NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended
June 30, 2016
and
2015
(
1
)
Description of the Company and Operating Environment
Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” “the Company,” “we,” “us” or “our”), a Washington corporation organized in 1984, is an innovative science and technology development and commercialization company that invents, acquires, and commercializes technological innovations sourced from internal research, universities, laboratories, and research institutions, and then funds, manages, and builds start-up companies for profitable divestiture to market leaders to maximize shareholder value.
Our Business
Segment Information
– With the sale of the ASO business unit (see Note
4
) and the founding of Astral, the Company operates
two
reportable business units, Astro Scientific and Astral. Since the Company operates in
two
segments, all financial segment information required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, Segment Reporting (“FASB ASC 280”) can be found in Note
17
Segment Information.
Astro Scientific
Astro Scientific is a technology incubator that commercializes innovative technologies. Subsidiaries 1
st
Detect and Astrogenetix currently reside in Astro Scientific:
1
st
Detect
1
st
Detect develops, manufactures, and sells chemical analyzers for use in the airport security, military, food and beverage, research, breath analysis, and leak detection markets. Our chemical analyzers can identify chemicals with more accuracy and precision than competing analyzers given their extreme sensitivity and specificity. By leveraging a concept from Oak Ridge National Laboratory and a preliminary design initiated by an engagement with the National Aeronautics and Space Administration (“NASA”) to develop a mass spectrometer for the International Space Station, the Company developed a chemical analyzer that enables real time analytics that we believe to be significantly smaller, lighter, faster, and less expensive than competing analyzers. The majority of revenue in 1
st
Detect comes from working as a subcontractor on government contracts. The Company works with prime contractors in adapting our technology to be used in enhancing the government’s detection capabilities for a variety of applications.
Our product portfolio currently consists of the following products:
|
|
•
|
MMS-1000™ - the MMS-1000™ is a small, low-power desktop analyzer designed for the laboratory market.
|
|
|
•
|
OEM-1000 - the OEM-1000 is an original equipment manufacturer (“OEM”) component that drives the MMS-1000™. It is designed to be integrated into customers’ packaging and enclosures and to be integrated with application-specific sampling or separation technology. Variants of the OEM-1000 have been selected by our partners for integration with their ancillary instrumentation.
|
Astrogenetix
Astrogenetix is a biotechnology company that is applying a fast-track on-orbit discovery platform using the International Space Station to develop vaccines and other therapeutics. NASA has engaged the Center for Vaccine Development at the University of Maryland (“UMD”), one of the leading vaccinology institutions in the world, to research the application of a vaccine for
Salmonella
. NASA is collaborating with UMD, meaning little investment is required of Astrogenetix.
Astral
Astral sells film-to-digital conversion, image enhancement, and defect removal and color correction services, providing conversion of television and feature 35mm and 16mm films to the new 4K UHD/HDR format. Astral is positioned to be a leader in the digital conversion and repair of feature films, film-based television series, sporting events shot on film, film libraries, film archives, and consumer media. Film assets will need to go through an upgrade to 4K to remain relevant for over-the-top distribution (Netflix, Amazon, Hulu, etc.) as television manufacturers sell more 4K UHD/HDR televisions and consumer demand for such content accelerates.
(
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 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 amounts reported in the Company’s consolidated financial statements and accompanying notes. Management continuously evaluates its critical accounting policies and estimates, including those used in evaluating the recoverability of long-lived assets, recognition of revenue, valuation of inventory, and the recognition and measurement of loss contingencies, if any.
Revenue Recognition
Astrotech recognizes revenue employing several generally accepted revenue recognition methodologies. The methodology used is based on contract type and the manner in which products and services are provided.
Revenue for sale of manufactured product is recognized when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when a firm sales contract or invoice is in place, delivery has occurred or services have been provided, and collectability is reasonably assured.
Construction-Type and Production-Type Contracts
A portion of the Company’s revenue is derived from contracts to manufacture mass spectrometers to a buyer’s specification. These contracts are accounted for under the provisions of FASB ASC Topic 605-35 “Revenue Recognition: Construction-Type and Production-Type Contracts”. These contracts are fixed-price and are recorded on the percentage of completion basis using the ratio of costs incurred to estimated total costs at completion as the measurement basis for progress toward completion and revenue recognition. Any losses identified on contracts are recognized immediately. Contract accounting requires significant judgment relative to assessing risks, estimating contract costs and making related assumptions for schedule and technical issues. With respect to contract change orders, claims, or similar items, judgment must be used in estimating related amounts and assessing the potential for realization. These amounts are only included in contract value when they can be reliably estimated and realization is probable.
The Company enters into fixed-priced subcontracts on government projects that are
one
to
two
years long. Revenue from certain long-term, integrated project management contracts to provide new prototypes and completion services is reported on the percentage-of-completion method of accounting. At the outset of each contract, we prepare a detailed analysis of our estimated cost to complete the project, and our progress is based on the percentage of cost incurred. Risks related to service delivery, usage, productivity, and other factors are considered in the estimation process. The recording of profits and losses on long-term contracts requires an estimate of the total profit or loss over the life of each contract. This estimate requires consideration of total contract value, change orders, and claims, less costs incurred and estimated costs to complete. Anticipated losses on contracts are recorded in full in the period in which they become evident. Profits are recorded based upon the total estimated contract profit times the current percentage complete for the contract.
Research and Development
Research and development costs are expensed as incurred. Income from the sale of prototype units in 1
st
Detect is booked as an offset to research and development and will continue to be booked accordingly until the Company transitions to full production. Research and development expenses for the fiscal
years ended June 30, 2016 and 2015
were
$6.5 million
and
$3.2 million
, respectively.
Net Income (Loss) Earnings per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per share includes all common stock options and other common stock equivalents that potentially may be issued as a result of conversion privileges unless the impact is considered anti-dilutive (see Note
13
).
Cash and Cash Equivalents
The Company considers short-term investments with original maturities of three months or less to be cash equivalents. Cash equivalents are comprised primarily of operating cash accounts, money market investments, and certificates of deposits.
Accounts Receivable
The carrying value of the Company’s accounts receivable, net of the allowance for doubtful accounts, represents their estimated net realizable value. Astrotech estimates 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. The Company anticipates collecting all unreserved receivables within one year. As of
June 30, 2016
and
2015
, there was
no
allowance for doubtful accounts deemed necessary.
