UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2019
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 001-34426
Astrotech Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware
91-1273737
State or Other Jurisdiction of
Incorporation or Organization
I.R.S. Employer Identification No.
201 West 5th Street, Suite 1275, Austin, Texas
78701
Address of Principal Executive Offices
Zip Code
(512) 485-9530
Registrant’s Telephone Number, Including Area Code
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
ASTC
NASDAQ Stock Market, LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
As of February 12, 2020, the number of shares of the registrant’s common stock outstanding was: 6,348,137.
2
ASTROTECH CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
PART I:
FINANCIAL INFORMATION
4
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
17
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
23
ITEM 4.
CONTROLS AND PROCEDURES
PART II:
OTHER INFORMATION
24
LEGAL PROCEEDINGS
ITEM 1A.
RISK FACTORS
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
DEFAULTS UPON SENIOR SECURITIES
MINE SAFETY DISCLOSURES
ITEM 5.
ITEM 6.
EXHIBITS
25
PART I: FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
December 31,
2019
June 30,
(Unaudited)
(Audited)
Assets
Current assets
Cash and cash equivalents
$
393
1,588
Restricted cash
611
—
Accounts receivable
213
3
Inventory:
Raw materials
274
150
Work-in-process
181
Income tax receivable
214
429
Prepaid expenses and other current assets
313
371
Total current assets
2,018
2,722
Property and equipment, net
351
469
Operating leases, right-of-use assets, net
1,022
Long-term tax receivable
Other assets
72
Total assets
3,677
3,692
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
153
160
Payroll related accruals
347
319
Accrued expenses and other liabilities
375
357
Income tax payable
Term note payable - related party
1,500
Operating lease liabilities - current
301
Total current liabilities
2,678
838
Operating lease liabilities, non-current
752
Other liabilities
146
Total liabilities
3,430
984
Commitments and contingencies (Note 12)
Stockholders’ equity
Convertible preferred stock, $0.001 par value, 2,500,000 shares authorized; 280,898 shares of Series C and 280,898 shares of Series D issued and outstanding at December 31, 2019 and June 30, 2019, respectively
Common stock, $0.001 par value, 15,000,000 shares authorized; 6,749,664 and 6,184,698 shares issued at December 31, 2019 and June 30, 2019, respectively; 6,348,137 and 5,775,171 shares outstanding at December 31, 2019 and June 30, 2019, respectively
190,598
190,571
Treasury stock, 399,916 shares at cost at December 31, 2019 and June 30, 2019, respectively
(4,129
)
Additional paid-in capital
9,397
7,964
Accumulated deficit
(195,619
(191,698
Total stockholders’ equity
247
2,708
Total liabilities and stockholders’ equity
See accompanying notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share data)
Three Months Ended
Six Months Ended
2018
Revenue
205
7
206
40
Cost of revenue
196
11
Gross profit
9
10
29
Operating expenses:
Selling, general and administrative
1,110
1,286
2,312
2,430
Research and development
939
897
1,794
2,000
Total operating expenses
2,049
2,183
4,106
4,430
Loss from operations
(2,040
(2,176
(4,096
(4,401
Interest and other income (expense), net
(43
16
(55
Loss from operations before income taxes
(2,083
(2,160
(4,151
(4,398
Income tax benefit
Net loss
Weighted average common shares outstanding:
Basic and diluted
5,947
4,678
5,769
4,374
Basic and diluted net loss per common share:
(0.35
(0.46
(0.72
(1.01
Other comprehensive loss, net of tax:
Available-for-sale securities:
Reclassification adjustment for realized loss
31
Total comprehensive loss
(4,367
5
ASTROTECH CORPORATION
Condensed Consolidated Statement of Changes in Stockholders’ Equity
(In thousands)
Preferred Stock
Class C
Class D
Common Stock
Number of
Shares
Outstanding
Amount
Treasury
Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Other
Comprehensive
Loss
Total
Stockholders’
Equity
Balance at June 30, 2019
281
5,775
Adjustment to opening retained earnings related to adoption of ASC Topic 842
230
Issuance of shares, net of offering issuance costs of $7
321
Stock-based compensation
78
Restricted stock issuance
26
(2,068
Balance at September 30, 2019
5,926
190,597
8,363
(193,536
1,295
Issuance of stock, net of offering issuance costs of $19
433
1
951
952
97
Cancellation of restricted stock
(11
Forfeiture of stock-based compensation
(3
Balance at December 31, 2019
6,348
6
Balance at June 30, 2018
