NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2020 and 2019
(1) Description of the Company and Operating Environment
Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” “the Company,” “we,” “us” or “our”), a Delaware corporation organized in 1984, is a science and technology development and commercialization company that launches, manages, and builds scalable companies based on innovative technology in order to maximize shareholder value.
Business Overview
Segment Information – The Company currently operates two reportable business units, 1st Detect Corporation (“1st Detect”) and AgLAB Inc. (“AgLAB”). 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 15, Segment Information.
Astrotech Technology, Inc.
Astrotech Technology, Inc. (“ATI”) owns and licenses the Astrotech Mass Spectrometer Technology™ (the “AMS Technology”), the platform mass spectrometry technology originally developed by 1st Detect. The intellectual property includes 37 granted patents and five additional patents in process along with extensive trade secrets. With a number of diverse market opportunities for the core technology, ATI is structured to license the intellectual property for different fields of use. ATI currently licenses the AMS Technology to three wholly-owned subsidiaries of Astrotech, including to 1st Detect for use in the security and detection market, to AgLAB for use in the agriculture market, and to BreathTech Corporation (“BreathTech”) for use in breath analysis.
1st Detect Corporation
1st Detect, a licensee of ATI for the security and detection market, has developed the TRACER 1000™, the world’s first mass spectrometer (“MS”) based explosives trace detector (“ETD”) certified by the European Civil Aviation Conference (“ECAC”), designed to replace the ETDs used at airports, cargo facilities, secured facilities, and borders worldwide. The Company believes that ETD customers are unsatisfied with the currently deployed ETD technology, which is driven by ion mobility spectrometry (“IMS”). The Company believes that IMS-based ETDs are fraught with false positives, as they often misidentify personal care products and other common household chemicals as explosives, causing unnecessary delays, frustration, and significant wasted security resources. In addition, there are hundreds of different types of explosives, but IMS-based ETDs have a very limited threat detection library reserved only for those several explosives of largest concern. Adding additional compounds to the detection library of an IMS-based ETD fundamentally reduces the instrument’s performance, further increasing the likelihood of false alarms. In contrast, adding additional compounds does not degrade the TRACER 1000’s detection capabilities, as it has a virtually unlimited and expandable threat library.
In order to sell the TRACER 1000 to airport and cargo security customers in the European Union, ECAC certification is required. Certain other countries also accept ECAC certification. After receiving ECAC certification for the TRACER 1000 on February 21, 2019, the Company is now marketing to and taking orders from airports and cargo facilities outside of the U.S. that accept ECAC certification.
On June 26, 2019, the Company announced the official launch of the TRACER 1000, and on November 22, 2019, also announced the first commercial sale of TRACER 1000 units to a global shipping and logistics company.
In the United States, the Company is working with both TSA and TSA Air Cargo towards certification. On March 27, 2018, the Company announced that the TRACER 1000 was accepted into TSA’s Air Cargo Screening Technology Qualification Test (“ACSQT”) and, on April 4, 2018, the Company announced that the TRACER 1000 was beginning testing with TSA for passenger screening at airports. On November 14, 2019, the Company announced that the TRACER 1000 had been selected by the TSA’s Innovation Task Force (“ITF”) to conduct live screening at Miami International Airport. With similar protocols as ECAC testing, the Company has received valuable feedback from all programs. Following ECAC certification and the Company's early traction within the cargo market, testing for both passenger checkpoint and cargo security continued with
51
the TSA, but emphasis was placed on obtaining cargo security approval. With the COVID-19 pandemic, all testing within the TSA was put on hold. However, cargo non-detection testing resumed this summer and cargo detection testing is expected to resume this fall. Given the deterioration in air traffic caused by the pandemic, TSA certification testing for passenger checkpoint security has been put on indefinite hold.
AgLAB Inc.
AgLAB is a licensee of ATI and has developed the AgLAB-1000™ series of mass spectrometers for use in the agriculture industry for both process control and the detection of trace amounts of solvents and pesticides. The AgLAB product line is a derivative of the Company’s core AMS Technology.
BreathTech Corporation
BreathTech is developing the BreathTest-1000™, a breath analysis tool to screen for volatile organic compound (“VOC”) metabolites found in a person’s breath that could indicate they may have an infection, including COVID-19 or pneumonia.
Development of the BreathTest-1000 follows the Company’s results in pre-clinical trials for the BreathDetect-1000™, a rapid self-serve breathalyzer that is designed to detect bacterial infections in the respiratory tract, including pneumonia. The pre-clinical trials were conducted in collaboration with UT Health San Antonio in 2017.
(2) Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Astrotech Corporation and its wholly-owned subsidiaries that are required to be consolidated. All intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that directly affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Management continuously evaluates its critical accounting policies and estimates, including those used in evaluating the recoverability of long-lived assets, recognition of revenue, valuation of inventory, and the recognition and measurement of loss contingencies, if any. Actual results may vary.
Revenue Recognition
Astrotech recognizes revenue employing the generally accepted revenue recognition methodologies described under the provisions of ASC Topic 606 “Revenue from Contracts with Customers” (“Topic 606”), which was adopted by the Company in fiscal year 2019. The methodology used is based on contract type and how products and services are provided. The guidelines of Topic 606 establish a five-step process to govern the recognition and reporting of revenue from contracts with customers. The five steps are: (i) identify the contract with a customer, (ii) identify the performance obligations within the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations within the contract, and (v) recognize revenue when or as the performance obligations are satisfied.
An additional factor is reasonable assurance of collectability. This necessitates deferral of all or a portion of revenue recognition until collection. During the fiscal year ended June 30, 2020, the Company had one material revenue source that comprised substantially all of our $488 thousand. During the fiscal year ended June 30, 2019, the Company had two revenue sources totaling $127 thousand. Revenue was recognized at a point in time consistent with the guidelines in Topic 606.
We disaggregate revenue by reporting segment (1st Detect, Astral, AgLAB) to depict the nature of revenue in a manner consistent with our business operations and to be consistent with other communications and public filings. Refer to Note 15 for additional details of revenues by reporting segment.
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Contract Assets and Liabilities. We enter into contracts to sell products and provide services, and we recognize contract assets and liabilities that arise from these transactions. We recognize revenue and corresponding accounts receivable according to Topic 606 and, at times, recognize revenue in advance of the time when contracts give us the right to invoice a customer. We may also receive consideration, per the terms of a contract, from customers prior to transferring goods to the customer. We record customer deposits as deferred revenue. Additionally, we may receive payments, most typically for service and warranty contracts, at the onset of the contract and before services have been performed. In such instances, we record a deferred revenue liability. We recognize these contract liabilities as sales after all revenue recognition criteria are met.
