Astrotech Corporation

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)


þ

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 2013


OR


o

 

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 this charter)


Washington

 

91-1273737

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)


401 Congress Avenue, Suite 1650

Austin, Texas 78701

(Address of principal executive offices and zip code)


(512) 485-9530

(Registrant’s telephone number, including area code)


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 þ  No o


Indicate by check mark whether the registrant has submitted electronically and posted on it corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o

 

Accelerated filer o

 

Non-accelerated filer o

 

Smaller reporting company þ

  

 

 

 

(Do not check if a smaller reporting company)

 

 


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o Noþ


As of May 9, 2013, there were 19,486,727 shares of the registrant’s common stock outstanding.






ASTROTECH CORPORATION AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

PART I:   FINANCIAL INFORMATION

3

 

 

ITEM 1.    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

15

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

19

ITEM 4.    CONTROLS AND PROCEDURES

20

 

 

PART II: OTHER INFORMATION

21

 

 

ITEM 1.    LEGAL PROCEEDINGS

21

ITEM 1A. RISK FACTORS

21

ITEM 2.    UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

22

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

22

ITEM 4.    MINE SAFETY DISCLOSURES

22

ITEM 5.    OTHER INFORMATION

22

ITEM 6.    EXHIBITS

22





2




PART I: FINANCIAL INFORMATION


ITEM 1.   Condensed Consolidated Financial Statements



ASTROTECH CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share data)


 

March 31,

2013

 

June 30,

2012

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

     Cash and cash equivalents

$

8,034 

 

$

10,177 

     Accounts receivable, net

 

731 

 

 

1,926 

     Prepaid expenses and other current assets

 

976 

 

 

592 

Total current assets

 

9,741 

 

 

12,695 

     Property & equipment, net

 

36,681 

 

 

37,270 

     Other assets, net

 

57 

 

 

84 

Total assets

$

46,479 

 

$

50,049 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

     Accounts payable

$

237 

 

$

3,033 

     Accrued liabilities

 

3,274 

 

 

1,634 

     Deferred revenue

 

3,011 

 

 

2,836 

     Term note payable

 

383 

 

 

372 

Total current liabilities

 

6,905 

 

 

7,875 

     Deferred revenue

 

150 

 

 

— 

     Other Liabilities

 

207 

 

 

— 

     Term note payable, net of current portion

 

5,752 

 

 

6,042 

Total liabilities

 

13,014 

 

 

13,917 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Preferred stock, no par value, convertible, 2,500,000 authorized shares, 0 issued and outstanding shares, at March 31, 2013 and June 30, 2012

 

— 

 

 

— 

Common stock, no par value, 75,000,000 shares authorized; 19,781,721 and 19,134,907 shares issued at March 31, 2013 and June 30, 2012

 

183,782 

 

 

183,712 

Treasury stock, 311,660 shares at cost

 

(237)

 

 

(237)

Additional paid-in capital

 

1,176 

 

 

1,582 

Accumulated deficit

 

(153,995)

 

 

(151,655)

Noncontrolling interest

 

2,739 

 

 

2,730 

Total stockholders’ equity

 

33,465 

 

 

36,132 

Total liabilities and stockholders’ equity

$

46,479 

 

$

50,049 


See accompanying notes to unaudited condensed consolidated financial statements.




3




ASTROTECH CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per share data)


 

Three Months Ended

March 31,

 

Nine Months Ended

March 31,

 

2013

 

2012

 

2013

 

2012

 

(unaudited)

 

(unaudited)

Revenue

$

4,565 

 

$

10,013 

 

$

14,815 

 

$

18,529 

Cost of revenue

 

2,550 

 

 

6,770 

 

 

10,581 

 

 

12,804 

Gross profit

 

2,015 

 

 

3,243 

 

 

4,234 

 

 

5,725 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

1,758 

 

 

1,814 

 

 

5,341 

 

 

5,451 

Research and development

 

459 

 

 

475 

 

 

1,494 

 

 

1,979 

Total operating expenses

 

2,217 

 

 

2,289 

 

 

6,835 

 

 

7,430 

Income (loss) from operations

 

(202)

 

 

954 

 

 

(2,601)

 

 

(1,705)

     Interest and other expense, net

 

(36)

 

 

(69)

 

 

(121)

 

 

(202)

Loss before income taxes

 

(238)

 

 

885 

 

 

(2,722)

 

 

(1,907)

     Income tax expense

 

— 

 

 

(5)

 

 

— 

 

 

(17)

Net income (loss)

 

(238)

 

 

880 

 

 

(2,722)

 

 

(1,924)

     Less: Net loss attributable to noncontrolling interest

 

(125)

 

 

(134)

 

 

(382)

 

 

(486)

Net income (loss) attributable to Astrotech Corporation

$

(113)

 

$

1,014 

 

$

(2,340)

 

$

(1,438)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to Astrotech Corporation, basic

$

(0.01)

 

$

0.05 

 

$

(0.12)

 

$

(0.08)

Weighted average common shares outstanding, basic

 

19,463 

 

 

18,764 

 

 

19,279 

 

 

18,448 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to Astrotech Corporation, diluted

$

(0.01)

 

$

0.05 

 

$

(0.12)

 

$

(0.08)

Weighted average common shares outstanding, diluted

 

19,463 

 

 

19,152 

 

 

19,279 

 

 

18,448 


See accompanying notes to unaudited condensed consolidated financial statements.



4




ASTROTECH CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)


 

Nine Months Ended

March 31,

 

2013

 

2012

 

(unaudited)

Cash flows from operating activities

 

 

 

 

 

Net loss

$

(2,722)

 

$

(1,924)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

Stock-based compensation

 

16 

 

 

815 

Asset impairment

 

— 

 

 

200 

Depreciation and amortization

 

1,552 

 

 

1,742 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

952 

 

 

725 

Accounts payable

 

(2,796)

 

 

(3,770)

Deferred revenue

 

325 

 

 

975 

Other assets and liabilities

 

1,705 

 

 

1,835 

Net cash provided by (used in) operating activities

 

(968)

 

 

598 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of property, equipment and leasehold improvements

 

(936)

 

 

(385)

Net cash used in investing activities

 

(936)

 

 

(385)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

State of Texas Funding

 

— 

 

 

900 

Term loan payment

 

(279)

 

 

(267)

Proceeds for common stock issuance

 

40 

 

 

— 

Net cash provided by (used in) financing activities

 

(239)

 

 

633 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(2,143)

 

 

846 

Cash and cash equivalents at beginning of period

 

10,177 

 

 

14,994 

Cash and cash equivalents at end of period

$

8,034 

 

$

15,840 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid for interest

$

188 

 

$

200 


See accompanying notes to unaudited condensed consolidated financial statements.