4,097
190,570
(4,128
1,745
(184,164
(31
3,992
Net change in available-for-sale debt and marketable equity securities
44
(5
(14
Forfeiture of stock options
Exercise of stock options
Share repurchases
(1
(2,238
Balance at September 30, 2018
4,095
190,565
1,793
(186,402
1,827
Issuance of stock, net of offering issuance costs of $73
1,277
2,923
2,924
41
199
18
Balance at December 31, 2018
5,571
190,584
4,757
(188,562
2,650
Condensed Consolidated Statements of Cash Flows
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
187
98
Depreciation and amortization
289
142
Net loss on sale of available-for-sale investments
Changes in assets and liabilities:
(210
Inventory
57
215
(7
107
Other assets and liabilities
264
(214
Net cash used in operating activities
(3,356
(4,230
Cash flows from investing activities:
Proceeds from sale of available-for-sale investments
3,345
Proceeds from maturities of securities
250
Sale of property and equipment
Net cash provided by investing activities
3,597
Cash flows from financing activities:
Payments for purchase of treasury stock
Proceeds from term note payable - related party
Proceeds from exercise of stock options
Proceeds from issuance of stock, net of offering issuance costs
1,272
2,921
Net cash provided by financing activities
2,772
2,927
Net change in cash and cash equivalents and restricted cash
(584
2,294
Cash and cash equivalents and restricted cash at beginning of period
552
Cash and cash equivalents and restricted cash at end of period
1,004
2,846
Reconciliation of cash and cash equivalents and restricted cash at end of period:
Supplemental disclosures of cash flow information:
Cash paid for interest
Income taxes paid
Impact to retained earnings from adoption of ASC Topic 842
Operating right-of-use assets and associated liabilities
1,608
8
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 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 six months ended December 31, 2019 are not necessarily indicative of the results that may be expected for the year ending June 30, 2020. 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, 2019.
Our Business Units
Astrotech Technology, Inc.
Astrotech Technology, Inc. (“ATI”) was formed to own and license the intellectual property of the platform mass spectrometry technology originally developed by 1st Detect Corporation (“1st Detect”). The intellectual property includes 37 granted patents and five additional patents in process. With a number of diverse market opportunities for the core technology, ATI licenses the intellectual property for different fields of use. ATI currently licenses the intellectual property to 1st Detect for use in the security and detection market and to AgLAB Inc. (“AgLAB”), which was previously known as Agriculture Technology Corporation (“AG-TECH”), for use in the agriculture market.
1st Detect Corporation
1st Detect, a licensee of ATI, has developed the TRACER 1000™, the world’s first certified mass spectrometer (“MS”)-based explosives trace detector (“ETD”), designed to replace the explosives trace detectors used at airports, secured facilities, and borders worldwide.
AgLAB Inc.
AgLAB Inc., a licensee of ATI, has developed the AgLAB-1000™ series of mass spectrometers for use in the agriculture market. The technology enables real-time analysis of hemp and cannabis products in an industry that has traditionally relied upon off site independent laboratories for chemical analysis. The AgLAB-1000 enables real-time pesticide detection and potency testing.
Astral Images Corporation
Astral Images Corporation (“Astral”) developed advanced film restoration and enhancement software. Although we believe Astral has developed valuable technology fortified by patents and trade secrets, the potential market has not yet advanced as quickly as anticipated. Due to funding constraints, the Company’s primary focus remains on the pursuit of opportunities for its platform mass spectrometry technology. Consequently, efforts are exclusively focused on strategic initiatives to facilitate the realization of Astral’s value.
Accounting Pronouncements – In February 2016, the Financial Standards Accounting Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02: Leases (“Topic 842” or “ASU 2016-02”) 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 an ROU asset and lease obligation on the Company’s condensed consolidated balance
sheets of approximately $1.6 million and an adjustment to retained earnings 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 3 Leases for more information.
