See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(1) General Information
Description of the Company
– Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” “the Company,” “we,” “us,” or “our”), a 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.
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 (“SEC”). 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, 2019 are not necessarily indicative of the results that may be expected for the year ending June 30, 2019. 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, 2018.
Accounting Pronouncements
– In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”) and ASU 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”). ASU 2018-11 provides for an additional optional adoption method of ASU 2016-02, allowing for the application of the new standard as of the adoption date and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2018-10 provides corrections and updates to the previously issued codification regarding Topic 842. Various areas of the codification were impacted from the update. The two standards follow the effective dates of ASU 2016-02. The Company’s population of leases consists of two property leases of 17,560 square feet expiring in April 2020 and 5,219 square feet expiring in December 2023, and a few office equipment leases. The Company has engaged a third-party to assist in assessing and implementing the new standard, including classification of leases, identifying lease and non-lease components, discount rates, and the practical expedients that are available under the guidance. The Company expects to complete the assessment and impact of adopting the new standard by the end of fiscal year 2019.
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.
Our Business Units
1
st
Detect Corporation
1
st
Detect Corporation (“1
st
Detect”) is a manufacturer of explosives and narcotics trace detectors developed for use at airports, secured facilities, and borders worldwide. The TRACER 1000 is currently undergoing regulatory testing with both the Transportation Security Administration (“TSA”) and European Civil Aviation Conference (“ECAC”) as certification by either agency is necessary to sell the TRACER 1000 to the airport market. On June 19, 2018, the Company announced that the TRACER 1000 had entered the ECAC Common Evaluation Process (“CEP”) to obtain certification in Europe. On December 12, 2018, the Company announced that the TRACER 1000 passed the ECAC CEP tests for airport checkpoint screening of
8
p
assengers. On January 9, 2019, the Company subsequently announced that the TRACER 1000 passed the CEP tests for airport cargo screening.
Finally, on February 21, 2019, the Company announced that 1
st
Detect received ECAC certification for both passenger and
cargo screening for the TRACER 1000
,
and the Company can now begin selling its product internationally.
In addition, 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 began testing with TSA for passenger screening at airports. Both programs are currently progressing as expected.
With TSA and ECAC having two of the most rigorous technology review programs for Explosive Trace Detectors (“ETDs”) in the world, we believe certification by either program is a significant endorsement that customers in other vertical markets consider when procuring ETDs.
There is no assurance that any of the further steps detailed above will be achieved or that our technology will be approved by any of the programs.
Astral Images Corporation
Astral Images Corporation (“Astral”) is a developer of advanced film restoration and enhancement software. Astral’s intelligent algorithms remove dust, scratches, and defects from film while converting the content to a digital format with significantly enhanced resolution. In addition, Astral employs Artificial Intelligence to automatically extend the color gamut and enhance the dynamic range to be viewed in 4K and/or high-dynamic range (“HDR”), collectively known as ultra-high definition (“UHD”).
Although we believe Astral has developed valuable technology fortified by patents and trade secrets, the potential market has not evolved as quickly as anticipated. Due to funding constraints, the Company’s main focus remains on the 1
st
Detect opportunity. Consequently, headcount and expenditures at Astral are minimized and new development is exclusively focused on strategic initiatives that would facilitate the realization of Astral’s value.
(2) Going Concern
Financial Condition
The Company’s consolidated financial statements for the three and nine months ended March 31, 2019 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 March 31, 2019, the Company has working capital of $1.5 million. The Company reported a net loss of $13.3 million for the fiscal year 2018 and a net loss of $5.8 million for the nine months ended March 31, 2019, along with net cash used in operating activities of $10.8 million for the fiscal year 2018 and net cash used in operating activities of $6.6 million for the nine months ended March 31, 2019. This raises substantial doubt about the Company’s ability to continue as a going concern.
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, debt financing, equity financing, merging, or engaging in a strategic partnership. On July 3, 2018, management filed Form S-3 to raise funds through the capital markets. On October 9, 2018, the Company raised $3.0 million in a private placement of equity securities to the Company’s Chairman of the Board and Chief Executive Officer, Thomas B. Pickens III, and a long-term accredited investor in the Company.