5




ASTROTECH CORPORATION AND SUBSIDIARIES


Notes to Unaudited Condensed Consolidated Financial Statements


(1) Description of the Company and Liquidity


Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” “the Company,” “we,” “us” or “our”), a Washington corporation, is a commercial aerospace company that was formed in 1984 to leverage the environment of space for commercial purposes. For nearly 30 years, the Company has remained a crucial player in space commerce activities.  We have supported the launch of 23 shuttle missions and more than 300 spacecraft; built space hardware and processing facilities; constructed and operated world-class processing facilities; and prepared and processed scientific research for microgravity.


Our Business Units


Astrotech Space Operations (“ASO”)


ASO provides support to its government and commercial customers as they successfully process complex communication, earth observation and deep space satellites in preparation for their launch on a variety of launch vehicles. Processing activities include satellite ground transportation; pre-launch hardware integration and testing; satellite encapsulation, fueling, launch pad delivery; and communication linked launch control. Our ASO facilities can process five meter class satellites accommodating the majority of U.S. based satellites. ASO’s service capabilities include designing and building spacecraft processing equipment and facilities. In addition, ASO provides propellant services including designing, building and testing propellant service equipment for fueling spacecraft. ASO accounted for 99% of our consolidated revenues for the period ended March 31, 2013. Revenue for our ASO business unit is generated primarily from various fixed-priced contracts with launch service providers in both government and commercial markets and the design, fabrication and use of critical space launch equipment. The services and facilities we provide to our customers support the final assembly, checkout, and countdown functions required to launch a spacecraft. The revenue and cash flows generated from our ASO operations are primarily related to the number of spacecraft launches and the fabrication of the Ground Support Equipment (“GSE”) for the U.S. Government.


Spacetech


Our other business unit is a technology incubator designed to commercialize space-industry technologies. This business unit is currently pursuing two distinct opportunities:


1st Detect


1st Detect designs, manufactures and sells miniature mass spectrometer equipment. 1st Detect launched the MMS-1000TM during March 2012. The MMS-1000TM is a low power, miniature mass spectrometer device designed initially for the laboratory testing market. The unique design of this unit is the result of the Company’s work with the National Aeronautics and Space Administration (“NASA”) on the International Space Station. 1st Detect has been awarded a Developmental Testing and Evaluation designation from the U.S. Department of Homeland Security as a “promising anti-terrorism technology,” and is the recipient of a Phase I and Phase II award from the U.S. Army’s Chemical and Biological Defense (“CBD”) Small Business Innovation Research (“SBIR”) Program. Following the successful execution of the Phase I SBIR, 1st Detect was awarded a $0.8 million Phase II SBIR contract from the Joint Science and Technology Office for Chemical and Biological Defense. Additionally, 1st Detect received a $1.8 million award from the Texas Emerging Technology Fund in March 2010.


1st Detect has entered into customer agreements resulting in over $0.8 million research and development funding and is developing relationships with a number of significant analytical instrument manufacturers and distributors. The target markets for 1st Detect’s MMS-1000 and OEM-1000 products are large and growing and present an opportunity to compete with established vendors. The unique characteristics of 1st Detect’s products allow us to develop and market into emerging markets and opportunities.




6




Astrogenetix


Astrogenetix is a biotechnology company formed to commercialize products developed in the unique environment of microgravity. Astrogenetix pursued an aggressive space access strategy to take advantage of the Space Shuttle program prior to its retirement in 2011. This strategy gave Astrogenetix unprecedented access to research in microgravity, as the Company flew experiments twelve times over a three-year period. Astrogenetix is currently researching a Salmonella vaccine as part of its ongoing commercialization strategy. Concurrently, Astrogenetix is evaluating a vaccine target for MRSA based on discoveries made in microgravity. In December 2011, the Company negotiated a Space Act Agreement with NASA for a minimum of twenty-eight future space flights.


Liquidity and Capital Resources


Our future capital requirements will depend on a number of factors, including our success in developing and expanding markets for our products, payments under possible future strategic arrangements, continued progress of our research and development of potential products, the need to acquire licenses to new technology, costs associated with increasing our manufacturing and development facilities, costs associated with strategic acquisitions including integration costs and assumed liabilities, litigation expense, the status of competitive products and potential cost associated with both protecting and defending our intellectual property. Additionally, actions taken as a result of the ongoing internal evaluation of our business could result in expenditures not currently contemplated in our estimates for 2013.  We believe, however, that our existing cash and cash equivalents are sufficient to fund our operating expenses, capital equipment requirements and other expected liquidity requirements for the coming twelve months.  Factors that could affect our capital requirements, in addition to those listed above include continued collections of accounts receivable consistent with our historical experience, uncertainty surrounding mission launch schedules, and our ability to manage product development efforts.


(2) Basis of Presentation


The accompanying unaudited condensed consolidated financial statements have been prepared by Astrotech Corporation in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. Operating results for the nine months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending June 30, 2013. 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, 2012.


(3) Noncontrolling Interest


In January 2010, restricted shares of Astrotech subsidiaries, 1st Detect and Astrogenetix, were granted to certain employees, directors and officers, resulting in Astrotech owning less than 100% of the subsidiaries.  The Company applied noncontrolling interest accounting for the period ended March 31, 2013, which requires us to clearly identify the noncontrolling interest in the balance sheets and income statements. We disclose three measures of net income (loss): net loss, net loss attributable to noncontrolling interest, and net loss attributable to Astrotech Corporation.  Our operating cash flows in our consolidated statements of cash flows reflect net loss; while our basic and diluted net loss per share calculations reflect net loss attributable to Astrotech Corporation.


 

(In thousands)

Beginning balance at June 30, 2012

$

2,730 

Net loss attributable to noncontrolling interest

 

(382)

Capital contribution

 

390 

Stock based compensation

 

Ending balance at March 31, 2013

$

2,739 


As of March 31, 2013, the Company’s share of income and losses is 86% for 1st Detect and 84% for Astrogenetix.