Practical Expedients. In cases where we are responsible for shipping after the customer has obtained control of the goods, we have elected to treat the shipping activities as fulfillment activities rather than as a separate performance obligation. Additionally, we have elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year. We only give consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year.
Product Sales. We recognize revenue from sales of products upon shipment or delivery when control of the product transfers to the customer, depending on the terms of each sale, and when collection is probable. In the circumstance where terms of a product sale include subjective customer acceptance criteria, revenue is deferred until we have achieved the acceptance criteria unless the customer acceptance criteria are perfunctory or inconsequential. We generally offer customers payment terms of less than one year.
Freight. We record shipping and handling fees that we charge to our customers as revenue and related costs as cost of goods sold.
Multiple Performance Obligations. Certain agreements with customers include the sale of equipment involving multiple elements in cases where obligations in a contract are distinct and thus require separation into multiple performance obligations, revenue recognition guidance requires that contract consideration be allocated to each distinct performance obligation based on its relative standalone selling price. The value allocated to each performance obligation is then recognized as revenue when the revenue recognition criteria for each distinct promise or bundle of promises has been met.
The standalone selling price for each performance obligation is an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the good or service. When there is only one performance obligation associated with a contract, the entire amount of consideration is attributed to that obligation. When a contract contains multiple performance obligations the standalone selling price is first estimated using the observable price, which is generally a list price net of applicable discount or the price used to sell the good or service in similar circumstances. In circumstances when a selling price is not directly observable, we will estimate the standalone selling price using information available to us including our market assessment and expected cost plus margin.
The timetable for fulfilment of each of the distinct performance obligations can range from completion in a short amount of time and entirely within a single reporting period to completion over several reporting periods. The timing of revenue recognition for each performance obligation may be dependent upon several milestones, including physical delivery of equipment, completion of site acceptance test, and in the case of after-market consumables and service deliverables, the passage of time.
Foreign Currency
Our international operations are subject to certain opportunities and risks, including from foreign currency fluctuations and governmental actions. During fiscal year 2020, we conducted business in seven countries. We closely monitor our operations in each country in which we do business and seek to adopt appropriate strategies that are responsive to changing economic and political environments. We currently conduct business in the U.S. dollar and the Euro. Weaknesses in one currency in which we do business are often offset by strengths in the other currency. Revenues, costs, and expenses are translated at the applicable rate on the date of the transaction. Translation gains and losses, if any, are calculated on accounts receivable or accounts payable outstanding at the rate applicable the end of the period. We include gains and losses resulting from foreign currency transactions in income, while we exclude those resulting from translation of financial statements from income and include them as a component of accumulated other comprehensive loss when applicable. Transaction gains and losses, which
53
were included in our consolidated statement of operations, amounted to a loss of approximately $10 thousand and $0 thousand for the fiscal years ended June 30, 2020 and 2019, respectively.
Warranty Provision
Astrotech offers its customers warranties on the products that it sells. These warranties typically provide for repairs and maintenance of the products if problems arise during a specified time period after original shipment. Concurrent with the sale of products, the Company records a provision for estimated warranty expenses with a corresponding increase in cost of goods sold. The Company periodically adjusts this provision based on historical experience and anticipated expenses. The Company charges actual expenses of repairs under warranty, including parts and labor, to this provision when incurred. The current obligation for warranty provision is included in accrued expenses and other liabilities in the consolidated balance sheets,
whose activity for each of the two fiscal years ended June 30, 2020 and 2019 is summarized in the following table:
(In thousands)
|
|
Warranty Provision
|
|
Balance as of June 30, 2018
|
|
$
|
—
|
|
Warranty claims provided for
|
|
|
3
|
|
Settlements made
|
|
|
—
|
|
Balance as of June 30, 2019
|
|
|
3
|
|
Warranty claims provided for
|
|
|
22
|
|
Settlements made
|
|
|
(7
|
)
|
Balance as of June 30, 2020
|
|
$
|
18
|
|
Research and Development
Research and development costs are expensed as incurred. Research and development costs are used to improve system functionality, streamline and simplify the user experience, and extend our capabilities into customer-defined, application-specific opportunities. Other research and development activities include building innovative solutions consisting of customized off-the-shelf hardware and internally-developed, reliable AI software and services. Furthermore, the Company aggressively seeks patent protection from the U.S. Patent & Trademark Office and foreign patent offices.
Net Loss per Common Share
Basic net loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share as the potential dilutive shares are considered to be anti-dilutive. For more information, see Note 12.
Cash and Cash Equivalents
The Company considers short-term investments with original maturities of three months or less to be cash equivalents. Cash equivalents are comprised primarily of operating cash accounts, money market investments, and certificates of deposits.
Accounts Receivable
The carrying value of the Company’s accounts receivable, net of an allowance for doubtful accounts, represents their estimated net realizable value. Astrotech estimates an allowance for doubtful accounts based on type of customer, age of outstanding receivable, historical collection trends, and existing economic conditions. If events or changes in circumstances indicate that a specific receivable balance may be unrealizable, further consideration is given to the collectability of those balances, and the allowance is adjusted accordingly. Receivable balances deemed uncollectible are written off against the allowance. The Company anticipates collecting all unreserved receivables within one year. As of June 30, 2020 and 2019, there was no allowance for doubtful accounts deemed necessary.
54
Inventory
The Company computes inventory cost on a first-in, first-out basis, and inventory is valued at the lower-of-cost or net realizable value. The valuation of inventory also requires the Company to estimate obsolete and excess inventory as well as inventory that is not of saleable quality.
Property and Equipment. net
Property and equipment are stated at cost, less accumulated depreciation. All furniture, fixtures, and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets, which is generally five years. Purchased software is typically depreciated over three years. Leasehold improvements are amortized over the shorter of the useful life of the improvement or the term of the lease. Repairs and maintenance are expensed when incurred.
Impairment of Long-Lived Assets
The Company continuously evaluates its long-lived assets for impairment to assess whether the carrying amount of an asset may not be recoverable. Our evaluation is based on an assessment of potential indicators of impairment, such as an adverse change in the business climate that could affect the value of an asset, current or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of an asset, and a current expectation that, more likely than not, an asset will be disposed of before the end of its previously estimated useful life. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Recoverability of long-lived assets is dependent on a number of conditions, including uncertainty about future events and demand for our services. There was no impairment of long-lived assets recognized during the years ended June 30, 2020 or 2019.
Fair Value of Financial Instruments
Astrotech’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities. Management believes the carrying amounts of these assets and liabilities approximates their fair value due to their liquidity. For more information about the Company’s accounting policies surrounding fair value investments, see Note 6.