As of
March 31, 2019
, the Company has received net proceeds of approximately $1.0 million through the sale of shares of common stock through an “at the market offering” program (the “ATM Offering”).
On April 17, 2019, the Company raised $2.0 million in a private placement of equity securities to Mr. Pickens, and a long-term accredited investor in the Company.
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 March 31, 2019 do not include any adjustments that might result from the outcome of this uncertainty.
9
(3) Investments
As of March 31, 2019, the Company did not hold any investments. The following table summarizes unrealized gains and losses related to our investments as of June 30, 2018:
|
|
June 30, 2018
|
|
Available-for-Sale
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
(In thousands)
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
Mutual Funds - Corporate & Government Debt
|
|
$
|
1,751
|
|
|
$
|
—
|
|
|
$
|
(23
|
)
|
|
$
|
1,728
|
|
Fixed Income Bonds
|
|
|
1,333
|
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
1,328
|
|
Time Deposits
|
|
|
548
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
545
|
|
Total
|
|
$
|
3,632
|
|
|
$
|
—
|
|
|
$
|
(31
|
)
|
|
$
|
3,601
|
|
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.”
As of June 30, 2018, the Company had certain financial instruments on its condensed consolidated balance sheet related to interest-bearing time deposits and fixed income bonds. These 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 one to three years, comprised a set of highly diversified bonds issued by various corporations and entities that in aggregate represented an above average investment-grade fixed income portfolio.
The following table presents the carrying amounts of certain financial instruments as of March 31, 2019, and June 30, 2018:
|
|
Carrying Value
|
|
|
|
Short-Term Investments
|
|
|
Long-Term Investments
|
|
(In thousands)
|
|
March 31, 2019
|
|
|
June 30, 2018
|
|
|
March 31, 2019
|
|
|
June 30, 2018
|
|
Mutual Funds - Corporate & Government Debt
|
|
$
|
—
|
|
|
$
|
1,728
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Time deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities from 91-360 days
|
|
|
—
|
|
|
|
495
|
|
|
|
—
|
|
|
|
—
|
|
Maturities over 360 days
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
Fixed Income Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities less than 1 year
|
|
|
—
|
|
|
|
1,328
|
|
|
|
—
|
|
|
|
—
|
|
Maturities from 1-3 years
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
3,551
|
|
|
$
|
—
|
|
|
$
|
50
|
|
(4
) Stockholders’ Equity
On October 9, 2018, the Company entered into a Securities Purchase Agreement (“Agreement No. 1”) with Thomas B. Pickens III, the Chief Executive Officer and Chairman of the Board of Directors of the Company, and a long-term accredited investor in the Company (the “Investor”).
Pursuant
to Agreement No. 1, the Company agreed to sell an aggregate of 866,950 shares of its series B convertible preferred stock, par value $0.001 per share (the “Preferred Shares”) to Mr. Pickens and 409,645 of its shares of common stock, par value $0.001 per share (the “Common Shares”) to the Investor, at a price per share of $2.35 and for aggregate gross proceeds of approximately $3.0 million. The purchase price of $2.35 per share was equal to the closing price on The NASDAQ Capital Market on October 8, 2018. The Preferred Shares converted into an aggregate of 866,950
shares of common stock
on December 7, 2018 upon
receipt
of shareholder approval in accordance with NASDAQ Listing Rule 5635(b).
As of
March 31, 2019
, the Company has sold 205,540 shares of common stock pursuant to an At the Market Issuance Sales Agreement with B. Riley FBR, under which B. Riley FBR acts as sales agent. A prospectus relating to the ATM Offering was filed with the SEC on November 9, 2018. In connection with the sale of these shares of common stock, the Company has received net proceeds of $998,057. The weighted-average sale price per share was $5.11.
(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
10
plus the effect of potentially dilutive common shares outstanding during the period using the treasury stock method and the if-converted method. Potentially dilutive common shares include outsta
nding stock options and share-based awards.
Convertible preferred shares issued
in October
2018 met the definition of participating securities, however, as a result of these participating securities not having a contractual obligation to share in the losse
s of the Company, they were not included in the computation of basic earnings per share using the two-class method due to the Company reporting a net loss for the
nine
months end
ed
March
31, 201
9
.