7




(4) Net Income (Loss) per Share


Basic net income (loss) per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method and the if-converted method. Dilutive potential common shares include outstanding stock options and shared-based awards. Reconciliation and the components of basic and diluted net loss per share are as follows (in thousands, except per share data):


 

Three Months Ended

March 31,

 

Nine Months Ended

March 31,

 

2013

 

2012

 

2013

 

2012

Numerator:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Astrotech Corporation, basic and diluted

$

(113)

 

$

1,014 

 

$

(2,340)

 

$

(1,438)

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic net loss per share attributable to Astrotech Corporation — weighted average common stock outstanding

 

19,463 

 

 

18,764 

 

 

19,279 

 

 

18,448 

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive common stock equivalents — common stock options and share-based awards

 

— 

 

 

388 

 

 

— 

 

 

— 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for diluted net loss per share attributable to Astrotech Corporation — weighted average common stock outstanding and dilutive common stock equivalents

 

19,463 

 

 

19,152 

 

 

19,279 

 

 

18,448 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per share attributable to Astrotech Corporation

$

(0.01)

 

$

0.05 

 

$

(0.12)

 

$

(0.08)

Diluted net loss per share attributable to Astrotech Corporation

$

(0.01)

 

$

0.05 

 

$

(0.12)

 

$

(0.08)


Options to purchase 1,147,850 shares of common stock at exercise prices ranging from $0.30 to $24.10 per share outstanding for the three and nine months ended March 31, 2013 were not included in diluted net loss per share, as the impact to net loss per share is anti-dilutive. Options to purchase 794,100 shares of common stock at exercise prices ranging from $0.71 to $24.10 per share outstanding, for the three months ended March 31, 2012, were not included in diluted net income (loss) per share, as the impact to net income (loss) per share is anti-dilutive. Options to purchase 1,147,850 shares of common stock at exercise prices ranging from $0.30 to $24.10 per share outstanding, for the nine months ended March 31, 2012, were not included in diluted net income (loss) per share, as the impact to net income (loss) per share is anti-dilutive.


(5) Revenue Recognition


Astrotech recognizes revenue employing several generally accepted revenue recognition methodologies across its business units. The methodology used is based on contract type and the manner in which products and services are provided.


Revenue generated by Astrotech’s payload processing facilities is recognized ratably over the occupancy period of the satellite while in the Astrotech facilities. The percentage-of-completion method is used for all contracts where incurred costs can be reasonably estimated and successful completion can be reasonably assured at inception. Changes in estimated costs to complete and provisions for contract losses are recognized in the period they become known. Revenue for the sale of commercial products is recognized at shipment.




8




A Summary of Revenue Recognition Methods


Services/Products Provided

 

Contract Type

 

Method of Revenue Recognition

Payload Processing Facilities

 

Firm Fixed Price — Mission Specific

 

Ratably, over the occupancy period of a satellite

within the facility from arrival through launch

 

 

 

 

 

Construction Contracts

 

Firm Fixed Price

 

Percentage-of-completion based on costs incurred

 

 

 

 

 

Engineering Services

 

Cost Reimbursable

Award/Fixed Fee

 

Reimbursable costs incurred plus award/fixed fee

 

 

 

 

 

Commercial Products

 

Specific Purchase

Order Based

 

At shipment

 

 

 

 

 

Grant

 

Cost Reimbursable

Award

 

As costs are incurred for related research and

development expenses


Under certain contracts, we make expenditures for specific enhancements and/or additions to our facilities where the customer agrees to pay a fixed fee to deliver the enhancement or addition. We account for such agreements as a reduction in the cost of such investments and recognize any excess of amounts collected above the expenditure as revenue.


(6) Debt


Credit Facilities


In October 2010, we entered into a financing facility with a commercial bank providing a $7.0 million term loan note and a $3.0 million revolving credit facility. The $7.0 million term loan terminates in October 2015, and the $3.0 million revolving credit facility expired in October 2012. The Company had no outstanding balance on the revolving credit facility. The term loan requires monthly payments of principal plus interest at the rate of prime plus 0.25%, but not less than 4.0%. The revolving credit facility allowed multiple advances not to exceed $3.0 million, based on eligible accounts receivable, and incurred interest at the rate of prime plus 0.25%, but not less than 4.0%. The bank financing facilities are secured by the assets of ASO, including accounts receivable, and require us to comply with designated covenants. The balance of the $7.0 million term loan at March 31, 2013 was $6.1 million.


The bank financing facilities contain certain affirmative and negative covenants with which we must comply, including the maintenance by us of a debt service coverage ratio of 1.00 to 1.00. As of March 31, 2013, we were not in compliance with the debt service coverage ratio; however, we have received a waiver from the bank.


(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.




9




The following table presents the carrying amounts, estimated fair values and valuation input levels of certain of the Company’s financial instruments as of March 31, 2013 and June 30, 2012 (in thousands):


 

March 31, 2013

 

June 30, 2012

 

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

Valuation

 

Amount

 

Value

 

Amount

 

Value

 

Inputs

Debt

$

6,135

 

$

6,135

 

$

6,414

 

$

6,414

 

Level 2


The carrying value of the Company’s debt at March 31, 2013 approximates fair value based on rates available for similar debt available to comparable companies in the marketplace. The carrying amounts of cash and cash equivalents, accounts receivable, notes receivable and accounts payable approximate their fair market value due to the relatively short duration of these instruments.


(8) Business and Credit Risk Concentration


A substantial portion of our revenue has been generated under contracts with the U.S. Government. During the nine months ended March 31, 2013 and 2012, approximately 64% and 65%, respectively, of our revenues were generated under U.S. Government contracts. Accounts receivable totaled $0.7 million at March 31, 2013, of which 27% was attributable to the U.S. Government.


The Company maintains funds in bank accounts that may exceed the limit insured by the Federal Deposit Insurance Corporation, or “FDIC.” In October 2008, the FDIC increased its insurance to $250,000 per depositor, and to an unlimited amount for non-interest bearing accounts. 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.


(9) Segment Information


Management’s primary financial and operating reviews focus on ASO, the core business unit. All intercompany transactions between business units have been eliminated in consolidation.