Inventory
The Company computes inventory cost on a first-in, first-out basis, and inventory is valued at the lower of cost or market. The valuation of inventory also requires the Company to estimate obsolete and excess inventory as well as inventory that is not of saleable quality.
Property and Equipment
Property and equipment are stated at cost. All furniture, fixtures, and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets, which is generally
five years
. Purchased software is typically depreciated over
three years
; however, Astral’s proprietary software, Astral HDR ICE™, is being depreciated over
seven years
as this is management’s best estimate of useful life of this platform. Leasehold improvements are amortized over the shorter of the useful life of the improvement or the term of the lease. Repairs and maintenance are expensed when incurred.
Impairment of Long-Lived Assets
The Company reviews 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 undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Recoverability of long-lived assets is dependent on a number of conditions, including uncertainty about future events and demand for our services.
No
impairments were identified in the
years ended June 30, 2016 and 2015
.
Fair Value of Financial Instruments
Astrotech’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, investments, and accrued liabilities. The Company’s management believes the carrying amounts of these assets and liabilities approximates their fair value. For more information about the Company’s accounting policies surrounding fair value instruments, see Note
9
.
Available-for-Sale Investments
Investments that are designated as available-for-sale are reported at fair value, with unrealized gains and losses recorded in accumulated other comprehensive (loss) income. The Company determines the cost of the investment sold based on a first-in, first-out cost basis at the individual security level. The Company’s investments are subject to a periodic impairment review and are evaluated based on the specific facts and circumstances present at the time of assessment, which include the consideration of general market conditions, the duration and extent to which the fair value is below cost, and the Company’s ability and intent to hold the investment for a sufficient period of time to allow for recovery of value in the foreseeable future. The Company also considers specific adverse conditions related to the financial health of, and the business outlook for, the investee, which may include industry and sector performance, changes in technology, operational and financing cash flow factors, and changes in the investee’s credit rating. The Company records other than temporary impairments on marketable equity securities and marketable
equity method investments in gains (losses) on equity investments, net of gains (losses). For more information on investments, see Note
3
.
Held-to-Maturity Investments
Investments that are designated as held-to-maturity investments are reported at historical amortized costs. These are investments the Company intends to hold until maturity. The Company’s investments are subject to a periodic impairment review. The Company will write down any investment that the Company does not expect to recover the entire amortized cost basis of the instrument. The Company separates other than temporary impairments into amounts representing credit losses, which are recognized in interest and other, net income (expense) items, and amounts related to all other factors, which are recognized in other comprehensive (loss) income. For more information on investments, see Note
3
.
Operating Leases
The Company leases space under operating leases. Lease agreements often include tenant improvement allowances, rent holidays, and rent escalation clauses, as defined in the respective lease agreements. Most of the Company’s lease agreements include renewal periods at the Company’s option. The Company recognizes rent holiday periods, tenant improvement allowances, and scheduled rent increases on a straight-line basis over the lease term beginning with the date the Company takes possession of the leased property. The Company records tenant improvement allowances and rent holidays as deferred rent liabilities on the consolidated balance sheets and amortizes the deferred rent over the terms of the lease to rent expense on the consolidated statements of operations.
Share-Based Compensation
The Company accounts for share-based awards to employees based on the fair value of the award on the grant date. The fair value of stock options is estimated using the expected dividend yields of the Company’s stock, the expected volatility of the stock, the expected length of time the options remain outstanding, and the risk-free interest rates. Changes in one or more of these factors may significantly affect the estimated fair value of the stock options. The Company recognizes forfeitures as they occur. The fair value of awards that are likely to meet goals, if any, are recorded as an expense over the vesting period (see Note
11
for more information).
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. The Company also discloses three measures of net income (loss): net income (loss), net loss attributable to noncontrolling interest, and net income (loss) attributable to Astrotech Corporation. The Company’s operating cash flows in its consolidated statements of cash flows reflect net income (loss), while basic and diluted earnings per share calculations reflect net income (loss) attributable to Astrotech Corporation.
The noncontrolling interest balance of
$(40) thousand
and
$299 thousand
at
June 30, 2016
and
June 30, 2015
, respectively, represents an interest by a minority shareholder in one of the Company’s subsidiaries more fully discussed in Note
5
.
State of Texas Funding
The Company accounted for the State of Texas funding in its majority owned subsidiary 1
st
Detect as a contribution of capital and had reflected the
$1.8 million
in the equity section of the consolidated balance sheet. At June 30, 2014, this represented a noncontrolling interest balance of $
1.8 million
, which was settled in August 2014 for $
2.3 million
(see Note
16
for more information).
Income Taxes
The Company accounts for income taxes under the liability method, whereby deferred tax asset or liability account balances are determined based on the difference between the financial statement and the tax bases of assets and liabilities using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Treasury Stock
The Company records treasury stock at the cost to acquire it and includes treasury stock as a component of stockholders’ equity.
Accounting Pronouncements
In May 2014 the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (as updated by ASU 2015-14 in August 2015 and ASU 2016-08 in March 2016). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle. ASU 2014-09 requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 was to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. ASU 2015-14 delayed the required adoption date for public entities to periods beginning after December 15, 2017, although early adoption to the original effective date under ASU 2014-09 is permitted. Once implemented, the Company can use one of two retrospective application methods for prior periods. Earlier application is not permitted. The Company expects this pronouncement to effect the timing of when revenue is recognized, but not the amount. The Company plans to adopt this standard in fiscal year 2019. The Company is still to determine the method of adoption.
In July 2015 the FASB issued ASU No. 2015-11, “Simplifying the Measurements of Inventory” (“ASU 2015-11”). ASU 2015-11 requires management to evaluate inventory at the lower of cost and net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Earlier application is permitted by all entities as of the beginning of an interim or annual reporting period. The Company is in the process of assessing the impact, if any, on its consolidated financial statements.
In November 2015 the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). The amendments in ASU 2015-17 eliminate the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments in this ASU are effective for public companies for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The amendments may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company believes that this ASU will not have a material effect on its financial statements. The Company will adopt ASU 2015-17 in fiscal year 2017.
In January 2016 the FASB issued ASU 2016-01, “Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under ASC 820, “Fair Value Measurements,” and as such these investments may be measured at cost. ASU 2016-01 will be effective for the Company’s fiscal year beginning July 1, 2018, and subsequent interim periods. The adoption of ASU 2016-01 is not expected to have an impact on the Company’s financial statements. The Company will adopt this ASU in fiscal year 2019.
