Notes to Condensed Consolidated Financial Statements (Unaudited)
(
1
)
General Information
Description of the Company
– Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” “Company,” “we,” “us” or “our”), a Washington corporation organized in 1984, is an innovative science and technology company that invents, acquires, and commercializes technological innovations sourced from research institutions, laboratories, universities, and internally, and then funds, manages, and builds proprietary, scalable start-up companies for profitable divestiture to market leaders to maximize shareholder value.
Basis of Presentation
– The accompanying unaudited condensed consolidated financial statements have been prepared by Astrotech Corporation in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the
nine months ended March 31, 2017
are not necessarily indicative of the results that may be expected for the year ending
June 30, 2017
. 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, 2016
. Certain prior year amounts have been reclassified to conform to the current year presentation.
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) (“ASU 2014-09”), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition (as updated by ASU 2015-14 in August 2015, ASU 2016-08 in March 2016, and ASU 2016-20 in December 2016). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle. ASU 2014-09 requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 was to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. ASU 2015-14 delayed the required adoption date for public entities to periods beginning after December 15, 2017, although early adoption to the original effective date under ASU 2014-09 is permitted. Once implemented, the Company can use one of two retrospective application methods for prior periods. Earlier application is not permitted. The Company expects this pronouncement to effect the timing of when revenue is recognized, but not the amount. The Company has hired a third-party consultant to assist in the adoption of this ASU and plans to adopt this standard by fiscal year 2019. The Company has not determined the method of adoption.
In August 2014 the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as a going concern at each annual and interim period. Footnote disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern within one year after the report issuance date. ASU 2014-15 defines substantial doubt using a likelihood threshold of “probable” similar to the current use of that term in GAAP for loss contingencies and provides example indicators. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016. We will adopt this ASU in fiscal year ending June 30, 2017. The Company does not believe the adoption of this guidance will have a material impact on its financial statements.
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. With the assistance of a third-party consultant, the Company is in the process of assessing the impact, if any, on its financial statements.
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 Accounting Standards Codification (“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. With the assistance of a third-party consultant, the Company is assessing the impact the adoption of ASU 2016-02 will have on its 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 financial statements.
Our Business Units
Astro Scientific
Astro Scientific is a technology incubator that commercializes innovative technologies. Subsidiaries 1
st
Detect Corporation (“1
st
Detect”) and Astrogenetix Inc. (“Astrogenetix”) currently reside in Astro Scientific:
1
st
Detect -
1
st
Detect develops, manufactures, and sells chemical analyzers for use in the security, defense, healthcare, food and beverage, and environmental 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 (“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.
In addition, 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 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 at this stage.
Astral
Astral Images Corporation (“Astral”) was created to commercialize decades of image enhancement research. Astral sells film-to-digital conversion, high-dynamic range (“HDR”) conversion, image enhancement, and defect removal and color correction services, providing economically feasible conversion of television and feature 35mm and 16mm films to the new 4K resolution (“4K”) Ultra-High Definition/High-Dynamic Range (“UHD/HDR”) format, the standard for the next generation of digital film distribution to the home. Due to a significant shift in the film scanning industry, most film assets will need to go through an upgrade to 4K HDR 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. Astral is positioned to be a leader in the digital conversion of feature films, film-based television series, sporting events shot on film, film libraries, film archives, and consumer media. Astral has now introduced to the digital conversion market Black ICE™ for the conversion of black and white film, Color ICE™ for the conversion of color film, and HDR ICE™ for the conversion of color film or digital video to the new HDR format.