Key financial metrics for the three months ended March 31, 2013 and 2012 are as follows (in thousands):


 

 

Three Months Ended

 

Three Months Ended

 

 

March 31, 2013

 

March 31, 2012

 

 

 

 

 

Income (loss)

before

 

 

 

 

Income (loss

before

Revenue and Income

 

Revenue

 

income taxes

 

Revenue

 

income taxes

ASO

 

$

4,565 

 

$

655 

 

$

9,933 

 

$

1,840 

Spacetech

 

$

— 

 

$

(893)

 

$

80 

 

$

(955)

 

 

$

4,565 

 

$

(238)

 

$

10,013 

 

$

(885)


Key financial metrics for the nine months ended March 31, 2013 and 2012 are as follows (in thousands):


 

 

Nine Months Ended

 

Nine Months Ended

 

 

March 31, 2013

 

March 31, 2012

 

 

 

 

 

Income (loss)

before

 

 

 

 

Income (loss)

before

Revenue and Income

 

Revenue

 

income taxes

 

Revenue

 

income taxes

ASO

 

$

14,682 

 

$

14 

 

$

18,351 

 

$

1,490 

Spacetech

 

$

133 

 

$

(2,736)

 

$

178 

 

$

(3,397)

 

 

$

14,815 

 

$

(2,722)

 

$

18,529 

 

$

(1,907)


Key financial metrics for the balance sheet are as follows (in thousands):


 

 

March 31, 2013

 

June 30, 2012

Assets

 

Fixed

Assets, net

 

Total Assets

 

Fixed

Assets, net

 

Total Assets

ASO

 

$

36,056 

 

$

44,879 

 

$

36,997 

 

$

48,867 

Spacetech

 

$

625 

 

$

1,600 

 

$

273 

 

$

1,182 

 

 

$

36,681 

 

$

46,479 

 

$

37,270 

 

$

50,049 




10




(10) State of Texas Funding


In March 2010, the Texas Emerging Technology Fund awarded 1st Detect $1.8 million for the development and marketing of the Miniature Chemical Detector, a portable mass spectrometer designed to serve the security, healthcare and industrial markets.  In exchange for the award, 1st Detect granted a common stock purchase right and a note payable to the State of Texas.  As of March 31, 2013, 1st Detect has received $1.8 million in disbursements. The proceeds from the award can only be used to fund development of the Miniature Chemical Detector at 1st Detect, not for repaying existing debt or for use in other Company subsidiaries.


The common stock purchase right is exercisable at the first Qualifying Financing Event (“QFE”), which is essentially a change in control or third party equity investment in 1st Detect. The number of shares available to the State of Texas, at the price of par value, is calculated as the total disbursements (numerator) divided by the stock price established in the QFE (denominator). If the first QFE does not occur within 18 months of the agreement’s effective date, which has been extended to March 31, 2013 as a result of recent extensions granted by the State of Texas, the number of shares available for purchase will equal the total disbursements (numerator) divided by $100 (denominator).  As of March 31, 2013 no QFE has occurred.


The note equals the disbursements to 1st Detect to date, accrues interest at 8% per year and cancels automatically at the earlier of (1) selling substantially all of the assets of 1st Detect, (2) selling more than 50% of common stock of 1st Detect or (3) March 2020. No payments of interest or principal are due on the note unless there is a default, which would occur if 1st Detect moves its operations or headquarters outside of Texas at any time before March 2020. 1st Detect has the option to pay back the principal plus accrued interest by March 31, 2013, but repayment does not cancel the State of Texas’ common stock purchase right.


Management considers the likelihood of voluntarily repaying the note or of a default event as remote due to the fact that the covenants that would necessitate repayment are within the control of the Company. As such, the $1.8 million, which was received in two installments of $0.9 million and $0.9 million prior to the period ended March 31, 2013, was accounted for as a contribution to equity. As of March 31, 2013, no default events have occurred.


(11) Equity and Other Long Term Incentive Plans


The 1994 Plan (“1994 Plan”)


Under the terms of the 1994 Plan, the number and price of the stock incentive awards granted to employees is determined by the Board of Directors and such grants vest, in most cases, incrementally over a period of four years and expire no more than ten years after the date of grant. At the time of approval, 395,000 shares of our common stock were reserved for issuance under this plan. As of March 31, 2013, there are no shares available for grant. Based on the Articles of the 1994 stock incentive plan, no awards shall be granted more than ten years after the effective date of the plan unless amended.


The Directors’ Stock Option Plan (“Director’s Plan”)


Options under the Director’s Plan vest after one year and expire seven years from the date of grant. At the time of approval, 50,000 shares of our common stock were reserved for issuance under this plan. As of March 31, 2013, there are 41,500 shares available for future grant.


2008 Stock Incentive Plan (“2008 Plan”)

The 2008 Plan was created to promote growth of the Company by aligning the long-term financial success of the Company with the employees, consultants and directors. At the time of approval, 5,500,000 shares of our common stock were reserved for issuance under this plan. The 2008 Plan, administered by the Compensation Committee of the Board of Directors, provides for granting of incentive awards in the form of stock options, stock appreciation rights (SARs) and restricted stock to employees, directors and consultants of the Company. Stock options awarded will vest upon the Company’s stock achieving a closing price of $1.50 and expire ten years from grant date or upon employee or director termination. Restricted shares awarded will vest 33.33% a year over a three year period and expire upon employee or director termination. There have been no SARs granted from the 2008 Plan. As of March 31, 2013, there are 342,501 shares available for grant under the 2008 Plan.




11




2011 Stock Incentive Plan (“2011 Plan”)


The 2011 Plan was designed to increase shareholder value by compensating employees over the long term. The plan is to be used to promote long-term financial success and execution of our business strategy. At the time of approval, 1,750,000 shares of our common stock were reserved for issuance under this plan. The 2011 Plan, administered by the Compensation Committee of the Board of Directors, provides for granting of incentive awards in the form of stock options, stock appreciation rights (SARs) and restricted stock to employees, directors and consultants of the Company. Stock options awarded will vest upon the Company’s stock achieving a closing price of $1.50 and expire ten years from the grant date or upon employee or director termination. Additionally, a single 200,000 stock option grant was awarded to a third party consultant intended to provide incentive which is aligned with management and the shareholders. Vesting for these option shares will occur once certain performance conditions have been fulfilled. There have been no SARs or restricted stock granted from the 2011 Plan. As of March 31, 2013, there are 1,056,000 shares available for grant under the 2011 Plan.


At March 31, 2013, 1,440,001 shares of Common Stock were reserved for future grants of stock incentive grants under the Company’s four stock incentive plans.