In February 2016 the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is assessing the impact the adoption of ASU 2016-02 will have on its financial statements.
In March 2016 the FASB issued ASU 2016-09, “Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement
of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. The Company decided to early adopt this guideline as of the beginning of the current fiscal year. It did not have a material impact on the Company’s financial statements.
In June 2016 the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current generally accepted accounting standards, and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current generally accepted accounting standards; however, ASU 2016-13 will require that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. This amendment affects loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of this standard will have on its financial statements.
In August 2016 the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.
(
3
)
Investments
The following tables summarize gains and losses related to the Company’s investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
June 30, 2016
|
(In thousands)
|
|
Adjusted
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
Gain
|
|
Loss
|
|
Value
|
Mutual Funds - Corporate & Government Debt
|
|
$
|
12,908
|
|
|
$
|
—
|
|
|
$
|
(101
|
)
|
|
$
|
12,807
|
|
Total
|
|
$
|
12,908
|
|
|
$
|
—
|
|
|
$
|
(101
|
)
|
|
$
|
12,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
|
Adjusted
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
Gain
|
|
Loss
|
|
Value
|
Mutual Funds - Corporate & Government Debt
|
|
$
|
17,250
|
|
|
$
|
6
|
|
|
$
|
(29
|
)
|
|
$
|
17,227
|
|
Total
|
|
$
|
17,250
|
|
|
$
|
6
|
|
|
$
|
(29
|
)
|
|
$
|
17,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
June 30, 2016
|
(In thousands)
|
|
Carrying
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Value
|
|
Gain
|
|
Loss
|
|
Value
|
Fixed Income Bonds
|
|
$
|
3,513
|
|
|
$
|
11
|
|
|
$
|
(6
|
)
|
|
$
|
3,518
|
|
Time Deposits
|
|
4,990
|
|
|
7
|
|
|
—
|
|
|
4,997
|
|
Total
|
|
$
|
8,503
|
|
|
$
|
18
|
|
|
$
|
(6
|
)
|
|
$
|
8,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
|
Carrying
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Value
|
|
Gain
|
|
Loss
|
|
Value
|
Fixed Income Bonds
|
|
$
|
3,526
|
|
|
$
|
—
|
|
|
$
|
(32
|
)
|
|
$
|
3,494
|
|
Time Deposits
|
|
10,924
|
|
|
11
|
|
|
(5
|
)
|
|
10,930
|
|
Total
|
|
$
|
14,450
|
|
|
$
|
11
|
|
|
$
|
(37
|
)
|
|
$
|
14,424
|
|
The Company has certain financial instruments on its consolidated balance sheet related to interest bearing time deposits and fixed income bonds. These held-to-maturity time deposits are included in “Short-term investments” if the maturities at the end of the reporting period were 360 days or less or “Long-term investments” if the maturities at the end of the reporting period were over 360 days. Fixed income bonds, maturing over the next one to four years, are comprised of investments in various corporations with ratings of BBB- or better.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
|
Short-Term Investments
|
|
Long-Term Investments
|
(In thousands)
|
|
June 30, 2016
|
|
June 30, 2015
|
|
June 30, 2016
|
|
June 30, 2015
|
Mutual Funds - Corporate & Government Debt
|
|
$
|
12,807
|
|
|
$
|
17,227
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Time Deposits
|
|
|
|
|
|
|
|
|
Maturities from 1-90 days
|
|
2,243
|
|
|
1,496
|
|
|
—
|
|
|
—
|
|
Maturities from 91-360 days
|
|
1,699
|
|
|
4,438
|
|
|
—
|
|
|
—
|
|
Maturities over 360 days
|
|
—
|
|
|
—
|
|
|
1,048
|
|
|
4,990
|
|
Fixed Income Bonds
|
|
|
|
|
|
|
|
|
Maturities less than 1 year
|
|
353
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Maturities from 1-3 years
|
|
—
|
|
|
—
|
|
|
3,160
|
|
|
2,073
|
|
Maturities from 3-5 years
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,453
|
|
Total
|
|
$
|
17,102
|
|
|
$
|
23,161
|
|
|
$
|
4,208
|
|
|
$
|
8,516
|
|
(
4
)
Discontinued Operations & Gain on the Sale of the ASO Business Unit
In August 2014 the Company completed the previously announced sale of substantially all of its assets used in the Company’s former ASO business unit (the “Asset Sale”) to Lockheed Martin Corporation (the “Buyer”) for an agreed upon sales price of $
61.0 million
, less a working capital adjustment. The net sales price was $
59.3 million
, which included a working capital adjustment of
$1.7 million
and an indemnity holdback of
$6.1 million
. As of
June 30, 2016
, the Company had received the full net sales prices of
$59.3 million
. The indemnity holdback was being held in an escrow account under the terms of an escrow agreement until February 2016, (the 18-month anniversary of the consummation of the transaction).
100%
of the indemnity holdback was released on February 25, 2016 and no further claims may be made. The ASO business unit consisted of: (i) ownership, operation and maintenance of spacecraft processing facilities in Titusville, Florida and Vandenberg Air Force Base, California; (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 assets of the ASO business unit. As such, 100% of the interest expense on the debt was allocated to discontinued operations in the amount
$63 thousand
for the year ended
2015
.
The sale of the former ASO business unit, which was previously reported within the Company’s former ASO business unit segment, resulted in a pre-tax gain of
$25.4 million
(
$20.6 million
after-tax) for the year ended
June 30, 2015
. The pre-tax gain on this sale reflects the excess of the sum of the cash proceeds received over the net book value of the net assets of the Company’s former ASO business unit.
The total pre-tax gain on the sale for the year ended
June 30, 2015
, includes the following (in thousands):
|
|
|
|
|
|
Cash proceeds from the sale of the ASO business
|
|
$
|
53,189
|
|
Receivable for indemnity holdback
|
|
6,100
|
|
Liabilities assumed by the Buyer
|
|
2,478
|
|
Net book value of assets sold
|
|
(36,175
|
)
|
Other
|
|
(156
|
)
|
Gain on sale of the former ASO business
|
|
$
|
25,436
|
|
Even though the Company was party to a transition services agreement that expired on August 22, 2015, it has been determined that the continuing cash flows generated by this agreement did not constitute significant continuing involvement in the operations of the former ASO business unit. As such, the operating results and cash flows related to the former ASO business unit have been separately reflected as discontinued operations for the year ended June 30,
2015
.