Operating Leases
The Company adopted Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (ASU 2016-02) effective July 1, 2019. ASU 2016-02 requires that we determine, at the inception of an arrangement, whether the arrangement is or contains a lease, based on the unique facts and circumstances present. Operating lease assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use (“ROU”) assets and operating lease liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, we include options to extend or terminate the lease when it is reasonably certain, at inception, that we will exercise that option. The interest rate implicit in lease contracts is typically not readily determinable; accordingly, we use our incremental borrowing rate, which is the rate that would be incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment, based upon the information available at the commencement date. The lease payments used to determine our operating lease assets may include lease incentives, stated rent increases and escalation clauses linked to rates of inflation, when determinable, and are recognized in determining our ROU assets. Our operating leases are reflected in the operating lease, right-of-use asset; lease liabilities, current; and lease liabilities, non-current in our consolidated balance sheets.
Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. As a result of our adoption of ASU 2016-02, we no longer recognize deferred rent on the consolidated balance sheet. Short-term leases, defined as leases that have a lease term of 12 months or less at the commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. Variable lease payments are amounts owed by us to a lessor that are not fixed, such as reimbursement for common area maintenance costs for our facility lease; and are expensed when incurred.
55
Financing leases, formerly referred to as capitalized leases, are treated similarly to operating leases except that the asset subject to the lease is included in the appropriate fixed asset category, rather than recorded as a right-of-use asset, and depreciated over its estimated useful life, or lease term, if shorter. For more information, see Note 4.
Stock-Based Compensation
The Company accounts for stock-based awards to employees based on the fair value of the award on the grant date. The fair value of stock options is estimated using the expected dividend yields of the Company’s stock, the expected volatility of the stock, the expected length of time the options remain outstanding, and the risk-free interest rates. Changes in one or more of these factors may significantly affect the estimated fair value of the stock options. The Company recognizes forfeitures as they occur. The fair value of awards that are likely to meet goals, if any, are recorded as an expense over the vesting period. For more information, see Note 10.
Income Taxes
The Company accounts for income taxes under the liability method, whereby deferred tax asset or liability account balances are determined based on the difference between the financial statement and the tax bases of assets and liabilities using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Treasury Stock
The Company records treasury stock at the cost to acquire it and includes treasury stock as a component of stockholders’ equity.
Accounting Pronouncements
In February 2016, the “FASB issued ASU 2016-02: Leases (Topic 842) and ASU 2018-10: Codification Improvements to Topic 842, Leases (“ASU 2018-10”) which provide an additional (and optional) transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. This ASU requires lessees to recognize a right-of-use (“ROU”) asset and lease liability on the balance sheet for all leases, with the exception of short-term leases. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For statement of operations purposes, leases are still required to be classified as either operating or financing. Operating leases will result in straight-line expense while financing leases will result in a front-loaded expense pattern.
On July 1, 2019, the Company adopted Topic 842 using the modified retrospective approach and the impact of the adoption of Topic 842 resulted in the recognition of a ROU asset and lease obligation on the Company’s condensed consolidated balance sheets of approximately $1.6 million and an adjustment to accumulated deficit of $230 thousand. This application of the modified retrospective method will result in a balance sheet presentation that will not be comparable to the prior period in the first year of adoption. Results for reporting periods after July 1, 2019 are presented under Topic 842, while prior periods have not been adjusted. The Company elected the package of practical expedients permitted under the transition guidance within the new standard which, among other things, allowed the Company to carry forward the historical lease classifications. Subsequent to the end of the second quarter of fiscal year 2020, the Company amended its lease for its 1st Detect facility, resulting in a reduction of the associated ROU asset and lease obligation of $414 thousand in the second quarter of fiscal year 2020. See Note 4 Leases for more information.
(3) Going Concern
Financial Condition
The Company’s consolidated financial statements for the year ended June 30, 2020 have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2020, the Company had cash and cash equivalents of $3.3 million and working capital of $0.3 million. The Company reported a net loss of $8.3 million for the fiscal year 2020 and a net loss of $7.5 million for the fiscal year 2019,
56
along with net cash used in operating activities of $6.9 million for the fiscal year 2020 and net cash used in operating activities of $8.5 million for the fiscal year 2019. This raises substantial doubt about the Company’s ability to continue as a going concern within one year after the audited financial statements are issued.
Management’s Plans to Continue as a Going Concern
The Company remains resolute in identifying the optimal solution to its liquidity issue. The Company is currently evaluating several potential sources for additional liquidity. These include, but are not limited to, selling the Company or a portion thereof, licensing some of its technology, raising additional funds through capital markets, debt financing, equity financing, merging, or engaging in a strategic partnership. On September 5, 2019, the Company entered into a private placement transaction with the Company’s Chairman of the Board and Chief Executive Officer, Thomas B. Pickens III, for the issuance and sale of a secured promissory note to Mr. Pickens with a principal amount of $1.5 million. On February 13, 2020, the Company entered into a private placement transaction with Mr. Pickens for the issuance and sale of a secured promissory note to Mr. Pickens with a principal amount of $1.0 million. On March 25, 2020, the Company entered into a securities purchase agreement with certain purchasers named therein, pursuant to which the Company agreed to issue and sell, in a registered direct offering, 354,000 shares of the Company’s common stock, par value $0.001 per share, at an offering price of $5.00 per share, resulting in net proceeds of approximately $1.6 million. On March 27, 2020, the Company entered into a second securities purchase agreement with certain purchasers named therein, pursuant to which the Company agreed to issue and sell, in a registered direct offering, 873,335 shares of the Company’s common stock, par value $0.001 per share, at an offering price of $3.75 per share, resulting in net proceeds of approximately $2.9 million. The Company received net proceeds of approximately $2.3 million through the sale of shares of common stock from November 9, 2018 through March 25, 2020 through an “at the market offering” program (the “ATM Offering”), which was terminated on March 25, 2020. On April 14, 2020, the Company entered into a $542 thousand Paycheck Protection Program Promissory Note and Agreement (the “PPP Promissory Note”) from a commercial bank under the CARES Act administered by the U.S. Small Business Administration. On August 24, 2020, the maturity date of Mr. Pickens’ two promissory notes was extended to September 5, 2021.
The Company is currently evaluating potential offerings of any combination of common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities, or any combination of the foregoing, either individually or as units comprised of one or more of the other securities. However, additional funding may not be available when needed or on terms acceptable to us. If we are unable to generate funding within a reasonable timeframe, we may have to delay, reduce or terminate our research and development programs, limit strategic opportunities, or curtail our business activities. Astrotech’s consolidated financial statements as of June 30, 2020 do not include any adjustments that might result from the outcome of this uncertainty.