(2) Going Concern
Financial Condition
The Company’s consolidated financial statements for the three and six months ended December 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 December 31, 2019, the Company had cash and cash equivalents of $0.4 million and restricted cash of $0.6 million, and working capital was approximately $(0.7) million. Restricted cash consists of three letters of credit relating to purchase orders for the TRACER 1000 product. The Company reported a net loss of $7.5 million for the fiscal year 2019 and a net loss of $4.2 million for the six months ended December 31, 2019, along with net cash used in operating activities of $8.5 million for the fiscal year 2019 and net cash used in operating activities of $3.4 million for the six months ended December 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, licensing some of its technology, 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. 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. On September 5, 2019, 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 $1.5 million. As of December 31, 2019, the Company has received net proceeds of approximately $2.3 million through the sale of shares of common stock through an “at the market offering” program (the “ATM Offering”). 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 December 31, 2019 do not include any adjustments that might result from the outcome of this uncertainty.
(3) 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, Accounting Standards Codification (“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 retained earnings of $230 thousand.
The Company has two existing facility leases and several small equipment leases. Astrotech leases office space consisting of 5,219 square feet in Austin, Texas that houses executive management, finance and accounting, sales, and marketing and communications. The lease began in November 2016 and expires in December 2023 with a provision to renew and extend the lease for the entire premises for one renewal term of five years. Astrotech must, in writing, advise the landlord of its intention to renew the lease at least eight months before the expiration of its current lease in order to renew the lease. 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 to expire in June 2018; these dates were amended in October 2014 with the amended lease beginning February 1, 2015, and
expiring April 30, 2020, with provisions to renew and extend the lease for the entire premises, but not less than the entire premises, for two renewal terms of five years each. 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. The Company has not commenced any financing leases as of 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. The incremental borrowing rate used at adoption was 11%. 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.
The condensed consolidated balance sheet classification of lease assets and liabilities are as follows:
December 31, 2019
Operating lease right-of-use assets, beginning balance
Current period amortization
(172
Adjustment for lease amendment
(414
Total operating lease right-of-use asset
Liabilities
Operating lease liabilities, beginning balance
Current period reduction
(141
Total lease liabilities
1,053
Future minimum lease payments as of December 31, 2019 under non-cancellable operating leases are as follows:
For the Year Ended June 30,
2020
2021
414
2022
389
2023
219
2024
36
Thereafter
Total lease payments
1,254
Less: imputed interest
201
Operating lease liability
Less: operating lease liabilities - current
Operating lease liabilities - non-current
Cash payments for operating leases for the three and six months ended December 31, 2019 totaled $96 thousand and $191 thousand, respectively. The weighted-average remaining lease term for operating leases is 3.1 years.
(4) Stockholders’ Equity
A prospectus relating to the ATM Offering was filed with the SEC on November 9, 2018. Since its filing, as of December 31, 2019, the Company has sold 793,668 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. In connection with the sale of these shares of common stock, the Company has received net proceeds of $2.3 million. The weighted-average sale price per share was $3.04.
The Company’s stockholders’ equity as of December 31, 2019 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.
(5) Net Loss per Share
Basic net loss per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed based on the weighted average number of common shares outstanding plus the effect of potentially dilutive common shares outstanding during the period using the treasury stock method and the if-converted method. Potentially dilutive common shares include outstanding stock options and share-based awards.
The following table reconciles the numerators and denominators used in the computations of both basic and diluted net loss per share:
Numerator:
Denominator:
Denominator for basic and diluted net loss per share — weighted average common stock outstanding
All unvested restricted stock awards for the six months ended December 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 332,819 shares of common stock at exercise prices ranging from $1.85 to $8.35 per share outstanding as of December 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 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 three and six months ended December 31, 2019, the Company had two revenue sources totaling $205 thousand and $206 thousand, respectively, and revenue was recognized at a point in time consistent with the guidelines in Topic 606.
(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.
12
As of December 31, 2019, the fair value of the Company’s cash and cash equivalents and restricted cash approximate their carrying value due to their short-term nature.