The following table provides a reconciliation of the major components of income of the former ASO business unit to the amounts reported in the consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
June 30,
|
|
|
|
|
|
|
2016
|
|
2015
|
Major line items constituting income of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
$
|
—
|
|
|
$
|
2,807
|
|
Cost of revenue
|
|
|
|
|
|
—
|
|
|
(1,313
|
)
|
Selling, general and administrative
|
|
|
|
|
|
—
|
|
|
(128
|
)
|
Other expense, net
|
|
|
|
|
|
—
|
|
|
(63
|
)
|
Gain on sale of discontinued operations
|
|
|
|
|
|
—
|
|
|
25,436
|
|
Income tax expense
|
|
|
|
|
|
—
|
|
|
(6,138
|
)
|
Income on discontinued operations
|
|
|
|
|
|
$
|
—
|
|
|
$
|
20,601
|
|
(
5
)
Noncontrolling Interest
Astral was created in conjunction with a noncontrolling interest, resulting in Astrotech owning
72%
of Astral at the point of creation and
83%
as of
June 30, 2015
; the Company owns
92%
of Astral as of
June 30, 2016
. The following table details the contributions from the Company and the minority interest owner and the Company’s ownership percentage of Astral:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Astrotech
|
|
Minority Owner
|
|
Astrotech Ownership
|
Initial investment
|
$
|
1,422
|
|
|
$
|
422
|
|
|
72
|
%
|
Additional contributions made in fiscal year 2015
|
1,000
|
|
|
—
|
|
|
83
|
%
|
Additional contributions made in fiscal year 2016
|
3,000
|
|
|
—
|
|
|
92
|
%
|
Total Contributions
|
$
|
5,422
|
|
|
$
|
422
|
|
|
|
The Company applies noncontrolling interest accounting, which requires us to clearly identify the noncontrolling interest in the condensed consolidated balance sheets and consolidated income statements. The Company discloses three measures of net income (loss): net income (loss), net loss attributable to noncontrolling interest, and net income (loss) attributable to Astrotech Corporation. The Company’s operating cash flows in its consolidated statements of cash flows reflect net income (loss), while our basic and diluted earnings per share calculations reflect net income (loss) attributable to Astrotech Corporation.
The noncontrolling interest balance of
$1.8 million
at June 30, 2014 represented an interest held by the State of Texas Emerging Technology Fund, which was settled in August 2014 for $
2.3 million
(see Note
16
for more information). The noncontrolling interest balance of
$(40) thousand
and
$299 thousand
represents a noncontrolling interest in Astral at
June 30, 2016
and
2015
, respectively.
|
|
|
|
|
|
|
|
|
(In thousands)
|
2016
|
|
2015
|
Beginning balance
|
$
|
299
|
|
|
$
|
1,800
|
|
Net loss attributable to noncontrolling interest
|
(339
|
)
|
|
(123
|
)
|
Repayment of State of Texas Emerging Technology Fund
|
—
|
|
|
(1,800
|
)
|
Noncontrolling interest funding of Astral
|
—
|
|
|
422
|
|
Ending balance
|
$
|
(40
|
)
|
|
$
|
299
|
|
(
6
)
Property and Equipment
As of
June 30, 2016
and
2015
, property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2016
|
|
2015
|
Furniture, Fixtures, Equipment & Leasehold Improvements
|
$
|
2,856
|
|
|
$
|
2,946
|
|
Software
|
2,074
|
|
|
1,132
|
|
Capital Improvements in Progress
|
9
|
|
|
1,976
|
|
Gross Property and Equipment
|
4,939
|
|
|
6,054
|
|
Accumulated Depreciation
|
(1,547
|
)
|
|
(2,946
|
)
|
Property and Equipment, net
|
$
|
3,392
|
|
|
$
|
3,108
|
|
Depreciation and amortization expense of property and equipment for the years ended
June 30, 2016
and
2015
was
$0.6 million
and
$0.3 million
, respectively.
(
7
)
Accrued Liabilities and Other Liabilities
The following table represents the balances of accrued liabilities and other liabilities on the consolidated balance sheet as of
June 30, 2016
and
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
June 30, 2015
|
Accrued payroll, bonuses, and other payroll related liabilities
|
|
$
|
1,000
|
|
|
$
|
909
|
|
Accrued expenses
|
|
327
|
|
|
679
|
|
Deferred revenue
|
|
54
|
|
|
60
|
|
Other current liabilities
|
|
182
|
|
|
153
|
|
Total
|
|
$
|
1,563
|
|
|
$
|
1,801
|
|
(
8
)
Debt
In October 2010 the Company’s former ASO business unit entered into a financing facility with a commercial bank providing a
$7.0 million
term loan and a
$3.0 million
revolving credit facility. The
$7.0 million
term loan was to terminate in October 2015 and the
$3.0 million
revolving credit facility expired in October 2012. The bank financing facilities were secured by the assets of ASO, including accounts receivable, and required the Company to comply with designated covenants. In August 2014 the Company used a portion of the proceeds from the Asset Sale to pay off the outstanding balance of the term loan of
$5.7 million
which is reported in the statement of cash flows as discontinued operations. The Company had
no
outstanding debt as of
June 30, 2016
and
2015
.
(
9
)
Fair Value of Financial Instruments
The accounting standard for fair value measurements defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. The standard is applicable whenever assets and liabilities are measured and included in the financial statements at fair value.