The following table reconciles the numerators and denominators used in the computations of both basic and diluted net loss per share:
|
|
Three Months Ended
March 31,
|
|
|
Nine Months Ended
March 31,
|
|
(In thousands, except per share data)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,394
|
)
|
|
$
|
(2,855
|
)
|
|
$
|
(5,792
|
)
|
|
$
|
(8,998
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net loss per share — weighted average common stock outstanding
|
|
|
5,467
|
|
|
|
4,060
|
|
|
|
4,734
|
|
|
|
4,059
|
|
Basic and diluted net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.25
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
(2.22
|
)
|
All unvested restricted stock awards for the nine months ended March 31, 2019 are not included in diluted net loss per share, as the impact to net loss per share would be anti-dilutive. Options to purchase 325,140 shares of common stock at exercise prices ranging from $1.60 to $8.35 per share outstanding as of March 31, 2019 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’s revenue recognition methodology is based on contract type and the manner in which products and services are provided. The Company currently employs the following generally accepted revenue recognition methodology.
Software Licensing Agreements
When recognizing revenue for licensing software for use, the Company 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.
(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.
11
As of
March 31, 2019
, the Company did not hold any investments.
The following table present
s
the carrying amounts, estimated fair values, and valuation input levels of certain financial instruments as of
June 30, 2018
:
|
|
June 30, 2018
|
|
|
|
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
|
|
$
|
1,728
|
|
|
$
|
1,728
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,728
|
|
Bonds: 0-1 year
|
|
|
1,328
|
|
|
|
—
|
|
|
|
1,328
|
|
|
|
—
|
|
|
|
1,328
|
|
Time deposits: 91-360 days
|
|
|
495
|
|
|
|
—
|
|
|
|
495
|
|
|
|
—
|
|
|
|
495
|
|
Time deposits: over 360 days
|
|
|
50
|
|
|
|
—
|
|
|
|
50
|
|
|
|
—
|
|
|
|
50
|
|
Total
|
|
$
|
3,601
|
|
|
$
|
1,728
|
|
|
$
|
1,873
|
|
|
$
|
—
|
|
|
$
|
3,601
|
|
The value of 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). The fair value of our bonds and time deposits 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, 2019, are presented below.
(In thousands)
|
|
Accumulated Other Comprehensive Loss
|
|
Unrealized Loss in Investments
|
|
|
|
|
Balance at June 30, 2018
|
|
$
|
(31
|
)
|
Reclassification to net loss for realized losses
|
|
|
31
|
|
Balance at March 31, 2019
|
|
$
|
—
|
|
(9) Business Risk a
nd Credit Risk Concentration Involving Cash
The Company maintains funds in bank accounts that may exceed the limit insured by the Federal Deposit Insurance Corporation (“FDIC”) of $250 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 Compensation
Stock Option Activity Summary
The Company’s stock option activity for the nine months ended March 31, 2019, is 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
|
|
|
(33
|
)
|
|
|
3.45
|
|
Outstanding at March 31, 2019
|
|
|
325
|
|
|
$
|
5.71
|
|
The aggregate intrinsic value of options exercisable at March 31, 2019, was $17 thousand 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 $193 thousand related to stock options will be recognized over a weighted-average period of 1.11 years.
12
The table below details the Company’s stock options outstanding as of
March 31, 2019
:
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
|
|
$1.60 – 3.55
|
|
|
70,500
|
|
|
|
3.23
|
|
|
$
|
3.39
|
|
|
|
70,500
|
|
|
$
|
3.39
|
|
$5.30 – 5.85
|
|
|
124,640
|
|
|
|
8.11
|
|
|
|
5.48
|
|
|
|
41,951
|
|
|
|
5.47
|
|
$6.00 – 8.35
|
|
|
130,000
|
|
|
|
5.65
|
|
|
|
7.19
|
|
|
|
86,000
|
|
|
|
6.59
|
|
$1.60 – 8.35
|
|
|
325,140
|
|
|
|
6.07
|
|
|
$
|
5.71
|
|
|
|
198,451
|
|
|
$
|
5.21
|
|
Compensation costs recognized related to stock option awards were $43 thousand and $93 thousand for the three months ended March 31, 2019, and 2018, respectively, and $128 thousand and $226 thousand for the nine months ended March 31, 2019, and 2018, respectively.