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2
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Investments
We use the specific identification method when determining realized gains and losses on our available-for-sale and held-to-maturity securities. The following tables summarize unrealized gains and losses related to our investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
March 31, 2017
|
(In thousands)
|
|
Adjusted
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
Gain
|
|
Loss
|
|
Value
|
Mutual Funds - Corporate & Government Debt
|
|
$
|
9,104
|
|
|
$
|
—
|
|
|
$
|
(62
|
)
|
|
$
|
9,042
|
|
Total
|
|
$
|
9,104
|
|
|
$
|
—
|
|
|
$
|
(62
|
)
|
|
$
|
9,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
Adjusted
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
Gain
|
|
Loss
|
|
Value
|
Mutual Funds - Corporate & Government Debt
|
|
$
|
12,908
|
|
|
$
|
—
|
|
|
$
|
(101
|
)
|
|
$
|
12,807
|
|
Total
|
|
$
|
12,908
|
|
|
$
|
—
|
|
|
$
|
(101
|
)
|
|
$
|
12,807
|
|
For information on the unrealized holding losses on available-for-sale investments reclassified out of accumulated other comprehensive loss into the consolidated statements of income, see “Note
8
: Other Comprehensive Loss.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
|
|
March 31, 2017
|
(In thousands)
|
|
Carrying
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Value
|
|
Gain
|
|
Loss
|
|
Value
|
Fixed Income Bonds
|
|
$
|
3,144
|
|
|
$
|
1
|
|
|
$
|
(8
|
)
|
|
$
|
3,137
|
|
Time Deposits
|
|
798
|
|
|
1
|
|
|
(1
|
)
|
|
798
|
|
Total
|
|
$
|
3,942
|
|
|
$
|
2
|
|
|
$
|
(9
|
)
|
|
$
|
3,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
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
|
|
We have certain financial instruments on our condensed 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 investments, maturing over the next one to three years, are comprised of investment-grade fixed income securities in various corporations with ratings of BB- or better.
The following table presents the carrying amounts of certain financial instruments as of
March 31, 2017
, and
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
|
Short-Term Investments
|
|
Long-Term Investments
|
(In thousands)
|
|
March 31, 2017
|
|
June 30, 2016
|
|
March 31, 2017
|
|
June 30, 2016
|
Mutual Funds - Corporate & Government Debt
|
|
$
|
9,042
|
|
|
$
|
12,807
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Time deposits
|
|
|
|
|
|
|
|
|
Maturities from 1-90 days
|
|
—
|
|
|
2,243
|
|
|
—
|
|
|
—
|
|
Maturities from 91-360 days
|
|
250
|
|
|
1,699
|
|
|
—
|
|
|
—
|
|
Maturities over 360 days
|
|
—
|
|
|
—
|
|
|
548
|
|
|
1,048
|
|
Fixed Income Bonds
|
|
|
|
|
|
|
|
|
Maturities less than 1 year
|
|
1,506
|
|
|
353
|
|
|
—
|
|
|
—
|
|
Maturities from 1-3 years
|
|
—
|
|
|
—
|
|
|
1,638
|
|
|
3,160
|
|
Maturities from 3-5 years
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
10,798
|
|
|
$
|
17,102
|
|
|
$
|
2,186
|
|
|
$
|
4,208
|
|
(
3
)
Inventory
The following table summarizes the components of our inventory balances, net of allowance of
$109 thousand
and
$17 thousand
at
March 31, 2017
, and
June 30, 2016
, respectively:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2017
|
|
June 30, 2016
|
Raw materials
|
|
$
|
132
|
|
|
$
|
327
|
|
Work in process
|
|
57
|
|
|
75
|
|
Finished goods
|
|
20
|
|
|
94
|
|
Total inventory
|
|
$
|
209
|
|
|
$
|
496
|
|
(
4
)
Noncontrolling Interest
During the third quarter of 2015, Astral was created in conjunction with a noncontrolling interest, resulting in Astrotech owning
72%
of Astral; currently, the Company owns
94%
of Astral. The following table details the contributions from the Company and the minority interest owner and the Company’s ownership percentage of Astral:
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|
|
|
|
|
|
|
|
|
(In thousands)
|
ASTC Contribution
|
|
Minority Owner Contribution
|
|
ASTC Ownership (1)
|
Initial investment
|
$
|
1,422
|
|
|
$
|
422
|
|
|
72
|
%
|
Additional contributions through June 30, 2016
|
4,000
|
|
|
—
|
|
|
92
|
%
|
Additional contributions through March 31, 2017
|
1,000
|
|
|
—
|
|
|
94
|
%
|
Total Contributions
|
$
|
6,422
|
|
|
$
|
422
|
|
|
|
|
|
|
|
|
|
(1) Ownership interest is determined by shares owned, for which cost basis differed at initial issuance.
|
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 loss: net loss, net loss attributable to noncontrolling interest, and net loss attributable to Astrotech Corporation. The Company’s operating cash flows in its consolidated statements of cash flows reflect net loss, while our basic and diluted earnings per share calculations reflect net loss attributable to Astrotech Corporation.