The fair value hierarchy established in the standard prioritizes the inputs used in valuation techniques into three levels as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following tables present the carrying amounts, estimated fair values and valuation input levels of certain financial instruments as of
June 30, 2016
and
June 30, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
Carrying
|
|
Fair Value Measured Using
|
|
Fair
|
(In thousands)
|
|
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Value
|
Available-for-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds - Corporate & Government Debt
|
|
$
|
12,807
|
|
|
$
|
12,807
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,807
|
|
Held-to-Maturity Securities
|
|
|
|
|
|
|
|
|
|
|
Bonds: 0-1 year
|
|
353
|
|
|
|
|
352
|
|
|
|
|
352
|
|
Bonds: 1-3 years
|
|
3,160
|
|
|
—
|
|
|
3,166
|
|
|
—
|
|
|
3,166
|
|
Bonds: 3-5 years
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Time deposits: 1-90 days
|
|
2,243
|
|
|
—
|
|
|
2,244
|
|
|
—
|
|
|
2,244
|
|
Time deposits: 91-360 days
|
|
1,699
|
|
|
—
|
|
|
1,703
|
|
|
—
|
|
|
1,703
|
|
Time deposits: over 360 days
|
|
1,048
|
|
|
—
|
|
|
1,050
|
|
|
—
|
|
|
1,050
|
|
Total
|
|
$
|
21,310
|
|
|
$
|
12,807
|
|
|
$
|
8,515
|
|
|
$
|
—
|
|
|
$
|
21,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
|
Carrying
|
|
Fair Value Measured Using
|
|
Fair
|
(In thousands)
|
|
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Value
|
Available-for-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds - Corporate & Government Debt
|
|
$
|
17,227
|
|
|
$
|
17,227
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,227
|
|
Held-to-Maturity Securities
|
|
|
|
|
|
|
|
|
|
|
Bonds: 0-1 year
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Bonds: 1-3 years
|
|
2,073
|
|
|
—
|
|
|
2,057
|
|
|
—
|
|
|
2,057
|
|
Bonds: 3-5 years
|
|
1,453
|
|
|
—
|
|
|
1,438
|
|
|
—
|
|
|
1,438
|
|
Time deposits: 1-90 days
|
|
1,496
|
|
|
—
|
|
|
1,496
|
|
|
—
|
|
|
1,496
|
|
Time deposits: 91-360 days
|
|
4,438
|
|
|
—
|
|
|
4,440
|
|
|
—
|
|
|
4,440
|
|
Time deposits: over 360 days
|
|
4,990
|
|
|
—
|
|
|
4,993
|
|
|
—
|
|
|
4,993
|
|
Total
|
|
$
|
31,677
|
|
|
$
|
17,227
|
|
|
$
|
14,424
|
|
|
$
|
—
|
|
|
$
|
31,651
|
|
(
10
)
Business Risk and Credit Risk Concentration Involving Cash
For the
year ended June 30, 2016
, the Company had
three
customers that together comprised
100%
of the Company’s revenue. All of the Company’s revenue for the
year ended June 30, 2015
came from
one
customer. The following tables summarize the concentrations of sales and trade accounts receivable percentages for the Company’s three customers:
|
|
|
|
|
|
|
|
|
|
Year Ended
June 30, 2016
|
|
Year Ended
June 30, 2015
|
|
|
Percentage of Total Sales
|
|
Percentage of Total Sales
|
NGCD Partner
|
|
61
|
%
|
|
100
|
%
|
DHS S&T Partner
|
|
30
|
%
|
|
—
|
%
|
A Japanese aerospace company
|
|
9
|
%
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
June 30, 2015
|
|
|
Percentage of Trade A/R
|
|
Percentage of Trade A/R
|
NGCD Partner
|
|
—
|
%
|
|
—
|
%
|
DHS S&T Partner
|
|
100
|
%
|
|
—
|
%
|
A Japanese aerospace company
|
|
—
|
%
|
|
—
|
%
|
The Company maintains funds in bank accounts that may exceed the limit insured by the Federal Deposit Insurance Corporation
(the “FDIC”). In October 2008 the FDIC increased its insurance to
$250,000
per depositor. The risk of loss attributable to these uninsured balances is mitigated by depositing funds in what the Company believes to be high credit quality financial institutions. The Company has not experienced any losses in such accounts.
(
11
)
Common Stock Incentive, Stock Purchase Plans, and Other Compensation Plans
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 Astrotech’s 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. As of
June 30, 2016
, there were
10,000
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 the Company’s business strategy. At the time of approval,
1,750,000
shares of Astrotech’s common stock were reserved for issuance under this plan. On June 26, 2014, an additional
2,000,000
shares of Astrotech’s common stock were approved for issuance under this plan. The 2011 Plan, administered by the Compensation Committee of the Board of Directors, provides for granting of incentive awards in the form of stock, stock options, SARs, and restricted stock to employees, directors, and consultants of the Company. As of
June 30, 2016
, there were
1,611,907
shares available for grant under the 2011 Plan.
Stock Option Activity Summary
The Company’s stock option activity for the years ended
June 30, 2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
Shares
(In thousands)
|
|
Weighted Average
Exercise Price
|
Outstanding at June 30, 2014
|
875
|
|
|
$
|
0.91
|
|
Granted
|
409
|
|
|
2.76
|
|
Exercised
|
(149
|
)
|
|
0.75
|
|
Canceled or expired
|
(7
|
)
|
|
14.01
|
|
Outstanding at June 30, 2015
|
1,128
|
|
|
$
|
1.53
|
|
Granted
|
170
|
|
|
1.50
|
|
Exercised
|
(16
|
)
|
|
1.09
|
|
Canceled or expired
|
(324
|
)
|
|
2.56
|
|
Outstanding at June 30, 2016
|
958
|
|
|
$
|
1.18
|
|
The aggregate intrinsic value of options exercisable at
June 30, 2016
was
$1.5 million
as the fair value of the Company’s common stock is more than the exercise prices of these options. The aggregate intrinsic value of all options outstanding at
June 30, 2016
was
$1.6 million
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of exercise prices
|
Number
Outstanding
|
|
Options
Outstanding
Weighted-
Average
Remaining
Contractual
Life (years)
|
|
Weighted-
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Options
Exercisable
Weighted-
Average
Exercise
Price
|
$0.32 – 0.71
|
432,750
|
|
|
4.14
|
|
$
|
0.60
|
|
|
432,750
|
|
|
$
|
0.60
|
|
$1.20 – 1.50
|
430,000
|
|
|
7.56
|
|
1.32
|
|
|
430,000
|
|
|
1.32
|
|
$3.20 – 3.20
|
95,000
|
|
|
8.78
|
|
3.20
|
|
|
45,003
|
|
|
3.20
|
|
$0.32 – 3.20
|
957,750
|
|
|
6.14
|
|
$
|
1.18
|
|
|
907,753
|
|
|
$
|
1.06
|
|
Compensation costs recognized related to vested stock option awards during the year ended
June 30, 2016
and
2015
was
$0.3 million
and
$0.1 million
, respectively. At
June 30, 2016
, there was
$0.1 million
of total unrecognized compensation cost related to non-vested stock option awards, which is expected to be recognized over a weighted average period of
2.0
years.