1st Detect


On January 19, 2010, an independent committee of the Board of Directors of 1st Detect, a subsidiary of the Company, approved a grant of 1,180 restricted stock shares and 1,820 stock purchase warrants to certain officers, directors and employees of 1st Detect, of which 75 and 45, respectively, have subsequently been cancelled. The awards vested 50% a year over a two-year period. The restricted stock awards are equal to the fair market value of 1st Detect’s common stock on the date of grant as determined by an independent valuation firm. The Company utilized the Black-Scholes methodology in determining the fair market value of the warrants.


1st Detect 2011 Stock Incentive Plan


The 2011 Plan was designed to increase shareholder value by compensating employees over the long term. The plan is to be used to promote long-term financial success and execution of our business strategy. At the time of approval, 2,500 shares of 1st Detect stock were reserved for issuance under this plan. The 2011 Plan, administered by the Board of Directors of 1st Detect, provides for granting of incentive awards in the form of stock options to certain directors, officers and employees of 1st Detect. The awards vest upon certain performance conditions being met and expire ten years from the grant date.  The stock options have an exercise price equal to the fair market value of 1st Detect’s common stock on the date of grant as determined by an independent valuation firm. As of March 31, 2013, there are 1,775 shares available for grant under the 2011 Plan.


Astrogenetix


On January 19, 2010, an independent committee of the Board of Directors of Astrogenetix, a subsidiary of the Company, approved a grant of 1,550 restricted stock shares and 2,050 stock purchase warrants to certain officers, directors and employees of Astrogenetix, of which 375 and 50 have subsequently been cancelled. The awards vested 50% a year over a two-year period. The restricted stock awards are equal to the fair market value of Astrogentix’s common stock on the date of grant as determined by an independent valuation firm. The Company utilized the Black-Scholes methodology in determining the fair market value of the warrants.


(12) Income Taxes


The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. As of March 31, 2013, the Company has established a full valuation allowance against all of its net deferred tax assets.


FASB ASC 740, Income Taxes (FASB ASC 740) addresses the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. As of March 31, 2013, the Company has a liability of $64,000 ($42,000 net of federal benefit) for unrecognized tax benefits.


For the three and nine months ended March 31, 2013 and 2012, the Company’s effective tax rate differed from the federal statutory rate of 35%, primarily due to recording changes to the valuation allowance placed against its net deferred tax assets.



12





The Company files consolidated returns for federal, California, Florida, and Texas income and franchise taxes.


The Company is currently under examination by the Internal Revenue Service for the fiscal years ended June 30, 2008 through 2010. Loss carryovers are generally subject to modification by tax authorities until 3 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.


(13) Purchase of Common Stock


Common stock repurchases under the Company’s securities repurchase program may be made from time to time, in the open market, through block trades or otherwise in accordance with applicable regulations of the Securities and Exchange Commission. Depending on market conditions and other factors, these purchases may be commenced or suspended at any time or from time to time without prior notice. Additionally, the timing of such transactions will depend on other corporate strategies and will be at the discretion of the management of the Company.


As of March 31, 2013, we had repurchased 311,660 shares of common stock at a cost of $0.2 million, which represents an average cost of $0.76 per share, and $1.1 million of Senior Convertible Notes payable.  All of these repurchases were made prior to the period ended March 31, 2013.  As a result, the Company is authorized to repurchase an additional $5.7 million of securities under this program.  Additionally, on November 1, 2012, Thomas B. Pickens III and Winn Interests, Ltd. purchased 1,783,746 and 594,581 shares of common stock of the Company, respectively, at an average price of $0.90 per share.


(14) 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.


On January 10, 2013, a lawsuit was filed in a district court in Travis County against Astrotech Corporation by John Porter, the former Senior Vice President, Chief Financial Officer, Treasurer and Secretary of the Company. In the lawsuit, Mr. Porter alleges various breaches of contract claims in connection with his termination from the Company on August 3, 2012.  Mr. Porter seeks monetary damages of at least $639,808. While the Company intends to vigorously defend any such actions by Mr. Porter, the Company recorded a liability at March 31, 2013 for its estimate of the probable loss in this matter.


On February 20, 2013, a shareholder derivative lawsuit was filed in the District Court of Travis County, Texas against the current directors and chief executive officer of Astrotech Corporation and against the Company, as nominal defendant. The complaint alleges, among other things, that the directors and chief executive officer breached fiduciary duties to the Company in connection with certain corporate transactions, including loans to subsidiaries and purchases of outstanding shares of the Company’s common stock. The Company intends to vigorously defend the lawsuit.


(15) NASDAQ Listing Qualifications


On November 13, 2012, we received written notification from NASDAQ indicating that the minimum bid price of our common stock had fallen below $1.00 for 30 consecutive trading days and that we were therefore not in compliance with NASDAQ Listing Rule 5550(a)(2). On May 14, 2013, we received a second compliance notice from NASDAQ regarding the Company's failure to maintain the minimum bid price for continued listing. However, the NASDAQ staff has determined that the Company is eligible for an additional 180 day grace period, or until November 11, 2013, to regain compliance. NASDAQ's determination was based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the NASDAQ Capital Market, with the exception of the bid price requirement, and the Company's written notice to NASDAQ of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.


(16) Subsequent Events


The Company and ARES have resolved certain issues relative to the early termination of the subcontract in May 2008, including, but not limited to, the completion of the 2005 through 2008 governmental audits by the DCAA. In April 2013 the Company received the remaining outstanding balance of $0.1 million.




13




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 conditions in the United States or other space faring nations that could impact our ability to access space and support or gain customers;


•       Our ability to raise sufficient capital to meet our long and short-term liquidity requirements;


•       Our ability to successfully pursue our business plan and execute our strategy;


•       Whether we will fully realize the economic benefits under our NASA and other customer contracts;


•       Technological difficulties and potential legal claims arising from any technological difficulties;


•       Product demand and market acceptance risks, including our ability to develop and sell products and services to be used by governmental or commercial customers;


•       Uncertainty in government funding and support for key space programs;


•       The impact of competition on our ability to win new contracts;


•       Uncertainty in securing reliable and consistent access to space, including the International Space Station;


•       Delays in the timing of performance of our contracts;


•       Our ability to meet technological development milestones and overcome development challenges; and


•       Risks described in the “Risk Factors” section of this Quarterly Report on Form 10-Q and our 2012 Annual Report on Form 10-K.


Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate, and, 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 the Risk Factors included in Part II Item 1A of this Report and Part I, Item 1A of our 2012 Annual Report on 10-K and 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.



14




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, and the Risk Factors included in Part II Item 1A of this Report and Part I, Item 1A of our 2012 Annual Report on Form 10-K.


Overview


Astrotech was formed in 1984 to leverage the environment of space for commercial purposes. For nearly 30 years, the Company has remained a crucial player in space commerce activities. We have supported the launch of 23 shuttle missions and more than 300 spacecraft, built space hardware and processing facilities; constructed and operated world-class processing facilities; and prepared and processed scientific research for microgravity.


Our efforts are focused on:


Providing world-class facilities and related support services necessary for the preparation of satellites and payloads.


Providing satellite and payload processing and integration services and support.


Designing, fabricating and utilizing equipment and hardware for launch activities.


Supplying propellant and associated services for spacecraft.


Managing launch logistics and support.


Commercializing unique space-based technologies.


Our Business Units


Astrotech Space Operations (ASO)


ASO provides support to its government and commercial customers as they successfully process complex communication, earth observation and deep space satellites in preparation for their launch on a variety of launch vehicles. Processing activities include satellite ground transportation; pre-launch hardware integration and testing; satellite encapsulation, fueling, launch pad delivery; and communication linked launch control. Our ASO facilities can accommodate five meter class satellites, encompassing the majority of U.S.-based satellites. ASO’s service capabilities include designing and building spacecraft processing equipment and facilities. Additionally, ASO provides propellant services including designing, building and testing propellant service equipment for servicing spacecraft.  ASO accounted for 99% of our consolidated revenues for the nine months ended March 31, 2013. Revenue for our ASO business unit is generated primarily from various fixed-priced contracts with launch service providers in both the government and commercial markets and the design and fabrication of space launch equipment.  The services and facilities we provide to our customers support the final assembly, checkout, and countdown functions associated with preparing and launching spacecraft. The revenue and cash flows generated from our ASO operations are primarily related to the number of spacecraft launches and the fabrication of the GSE for the U.S. Government. Other factors that have impacted, and are expected to continue to impact, earnings and cash flows for this business include:


The continuing limited availability of competing facilities at the major domestic launch sites that can offer comparable services, leading to an increase in government and commercial use of our services.


Our ability to design and fabricate spacecraft preparation and processing equipment.


Our ability to control our capital expenditures, which are primarily limited to modifications required to accommodate payload processing for new launch vehicles and upgrading building infrastructure.


Our ability to complete customer specified facility modifications within budgeted costs and time commitments.


Uncertainty in government funding and support for key space programs.


The impact of competition and industry consolidation and our ability to win new contracts.




15




Spacetech


Our other business unit is a technology incubator designed to commercialize space-industry technologies. This business unit is currently pursuing two distinct opportunities:


1st Detect


1st Detect designs, manufactures and sells miniature mass spectrometer equipment. 1st Detect launched the MMS-1000TM during March 2012. The MMS-1000TM is a low power, miniature mass spectrometer device designed initially for the laboratory testing market. The unique design of this unit is the result of the Company’s work with the National Aeronautics and Space Administration (“NASA”) on the International Space Station. 1st Detect has been awarded a Developmental Testing and Evaluation designation from the U.S. Department of Homeland Security as a “promising anti-terrorism technology,” and is the recipient of a Phase I and Phase II award from the U.S. Army’s Chemical and Biological Defense (“CBD”) Small Business Innovation Research (“SBIR”) Program. Following the successful execution of the Phase I SBIR, 1st Detect was awarded a $0.8 million Phase II SBIR contract from the Joint Science and Technology Office for Chemical and Biological Defense. Additionally, 1st Detect received a $1.8 million award from the Texas Emerging Technology Fund in March 2010.


1st Detect has entered into customer agreements resulting in over $0.8 million research and development funding and is developing relationships with a number of significant analytical instrument manufacturers and distributors. The target markets for 1st Detect’s MMS-1000 and OEM-1000 products are large and growing and present an opportunity to compete with established vendors. The unique characteristics of 1st Detect’s products allow us to develop and market into emerging markets and opportunities.


Astrogenetix


Astrogenetix is a biotechnology company formed to commercialize products processed in the unique environment of microgravity. Astrogenetix pursued an aggressive space access strategy to take advantage of the Space Shuttle program prior to its retirement in 2011. This strategy gave Astrogenetix unprecedented access to research in microgravity, as the Company flew experiments twelve times over a three-year period. Astrogenetix is currently researching a Salmonella vaccine as part of its ongoing commercialization strategy. Concurrently, Astrogenetix is evaluating a vaccine target MRSA based on discoveries made in microgravity. In December 2011, the Company negotiated a Space Act Agreement with NASA for a minimum of twenty-eight future space flights.


Critical Accounting Policies


The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP for interim financial statements. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. 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.


Management believes there have been no significant changes during the period ended March 31, 2013 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2012 Annual Report on Form 10-K.




16




Results of Operation


Three months ended March 31, 2013 compared to three months ended March 31, 2012:


Selected consolidated financial data for the three months ended March 31, 2013 and 2012 is as follows (dollars in thousands):


 

 

Three Months Ended

March 31,

 

 

 

2013

 

 

2012

 

Revenue

 

$

4,565 

 

 

$

10,013 

 

Cost of revenue

 

 

2,550 

 

 

 

6,770 

 

Gross profit

 

 

2,015 

 

 

 

3,243 

 

Gross margin

 

 

44 

%

 

 

32 

%

Selling, general and administrative

 

 

1,758 

 

 

 

1,814 

 

Research and development

 

 

459 

 

 

 

475 

 

Operating expenses

 

$

2,217 

 

 

$

2,289 

 

Interest and other expense, net

 

 

(36)

 

 

 

(69)

 

Income tax expense

 

 

 

 

 

(5)

 

Consolidated net loss

 

$

(238)

 

 

$

880 

 

Less: Net loss attributable to noncontrolling interest

 

 

(125)

 

 

 

(134)

 

Net income (loss) attributable to Astrotech Corporation

 

$

(113)

 

 

$

1,014 

 


Revenue.  Total revenue decreased to $4.6 million for the three months ended March 31, 2013 from $10.0 million for the three months ended March 31, 2012. This is primarily a result of a decline in revenue earned on the fabrication of the GSE for the U.S. Government.