COVID-19
In March 2020, the World Health Organization declared COVID-19 a global pandemic. The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
(4) Leases
As of July 1, 2019, the Company adopted Topic 842, using the modified retrospective method of adoption. Astrotech elected to use the transition option that allows the Company to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. Comparable periods continue to be presented under the guidance of the previous standard, ASC Topic 840. Topic 842 requires lessees to recognize a lease liability and ROU asset on the balance sheet for operating leases. The adoption of Topic 842 resulted in an adjustment to accumulated deficit of $230 thousand.
57
The Company had two existing facility leases and several small equipment leases. Astrotech leased office space consisting of 5,219 square feet in Austin, Texas that housed executive management, finance and accounting, sales, and marketing and communications. The lease began in November 2016 and originally expired in December 2023. On August 3, 2020, the Company decided to terminate the lease; see Note 16 Subsequent Events for more information. Upon lease termination, the Company will recognize a decrease in the related operating ROU asset and operating lease liability of approximately $539 thousand and $506 thousand, respectively.
In May 2013, 1st Detect completed build-out of a 16,540 square foot leased research and development and production facility in Webster, Texas. This facility is equipped with state-of-the-art laboratories, a clean room, a production shop, and offices for staff. The term of the lease is 62 months and includes options to extend for two additional five-year periods. In February 2015, 1st Detect exercised its right of first refusal on the adjoining space of 9,138 square feet. The original lease began in May 2013 and was set 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. On June 1, 2018, the Company entered into its third amendment of the original lease removing 8,118 square feet from its leased space, leaving leased premises with a total square footage of 17,560. On January 21, 2020, the Company entered into its fourth amendment of the original lease, with the amended lease beginning May 1, 2020 and expiring April 30, 2021, with the option to renew and extend the lease for one renewal term of one year. This amendment resulted in an adjustment to the associated ROU asset and operating liability of $414 thousand during the six months ended December 31, 2019.
Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate in determining the present value of lease payments. Significant judgement is required when determining the Company’s incremental borrowing rate. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Upon the adoption of Topic 842, the Company’s accounting for financing leases, previously referred to as capital leases, remains substantially unchanged from prior guidance.
The balance sheet presentation of the Company’s operating and finance leases is as follows:
(In thousands)
|
|
Classification on the Condensed Consolidated Balance Sheet
|
|
June 30, 2020
|
|
Assets:
|
|
|
|
|
|
|
Operating lease assets
|
|
Operating leases, right-of-use assets, net
|
|
$
|
851
|
|
Financing lease assets
|
|
Property and equipment, net
|
|
|
52
|
|
Total lease assets
|
|
|
|
$
|
903
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Operating lease obligations
|
|
Lease liabilities, current
|
|
$
|
330
|
|
Financing lease obligations
|
|
Lease liabilities, current
|
|
|
9
|
|
Non-current:
|
|
|
|
|
|
|
Operating lease obligations
|
|
Lease liabilities, non-current
|
|
|
583
|
|
Financing lease obligations
|
|
Lease liabilities, non-current
|
|
|
40
|
|
Total lease liabilities
|
|
|
|
$
|
962
|
|
58
Future minimum lease payments as of June 30, 2020 under non-cancellable leases are as follows (in thousands):
For the Year Ended June 30,
|
|
Operating Leases
|
|
|
Financing Leases
|
|
|
Total
|
|
2021
|
|
$
|
413
|
|
|
$
|
12
|
|
|
$
|
425
|
|
2022
|
|
|
388
|
|
|
|
12
|
|
|
|
400
|
|
2023
|
|
|
219
|
|
|
|
12
|
|
|
|
231
|
|
2024
|
|
|
37
|
|
|
|
12
|
|
|
|
49
|
|
2025
|
|
|
—
|
|
|
|
9
|
|
|
|
9
|
|
Thereafter
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total lease obligations
|
|
|
1,057
|
|
|
|
57
|
|
|
|
1,114
|
|
Less: imputed interest
|
|
|
144
|
|
|
|
8
|
|
|
|
152
|
|
Present value of net minimum lease obligations
|
|
|
913
|
|
|
|
49
|
|
|
|
962
|
|
Less: lease liabilities - current
|
|
|
330
|
|
|
|
9
|
|
|
|
339
|
|
Lease liabilities - non-current
|
|
$
|
583
|
|
|
$
|
40
|
|
|
$
|
623
|
|
Other information as of June 30, 2020 is as follows:
Weighted-average remaining lease term (years):
|
|
|
|
|
Operating leases
|
|
|
|
|
2.5
|
|
Financing leases
|
|
|
|
|
4.7
|
|
Weighted-average discount rate:
|
|
|
|
|
Operating leases
|
|
|
|
|
11.0
|
%
|
Financing leases
|
|
|
|
|
6.2
|
%
|
Cash payments for operating leases for the year ended June 30, 2020 totaled $387 thousand. Cash payments for financing leases for the year ended June 30, 2020 totaled $4 thousand.
(5) Property and Equipment, net
As of June 30, 2020 and 2019, property and equipment, net consisted of the following:
|
|
June 30,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
Furniture, fixtures, equipment & leasehold improvements
|
|
$
|
2,522
|
|
|
$
|
2,487
|
|
Software
|
|
|
326
|
|
|
|
326
|
|
Capital improvements in progress
|
|
|
—
|
|
|
|
—
|
|
Gross property and equipment
|
|
|
2,848
|
|
|
|
2,813
|
|
Accumulated depreciation
|
|
|
(2,512
|
)
|
|
|
(2,344
|
)
|
Property held for disposal, net
|
|
|
(237
|
)
|
|
|
—
|
|
Property and equipment, net
|
|
$
|
99
|
|
|
$
|
469
|
|
Depreciation expense of property and equipment was $189 thousand for the year ended June 30, 2020 and $262 thousand for the year ended June 30, 2019.
(6) 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.
59
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.
As of June 30, 2020, the fair value of the Company’s cash and cash equivalents approximate their carrying value due to their short-term nature.
(7) Debt
On September 5, 2019, the Company entered into a private placement transaction with Thomas B. Pickens III, the Chief Executive Officer and Chairman of the Board of Directors of the Company for the issuance and sale of a secured promissory note (“Note No. 1”) to Mr. Pickens with a principal amount of $1.5 million. Interest on Note No. 1 shall accrue at 11% per annum. The principal amount and accrued interest on Note No. 1 shall become due and payable on September 5, 2020 (the “Maturity Date”). The Company may prepay the principal amount and all accrued interest on Note No. 1 at any time prior to the Maturity Date. In connection with the issuance of Note No. 1, the Company, along with 1st Detect Corporation and Astrotech Technologies, Inc. (the “Subsidiaries”), entered into a security agreement, dated as of September 5, 2019, with Mr. Pickens (the “Security Agreement No. 1”), pursuant to which the Company and the Subsidiaries granted to Mr. Pickens a security interest in all of the Company’s and the Subsidiaries’ Collateral, as such term is defined in Security Agreement No. 1. In addition, the Subsidiaries jointly and severally agreed to guarantee and act as surety for the Company’s obligation to repay Note No. 1 pursuant to a subsidiary guarantee.