Restricted Stock
The Company’s restricted stock activity for the years ended
June 30, 2016
and
2015
, was as follows:
|
|
|
|
|
|
|
|
|
Shares
(In thousands)
|
|
Weighted
Average
Grant-Date
Fair Value
|
Outstanding at June 30, 2014
|
8
|
|
|
$
|
0.75
|
|
Granted
|
336
|
|
|
3.16
|
|
Vested
|
(8
|
)
|
|
0.75
|
|
Canceled or expired
|
—
|
|
|
—
|
|
Outstanding at June 30, 2015
|
336
|
|
|
$
|
3.16
|
|
Granted
|
35
|
|
|
2.02
|
|
Vested
|
(112
|
)
|
|
2.79
|
|
Canceled or expired
|
(104
|
)
|
|
3.20
|
|
Outstanding at June 30, 2016
|
155
|
|
|
$
|
3.14
|
|
At
June 30, 2016
and
2015
, there was
$0.4 million
and
$1.0 million
of unrecognized compensation costs related to restricted stock, respectively, which is expected to be recognized over a weighted average period of
1.8
years.
Fair Value of Stock-Based Compensation
Stock-based compensation costs are generally based on the fair value calculated from the Black-Scholes model on the date of grant of stock options. The fair values of stock options are amortized as compensation expense on a straight-line basis over the vesting period of the grants. The Company recognizes forfeitures as they occur. The assumptions used for the years ended
June 30, 2016
and
2015
and the resulting estimates of weighted-average fair value per share of options granted are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
Year ended
June 30, 2016
|
|
Year ended
June 30, 2015
|
Expected Dividend Yield
|
—
|
%
|
|
—
|
%
|
Expected Volatility
|
109
|
%
|
|
109
|
%
|
Risk-Free Interest Rates
|
0.65
|
%
|
|
2.18
|
%
|
Expected Option Life (in years)
|
8.71
|
|
|
10.00
|
|
Weighted-average grant-date fair value of options awarded
|
$
|
1.18
|
|
|
$
|
0.70
|
|
|
|
•
|
The expected dividend yield is based on the Company’s current dividend yield and the best estimate of projected dividend yield for future periods within the expected life of the option, which is currently
0%
.
|
|
|
•
|
The Company estimated volatility using the historical share price performance over the expected life. Management believes the historical estimated volatility is materially indicative of expectations about future volatility.
|
|
|
•
|
The estimate of the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.
|
|
|
•
|
Due to the Company having insufficient historical data for calculating expected life of options for the year ended
June 30, 2015
, the Company used the contractual term of the options. For the year ended
June 30, 2016
, the Company used the simplified method of calculating the expected life of options.
|
Securities Repurchase Program
On December 12, 2014, the Board of Directors amended the share repurchase program to allow for the repurchase of up to
$5.0 million
more treasury shares until December 31, 2015. On December 3, 2015, the Board authorized an extension of the share repurchase program through December 31, 2016. As of
June 30, 2016
, the Company had repurchased
188,635
shares of common stock at a cost of
$492 thousand
, which represents an average cost of
$2.61
per share, and
$4.5 million
of securities are still available for repurchase under this program.
Common stock repurchases under the Company’s 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 (“SEC”). 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.
Shares Repurchased from Related Parties
The Company repurchased
100,000
shares from a Director in October 2014 at an average price of
$2.56
, which was the average market price at the date of the transaction. In April 2015 the Company repurchased
563,580
shares issued to the Directors, Chief Executive Officer, and Chief Financial Officer related to their tax withholding obligations at an average price of
$3.20
, which was the closing market price at the date of the transaction. In April 2016 the Company repurchased
7,075
shares issued to the Chief Operating Officer related to his tax withholding obligation at a price of
$2.02
, which was the closing market price at the date of the transaction.
(
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
June 30, 2016
and
2015
, the Company had established a full valuation allowance against all of its net deferred tax assets.
To the extent that a loss from continuing operations can be utilized to offset the income otherwise resulting from discontinued operations, it has been recognized as a tax benefit from continuing operations. To the extent that a loss or credit carryover can be utilized to offset the income from discontinued operations, it has been recognized as a tax benefit from discontinued operations.
For the fiscal year ended
June 30, 2016
, the Company incurred losses from continuing operations in the amount of $
13.5 million
. The total effective tax rate for continuing operations is approximately
0%
for the fiscal year. There is current state tax expense of approximately
$4 thousand
.
FASB ASC 740, Income Taxes addresses the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company had
no
unrecognized tax benefit for the year ended
June 30, 2016
, compared to an unrecognized tax benefit of
$0.1 million
for the year ended
June 30, 2015
.
For the years ended
June 30, 2016
and
2015
, the Company’s effective tax rate differed from the federal statutory rate of
34%
, 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 three years after they have been utilized.
The components of income tax benefit from continuing operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2016
|
|
2015
|
Current
|
|
|
|
|
|
Federal
|
$
|
(29
|
)
|
|
$
|
(5,414
|
)
|
State and local
|
4
|
|
|
(527
|
)
|
Foreign
|
—
|
|
|
—
|
|
|
$
|
(25
|
)
|
|
$
|
(5,941
|
)
|
Deferred
|
|
|
|
|
Federal
|
—
|
|
|
—
|
|
State and local
|
—
|
|
|
—
|
|
Foreign
|
—
|
|
|
—
|
|
Total tax benefit from continuing operations
|
$
|
(25
|
)
|
|
$
|
(5,941
|
)
|
The components of income tax expense from discontinued operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2015
|
|
2014
|
Current
|
|
|
|
|
|
Federal
|
$
|
—
|
|
|
$
|
5,611
|
|
State and local
|
—
|
|
|
527
|
|
Foreign
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
6,138
|
|
Deferred
|
|
|
|
Federal
|
—
|
|
|
—
|
|
State and local
|
—
|
|
|
—
|
|
Foreign
|
—
|
|
|
—
|
|
Total tax expense from discontinued operations
|
$
|
—
|
|
|
$
|
6,138
|
|
A reconciliation of the reported income tax expense (benefit) 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,
|
|
2016
|
|
2015
|
Expected benefit
|
$
|
(4,576
|
)
|
|
$
|
(5,414
|
)
|
State tax expense
|
4
|
|
|
—
|
|
Change in temporary tax adjustments not recognized
|
4,414
|
|
|
5,589
|
|
Other permanent items
|
133
|
|
|
22
|
|
Total income tax benefit (expense)
|
$
|
(25
|
)
|
|
$
|
197
|
|
The Company’s deferred tax assets as of
June 30, 2016
and
2015
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
|
Net operating loss carryforwards
|
$
|
15,704
|
|
|
$
|
10,869
|
|
Alternative minimum tax credit carryforwards
|
857
|
|
|
868
|
|
Accrued expenses and other timing
|
1,473
|
|
|
912
|
|
Total gross deferred tax assets
|
$
|
18,034
|
|
|
$
|
12,649
|
|
Less — valuation allowance
|
(17,939
|
)
|
|
(11,887
|
)
|
Net deferred tax assets
|
$
|
95
|
|
|
$
|
762
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Property and equipment, principally due to differences in depreciation
|
$
|
(95
|
)
|
|
$
|
(762
|
)
|
Total gross deferred tax liabilities
|
$
|
(95
|
)
|
|
$
|
(762
|
)
|
Net deferred tax assets (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, 2016
, the Company provided a full valuation allowance of approximately
$18.0 million
against its net deferred tax assets.