Gross Profit.  Gross profit decreased to $2.0 million for the three months ended March 31, 2013 from $3.2 million for the three months ended March 31, 2012. This is primarily a result of a decline in the fabrication of the GSE. The increase in gross margin is more reflective of our satellite payload processing that is generally near-term fixed-price.


Selling, General and Administrative Expense.  Selling, general and administrative expense remained relatively the same at $1.8 million for the three month periods ended March 31, 2013 and 2012.


Research and Development Expense. Research and development expense remained relatively the same at $0.5 million for the three month periods ended March 31, 2013 and 2012.


Nine months ended March 31, 2013 compared to nine months ended March 31, 2012:


Selected consolidated financial data for the nine months ended March 31, 2013 and 2012 is as follows (dollars in thousands):


 

 

Nine Months Ended

March 31,

 

 

 

2013

 

 

2012

 

Revenue

 

$

14,815 

 

 

$

18,529 

 

Cost of revenue

 

 

10,581 

 

 

 

12,804 

 

Gross profit

 

 

4,234 

 

 

 

5,725 

 

Gross margin

 

 

29 

%

 

 

31 

%

Selling, general and administrative

 

 

5,341 

 

 

 

5,451 

 

Research and development

 

 

1,494 

 

 

 

1,979 

 

Operating expenses

 

$

6,835 

 

 

$

7,430 

 

Interest and other expense, net

 

 

(121)

 

 

 

(202)

 

Income tax expense

 

 

 

 

 

(17)

 

Consolidated net loss

 

$

(2,722)

 

 

$

(1,924)

 

Less: Net loss attributable to noncontrolling interest

 

 

(382)

 

 

 

(486)

 

Net loss attributable to Astrotech Corporation

 

$

(2,340)

 

 

$

(1,438)

 




17




Revenue.  Total revenue decreased to $14.8 million for the nine months ended March 31, 2013 from $18.5 million for the nine months ended March 31, 2012. This is primarily a result of a decline in revenue earned on the fabrication of the GSE for the U.S. Government and a decreased launch schedule.


Gross Profit.  Gross profit decreased to $4.2 million for the nine months ended March 31, 2013 from $5.7 million for the nine months ended March 31, 2012. This is primarily a result of a decline in the fabrication of the GSE.


Selling, General and Administrative Expense.  Selling, general and administrative expense decreased to $5.3 million for the nine months ended March 31, 2013 from $5.5 million for the nine months ended March 31, 2012. The decrease was primarily attributable a reduction in headcount and employee incentive compensation expense.


Research and Development Expense. Research and development expense decreased to $1.5 million for the nine months ended March 31, 2013 from $2.0 million for the nine months ended March 31, 2012. This decrease is a result of the delivery and installation of 1st Detect evaluation units to potential customers, which were recorded as an offset to research and development expense.


Liquidity and Capital Resources


Our future capital requirements will depend on a number of factors, including our success in developing and expanding markets for our products, payments under possible future strategic arrangements, continued progress of our research and development of potential products, the need to acquire licenses to new technology, costs associated with increasing our manufacturing and development facilities, costs associated with strategic acquisitions including integration costs and assumed liabilities, litigation expense, the status of competitive products and potential cost associated with both protecting and defending our intellectual property. Additionally, actions taken as a result of the ongoing internal evaluation of our business could result in expenditures not currently contemplated in our estimates for 2013.  We believe, however, that our existing cash and cash equivalents are sufficient to fund our operating expenses, capital equipment requirements and other expected liquidity requirements for the coming twelve months.  Factors that could affect our capital requirements, in addition to those listed above include continued collections of accounts receivable consistent with our historical experience, uncertainly surrounding mission launch schedules, and our ability to manage product development efforts.  See also the Risk Factors described in our 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission.


The following is a summary of the change in our cash and cash equivalents (in thousands):


 

Nine Months Ended

March 31,

 

2013

 

2012

Net cash provided by (used in) operating activities

$

(968)

 

$

598 

Net cash used in investing activities

 

(936)

 

 

(385)

Net cash provided by (used in) financing activities

 

(239)

 

 

633 

Net change in cash and cash equivalents

$

(2,143)

 

$

846 


Cash and Cash Equivalents


At March 31, 2013, we had cash and cash equivalents of $8.0 million and our working capital was approximately $2.8 million. As of March 31, 2012, we had cash and cash equivalents of $15.8 million and our working capital was approximately $7.4 million. Cash and cash equivalents have decreased by approximately $2.1 million during the nine months ended March 31, 2013.


Operating Activities


Cash used in operations was $1.0 million for the nine months ended March 31, 2013 compared to cash provided by operations of $0.6 million for the nine months ended March 31, 2012. This decrease in cash flow was primarily attributable to a decrease in accounts receivable and the timing of payments in accounts payable and accrued liabilities.


Investing Activities


Cash used in investing activities was $0.9 million for the nine months ended March 31, 2013 compared to $.04 million for the nine months ended March 31, 2012. This increase was the result of capital expenditures for our 1st Detect facilities to support future growth and ensure sufficient capacity to meet forecasted demand for our mini-mass spectrometry product line.




18




Financing Activities


Cash used by financing activities for the nine months ended March 31, 2013 was $0.2 million compared to $0.6 million of cash provided by financing activities for the nine months ended March 31, 2012. The cash provided through financing for the nine months ended March 31, 2012 was the result of receiving the second installment of $0.9 million from the Texas Emerging Technology Fund, which did not reoccur in the nine months ended March 31, 2013.


Debt


Credit Facilities


In October 2010, we entered into a financing facility with a commercial bank providing a $7.0 million term loan note and a $3.0 million revolving credit facility. The $7.0 million term loan terminates in October 2015, and the $3.0 million revolving credit facility expired in October 2012. The Company had no outstanding balance on the revolving credit facility. The term loan requires monthly payments of principal plus interest at the rate of prime plus 0.25%, but not less than 4.0%. The revolving credit facility allowed multiple advances not to exceed $3.0 million, based on eligible accounts receivable, and incurred interest at the rate of prime plus 0.25%, but not less than 4.0%. The bank financing facilities are secured by the assets of ASO, including accounts receivable, and require us to comply with designated covenants. The balance of the $7.0 million term loan at March 31, 2013 was $6.1 million.


