.0 million. The Company will utilize losses generated during its current
fiscal year ending June 30, 2015, as well as loss carryovers and credits that are unrestricted by IRC Section 382 (which
limits the utilization of loss carryovers). As of September 30, 2014, the Company expects that it will be able to offset all but
$2.8 million of the gain. Any additional losses incurred during the current fiscal year ending June 30, 2015 will reduce the
taxable gain and the taxes associated with that gain. The Company is currently unable to reasonably estimate the impact of any
additional losses that may occur during the remainder of its fiscal year ending June 30, 2015. As of September 30, 2014, it is
expected that the net federal and state tax impact of the disposition gain (net of the losses incurred during the three months
ended September 30, 2014, and the tax attribute carryovers from prior years) is $1.1 million.
FASB ASC 740, Income Taxes (FASB ASC 740) 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 has an unrecognized tax benefit of $0.1 million for the three months ended September 30, 2014 and 2013.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements
as of September 30, 2014.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as
defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (Exchange Act), which are designed to ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and
that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision
and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report.
Based on the evaluation and criteria of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over
financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) during the quarter ended
September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are party from time to time to certain claims, litigation,
audits and investigations. Potential liabilities associated with these types of proceedings could have a material impact on our
financial position, results of operations or cash flows.
Astrotech was named as a party to a suit filed
in the Circuit Court of the Eighteenth Judicial Circuit for Brevard County, Florida. This was an action for
foreclosure of certain real estate and for debt. The Company was named as a party because it held an inferior
lien against the property at issue and had to be named in the foreclosure action. No monetary relief was requested
from Astrotech at the time. During the three months ended September 30, 2014, the Company received a lump sum payment of
$50 thousand, less legal fees, along with a release of liability in exchange for a release of its inferior mortgage. In
October 2014, the underlying lawsuit was voluntarily dismissed and the case was closed.
ITEM 1A. RISK FACTORS
Not applicable to smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended September 30, 2014, we did not issue any unregistered
securities or repurchase any of our securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
The following exhibits are filed herewith:
Exhibit No. |
|
Description |
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |
|
|
|
|
32 |
|
|
Certification pursuant to Rule 13a-14(b) of the Securities and Exchange Act of 1934. |
|
|
|
|
101 |
|
|
The
following financial information from the Company’s Quarterly Report on Form 10-Q, for the period ended September 30,
2014, formatted in eXtensible Business Reporting Language: (i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited
Condensed Consolidated Statements of Operations, (iii) Unaudited Condensed Consolidated Statements of Cash Flows, (iv)
Notes to Unaudited Condensed Consolidated Financial Statements.(1) |
(1) Pursuant to Rule 406T of Regulation
S-T, the Interactive Data Files hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections
11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange
Act of 1934, as amended, and otherwise are not subject to liability under those sections.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Astrotech Corporation |
|
|
|
|
|
Date: November 14, 2014 |
|
/s/ Eric Stober |
|
|
|
Eric Stober |
|
|
|
Chief Financial Officer |
|
Exhibit 31.1
Certification of Chief Executive Officer
Section 302 Certification
I, Thomas B. Pickens III, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Astrotech Corporation; |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial condition, results of operations, and cash flows of the
registrant as of, and for, the periods presented in this quarterly report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report
is being prepared; and |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal three months (the registrant’s fourth fiscal three months
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting. |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent function): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date: November 14, 2014 |
/s/ Thomas B. Pickens III |
|
Thomas B. Pickens III Chief Executive Officer |
Exhibit 31.2
Certification of Chief Financial Officer
Section 302 Certification
I, Eric Stober, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Astrotech Corporation; |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial condition, results of operations, and cash flows of the
registrant as of, and for, the periods presented in this quarterly report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report
is being prepared; and |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal three months (the registrant’s fourth fiscal three months
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting. |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent function): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date: November 14, 2014 |
/s/ Eric Stober |
|
Eric Stober Chief Financial Officer |
Exhibit 32
Certification Pursuant to 18 U.S. Section
1350,
as Adopted Pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002
Each of the undersigned hereby certifies,
pursuant to 18 U.S.C. Section 1350, in his capacity as an officer of Astrotech Corporation (“Astrotech”), that, to
the best of his knowledge, the Quarterly Report of Astrotech on Form 10-Q for the period ended September 30, 2014, fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the
Form 10-Q fairly presents, in all material respects, the financial condition and results of operation of Astrotech.
Date: November 14, 2014
|
|
|
/s/ Thomas B. Pickens III |
|
Thomas B. Pickens III |
|
Chief Executive Officer |
|
|
|
/s/ Eric Stober |
|
Eric Stober |
|
Chief Financial Officer |
A signed original of this written statement
required by Section 906 has been provided to Astrotech and will be retained by Astrotech and furnished to the Securities and Exchange
Commission or its staff upon request.
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