The valuation allowance increased by approximately
$6.1 million
for the year ended
June 30, 2016
. The valuation allowance decreased by approximately
$4.1 million
for the year ended
June 30, 2015
. 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, 2016
, the Company had net operating loss carryforwards of approximately
$22.7 million
(
$7.7 million
, tax effected) for federal income tax purposes that are available to offset future regular taxable income. These net operating loss carryforwards expire between the years 2021 and 2036. Utilization of some of these net operating losses is limited due to the changes in stock ownership of the Company associated with the October 2007 Exchange Offer; as such, the benefit from these losses may not be realized.
The Company also has accumulated state net operating loss carryforwards of approximately
$17.0 million
(
$0.7 million
, tax effected) that are available to offset future state taxable income. These net operating loss carryforwards expire between the years 2031 and 2036. These losses may also be subject to utilization limitations; as such, the benefit from these losses may not be realized.
The Company has a temporary credit for business loss carryovers that may be utilized to offset its Texas margin tax. The credit amount is
$0.5 million
(
$0.3 million
, tax effected). These credits may be used to offset
$13 thousand
of state tax liability each year and will expire in 2027.
The Company has
$0.9 million
of alternative minimum tax credit carryforwards available to offset future regular tax liabilities.
Uncertain Tax Positions
The Company’s change in uncertain tax benefit reserves during
2016
and
2015
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Balance at July 1
|
$
|
76
|
|
|
$
|
72
|
|
Additions for tax positions of current period
|
—
|
|
|
—
|
|
Additions for tax positions of prior years
|
—
|
|
|
4
|
|
Decreases for tax positions of prior years
|
(76
|
)
|
|
—
|
|
Balance at June 30
|
$
|
—
|
|
|
$
|
76
|
|
As of
June 30, 2016
, the Company removed the uncertain tax benefit reserve of approximately
$76 thousand
. Due to the statute of limitations in California, the Company can no longer recognize the tax benefit related to state taxes. The Company recognizes
interest and penalties related to income tax matters in income tax expense. For the year ended
June 30, 2016
, the Company did not recognize any interest expense for uncertain tax positions. During the year ended
June 30, 2015
, the Company recognized interest expense related to uncertain tax positions of approximately
$4 thousand
.
(
13
)
Net (Loss) Income per Share
Basic net (loss) 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 on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method and the if-converted method. Dilutive potential common shares include outstanding stock options and shared-based awards.
Reconciliation and the components of basic and diluted net (loss) income per share are as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
June 30,
|
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
|
Amounts attributable to Astrotech Corporation, basic and diluted:
|
|
|
|
|
Loss from continuing operations, net of tax
|
|
$
|
(13,095
|
)
|
|
$
|
(9,823
|
)
|
Income from discontinued operations, net of tax
|
|
—
|
|
|
20,601
|
|
Net (loss) income attributable to Astrotech Corporation
|
|
(13,095
|
)
|
|
10,778
|
|
Less: Texas State Fund deemed dividend (Note 16)
|
|
—
|
|
|
531
|
|
Net income (loss) attributable to Astrotech Corporation applicable to common shareholders
|
|
$
|
(13,095
|
)
|
|
$
|
10,247
|
|
Denominator:
|
|
|
|
|
Denominator for basic and diluted net income (loss) per share attributable to Astrotech Corporation — weighted average common stock outstanding
|
|
20,388
|
|
|
19,811
|
|
Basic and diluted net (loss) income per common share:
|
|
|
|
|
Net loss attributable to Astrotech Corporation from continuing operations
|
|
$
|
(0.64
|
)
|
|
$
|
(0.52
|
)
|
Net income from discontinued operations
|
|
—
|
|
|
1.04
|
|
Net (loss) income attributable to Astrotech Corporation applicable to common shareholders
|
|
$
|
(0.64
|
)
|
|
$
|
0.52
|
|
All unvested restricted stock awards for the year ended
June 30, 2016
are not included in diluted net loss per share, as the impact to net loss per share is anti-dilutive. Options to purchase
957,750
shares of common stock at exercise prices ranging from
$0.32
to
$3.20
per share outstanding for the year ended
June 30, 2016
were not included in diluted net loss per share, as the impact to net loss per share is anti-dilutive. Options to purchase
1,127,750
shares of common stock at exercise prices ranging from
$0.32
to
$3.20
per share outstanding for the year ended
June 30, 2015
were not included in diluted net loss per share, as the impact to net loss per share is anti-dilutive.
(
14
)
Employee Benefit Plans
Astrotech has a defined contribution retirement plan, which covers substantially all employees and officers. For each of the years ended
June 30, 2016
and
2015
, the Company has contributed the required match of
$0.2 million
to the plan. The Company has the right, but not an obligation, to make additional contributions to the plan in future years at the discretion of the Company’s Board of Directors. The Company has not made any additional contributions for the years ended
June 30, 2016
and
2015
.
(
15
)
Commitments and Contingencies
The Company is obligated under non-cancelable operating leases for equipment and office space. Future minimum payments under the operating leases are as follows (in thousands):
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
$
|
509
|
|
2018
|
582
|
|
2019
|
515
|
|
2020
|
330
|
|
2021
|
357
|
|
Thereafter
|
557
|
|
Total
|
$
|
2,850
|
|
Rent expense was approximately
$0.4 million
and
$0.3 million
for each of the
years ended June 30, 2016 and 2015
, respectively.
Astrotech Corporation presently subleases office space consisting of approximately
6,000
square feet in Austin, Texas. The lease began in July 2016 and expires in January 2017 with no provision to renew nor extend the sublease.
