UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 FORM 10-K

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

 For the fiscal year ended June 30, 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

 

(I.R.S. Employer

corporation or organization)

 

Identification No.)

 

201 West 5th Street, Suite 1275, Austin, Texas

 

78701

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (512) 485-9530

 

Securities Registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

ASTC

Name of each exchange

Common Stock

on which registered

$0.001 per share

NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐    No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes ☐    No 

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 

The aggregate market value of the registrants voting and non-voting common equity held by non-affiliates of the registrant as of December 31, 2018, based upon the closing price of such stock on the NASDAQ Capital Market on such date of $4.77 was approximately $26,573,522.

As of September 27, 2019, 5,923,629 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

 

 

 


 

Table of Contents

 

PART I

4

Item 1. Business

4

Item 1A. Risk Factors

10

Item 1B. Unresolved Staff Comments

16

Item 2. Properties

16

Item 3. Legal Proceedings

16

Item 4. Mine Safety Disclosures

17

 

 

PART II

18

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

18

Item 6. Selected Financial Data

18

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

27

Item 8. Financial Statements and Supplementary Data

28

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

48

Item 9A. Controls and Procedures

48

Item 9B. Other Information

48

 

 

PART III

49

Item 10. Directors, Executive Officers and Corporate Governance

49

Item 11. Executive Compensation

55

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

61

Item 13. Certain Relationships and Related Transactions, and Director Independence

62

Item 14. Principal Accounting Fees and Services

62

 

 

PART IV

64

Item 15. Exhibits, Financial Statement Schedules

64

Item 16. Form 10-K Summary

67

 

 

SIGNATURES

68

 

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FORWARD-LOOKING STATEMENTS

 

This Form 10-K 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 (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. Forward-looking statements may include the words “may,” “will,” “plans,” “believes,” “estimates,” “expects,” “intends” and other similar expressions. Such statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in the statements. Such risks and uncertainties include, but are not limited to:

 

 

The effect of economic and political conditions in the United States or other nations that could impact our ability to sell our products and services or gain customers;

 

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

 

The impact of trade barriers imposed by the U.S. government, such as import/export duties and restrictions, tariffs and quotas, and potential corresponding actions by other countries in which the Company conducts its business;

 

Our ability to continue as a going concern;

 

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

 

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

 

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

 

Uncertainty in government funding and support for key programs, grant opportunities, or procurements; 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 Form 10-K 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 elsewhere in this Form 10-K, 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 Form 10-K and in prior or subsequent communications.

 

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PART I

 

Item 1. Business

 

Our 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.

 

Our efforts are focused on the following:

 

 

Astrotech Technology, Inc. (“ATI”) owns highly differentiated mass spectrometry technology and is a licensor of the intellectual property associated with the technology.

 

1st Detect Corporation (“1st Detect”), a licensee of ATI, is a manufacturer of explosives and narcotics trace detectors developed for use at airports, secured facilities, and borders worldwide.

 

Agriculture Technology Corporation (“AG-TECH”), a licensee of ATI, is a manufacturer of trace detectors for use in agriculture.

 

Astral Images Corporation (“Astral”) is a developer of advanced film restoration and enhancement software.

 

Business Developments

 

As of June 30, 2019, the Company issued 214,202 shares of common stock pursuant to an At-the-Market (“ATM”) Issuance Sales Agreement with B. Riley FBR, who 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 $1,042,243. The weighted-average sale price per share was $5.02.

 

During the last fiscal year, the Company completed two separate capital raises from Thomas B. Pickens III, the Chief Executive Officer and Chairman of the Board of Directors of the Company, and another long-term accredited investor in the Company (the “Investor”). On October 9, 2018, the Company entered into a Securities Purchase Agreement (“Agreement No. 1”) with Mr. Pickens and 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 resulting in aggregate gross proceeds of approximately $3.0 million. The purchase price of $2.35 per share was equal to the closing consolidated bid 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 a second Securities Purchase Agreement (“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 resulting in 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 holder of the Series C Preferred Shares has agreed to restrict its ability to convert the Series C Preferred Shares such that the number of shares of the Company’s common stock held by such holder and its affiliates after such conversion does not exceed 9.99% of the Company’s then issued and outstanding shares of common stock. The Series D Preferred Shares are convertible into an aggregate of 280,898 shares of common stock at the option of the holder.