(8) Term Note Payable – Related Party
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 (“the Note”) to Mr. Pickens with a principal amount of $1.5 million. Interest on the Note shall accrue at 11% per annum. The principal amount and accrued interest on the Note shall become due and payable on September 5, 2020 (the “Maturity Date”). The Company may prepay the principal amount and all accrued interest on the Note at any time prior to the Maturity Date. In connection with the issuance of the Note, 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”), 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 the Security Agreement. In addition, the Subsidiaries jointly and severally agreed to guarantee and act as surety for the Company’s obligation to repay the Note pursuant to a subsidiary guarantee.
(9) Business Risk and Credit Risk Concentration Involving Cash
During the three and six months ended December 31, 2019, the Company had one customer that substantially comprised all of the Company’s revenue. During the three and six months ended December 31, 2018, the Company recognized revenue from one customer. As of December 31, 2019, the Company’s trade accounts receivable balance was related to sales to a global shipping and logistics company.
The Company maintains funds in bank accounts that may exceed the limit insured by the Federal Deposit Insurance Corporation 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 six months ended December 31, 2019, is as follows:
(in thousands)
Weighted Average
Exercise Price
Outstanding at June 30, 2019
324
5.71
Granted
1.85
Exercised
Canceled or expired
5.30
Outstanding at December 31, 2019
333
5.64
The aggregate intrinsic value of options exercisable at December 31, 2019, was $0, as the fair value of the Company’s common stock is less than the exercise prices of these options. The remaining stock-based compensation expense of $76 thousand related to stock options will be recognized over a weighted-average period of 1.03 years.
The table below details the Company’s stock options outstanding as of December 31, 2019:
Range of exercise prices
Number
Options
Weighted-
Average
Remaining
Contractual
Life (years)
Exercise
Price
Exercisable
$1.85 – 3.55
80,500
3.38
3.39
70,500
$5.30 – 5.85
122,319
7.36
5.48
79,575
$6.00 – 8.35
130,000
4.89
7.19
86,000
6.59
$1.85 – 8.35
332,819
5.43
236,075
5.26
13
Compensation costs recognized related to stock option awards were $41 thousand and $43 thousand for the three months ended December 31, 2019 and 2018, respectively, and $85 thousand and $84 thousand for the six months ended December 31, 2019 and 2018, respectively.
Restricted Stock
The Company’s restricted stock activity for the six months ended December 31, 2019, is as follows:
Weighted
Grant-Date
Fair Value
208
4.06
2.47
Vested
(62
3.74
3.99
140
3.97
Stock compensation expenses related to restricted stock were $42 thousand and $19 thousand for the three months ended December 31, 2019 and 2018, respectively, and $102 thousand and $14 thousand for the six months ended December 31, 2019, and 2018, respectively. The remaining stock-based compensation expense of $411 thousand related to restricted stock awards granted will be recognized over a weighted-average period of 1.99 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 December 31, 2019, the Company established a valuation allowance against all of its net deferred tax assets.
For the three months ended December 31, 2019 and 2018, the Company incurred pre-tax losses in the amount of $2.1 million and $2.2 million, respectively. For the six months ended December 31, 2019 and 2018, the Company incurred pre-tax losses in the amount of $4.2 million and $4.4 million, respectively. The total effective tax rate was approximately 0% for the each of the three and six months ended December 31, 2019 and 2018.
For each of the six months ended December 31, 2019 and 2018, the Company’s effective tax rate differed from the federal statutory rate of 21%, 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 and provides for a refundable credit of any AMT previously paid. The AMT credit still to be received by the Company of $429 thousand for AMT previously paid will be refunded subsequent to the filing of returns for fiscal years ending June 30, 2020, June 30, 2021 and June 30, 2022. Credit amounts calculated for such years are $214 thousand, $107 thousand, and $107 thousand, respectively.
FASB ASC 740, “Income Taxes” addresses the accounting for uncertainty in income tax recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company had no unrecognized tax benefit for the three and six months ended December 31, 2019 or 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.
14
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 or investigations.