On February 13, 2020, the Company entered into a second private placement transaction with Mr. Pickens for the issuance and sale of a secured promissory note (“Note No. 2”) to Mr. Pickens with a principal amount of $1.0 million. Interest on Note No. 2 shall accrue at 11% per annum. The principal amount and accrued interest on Note No. 2 shall become due and payable on the Maturity Date. The Company may prepay the principal amount and all accrued interest on Note No. 2 at any time prior to the Maturity Date. In connection with the issuance of Note No. 2, the Company, along with the Subsidiaries, entered into a second security agreement, dated as of February 13, 2020, with Mr. Pickens (the “Security Agreement No. 2”), pursuant to which the Company and the Subsidiaries granted to Mr. Pickens a security interest in all of the Company’s and the Subsidiaries’ Collateral, as such term is defined in Security Agreement No. 2. In addition, the Subsidiaries jointly and severally agreed to guarantee and act as surety for the Company’s obligation to repay Note No. 2 pursuant to a subsidiary guarantee.
Subsequent to the end of fiscal year 2020, the Company and Mr. Pickens agreed to extend the Maturity Date of both notes to September 5, 2021. See Note 16 for more information.
On April 14, 2020, the Company entered into a $542 thousand Paycheck Protection Program Promissory Note and Agreement (the “PPP Promissory Note”) with a commercial bank under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) The PPP Promissory Note bears interest at a rate of 1.0% per annum. Payments are due monthly beginning November 10, 2020. The principal amount of the PPP Promissory Note along with any unpaid interest is due on April 1, 2022 The principal and interest may be forgiven if the proceeds are used for forgivable purposes as defined by the terms in the PPP Promissory Note, and the Company has used the proceeds from the PPP Promissory Note for forgivable purposes as defined by the terms of the PPP Promissory Note. The Company intends to apply for forgiveness under the provisions of the CARES Act. Forgiveness is subject to the sole approval of the Small Business Administration. Interest expense for the fiscal year June 30, 2020 was approximately $1 thousand.
(8) Stockholders’ Equity
Common Stock
From November 9, 2018 through March 25, 2020, the Company sold 793,668 shares of common stock pursuant to an At-the-Market Issuance Sales Agreement (“ATM Agreement”) with B. Riley FBR, under which B. Riley FBR acted as the sales agent. In connection with the sale of these shares of common stock, the Company received net proceeds of $2.3 million. The weighted-average sale price per share was $3.04. No additional shares of the Company’s common stock will be sold pursuant
60
to the ATM Agreement. The Company did not incur any termination penalties as a result of its termination of the ATM Agreement.
On March 25, 2020, the Company entered into a securities purchase agreement with certain purchasers named therein, pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “Registered Offering No. 1”), 354,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an offering price of $5.00 per share. Registered Offering No. 1 resulted in gross proceeds of approximately $1.77 million before deducting the placement agent’s fees and related offering expenses. The shares from Registered Offering No. 1 were offered by the Company pursuant to a prospectus supplement to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-226060), which was initially filed with the SEC on July 3, 2018, and was declared effective on August 20, 2018. Registered Offering No. 1 closed on March 26, 2020, subject to the satisfaction of customary closing conditions. In connection with Registered Offering No. 1, the Company also issued to the placement agent, or its designees, warrants (the “Warrants No. 1”) to purchase up to 24,780 shares of Common Stock, which represents 7.0% of the shares sold in Registered Offering No. 1. The Warrants No. 1 have an exercise price of $6.25 per share, which represents 125% of the per share offering price of the shares and a termination date of March 25, 2025. The Warrants No. 1 had a fair value per share of $2.35 as of the date of issuance.
On March 27, 2020, the Company entered into a second securities purchase agreement with certain purchasers named therein, pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “Registered Offering No. 2”), 873,335 shares of the Company’s Common Stock, at an offering price of $3.75 per share. Registered Offering No. 2 resulted in gross proceeds of approximately $3.275 million before deducting the placement agent’s fees and related offering expenses. The shares from Registered Offering No. 2 were offered by the Company pursuant to a prospectus supplement to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-226060), which was initially filed with the SEC on July 3, 2018, and was declared effective on August 20, 2018. Registered Offering No. 2 closed on March 30, 2020, subject to the satisfaction of customary closing conditions. In connection with Registered Offering No. 2, the Company also issued to the placement agent, or its designees, warrants (the “Warrants No. 2” and collective with the Warrants No.1, the “Placement Agent Warrants”) to purchase up to 61,133 shares of Common Stock, which represents 7.0% of the Shares sold in Registered Offering No. 2. The Warrants No. 2 have an exercise price of $4.6875 per share, which represents 125% of the per share offering price of the shares and a termination date of March 27, 2025. The Warrants No. 2 had a fair value per share of $2.22 as of the date of issuance.
Warrants
A summary of the common stock warrant activity for the year ended June 30, 2020 is presented below:
|
|
Shares
(In thousands)
|
|
|
Weighted
Average Exercise Price
|
|
|
Aggregate Fair Market Value at Issuance
(In thousands)
|
|
|
Weighted Average Remaining Contractual Life
(in years)
|
|
Outstanding at June 30, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Issued
|
|
|
86
|
|
|
|
5.14
|
|
|
|
194
|
|
|
|
4.74
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Canceled or expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at June 30, 2020
|
|
|
86
|
|
|
$
|
5.14
|
|
|
$
|
194
|
|
|
|
4.74
|
|
The following represents a summary of the warrants outstanding at each of the dates identified:
|
|
|
|
|
|
|
|
|
|
Number of Shares Underlying Warrants
|
|
|
|
|
|
|
|
|
|
|
|
For the period ended June 30,
|
|
Issue Date
|
|
Classification
|
|
Exercise Price
|
|
|
Expiration Date
|
|
2020
|
|
|
2019
|
|
March 26, 2020
|
|
Equity
|
|
$
|
6.25
|
|
|
March 25, 2025
|
|
|
24,780
|
|
|
|
—
|
|
March 30, 2020
|
|
Equity
|
|
$
|
4.6875
|
|
|
March 27, 2025
|
|
|
61,133
|
|
|
|
—
|
|
Total Outstanding
|
|
|
|
|
|
|
|
|
|
|
85,913
|
|
|
|
—
|
|
61
Nasdaq Compliance
The Company’s stockholders’ equity as of June 30, 2020 was less than $2.5 million, which is less than the requirement under Nasdaq Listing Rule 5550(b)(1) for continued listing on The Nasdaq Capital Market. As a result, though no assurance can be given, the Company anticipates that Nasdaq will provide notice of this development and require the Company to take steps in order to avoid the delisting of its common stock.