The bank financing facilities contain certain affirmative and negative covenants with which we must comply, including the maintenance by us of a debt service coverage ratio of 1.00 to 1.00. As of March 31, 2013, we were not in compliance with the debt service coverage ratio; however, we have received a waiver from the bank.


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, 2013, the Company has established a full valuation allowance against all of its net deferred tax assets.


FASB ASC 740, Income Taxes (FASB ASC 740) addresses the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. As of March 31, 2013, the Company has a liability of $64,000 ($42,000 net of federal benefit) for unrecognized tax benefits.


For the nine months ended March 31, 2013 and 2012, the Company’s effective tax rate differed from the federal statutory rate of 35%, primarily due to recording changes to the valuation allowance placed against its net deferred tax assets.


The Company files consolidated returns for federal, California, Florida, and Texas income and franchise taxes.


The Company is currently under examination by the Internal Revenue Service for the fiscal years ended June 30, 2008 through 2010. Loss carryovers are generally subject to modification by tax authorities until 3 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.


Off-Balance Sheet Arrangements


We do not have any significant off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.


ITEM 3.  QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


We have no material changes to the disclosure made on this matter in our 2012 Annual Report on Form 10-K.




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ITEM 4.  CONTROLS AND PROCEDURES


(a) 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 (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 Securities and Exchange Commission’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.


(b) Changes in Internal Control over Financial Reporting


There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II: OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS


On January 10, 2013, a lawsuit was filed against Astrotech Corporation by John Porter, the former Senior Vice President, Chief Financial Officer, Treasurer and Secretary of the Company.  In the lawsuit, Mr. Porter alleges various breaches of contract claims in connection with his termination from the Company on August 3, 2012.  Mr. Porter seeks monetary damages of at least $639,808.  The Company intends to vigorously defend the lawsuit filed by Mr. Porter.


On February 20, 2013, a shareholder derivative lawsuit was filed in the District Court of Travis County, Texas against the current directors and chief executive officer of Astrotech Corporation and against the Company, as nominal defendant. The complaint alleges, among other things, that the directors and chief executive officer breached fiduciary duties to the Company in connection with certain corporate transactions, including loans to subsidiaries and purchases of outstanding shares of the Company’s common stock. The Company intends to vigorously defend the lawsuit.


ITEM 1A. RISK FACTORS


Other than the substitution of the first following risk factor for the final risk factor in our 2012 Annual Report on Form 10-K and the addition of the second following risk factor, there have been no material changes in the risk factors described in our 2012 Annual Report on Form 10-K.


If our common stock ceases to be listed for trading on the NASDAQ Capital Market it may harm our stock price and make it more difficult to sell shares.


On November 13, 2012, we received written notification from NASDAQ indicating that the minimum bid price of our common stock had fallen below $1.00 for 30 consecutive trading days and that we were therefore not in compliance with NASDAQ Listing Rule 5550(a)(2). On May 14, 2013, we received a second compliance notice from NASDAQ regarding the Company's failure to maintain the minimum bid price for continued listing. However, the NASDAQ staff has determined that the Company is eligible for an additional 180 day grace period, or until November 11, 2013, to regain compliance. NASDAQ's determination was based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the NASDAQ Capital Market, with the exception of the bid price requirement, and the Company's written notice to NASDAQ of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. In order to regain compliance, the closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days.  We cannot provide any assurance that we will be able to regain compliance with this requirement. Any delisting of our common stock from the NASDAQ Capital Market could adversely affect our ability to attract new investors, decrease the liquidity of our outstanding shares of common stock, reduce our flexibility to raise additional capital, reduce the price at which our common stock trades and increase the transaction costs inherent in trading such shares with overall negative effects for our shareholders. In addition, delisting of our common stock could deter broker-dealers from making a market in or otherwise seeking or generating interest in our common stock, and might deter certain institutions and persons from investing in our securities at all. For these reasons and others, delisting could adversely affect our business, financial condition and results of operations.



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Our cash and cash equivalents may not be sufficient to fund our operating expenses, capital equipment requirements and other expected liquidity requirements.


Our future capital requirements will depend on a number of factors, including our success in developing and expanding markets for our products, payments under possible future strategic arrangements, continued progress of our research and development of potential products, the need to acquire licenses to new technology, costs associated with increasing our manufacturing and development facilities, costs associated with strategic acquisitions including integration costs and assumed liabilities, litigation expense, the status of competitive products and potential cost associated with both protecting and defending our intellectual property. Additionally, actions taken as a result of the ongoing internal evaluation of our business could result in expenditures that are not currently contemplated. Factors that could affect our capital requirements, in addition to those listed above include continued collections of accounts receivable consistent with our historical experience, uncertainly surrounding mission launch schedules, and our ability to manage product development efforts.


ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


During the quarter ended March 31, 2013, we did not issue any unregistered securities or repurchase any of our securities.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES


Not applicable.


ITEM 4.  MINE SAFETY DISCLOSURE


Not applicable.


ITEM 5.  OTHER INFORMATION


On November 13, 2012, we received written notification from NASDAQ indicating that the minimum bid price of our common stock had fallen below $1.00 for 30 consecutive trading days and that we were therefore not in compliance with NASDAQ Listing Rule 5550(a)(2). On May 14, 2013, we received a second compliance notice from NASDAQ regarding the Company's failure to maintain the minimum bid price for continued listing. However, the NASDAQ staff has determined that the Company is eligible for an additional 180 day grace period, or until November 11, 2013, to regain compliance. NASDAQ's determination was based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the NASDAQ Capital Market, with the exception of the bid price requirement, and the Company's written notice to NASDAQ of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.


ITEM 6.  EXHIBITS


The following exhibits are filed herewith:


Exhibit No.

 

Description

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

 

 

 

32

 

Certification pursuant to Rule 13a-14(b) of the Securities and Exchange Act of 1934.

 

 

 

101

 

The following financial information from the Company’s Quarterly Report on Form 10-Q, for the period ended March 31, 2013, 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, (v) Notes to Unaudited Condensed Consolidated Financial Statements.(1)


(1)  Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.




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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.



 

 

Astrotech Corporation

 

 

 

 

 

Date: May 15, 2013

 

/s/ Thomas B. Pickens III  

 

 

 

Thomas B. Pickens III 

 

 

 

Chief Executive Officer 

 



 

 

/s/ Carlisle Kirkpatrick

 

 

 

Carlisle Kirkpatrick

 

 

 

Chief Financial Officer

 




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