The following table breaks down the changes in Stockholders’ Equity for the fiscal year
2017
(in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Astrotech Corp Stockholders' Equity
|
|
Noncontrolling Interest in Subsidiary
|
|
Total Stockholders' Equity
|
Balance at June 30, 2016
|
|
$
|
28,667
|
|
|
$
|
(40
|
)
|
|
$
|
28,627
|
|
Stock based compensation
|
|
1,035
|
|
|
—
|
|
|
1,035
|
|
Share repurchases
|
|
(1,283
|
)
|
|
—
|
|
|
(1,283
|
)
|
Net change in available-for-sale securities
|
|
39
|
|
|
—
|
|
|
39
|
|
Net loss attributable to Astrotech Corporation
|
|
(8,818
|
)
|
|
—
|
|
|
(8,818
|
)
|
Net loss attributable to noncontrolling interest
|
|
—
|
|
|
(150
|
)
|
|
(150
|
)
|
Balance at March 31, 2017
|
|
$
|
19,640
|
|
|
$
|
(190
|
)
|
|
$
|
19,450
|
|
(
5
)
Net Loss per Share
Basic net loss per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed 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 loss per share (in thousands, except per share data):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
|
|
|
Amounts attributable to Astrotech Corporation, basic and diluted:
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(2,845
|
)
|
|
$
|
(3,850
|
)
|
|
$
|
(8,966
|
)
|
|
$
|
(9,909
|
)
|
Income tax (expense) benefit
|
|
(2
|
)
|
|
11
|
|
|
(2
|
)
|
|
9
|
|
Net loss
|
|
(2,847
|
)
|
|
(3,839
|
)
|
|
(8,968
|
)
|
|
(9,900
|
)
|
Less: Net loss attributable to noncontrolling interest
|
|
(47
|
)
|
|
(97
|
)
|
|
(150
|
)
|
|
(268
|
)
|
Net loss attributable to Astrotech Corporation
|
|
$
|
(2,800
|
)
|
|
$
|
(3,742
|
)
|
|
$
|
(8,818
|
)
|
|
$
|
(9,632
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net loss per share attributable to Astrotech Corporation — weighted average common stock outstanding
|
|
20,164
|
|
|
20,636
|
|
|
20,474
|
|
|
20,681
|
|
Basic and diluted net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Astrotech Corporation
|
|
$
|
(0.14
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
(0.47
|
)
|
All unvested restricted stock awards for the
nine months ended March 31, 2017
, are not included in diluted net loss per share, as the impact to net loss per share would be anti-dilutive. Options to purchase
1,167,750
shares of common stock at exercise prices ranging from
$0.32
to
$3.20
per share outstanding as of
March 31, 2017
, were not included in diluted net loss per share, as the impact to net loss per share would be anti-dilutive.
(
6
)
Revenue Recognition
Astrotech recognizes revenue employing two generally accepted revenue recognition methodologies. The methodology used is based on contract type and the manner in which products and services are provided.
Production Unit Sales
When revenue for sale of manufactured product is commenced, we will recognize it when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when a firm sales contract or invoice is in place, delivery has occurred or services have been provided, and collectability is reasonably assured.
Construction-Type and Production-Type Contracts
Most of the Company’s revenue is derived from contracts to manufacture mass spectrometers to a buyer’s specification. These contracts are accounted for under the provisions of FASB ASC Topic 605-35 “Revenue Recognition: Construction-Type and Production-Type Contracts”. These contracts are fixed-price and are recorded on the percentage-of-completion basis using the ratio of costs incurred to estimated total costs at completion as the measurement basis for progress toward completion and revenue recognition. Any losses identified on contracts are recognized immediately. Contract accounting requires significant judgment relative to assessing risks, estimating contract costs, and making related assumptions for schedule and technical issues. With respect to contract change orders, claims, or similar items, judgment must be used in estimating related amounts and assessing the potential for realization. These amounts are only included in contract value when they can be reliably estimated and realization is probable.
The Company enters into fixed-priced subcontracts on government projects 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 projected cost incurred. Risks related to service delivery, usage, productivity, and other factors are considered in the estimation process. The recording of profits and losses on long-term contracts requires an estimate of the total profit or loss over the life of each contract. This estimate requires consideration of total contract value, change orders, and claims, less costs incurred and estimated costs to complete. Anticipated losses on contracts are recorded in full in the period in which they become evident. Profits are recorded based upon the total estimated contract profit times the current percentage complete for the contract.
(
7
)
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.