(9) Business Risk and Credit Risk Concentration Involving Cash
For the fiscal year ended June 30, 2020, the Company had one customer that substantially comprised all of the Company’s revenue. All of the Company’s revenue for the fiscal year ended June 30, 2019 came from two different customers. The following table summarizes the concentrations of sales for the Company’s customers:
|
|
|
|
Percentage of Total Sales
|
|
Customer
|
|
Business Segment
|
|
Year Ended June 30, 2020
|
|
|
Year Ended June 30, 2019
|
|
Post-production film company
|
|
Astral
|
|
|
—
|
|
|
|
31
|
%
|
MMS distributor
|
|
1st Detect
|
|
|
—
|
|
|
|
69
|
%
|
Global shipping and logistics company
|
|
1st Detect
|
|
|
100
|
%
|
|
|
—
|
|
The Company maintains funds in bank accounts that may exceed the limit insured by the Federal Deposit Insurance Corporation (the “FDIC”). The risk of loss attributable to these uninsured balances is mitigated by depositing funds in what the Company believes to be high credit quality financial institutions. The Company has not experienced any losses in such accounts.
(10) Common Stock Incentive, Stock Purchase Plans, and Other Compensation Plans
2011 Stock Incentive Plan (“2011 Plan”)
The 2011 Plan was designed to increase shareholder value by compensating employees over the long term. The plan is to be used to promote long-term financial success and execution of the Company’s business strategy. At the time of approval, 350,000 shares of Astrotech’s common stock were reserved for issuance under this plan. On June 26, 2014, an additional 400,000 shares of Astrotech’s common stock were approved for issuance under this plan. On December 7, 2017, an additional 225,000 shares of Astrotech’s common stock were approved for issuance under this plan. On December 7, 2018, an additional 537,197 shares of Astrotech’s common stock were approved for issuance under this plan. On June 29, 2020, an additional 1,500,000 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, stock appreciation rights, and restricted stock to employees, directors, and consultants of the Company. As of June 30, 2020, there were 2,122,523 shares available for grant under the 2011 Plan.
62
Stock Option Activity Summary
The Company’s stock option activity for the years ended June 30, 2020 and 2019 was as follows:
|
|
Shares
(In thousands)
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at June 30, 2018
|
|
|
361
|
|
|
$
|
5.48
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(3
|
)
|
|
|
2.25
|
|
Canceled or expired
|
|
|
(34
|
)
|
|
|
3.51
|
|
Outstanding at June 30, 2019
|
|
|
324
|
|
|
$
|
5.71
|
|
Granted
|
|
|
10
|
|
|
|
1.85
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Canceled or expired
|
|
|
(9
|
)
|
|
|
4.18
|
|
Outstanding at June 30, 2020
|
|
|
325
|
|
|
$
|
5.68
|
|
The aggregate intrinsic value of options exercisable at June 30, 2020 was $0 as the fair value of the Company’s common stock is less than the exercise prices of these options. The aggregate intrinsic value of all options outstanding at June 30, 2020 was $0.
Range of exercise prices
|
|
Number
Outstanding
|
|
|
Options
Outstanding
Weighted-
Average
Remaining
Contractual
Life (years)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Options
Exercisable
Weighted-
Average
Exercise
Price
|
|
$1.85 – $3.55
|
|
|
76,500
|
|
|
$
|
2.78
|
|
|
$
|
3.43
|
|
|
|
66,500
|
|
|
$
|
3.43
|
|
$5.30 – $5.85
|
|
|
118,813
|
|
|
|
6.86
|
|
|
|
5.49
|
|
|
|
113,203
|
|
|
|
5.49
|
|
$6.00 – $8.35
|
|
|
130,000
|
|
|
|
4.40
|
|
|
|
7.19
|
|
|
|
86,000
|
|
|
|
6.59
|
|
$1.85 – $8.35
|
|
|
325,313
|
|
|
$
|
4.92
|
|
|
$
|
5.68
|
|
|
|
265,703
|
|
|
$
|
5.33
|
|
Compensation costs recognized related to vested stock option awards during the years ended June 30, 2020 and 2019 were $147 thousand and $171 thousand, respectively. At June 30, 2020, there was $13 thousand of total unrecognized compensation cost related to non-vested stock option awards, which is expected to be recognized over a weighted average period of 2.3 years.
Restricted Stock
The Company’s restricted stock activity for the years ended June 30, 2020 and 2019, was as follows:
|
|
Shares
(In thousands)
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Outstanding at June 30, 2018
|
|
|
28
|
|
|
$
|
10.16
|
|
Granted
|
|
|
209
|
|
|
|
3.40
|
|
Exercised
|
|
|
(4
|
)
|
|
|
8.86
|
|
Canceled or expired
|
|
|
(25
|
)
|
|
|
4.55
|
|
Outstanding at June 30, 2019
|
|
|
208
|
|
|
$
|
4.06
|
|
Granted
|
|
|
5
|
|
|
|
2.47
|
|
Exercised
|
|
|
(63
|
)
|
|
|
3.77
|
|
Canceled or expired
|
|
|
(17
|
)
|
|
|
4.06
|
|
Outstanding at June 30, 2020
|
|
|
133
|
|
|
$
|
3.95
|
|
63
Compensation costs recognized related to vested restricted stock awards during the years ended June 30, 2020 and 2019 were $202 thousand and $135 thousand, respectively. At June 30, 2020, there was $295 thousand of unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted average period of 1.5 years.
Fair Value of Stock-Based Compensation
Stock-based compensation costs are generally based on the fair value calculated from the Black-Scholes model on the date of grant of stock options. The fair values of stock options are amortized as compensation expense on a straight-line basis over the vesting period of the grants. The Company recognizes forfeitures as they occur. The assumptions used for the years ended June 30, 2020 and 2019 and the resulting estimates of weighted-average fair value per share of options granted or modified are summarized in the following table:
|
|
Year Ended June 30, 2020
|
|
|
Year Ended June 30, 2019
|
|
Expected Dividend Yield
|
|
—
|
|
|
—
|
|
Expected Volatility
|
|
|
103.14
|
%
|
|
|
99.59
|
%
|
Risk-Free Interest Rates
|
|
|
0.66
|
%
|
|
|
2.00
|
%
|
Expected Option Life (in years)
|
|
|
3.50
|
|
|
|
3.50
|
|
Weighted-average grant-date fair value of options awarded
|
|
$
|
2.42
|
|
|
$
|
3.01
|
|
|
•
|
The expected dividend yield is based on the Company’s current dividend yield and the best estimate of projected dividend yield for future periods within the expected life of the option, which is currently 0%.
|
|
•
|
The Company estimated volatility using the historical share price performance over the expected life. Management believes the historical estimated volatility is materially indicative of expectations about future volatility.
|
|
•
|
The estimate of the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.
|
|
•
|
For the years ended June 30, 2020 and June 30, 2019, the Company used the simplified method of calculating the expected life of the options.
|
(11) Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. As of June 30, 2020 and 2019, the Company had established a full valuation allowance against all of its net deferred tax assets.