 

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 (the “Note”) to Mr. Pickens with a principal amount of $1,500,000. 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

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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 (the “Subsidiary Guarantee”).

 

Our Business Units

 

Astrotech Technology, Inc.

 

There are a number of different market opportunities for the mass spectrometry technology that was originally developed by 1st Detect Corporation. ATI was formed to own and license the intellectual property, which includes 37 patents granted with five additional patents in process, for use in different fields. ATI currently licenses the intellectual property to 1st Detect Corporation for use in the security and detection market and to Agriculture Technology Corporation 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 and narcotics 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. In fact, we believe that adding additional compounds to the detection library of an IMS-based ETD reduces the instrument’s performance further, causing more false alarms. In contrast, adding additional compounds does not degrade the TRACER 1000’s detection capabilities, as it has what we believe to be 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. On June 19, 2018, the Company announced that the TRACER 1000 had entered the ECAC Common Evaluation Process (“CEP”) to obtain certification in Europe. On December 12, 2018, the Company announced that the TRACER 1000 passed the ECAC CEP tests for airport checkpoint screening of passengers. On January 9, 2019, the Company subsequently announced that the TRACER 1000 passed the CEP tests for airport cargo screening. On February 21, 2019, the Company announced that 1st Detect received ECAC certification for both passenger and cargo screening for the TRACER 1000. Finally, on June 26, 2019, the Company announced the official launch of the TRACER 1000. 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 demos and field trials.

 

In addition, on March 27, 2018, the Company announced that the TRACER 1000 was accepted into TSA’s Air Cargo Screening Technology Qualification Test (“ACSQT”) and, on April 4, 2018, the Company announced that the TRACER 1000 was beginning testing with TSA for passenger screening at airports. With similar protocols as ECAC testing, we have received positive feedback under both programs, as anticipated. Both programs continue to progress as expected; however, there is no assurance that the TRACER 1000 will be approved by either TSA program.

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Agriculture Technology Corporation

 

AG-TECH, a licensee of ATI, has developed the AG-LAB-1000™ series of trace detectors for use in the agricultural market. The technology is ideal for detecting trace levels of pesticides in agricultural products.in real-time. With the increasing number of U.S. states and countries legalizing hemp and cannabis, pesticide regulations have become increasingly more important. In addition to detecting pesticides, the AG-LAB-1000 instrumentation can characterize and quantify the cannabinoids (including tetrahydrocannabinol (“THC”), cannabidiol (“CBD”), and many other constituents) and terpenes (aromatic oils) present in hemp and cannabis. This information can be used by growers, distributors, and retailers to customize products, to ensure quality control, or to verify delivered products match the order. It can also be used by regulators and law enforcement to track and trace products.

 

Astral Images Corporation

 

Astral Images is a developer of advanced film restoration and enhancement software. Astral’s intelligent algorithms remove dust, scratches, and defects from film while converting the content to a digital format with significantly enhanced resolution. In addition, Astral employs artificial intelligence (“AI”) to automatically extend the color gamut and enhance the dynamic range to be viewed in 4K and/or high-dynamic range (“HDR”), collectively known as ultra-high definition (“UHD”).

 

Although we believe Astral has developed valuable technology fortified by patents and trade secrets, the potential market has not evolved as quickly as anticipated. Due to funding constraints, the Company’s primary focus remains on the pursuit of opportunities for 1st Detect. Consequently, headcount and expenditures at Astral have been minimized and new development is exclusively focused on strategic initiatives that would facilitate the realization of Astral’s value.