(13) Segment Information
The Company currently has one reportable business unit: 1st Detect Corporation. In prior periods, the Company had two reportable business units: 1st Detect Corporation and Astral Images Corporation. As of December 31, 2019, Astral no longer meets the criteria for segment reporting as both its assets and operations are minimal. For more information on key financial metrics of the Company’s segments in prior reporting periods, refer to the Company’s Annual Report on Form 10-K for the year ended June 30, 2019.
(14) Subsequent Events
On January 7, 2020, the funds from one of the three letters of credit relating to purchase orders for the TRACER 1000 currently held by the Company were released, decreasing the balance of restricted cash to $122 thousand.
On January 21, 2020, the Company entered into its fourth amendment of its original lease for its facility in Webster, Texas. The amended lease begins May 1, 2020 and expires April 30, 2021, with the option to renew and extend the lease for one year.
On February 13, 2020, 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 to Mr. Pickens with a principal amount of $1,000,000. Interest on this promissory note shall accrue at 11% per annum. The principal amount and accrued interest on this promissory note shall become due and payable on September 5, 2020 (the “Maturity Date”). The Company may prepay the principal amount and all accrued interest on this promissory note at any time prior to the Maturity Date. In connection with the issuance of this promissory note, the Company, along with 1st Detect Corporation and Astrotech Technologies, Inc. (the “Subsidiaries”), entered into a security agreement, dated as of February 13, 2020, with Mr. Pickens (the “Security Agreement”), 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 the Security Agreement. In addition, the Subsidiaries jointly and severally agreed to guarantee and act as surety for the Company’s obligation to repay the Note pursuant to a subsidiary guarantee.
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:
•
Our ability to raise sufficient capital to meet our long- and short-term liquidity requirements;
Our ability to continue as a going concern;
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 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 2019 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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Report.
Business Overview
Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” the “Company,” “we,” “us,” or “our”), a 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.
The Company’s efforts are focused on commercializing its platform mass spectrometry technology through its wholly-owned subsidiaries:
Astrotech Technology, Inc. (“ATI”) owns and licenses the intellectual property related to our mass spectrometry technology.
1st Detect Corporation (“1st Detect”) is a manufacturer of explosives and narcotics trace detectors developed for use at airports, secured facilities, and borders worldwide.
AgLAB Inc. (“AgLAB”), which was previously known as Agriculture Technology Corporation (“AG-TECH”), is a manufacturer of mass spectrometers for use in the agriculture market.
ATI was formed to own and license the intellectual property of the platform mass spectrometry technology originally developed by 1st Detect. The intellectual property includes 37 granted patents and five additional patents in process. With a number of diverse market opportunities for the core technology, ATI licenses the intellectual property for different fields of use. ATI currently licenses the intellectual property to 1st Detect for use in the security and detection market and to AgLAB for use in the agriculture market.
1st Detect, a licensee of ATI, has developed the TRACER 1000™, the world’s first certified mass spectrometer (“MS”)-based explosives trace detector (“ETD”), designed to replace the explosives trace detectors used at airports, secured facilities, and borders worldwide. We believe that government and airport customers are unsatisfied with the currently deployed ETD technology, which is driven by an antiquated technology known as Ion Mobility Spectrometry (“IMS”). We believe 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 passenger delays and frustration, significant wasted security resources, and lack of security personnel confidence in ETDs. 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 easily expandable threat library. With terrorist threats becoming more numerous, sophisticated, and lethal, security professionals have been looking for better instrumentation to address the evolving threats.
MS has historically been reserved for highly trained professionals in high-end laboratories with large budgets. 1st Detect has overcome the significant challenge of making this sophisticated MS technology powerful, yet simple to use, with an easy-to-understand red light or green light output, at a price that is competitive with IMS. In addition to an increased probability of detection, decreased false alarm rate, and a virtually unlimited threat library that is field-upgradable, we believe that the 1st Detect ETD can increase passenger throughput and save billions of dollars in wasted airport security personnel resources. With more than 30,000 IMS instruments installed in the field, many of which are nearing their end of life or are unable to be updated to the newest standards, 1st Detect is positioned to be a leader in securing worldwide checkpoints.