The following tables present the carrying amounts, estimated fair values, and valuation input levels of certain financial instruments as of
March 31, 2017
, and
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
Carrying
|
|
Fair Value Measured Using
|
|
Fair
|
(in thousands)
|
|
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Value
|
Available-for-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds - Corporate & Government Debt
|
|
$
|
9,042
|
|
|
$
|
9,042
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,042
|
|
Held-to-Maturity Securities
|
|
|
|
|
|
|
|
|
|
|
Bonds: 0-1 year
|
|
1,506
|
|
|
—
|
|
|
1,504
|
|
|
—
|
|
|
1,504
|
|
Bonds: 1-3 years
|
|
1,638
|
|
|
—
|
|
|
1,633
|
|
|
—
|
|
|
1,633
|
|
Time deposits: 1-90 days
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Time deposits: 91-360 days
|
|
250
|
|
|
—
|
|
|
251
|
|
|
—
|
|
|
251
|
|
Time deposits: over 360 days
|
|
548
|
|
|
—
|
|
|
547
|
|
|
—
|
|
|
547
|
|
Total
|
|
$
|
12,984
|
|
|
$
|
9,042
|
|
|
$
|
3,935
|
|
|
$
|
—
|
|
|
$
|
12,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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
|
|
The value of our available-for-sale investments is based on pricing from third-party pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs). Our held-to-maturity investments are recorded at amortized costs, as management’s intent is to hold such investments until maturity. The fair value of our held-to-maturity investments with maturities less than 90 days is considered the amortized value; the fair value measurements used for bonds and time deposits with maturities greater than 90 days is considered Level 2 and uses pricing from third-party pricing vendors who use quoted prices for identical or similar securities in both active and inactive markets.
(
8
)
Other Comprehensive Loss
Changes in the balances of each component included in accumulated other comprehensive loss for the
nine months ended March 31, 2017
, are presented below.
|
|
|
|
|
|
(In thousands)
|
|
Accumulated Other Comprehensive Loss
|
Unrealized Loss in Mutual Fund Investments
|
|
|
Balance at June 30, 2016
|
|
$
|
(101
|
)
|
Current period change in other comprehensive loss before reclassifications
|
|
(21
|
)
|
Reclassification to net loss for realized losses
|
|
60
|
|
Balance at March 31, 2017
|
|
$
|
(62
|
)
|
(
9
)
Business Risk and Credit Risk Concentration Involving Cash
During the
nine months ended March 31, 2017
, the Company had
two
customers that together comprised the majority of the Company’s revenue. During the
nine months ended March 31, 2016
, the Company had three customers that together comprised
100%
of the Company’s revenue. The following tables summarize the concentrations of sales and trade accounts receivable percentages for the Company’s customers:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2017
|
|
Three Months Ended
March 31, 2016
|
|
|
Percentage of Total Sales
|
|
Percentage of Total Sales
|
Next Generation Chemical Detector Partner
|
|
19
|
%
|
|
11
|
%
|
Department of Homeland Security Science and Technology Directorate Partner
|
|
79
|
%
|
|
89
|
%
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
March 31, 2017
|
|
Nine Months Ended
March 31, 2016
|
|
|
Percentage of Total Sales
|
|
Percentage of Total Sales
|
Next Generation Chemical Detector Partner
|
|
46
|
%
|
|
59
|
%
|
Department of Homeland Security Science and Technology Directorate Partner
|
|
53
|
%
|
|
20
|
%
|
A Japanese Aerospace Company
|
|
—
|
%
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
June 30, 2016
|
|
|
Percentage of Trade A/R
|
|
Percentage of Trade A/R
|
Department of Homeland Security Science and Technology Directorate Partner
|
|
87
|
%
|
|
100
|
%
|
The Company maintains funds in bank accounts that may exceed the limit insured by the Federal Deposit Insurance Corporation (“FDIC”) of
$250 thousand
per depositor. The risk of loss attributable to these uninsured balances is mitigated by depositing funds in what we believe to be high credit quality financial institutions. The Company has not experienced any losses in such accounts.
(
10
)
Common Stock Incentive, Stock Purchase Plans, and Other Compensation Plans
Stock Option Activity Summary
The Company’s stock option activity for the
nine months ended March 31, 2017
, is as follows:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Exercise Price
|
Outstanding at June 30, 2016
|
957,750
|
|
|
$
|
1.18
|
|
Granted
|
220,000
|
|
|
1.67
|
|
Exercised
|
—
|
|
|
—
|
|
Canceled or expired
|
(10,000
|
)
|
|
3.20
|
|
Outstanding at March 31, 2017
|
1,167,750
|
|
|
$
|
1.25
|
|
The aggregate intrinsic value of options exercisable at
March 31, 2017
, was
$0.9 million
as the fair value of the Company’s common stock is more than the exercise prices of these options. The remaining share-based compensation expense of
$69 thousand
related to stock options will be recognized over a weighted-average period of
1.02 years
.