Restricted Stock
The Company’s restricted stock activity for the nine months ended March 31, 2019, is as follows:
|
|
Shares
(in thousands)
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Outstanding at June 30, 2018
|
|
|
28
|
|
|
$
|
10.16
|
|
Granted
|
|
|
199
|
|
|
|
3.40
|
|
Vested
|
|
|
(4
|
)
|
|
|
8.86
|
|
Canceled or expired
|
|
|
(5
|
)
|
|
|
9.58
|
|
Outstanding at March 31, 2019
|
|
|
218
|
|
|
$
|
4.03
|
|
Stock compensation expenses related to restricted stock were $64 thousand and $53 thousand for the three months ended March 31, 2019, and 2018, respectively, and $77 thousand and $161 thousand for the nine months ended March 31, 2019, and 2018, respectively. The remaining share-based compensation expense of $626 thousand related to restricted stock awards granted will be recognized over a weighted-average period of 2.67 years.
(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, 2019, the Company established a valuation allowance against most of its net deferred tax assets. As of June 30, 2018, the Company established a full valuation allowance against all of its net deferred tax assets.
For the three months ended March 31, 2019 and 2018, the Company incurred pre-tax losses in the amount of $2.3 million and $2.9 million, respectively. For the nine months ended March 31, 2019 and 2018, the Company incurred pre-tax losses in the amount of $6.6 million and $9.0 million, respectively. The total effective tax rate was approximately 38% and 13% for the three and nine months ended March 31, 2019, respectively. The total effective tax rate was approximately 0% for each of the three and nine months ended March 31, 2018.
For the three months ended March 31, 2019, the Company’s effective tax rate differed from the federal statutory rate of 21% due to the Alternative Minimum Tax (“AMT”) credit referenced below. For the nine months ended March 31, 2019, the Company’s effective tax rate differed from the federal statutory rate of 21% due to the valuation allowance placed against its net deferred tax assets offset by the AMT credit. For the three and nine months ended March 31, 2018, the Company’s effective tax rate differed from the federal statutory rate of 28%, primarily due to the valuation allowance placed against its net deferred tax assets.
The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. In the second quarter of fiscal 2018, the Company revised its estimated annual effective rate to reflect a change in its federal statutory rate from 35% to 21%. The rate change was
13
effective on January 1, 2018; therefore, the Company’s blended statutory tax rate for the fiscal year ended June 30, 2018
wa
s 2
8
%.
The Tax Cuts and Jobs Act also removed the AMT and therefore any AMT previously paid will be
a refundable credit. The AMT credit will be refunded 50% in the current year for an amount of $42
9
thousand. The remaining AMT amount will be deferred and received according to the percentage schedule set forth by the Tax Cuts and Jobs Act until all the A
MT amount is paid in full by 2021.
Due to this, the Company has a current federal income tax benefit of $429 thousand and a deferred federal income tax benefit of $429 thousand
for the three and nine months ended March 31, 2019
.
FASB Accounting Standards Codification (“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 no unrecognized tax benefit for the three and nine months ended March 31, 2019 and 2018.
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: 1
st
Detect Corporation and Astral Images Corporation.
1
st
Detect Corporation
1
st
Detect Corporation is a manufacturer of explosives and narcotics trace detectors developed for use at airports, secured facilities, and borders worldwide.