Either Transportation Security Administration (“TSA”) or European Civil Aviation Conference (“ECAC”) certification is necessary to sell the TRACER 1000 to the airport market and the TRACER 1000 received ECAC certification on February 21, 2019 for both passenger and cargo screening. After receiving ECAC certification, we can now sell the TRACER 1000 to the majority of airports outside the U.S., including all of Europe. On June 26, 2019, the Company announced the official launch of
the TRACER 1000. On November 22, 2019, we announced our first commercial sale of TRACER 1000 units to a global shipping and logistics company. As the TRACER 1000 is the first MS-based ETD to have ever passed either U.S. or European regulatory testing, there has been considerable interest from prospective customers, which has yielded a number of successful demonstrations and field trials.
In the United States, we are working with both TSA and TSA Air Cargo. 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, we announced that the TRACER 1000 was beginning testing with TSA for passenger screening at airports. On November 14, 2019, Astrotech 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, we have received valuable feedback from all programs, as anticipated, and the programs continue to progress as expected; however, there is no assurance that the TRACER 1000 will be approved by TSA for either cargo or passenger screening.
AgLAB, a licensee of ATI, is developing the AgLAB-1000™ series of mass spectrometers for use in the agriculture industry. With minimal changes to the platform mass spectrometry technology that was originally developed by 1st Detect, a significant competitive advantage of the AgLAB-1000 is its rugged design, ease of use, and real-time analysis, making it ideal for the farm and manufacturing environment. In response to market needs in the hemp and cannabis market, the AgLAB series of instruments are being designed for uses in pesticide detection and potency testing.
Pesticide Detection - The AgLAB-1000 is being designed to detect all California, Oregon, Colorado, and Canadian regulated pesticides in the field and during the extraction and distillation processes. These regions have a need for pesticide testing, as contaminated hemp and cannabis crops or products must be destroyed if they fail certification testing. Current testing requires three to five days and early detection can be the difference in saving or losing highly valuable crops or product. With the increasing number of U.S. states and countries legalizing hemp and cannabis, pesticide regulations have become increasingly more important and that trend is expected to continue.
Potency - The AgLAB-1000 is also being designed to accurately determine the potency of the hemp and cannabis cannabinoids (including cannabidiol (“CBD”) and tetrahydrocannabinol (“THC”)); this is important, as the 2018 Farm Bill which legalized hemp nationwide, also requires no more than 0.3% of THC to be present in the hemp plant. If a batch exceeds the THC threshold, the batch must be destroyed. The AgLAB-1000 is being designed to allow for potency testing during the growing cycle to ensure that the 0.3% limit is not exceeded and to optimize the harvest time. The AgLAB-1000 is also being designed to be used by regulators and law enforcement to test for potency in the field where testing results are time-sensitive.
Astral Images (“Astral”) developed advanced film restoration and enhancement software. Although we believe Astral has developed valuable technology fortified by patents and trade secrets, the potential market has not advanced as quickly as anticipated. Due to funding constraints, the Company’s primary focus remains on the pursuit of opportunities for its platform mass spectrometry technology. Consequently, efforts are exclusively focused on strategic initiatives to facilitate the realization of Astral’s value.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are reviewed periodically. Actual results may differ from these estimates under different assumptions or conditions.
As of July 1, 2019, the Company adopted ASU 2016-02, Leases (“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, Accounting Standards Codification
(“ASC”) Topic 840. Topic 842 requires lessees to recognize a lease liability and right-of-use asset on the balance sheet for operating leases. The adoption of Topic 842 resulted in an adjustment to retained earnings of $230 thousand.
Results of Operations
Three months ended December 31, 2019, compared to three months ended December 31, 2018:
Selected consolidated financial data for the quarters ended December 31, 2019, and 2018 is as follows:
Three Months Ended December 31,
Gross margin
%
100
Revenue – Total revenue increased $198 thousand during the second quarter of fiscal 2020, compared to the second quarter of fiscal 2019. Revenue generated in the second quarter of fiscal 2020 was related to the TRACER 1000 product launch. Revenue generated in the second quarter of fiscal 2019 was associated with Astral’s now-discontinued agreement with ColorTime, a post-production house specializing in media content creation, restoration, and distribution.