The table below details the Company’s stock options outstanding as of
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
3.40
|
|
$
|
0.60
|
|
|
432,750
|
|
|
$
|
0.60
|
|
$1.20 – 1.67
|
|
650,000
|
|
|
7.65
|
|
1.44
|
|
|
430,000
|
|
|
1.32
|
|
$3.20 – 3.20
|
|
85,000
|
|
|
8.02
|
|
3.20
|
|
|
37,669
|
|
|
3.20
|
|
$0.32 – 3.20
|
|
1,167,750
|
|
|
6.10
|
|
$
|
1.25
|
|
|
900,419
|
|
|
$
|
1.05
|
|
Compensation costs recognized related to stock option awards were
$17 thousand
and
$190 thousand
for the
three months ended March 31, 2017
, and
2016
, respectively, and
$50 thousand
and
$265 thousand
for the
nine months ended March 31, 2017
, and
2016
, respectively.
Restricted Stock
The Company’s restricted stock activity for the
nine months ended March 31, 2017
, was as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted
Average
Grant-Date
Fair Value
|
Outstanding at June 30, 2016
|
|
154
|
|
|
$
|
3.07
|
|
Granted
|
|
258
|
|
|
1.73
|
|
Vested
|
|
—
|
|
|
—
|
|
Canceled or expired
|
|
10
|
|
|
2.23
|
|
Outstanding at March 31, 2017
|
|
402
|
|
|
$
|
2.34
|
|
Stock compensation expenses related to restricted stock were
$71 thousand
and
$(21) thousand
for the
three months ended March 31, 2017
, and
2016
, respectively, and
$207 thousand
and
$157 thousand
for the
nine months ended March 31, 2017
, and
2016
, respectively. The remaining share-based compensation expense of
$376 thousand
related to restricted stock awards granted will be recognized over a weighted-average period of
1.43 years
.
Immediately Vested Stock
Stock compensation expenses related to stock that has no vesting period were
$778 thousand
and
$0
for the
nine months ended March 31, 2017
, and
2016
, respectively.
Securities Repurchase Program
On December 13, 2014, the Board of Directors amended the share repurchase program to allow for the repurchase of up to
$5 million
in Astrotech Corporation stock until December 31, 2015. On December 3, 2015, the Board of Directors authorized the extension of the share repurchase program through December 31, 2016. The share repurchase program ended as of
December 31, 2016
; as such, during the
nine months ended March 31, 2017
,
no
shares were repurchased as part of the share repurchase program. As of
March 31, 2017
, 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.
Shares Repurchased from Related Parties
In December 2016 the Company repurchased
601,852
shares from the Chief Executive Officer at a cost of
$975 thousand
, which represents an average cost of
$1.62
per share. In August 2016 the Company repurchased
192,000
shares issued to the Chief Financial Officer and Chief Operating Officer related to their tax withholding obligations at a cost of
$308 thousand
, which represents an average cost of
$1.60
per share.
(
11
)
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. As of
March 31, 2017
, and
June 30, 2016
, the Company established a full valuation allowance against all of its net deferred tax assets.
For the
three months ended March 31, 2017
, and
2016
, the Company incurred pre-tax losses in the amount of
$2.8 million
and
$3.9 million
, respectively. For the
nine months ended March 31, 2017
, and
2016
, the Company incurred pre-tax losses in the amount of
$9.0 million
and
$9.9 million
, respectively. The total effective tax rate was approximately
0%
for each of the
nine months ended March 31, 2017
, and
2016
.
For each of the
nine months ended March 31, 2017
, and
2016
, the Company’s effective tax rate differed from the federal statutory rate of
35%
, primarily due to recording of the valuation allowance placed against its net deferred tax assets.
FASB ASC 740, “Income Taxes” addresses the accounting for uncertainty in income tax 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 an unrecognized tax benefit of
$0
and
$0.1 million
for the
nine months ended March 31, 2017
, and
2016
, respectively.
Loss carryovers are generally subject to modification by tax authorities until three years after they have been utilized; as such, the Company is subject to examination for the fiscal years ended 2000 through present for federal purposes and fiscal years ended 2006 through present for state purposes. The reason for this extended examination period is due to the utilization of the loss carryovers generated by the sale of our Astrotech Space Operations business unit in fiscal year 2015.