For the fiscal year ended June 30, 2020, the Company incurred losses from operations in the amount of $8.3 million. There is no effective tax rate for the fiscal year 2020. There is no current state tax expense.
FASB ASC 740, Income Taxes addresses the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company had no unrecognized tax benefit for the years ended June 30, 2020 and 2019.
For the years ended June 30, 2020 and 2019, the Company’s effective tax rate differed from the federal statutory rate of 21%, primarily due to prior year deferred true ups and the valuation allowance against its net deferred tax assets.
The CARES Act was signed into law on March 27, 2020. The CARES Act provided certain tax relief measures including the acceleration of the alternative minimum credit previously paid. The CARES Act allows for the acceleration of the refundable AMT credit up to 100% of the AMT credit. In response to the impact of the CARES Act, the AMT credit still to be received by the Company of $429 thousand for AMT previously paid will be refunded in full and reclassed from long-term to short-term income tax receivable in the filing of the return for the fiscal year ended June 30, 2020.
SAB 118 Measurement Period
The Company applied the guidance in SAB 118 when accounting for the enactment-date effects of the Tax Cuts and Jobs Act in 2017 and throughout 2018. At June 30, 2018, the Company had not completed its accounting for all the enactment-date
64
income tax effects of the Tax Cuts and Jobs Act under ASC 740, Income Taxes, for remeasurement of deferred tax assets and liabilities. As of December 22, 2018, the Company completed its accounting for all of the enactment-date income tax effects of the Tax Cuts and Jobs Act. As further discussed below, during fiscal year 2019, the Company recognized adjustments of $509 thousand to the provisional amounts recorded at June 30, 2019 and included these adjustments as a component of gross deferred taxes before valuation allowance.
Deferred Tax Assets and Liabilities
As of June 30, 2018, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future (which was generally 21%), by recording a provisional amount of $8.5 million. Upon further analysis of certain aspects of the Tax Cuts and Jobs Act and refinement of calculations during the year ended June 30, 2019, the Company adjusted its provisional amount by $509 thousand, which is included as a component of gross deferred taxes before valuation allowance.
Loss carryovers are generally subject to modification by tax authorities until three years after they have been utilized.
The components of income tax benefit from operations are as follows:
|
|
Year Ended June 30,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
858
|
|
State and local
|
|
|
—
|
|
|
|
—
|
|
Total current tax benefit
|
|
$
|
—
|
|
|
$
|
858
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
State and local
|
|
|
—
|
|
|
|
—
|
|
Total deferred tax benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
Total tax benefit
|
|
$
|
—
|
|
|
$
|
858
|
|
A reconciliation of the reported income tax benefit to the amount that would result by applying the U.S. Federal statutory rate to the loss before income taxes to the actual amount of income tax benefit recognized follows:
|
|
Year Ended June 30,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
Expected benefit
|
|
$
|
1,746
|
|
|
$
|
1,763
|
|
State tax expense
|
|
|
—
|
|
|
|
—
|
|
Change in valuation allowance
|
|
|
2,961
|
|
|
|
(1,325
|
)
|
Prior year true-up
|
|
|
(4,650
|
)
|
|
|
—
|
|
Other permanent items
|
|
|
(57
|
)
|
|
|
(9
|
)
|
Total income tax benefit
|
|
$
|
—
|
|
|
$
|
429
|
|
65
The Company’s deferred tax assets as of June 30, 2020 and 2019 consist of the following:
|
|
Year Ended June 30,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
14,786
|
|
|
$
|
17,738
|
|
Alternative minimum tax credit carryforwards
|
|
|
—
|
|
|
|
—
|
|
Lease liability - current and non-current
|
|
|
202
|
|
|
|
—
|
|
Accrued expenses and other timing
|
|
|
1,047
|
|
|
|
1,100
|
|
Property and equipment, principally due to differences in depreciation
|
|
|
85
|
|
|
|
—
|
|
Total gross deferred tax assets
|
|
$
|
16,120
|
|
|
$
|
18,838
|
|
Less — valuation allowance
|
|
|
(15,941
|
)
|
|
|
(18,903
|
)
|
Net deferred tax assets
|
|
$
|
179
|
|
|
$
|
(65
|
)
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Right-of-use assets
|
|
$
|
(179
|
)
|
|
$
|
—
|
|
Property and equipment, principally due to differences in depreciation
|
|
|
—
|
|
|
|
65
|
|
Total gross deferred tax liabilities
|
|
|
(179
|
)
|
|
|
65
|
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company files consolidated returns for federal, Florida, and Texas income and franchise taxes. In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the net deferred tax assets will be utilized to offset future tax liabilities. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of June 30, 2020, the Company provided a full valuation allowance of approximately $15.9 million against its net deferred tax assets. This deferred tax asset will be presented as a long-term tax receivable.
The valuation allowance increased by approximately $3.0 million for the year ended June 30, 2020. Since the Company reflects a full valuation allowance against its deferred tax assets, there has been no income tax impact from these changes. The Tax Cuts and Jobs Act enacted on December 22, 2017 repealed the alternative minimum tax and any available alternative minimum tax credit will be refunded according to the guidelines of the Tax Cuts and Jobs Act. The alternative minimum tax credit is limited to 50% of the available balance each year for tax years 2018 to 2020 and any remaining balance is fully refundable for tax year 2021. The CARES Act enacted on March 27, 2020 included the acceleration of the alternative minimum tax credit and allows for the acceleration of the refundable AMT credit up to 100% of the AMT credit. The alternative minimum tax credit amount available is $0 thousand.
At June 30, 2020, the Company had net operating loss carryforwards of approximately $68.8 million with approximately $41.1 million ($8.6 million, tax effected) for federal income tax purposes that are available to offset future regular taxable income set to expire between the years of 2020 and 2037. The Company also had net operating loss carryforwards with indefinite lives of approximately $27.7 million ($5.8 million, tax effected) for federal income tax purposes that are available to offset future regular taxable income. For net operating losses with indefinite carryforward lives, generated beginning after December 31, 2017, the Tax Cuts and Jobs Act limits the amount of net operating losses to be utilized and deducted by the taxpayer to 80% of the taxpayer’s taxable income. Utilization of some of these net operating losses is limited due to the changes in stock ownership of the Company associated with the October 2007 Exchange Offer; as such, the benefit from these losses may not be realized.