Cost of Revenue – Gross profit is comprised of revenue less cost of revenue. In the second quarter of fiscal 2020, cost of revenue was comprised of labor, materials, overhead, travel, and shipping related to the above sales. In the second quarter of fiscal 2019, there was no cost of revenue related to the agreement with ColorTime. Gross margin for the second quarter of fiscal 2020 was 4%, driven by the first-in-first-out (“FIFO”) inventory methodology where much of the inventory used to build the TRACER 1000 had R&D volume pricing. As we receive more purchase orders for the TRACER 1000, we expect the cost of materials to decline as we recognize the benefits of scale.
Operating Expenses – As a result of management’s ongoing commitment to optimize our resources, operating expenses decreased $134 thousand, or 6%, during the second quarter of fiscal 2020, compared to the second quarter of fiscal 2019. Selling, general and administrative decreased $176 thousand, or 14%, due to decreases in expenses relating to legal, consulting, audit fees, and headcount. Research and development remained consistent in the second quarter of fiscal 2020, compared to the second quarter of fiscal 2019.
Income Taxes – Income tax benefit did not change during the second quarter of fiscal 2020, compared to the second quarter of fiscal 2019. The realization of tax benefits depends on the existence of future taxable income. Pursuant to ASC 740 “Income Taxes” (“ASC 740”), a valuation allowance has been established on all the Company’s deferred tax assets.
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Six months ended December 31, 2019, compared to six months ended December 31, 2018:
Selected consolidated financial data for the six months ended December 31, 2019, and 2018 is as follows:
73
Revenue – Total revenue increased $166 thousand during the six months ended December 31, 2019, compared to the six months ended December 31, 2018. During the six months ended December 31, 2019, substantially all of the revenue generated was related to the TRACER 1000 product launch. All of the revenue generated during the six months ended December 31, 2018 was associated with Astral’s now-discontinued agreement with ColorTime, a post-production house specializing in media content creation, restoration, and distribution.
Cost of Revenue – Gross profit is comprised of revenue less cost of revenue. During the six months ended December 31, 2019, cost of revenue was comprised of labor, materials, overhead, travel, and shipping related to the above sales. During the six months ended December 31, 2018, cost of revenue was comprised of labor related to the agreement with ColorTime. Gross margin for the six months ended December 31, 2019 was 5%, driven by the FIFO inventory methodology where much of the inventory used to build the TRACER 1000 had R&D volume pricing. As we receive more purchase orders for the TRACER 1000, we expect the cost of materials to decline as we recognize the benefits of scale.
Operating Expenses – As a result of management’s ongoing commitment to optimize our resources, operating expenses decreased $324 thousand, or 7%, during the six months ended December 31, 2019, compared to the six months ended December 31, 2018. Selling, general and administrative decreased $118 thousand, or 5%, due to decreases in expenses relating to legal, consulting, audit fees, and reduced headcount. Research and development decreased $206 thousand, or 10%, during the six months ended December 31, 2019, compared to six months ended December 31, 2018, due to decreases in expenses relating to subcontractors, consultants, depreciation, and headcount.
Income Taxes – Income tax benefit did not change during the six months ended December 31, 2019, compared to the six months ended December 31, 2018. The realization of tax benefits depends on the existence of future taxable income. Pursuant to ASC 740, a valuation allowance has been established on all the Company’s deferred tax assets.
Liquidity and Capital Resources
The following is a summary of the change in our cash and cash equivalents:
Change
Change in cash and cash equivalents:
874
(3,597
(155
Net change in cash and cash equivalents
(2,878
20
Cash and Cash Equivalents and Restricted Cash
As of December 31, 2019, we held cash and cash equivalents of $0.4 million and restricted cash of $0.6 million, and our working capital was approximately $(0.7) million. As of June 30, 2019, we had cash and cash equivalents of $1.6 million, and our working capital was approximately $1.9 million. Cash and cash equivalents and restricted cash decreased $0.6 million as of December 31, 2019, compared to June 30, 2019, due to funding our normal operating activities and research and development initiatives, partially offset by a note payable from a related party and the sale of shares of common stock through an “at-the-market offering” program (the “ATM Offering”).