(
12
)
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.
(
13
)
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 security, defense, healthcare, food and beverage, and environmental 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 at this stage.
Astral
Astral sells film-to-digital conversion, HDR conversion, image enhancement, and defect removal and color correction services, providing economically feasible conversion of television and feature 35mm and 16mm films to the new 4K UHD/HDR format, the standard for the next generation of digital film distribution to the home. Due to a significant shift in the film scanning industry, most film assets will need to go through an upgrade to 4K HDR 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. Astral is positioned to be a leader in the digital conversion of feature films, film-based television series, sporting events shot on film, film libraries, film archives, and consumer media. Astral has now introduced to the digital conversion market Black ICE™ for the conversion of black and white film, Color ICE™ for the conversion of color film, and HDR ICE™ for the conversion of color film or digital video to the new HDR format.
All intercompany transactions between business units have been eliminated in consolidation.
Key financial metrics of the Company’s segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2017
|
|
Three Months Ended
March 31, 2016
|
|
|
|
Revenue, Depreciation, and Income
(In thousands)
|
|
Revenue
|
|
Depreciation
|
|
Loss before Income Taxes
|
|
Revenue
|
|
Depreciation
|
|
Loss before Income Taxes
|
Astro Scientific
|
|
$
|
403
|
|
|
$
|
100
|
|
|
$
|
(2,153
|
)
|
|
$
|
196
|
|
|
$
|
93
|
|
|
$
|
(3,044
|
)
|
Astral
|
|
8
|
|
|
79
|
|
|
(692
|
)
|
|
—
|
|
|
17
|
|
|
(806
|
)
|
Total
|
|
$
|
411
|
|
|
$
|
179
|
|
|
$
|
(2,845
|
)
|
|
$
|
196
|
|
|
$
|
110
|
|
|
$
|
(3,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
March 31, 2017
|
|
Nine Months Ended
March 31, 2016
|
|
|
|
Revenue, Depreciation, and Income
(In thousands)
|
|
Revenue
|
|
Depreciation
|
|
Loss before Income Taxes
|
|
Revenue
|
|
Depreciation
|
|
Loss before Income Taxes
|
Astro Scientific
|
|
$
|
1,929
|
|
|
$
|
284
|
|
|
$
|
(6,916
|
)
|
|
$
|
1,123
|
|
|
$
|
303
|
|
|
$
|
(7,967
|
)
|
Astral
|
|
8
|
|
|
240
|
|
|
(2,050
|
)
|
|
—
|
|
|
48
|
|
|
(1,942
|
)
|
Total
|
|
$
|
1,937
|
|
|
$
|
524
|
|
|
$
|
(8,966
|
)
|
|
$
|
1,123
|
|
|
$
|
351
|
|
|
$
|
(9,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
June 30, 2016
|
Assets (In thousands)
|
|
Fixed Assets, Net
|
|
Total Capital Expenditures (1)
|
|
Total Assets
|
|
Fixed Assets, Net
|
|
Total Capital Expenditures (2)
|
|
Total Assets
|
Astro Scientific
|
|
$
|
1,329
|
|
|
$
|
466
|
|
|
$
|
19,551
|
|
|
$
|
1,146
|
|
|
$
|
322
|
|
|
$
|
28,125
|
|
Astral
|
|
2,025
|
|
|
20
|
|
|
2,099
|
|
|
2,246
|
|
|
487
|
|
|
2,398
|
|
Total
|
|
$
|
3,354
|
|
|
$
|
486
|
|
|
$
|
21,650
|
|
|
$
|
3,392
|
|
|
$
|
809
|
|
|
$
|
30,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Total capital expenditures are for the nine months ended March 31, 2017.
|
(2) Total capital expenditures are for the twelve months ended June 30, 2016.
|
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 and political 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;
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Whether we will fully realize the economic benefits under our customer contracts;
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Technological difficulties and potential legal claims arising from any technological difficulties;
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Product demand and market acceptance risks, including our ability to develop and sell products and services to be used by governmental or commercial customers;
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Uncertainty in government funding and support for key programs, grant opportunities, or procurements;
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The impact of competition on our ability to win new contracts;
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Delays in the timing of performance under our contracts; and
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Our ability to meet technological development milestones and overcome development challenges.
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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
2016
Annual Report on Form 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.