Astrotech Corporation has signed an agreement to lease office space consisting of approximately
5,000
square feet in Austin, Texas. The lease is to begin in November 2016 and expires in December 2023 with a provision to renew and extend the lease for the entire premise for
one
renewal term of
five years
. Astrotech must, in writing, advise the landlord of its intention to renew the lease at least
eight months
before the expiration of its current lease in order to renew the lease.
Astral presently subleases a premise consisting of approximately
4,000
square feet in Austin, Texas. The lease began in July 2015 and expires in May 2018 with no provision to renew nor extend the lease.
1
st
Detect presently leases two adjoining premises consisting of approximately
17,000
and
9,000
square feet in the city of Webster, Texas. The original lease began in May 2013 and was to expire in June 2018; these dates were amended in October 2014 with the amended lease beginning February 1, 2015, and expiring April 30, 2020, with provisions to renew and extend the lease for the entire premises, but not less than the entire premises, for
two
renewal terms of
five years
each. 1
st
Detect must in writing advise the landlord of its intention to renew the lease at least
six months
before the expiration of its current lease in order to renew the lease.
Employment Contracts
The Company has entered into an employment contract with a key executive. Generally, certain amounts may become payable in the event the Company terminates the executive’s employment.
Legal Proceedings
The Company is not party to, nor are its properties the subject of, any material pending legal proceedings, 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. In July 2014 the Company received a lump sum payment of
$50 thousand
, less legal fees, along with a release of liability in exchange for a release of its inferior mortgage. In October 2014 the underlying lawsuit was voluntarily dismissed and the case was closed.
(
16
)
State of Texas Funding
In March 2010, the Texas Emerging Technology Fund awarded 1
st
Detect
$1.8 million
for the development and marketing of the Miniature Chemical Detector, a portable mass spectrometer designed to provide mass spectrometry analytics in real-time for explosive device detection in airports and the battlefield, industrial quality and process controls, environmental field applications,
and laboratory research. In exchange for the award, 1
st
Detect granted a common stock purchase right and a note payable to the State of Texas. The economic substance of the transaction was that the State of Texas had purchased shares of 1
st
Detect in exchange for the granted award. In August 2014 1
st
Detect settled the note payable 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.
(
17
)
Segment Information
The Company currently has
two
reportable business units: Astro Scientific and Astral.
Astro Scientific
Astro Scientific is a technology incubator that commercializes innovative technologies. Subsidiaries 1
st
Detect and Astrogenetix currently reside in Astro Scientific:
1
st
Detect -
1
st
Detect develops, manufactures, and sells chemical analyzers for use in the airport security, military, food and beverage, research, breath analysis, and leak detection markets. Our chemical analyzers can identify chemicals with more accuracy and precision than competing analyzers given their extreme sensitivity and specificity. By leveraging a concept from Oak Ridge National Laboratory and a preliminary design initiated by an engagement with NASA to develop a mass spectrometer for the ISS, the Company developed a chemical analyzer that enables real time analytics that we believe to be significantly smaller, lighter, faster, and less expensive than competing analyzers. The majority of revenue in 1
st
Detect comes from working as a subcontractor on government contracts. The Company works with prime contractors in adapting our technology to be used in enhancing the government’s detection capabilities for a variety of applications.
Astrogenetix -
Astrogenetix is a biotechnology company that is applying a fast-track, on-orbit discovery platform using the ISS to develop vaccines and other therapeutics. NASA has engaged the Center for Vaccine Development at UMD, one of the leading vaccinology institutions in the world, to research the application of a vaccine for
Salmonella
. NASA is collaborating with UMD, meaning little investment is required of Astrogenetix.
Astral
Astral sells film-to-digital conversion, image enhancement, and defect removal and color correction services, providing conversion of television and feature 35mm and 16mm films to the new 4K UHD/HDR format. Astral is positioned to be a leader in the digital conversion and repair of feature films, film-based television series, sporting events shot on film, film libraries, film archives, and consumer media. Film assets will need to go through an upgrade to 4K to remain relevant for over-the-top distribution (Netflix, Amazon, Hulu, etc.) as television manufacturers sell more 4K UHD/HDR televisions and consumer demand for such content accelerates.
All intercompany transactions between business units have been eliminated in consolidation.
Key financial metrics of the Company’s segments for the years ended
June 30, 2016 and 2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
June 30, 2016
|
|
Year Ended
June 30, 2015
|
Revenue and Income
(In thousands)
|
Revenue
|
|
Loss before income taxes
|
|
Revenue
|
|
Loss before income taxes
|
Astral
|
$
|
1
|
|
|
$
|
(2,610
|
)
|
|
$
|
12
|
|
|
$
|
(560
|
)
|
Astro Scientific
|
2,670
|
|
|
(10,849
|
)
|
|
501
|
|
|
(15,327
|
)
|
Total
|
$
|
2,671
|
|
|
$
|
(13,459
|
)
|
|
$
|
513
|
|
|
$
|
(15,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
June 30, 2016
|
|
Year Ended
June 30, 2015
|
Assets
(In thousands)
|
Fixed
Assets, net
|
|
Total Assets
|
|
Fixed
Assets, net
|
|
Total Assets
|
Astral
|
$
|
2,246
|
|
|
$
|
2,398
|
|
|
$
|
1,885
|
|
|
$
|
2,569
|
|
Astro Scientific
|
1,146
|
|
|
28,125
|
|
|
1,223
|
|
|
41,649
|
|
Total
|
$
|
3,392
|
|
|
$
|
30,523
|
|
|
$
|
3,108
|
|
|
$
|
44,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
June 30, 2016
|
|
Year Ended
June 30, 2015
|
Depreciation & Amortization and Capital Expenditures
(In thousands)
|
Depreciation & Amortization
|
|
Total Capital Expenditures
|
|
Depreciation & Amortization
|
|
Total Capital Expenditures
|
Astral
|
$
|
127
|
|
|
$
|
487
|
|
|
$
|
11
|
|
|
$
|
1,896
|
|
Astro Scientific
|
398
|
|
|
322
|
|
|
360
|
|
|
372
|
|
Total
|
$
|
525
|
|
|
$
|
809
|
|
|
$
|
371
|
|
|
$
|
2,268
|
|
(
18
)
Subsequent Events
Subsequent to
June 30, 2016
, Astrotech Corporation subleased premises consisting of approximately
6,000
square feet in the city of Austin, Texas. The sublease is from July 2016 to January 2017 for approximately
$6 thousand
per month.