Operating Activities
Cash used in operating activities decreased $0.9 million for the six months ended December 31, 2019, compared to the six months ended December 31, 2018, primarily due to a reduction in our expenses as well as an increase in deferred tax asset due to the refundable credit of previously paid Alternative Minimum Tax (“AMT”).
Investing Activities
Cash provided by investing activities decreased $3.6 million for the six months ended December 31, 2019, compared to the six months ended December 31, 2018, due to liquidating our available-for-sale investments in the first quarter of fiscal 2019.
Financing Activities
Cash provided by financing activities remained consistent for the six months ended December 31, 2019, compared to the six months ended December 31, 2018.
Liquidity
As of December 31, 2019, we had cash and cash equivalents and restricted cash of $1.0 million, and our working capital was approximately $(0.7) million. Restricted cash consists of three letters of credit relating to purchase orders for the TRACER 1000 product. For the fiscal year 2019, the Company reported a net loss of $7.5 million and net cash used in operating activities of $8.5 million. For the six months ended December 31, 2019, the Company reported a net loss of $4.2 million and net cash used in operating activities of $3.4 million. These factors raise substantial doubt about the Company’s ability 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 our technology, 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 entered into a Securities Purchase Agreement (the “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 “Series B 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 Series B 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). On April 17, 2019, the Company entered into another Securities Purchase Agreement (the “Agreement No. 2”) with Mr. Pickens and the 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 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, at a price per share of $3.56 and for aggregate gross proceeds of approximately $2.0 million. The purchase price of $3.56 per share was equal to the closing consolidated bid price on The NASDAQ Capital Market on April 16, 2019. The Series D Preferred Shares are convertible into an aggregate of 280,898 shares of common stock at the option of the holder. On September 5, 2019, 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 $1.5 million. As of December 31, 2019, the Company has sold 793,668 shares of common stock pursuant to an At-the-Market Issuance Sales Agreement with B. Riley FBR through the ATM Offering 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 $2.3 million. The weighted-average sale price per share was $3.04.
21
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 December 31, 2019 do not include any adjustments that might result from the outcome of this uncertainty.
Income Taxes
For each of the six months ended December 30, 2019 and 2018, the Company’s effective tax rate differed from the federal statutory rate of 21%, primarily due to the valuation allowance placed against its net deferred tax assets.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2019, or June 30, 2019.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report. Based on the evaluation and criteria of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the six months ended December 31, 2019 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of December 31, 2019, we are not involved in any pending or threatened legal proceedings that we believe could reasonably be expected to have a material adverse effect on our financial condition, results of operations, or cash flows. From time to time, we are subject to legal proceedings and business disputes involving ordinary routine legal matters and claims incidental to our business. The ultimate legal and financial liability with respect to such matters generally cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements or awards against us. Estimates for losses from litigation are made after consultation with outside counsel. If estimates of potential losses increase or the related facts and circumstances change in the future, we may be required to record either more or less litigation expense.
ITEM 1A. RISK FACTORS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER INFORMATION
The Company anticipates that the date of its next annual stockholder meeting will be more than 30 calendar days after the date of the Company’s prior annual stockholder meeting, but has not made a final determination as to such date. Once available, the Company will file a Current Report on Form 8-K to (i) announce the date of the Company’s annual stockholder meeting; and (ii) to disclose the deadline for the submission of shareholder proposals for the annual stockholder meeting pursuant to SEC Rule 14a-8, which date shall be a reasonable time before the Company mails its proxy materials for its annual stockholder meeting.
ITEM 6. EXHIBITS
The following exhibits are filed herewith:
Exhibit No.
Description
Incorporation by Reference
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
Filed herewith.
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1
Certification pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934.
101
The following financial information from the Company’s Quarterly Report on Form 10-Q, for the period ended December 31, 2019 formatted in eXtensible Business Reporting Language: (i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Operations, (iii) Unaudited Condensed Consolidated Statements of Cash Flows, (iv) Notes to Unaudited Condensed Consolidated Financial Statements.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: February 14, 2020
/s/ Eric Stober
Eric Stober
Chief Financial Officer and Principal Accounting Officer