At June 30, 2020, the Company also has accumulated state net operating loss carryforwards of approximately $7.4 million ($0.3 million, tax effected) that are available to offset future state taxable income. These net operating loss carryforwards expire between the years 2026 and 2038. These losses may also be subject to utilization limitations; as such, the benefit from these losses may not be realized.
The Company has a temporary credit for business loss carryovers that may be utilized to offset its Texas margin tax. At June 30, 2020, 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.
Uncertain Tax Positions
The Company had no uncertain tax positions at June 30, 2020 and 2019.
66
The Company recognizes interest and penalties related to income tax matters in income tax expense, as incurred. For the years ended June 30, 2020 and 2019, the Company did not recognize any interest expense for uncertain tax positions.
(12) Net Loss per Share
Basic loss per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method and the if-converted method. Dilutive potential common shares include outstanding stock options and stock-based awards.
Reconciliation and the components of basic and diluted net loss per share are as follows (in thousands, except per share data):
|
|
Year Ended
|
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,311
|
)
|
|
$
|
(7,534
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net loss per share — weighted average common stock outstanding
|
|
|
6,346
|
|
|
|
4,940
|
|
Basic and diluted net loss per common share:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1.31
|
)
|
|
$
|
(1.53
|
)
|
All unvested restricted stock awards for the years ended June 30, 2020 and 2019 are not included in diluted net loss per share, as the impact to net loss per share is anti-dilutive. Options to purchase 325,313 shares of common stock at exercise prices ranging from $1.85 to $8.35 per share outstanding for the year ended June 30, 2020 and options to purchase 324,153 shares of common stock at exercise prices ranging from $2.83 to $8.35 per share outstanding for the year ended June 30, 2019 were not included in diluted net loss per share, as the impact to net loss per share is anti-dilutive.
(13) Employee Benefit Plans
Astrotech has a defined contribution retirement plan, which covers substantially all employees and officers. For the year ended June 30, 2019, the Company contributed the required match of $0.2 million to the plan. Effective July 1, 2019, the Company elected to no longer match employees’ contributions 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, 2020 and 2019.
(14) Commitments and Contingencies
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.
(15) Segment Information
The Company currently has two reportable business units: 1st Detect Corporation and AgLAB Inc. In prior periods, the Company’s reportable business units were 1st Detect Corporation and Astral Images Corporation.
1st Detect Corporation
1st Detect is a manufacturer of explosives and narcotics trace detectors developed for use at airports, secured facilities, and borders worldwide.
67
AgLAB Inc.
AgLAB is developing a series of mass spectrometers for use in the agriculture market for process control and the detection of trace amounts of solvents and pesticides.
Astral Images Corporation
Astral Images is a developer of advanced film restoration and enhancement software.
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, 2020 and 2019 are as follows:
|
|
Year Ended June 30, 2020
|
|
(In thousands)
|
|
Revenue
|
|
|
Depreciation
|
|
|
Loss Before
Income Taxes
|
|
1st Detect
|
|
$
|
488
|
|
|
$
|
189
|
|
|
$
|
(6,858
|
)
|
AgLAB
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,453
|
)
|
Total
|
|
$
|
488
|
|
|
$
|
189
|
|
|
$
|
(8,311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2019
|
|
(In thousands)
|
|
Revenue
|
|
|
Depreciation
|
|
|
Loss Before
Income Taxes
|
|
1st Detect
|
|
$
|
87
|
|
|
$
|
233
|
|
|
$
|
(7,526
|
)
|
Astral Images
|
|
|
40
|
|
|
|
29
|
|
|
|
(866
|
)
|
Total
|
|
$
|
127
|
|
|
$
|
262
|
|
|
$
|
(8,392
|
)
|
|
|
June 30, 2020
|
|
(In thousands)
|
|
Fixed
Assets, Net
|
|
|
Total Capital
Expenditures
|
|
|
Total Assets
|
|
1st Detect
|
|
$
|
99
|
|
|
$
|
—
|
|
|
$
|
5,930
|
|
AgLAB
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
99
|
|
|
$
|
—
|
|
|
$
|
5,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
(In thousands)
|
|
Fixed
Assets, Net
|
|
|
Total Capital
Expenditures
|
|
|
Total Assets
|
|
1st Detect
|
|
$
|
452
|
|
|
$
|
—
|
|
|
$
|
3,668
|
|
Astral Images
|
|
|
17
|
|
|
|
—
|
|
|
|
24
|
|
Total
|
|
$
|
469
|
|
|
$
|
—
|
|
|
$
|
3,692
|
|
(16) Subsequent Events
On August 11, 2020, the Company terminated its lease of its office space located in Austin, Texas. The lease termination is part of an overall plan to optimize the Company’s cash flows in the COVID-19 era. The Company expects to incur a total impact to its consolidated statements of operations of approximately $552 thousand in connection with the lease termination, comprised of a write-off of net leasehold improvement assets of approximately $237 thousand, a write-off of net operating ROU asset and liability of $33 thousand, and contract termination costs of approximately $350 thousand, partially offset by the recovery of a security deposit of $72 thousand. The Company anticipates that the termination of this lease will save the Company an estimated $1.2 million over the original lease term.
On August 24, 2020, the Company entered into (1) the Omnibus Amendment to the Secured Promissory Notes (the “Amended Notes”) with Mr. Pickens, in connection with Note No. 1, dated September 5, 2019, in the original aggregate principal amount of $1.5 million and Note No. 2, dated February 13, 2020, in the original aggregate principal amount of $1.0 million (collectively, the “Original Notes”) and (2) the Omnibus Amendment to the Security Agreements (the “Amended
68
Security Agreements”, and together with the Amended Notes, the “Amendments”) with certain subsidiaries of the Company signatory thereto and the holder of the Original Notes, in connection with the Security Agreements between the Company, certain subsidiaries of the Company signatory thereto and the holder of the Original Notes, dated as of September 5, 2019 and February 13, 2020, respectively (the “Original Security Agreements”).
Pursuant to the Original Notes and the Original Security Agreements, the principal amount and accrued interest on the Original Notes were due and payable on September 5, 2020. Pursuant to the Amendments, the principal amount and accrued interest on the Amended Notes are due and payable on September 5, 2021.
In addition, the Subsidiaries (as defined in the Subsidiary Guarantee) jointly and severally agreed to guarantee and act as surety for the Company’s obligation to repay the Original Notes pursuant to subsidiary guarantees, dated September 5, 2019 and February 13, 2020, respectively, as amended by the Omnibus Amendments to Subsidiary Guarantees, dated August 24, 2020.