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 are as follows:
|
|
Three Months Ended
March 31, 2019
|
|
|
Three Months Ended
March 31, 2018
|
|
Revenue, Depreciation, and Income
(In thousands)
|
|
Revenue
|
|
|
Depreciation
|
|
|
Loss before
Income Taxes
|
|
|
Revenue
|
|
|
Depreciation
|
|
|
Loss before
Income Taxes
|
|
1st Detect
|
|
$
|
—
|
|
|
$
|
56
|
|
|
$
|
(2,048
|
)
|
|
$
|
—
|
|
|
$
|
99
|
|
|
$
|
(2,363
|
)
|
Astral Images
|
|
|
—
|
|
|
|
8
|
|
|
|
(204
|
)
|
|
|
—
|
|
|
|
91
|
|
|
|
(492
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
64
|
|
|
$
|
(2,252
|
)
|
|
$
|
—
|
|
|
$
|
190
|
|
|
$
|
(2,855
|
)
|
14
|
|
Nine Months Ended
March 31, 2019
|
|
|
Nine Months Ended
March 31, 2018
|
|
Revenue, Depreciation, and Income
(In thousands)
|
|
Revenue
|
|
|
Depreciation
|
|
|
Loss before
Income Taxes
|
|
|
Revenue
|
|
|
Depreciation
|
|
|
Loss before
Income Taxes
|
|
1st Detect
|
|
$
|
—
|
|
|
$
|
174
|
|
|
$
|
(5,918
|
)
|
|
$
|
—
|
|
|
$
|
305
|
|
|
$
|
(7,380
|
)
|
Astral Images
|
|
|
40
|
|
|
|
26
|
|
|
|
(732
|
)
|
|
|
41
|
|
|
|
271
|
|
|
|
(1,618
|
)
|
Total
|
|
$
|
40
|
|
|
$
|
200
|
|
|
$
|
(6,650
|
)
|
|
$
|
41
|
|
|
$
|
576
|
|
|
$
|
(8,998
|
)
|
|
|
March 31, 2019
|
|
|
June 30, 2018
|
|
Assets
(In thousands)
|
|
Fixed Assets,
Net
|
|
|
Total Capital
Expenditures
(1)
|
|
|
Total Assets
|
|
|
Fixed Assets,
Net
|
|
|
Total Capital
Expenditures
(2)
|
|
|
Total Assets
|
|
1st Detect
|
|
$
|
511
|
|
|
$
|
—
|
|
|
$
|
3,317
|
|
|
$
|
699
|
|
|
$
|
8
|
|
|
$
|
5,075
|
|
Astral Images
|
|
|
20
|
|
|
|
—
|
|
|
|
46
|
|
|
|
34
|
|
|
|
11
|
|
|
|
65
|
|
Total
|
|
$
|
531
|
|
|
$
|
—
|
|
|
$
|
3,363
|
|
|
$
|
733
|
|
|
$
|
19
|
|
|
$
|
5,140
|
|
(1)
|
Total capital expenditures are for the nine months ended March 31, 2019.
|
(2)
|
Total capital expenditures are for the twelve months ended June 30, 2018.
|
(14) Subsequent Events
On April 17, 2019, the Company entered into a Securities Purchase Agreement (“Agreement No. 2”) with Mr. Pickens, and an accredited investor.
Pursuant to Agreement No. 2, the Company agreed to sell an aggregate of 280,898 shares of its series C convertible preferred stock, par value $0.001 per share (the “Series C Preferred Shares”) to the accredited investor and 280,898 of its series D convertible preferred stock, par value $0.001 per share (the “Series D Preferred Shares”) to Mr. Pickens for aggregate gross proceeds of approximately $2.0 million, each at a purchase price equal to $3.56 per share, which was equal to the closing consolidated bid price on The NASDAQ Capital Market on April 16, 2019. The holder of the Series C Preferred Shares has agreed to restrict its ability to convert the Series C Preferred Shares such that the number of shares of the Company’s common stock held by such holder and its affiliates after such conversion does not exceed 9.99% of the Company’s then issued and outstanding shares of common stock. The Series D Preferred Shares are convertible into an aggregate of 280,898 shares of common stock at the option of the holder.
15
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;
|
|
•
|
Product demand and market acceptance risks, including our ability to develop and sell products and services to be used by governmental or commercial customers;
|
|
•
|
The impact of trade barriers imposed by the U.S. government, such as import/export duties and restrictions, tariffs and
quotas, and potential corresponding actions by other countries in which the Company conducts its business;
|
|
•
|
Our ability to continue as a going concern;
|
|
•
|
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;
|
|
•
|
Technological difficulties and potential legal claims arising from any technological difficulties;
|
|
•
|
Uncertainty in government funding and support for key programs, grant opportunities, or procurements;
|
|
•
|
The impact of competition on our ability to win new contracts; and
|
|
•
|
Our ability to meet technological development milestones and overcome development challenges.
|
Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate; therefore, we cannot assure you that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in our forward-looking statements, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Some of these and other risks and uncertainties that could cause actual results to differ materially from such forward-looking statements are more fully described in our 2018 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.
16