 

Business Strategy

 

1st Detect

 

There are more than 30,000 IMS instruments deployed in the field today, with many nearing their end of life. As the current generation of IMS technology is replaced, we are working to position the Company as the next-generation solution for the ETD market with the introduction of the world’s first ETD driven by a mass spectrometer. With mass spectrometry being the gold standard of chemical detection, an MS-ETD significantly improves detection capabilities, dramatically reduces the number of false positives, and allows for a much more expansive library of compounds of interest, yielding an instrument that we believe is far superior to the currently deployed IMS instruments, at a similar price point.

 

While most of our activities have been focused on developing explosives and narcotics detection for airports and cargo facilities, we believe there is significant opportunity in other government agencies and in the industrial and commercial markets as well. Such markets are large and diverse, often requiring customized solutions to satisfy customer needs. Significant effort is therefore only reserved for customer-funded development programs or programs with large markets where our technology has a unique differentiator.

 

Agriculture Technology Corporation

 

With increasing regulation in the hemp and cannabis market, processors are increasingly being required to send samples to a laboratory for testing to certify that the product does not include an unacceptable level of pesticides. This process can take five to eight days before results are available. This is a major problem because the presence of pesticides can contaminate the instrumentation used for processing, which can then contaminate subsequent batches, leading to potentially millions of dollars in wasted product. The AG-LAB-1000 can identify the presence of pesticides in seconds and alert the user accordingly, leading to significant savings. ATI is initially launching the Processing Series of products to continuously monitor the process flow of the extraction and distillation processes to detect the presence of pesticides.

 

Astral Images

 

Astral provides the state-of-the-art software solution for image restoration and enhancement by deriving significant efficiencies through its powerful AI platform to an industry that traditionally relies on expensive manual labor for image correction and enhancement that can be inconsistent and fraught with errors and omissions. While the Company looks to

6


 

optimize its resources by focusing primarily on 1st Detect, the Company remains intent on evaluating it strategic options with respect to Astral.

 

Products and Services

 

1st Detect

 

We believe 1st Detect’s TRACER 1000 significantly outperforms currently deployed competitive trace detection solutions. Mass spectrometry is a much more powerful technology than the antiquated ion mobility spectrometry-based explosives trace detectors which is being used today. 

 

Agriculture Technology Corporation

 

We believe the AG-LAB-1000 is the only solution on the market that can detect the presence of all regulated pesticides in real-time. It is also able to detect other chemical constituents from hemp and cannabis that are of significant value to growers, distributors, and retailers.

 

Astral Images

 

Using its powerful AI algorithms, Astral provides efficient and high-quality film digitization, image correction, and enhancement technology. We offer complete systems containing customized off-the-shelf hardware with integrated Astral software, standalone software products, and scanning or enhancement services. Our four products include:

 

 

Astral Black ICE™ - targeted mainly towards the black-and-white feature film and television series digitization and restoration markets, Astral Black ICE™ is a complete system with customized off-the-shelf hardware with purpose-built AI software and services. Our image correction and enhancement technology is integrated into the scanner while offering high-quality, real-time results at scan speed.

 

Astral Color ICE™ - a standalone AI software solution that can be integrated into most film scanners to enable color image correction and enhancement.

 

Astral HDR ICE™ - our HDR solution can be used in combination with our other ICE products or as a standalone HDR conversion software, upgrading digital and traditional films to the new HDR standards while taking advantage of the vibrancy of the enhanced color gamut and the brilliance of the dynamic range extension to optimize the content for viewing on 4K/HDR televisions.

 

Astral HSDR ICE™ - for content originally shot in HDR, including many of today’s movies and shows, it must be reprocessed in standard-dynamic range (“SDR”) before it can be displayed on older viewing platforms. HSDR ICE™ automatically converts HDR content to SDR while preserving the richest content possible.

All of our ICE products provide for significant cost savings over the expensive, labor-intensive, and inconsistent manual process currently employed in the industry.

 

Customers, Sales, and Marketing

 

1st Detect

 

Marketing efforts at 1st Detect are currently focused on foreign airports and commercial companies in aviation, cargo, and border security. The Company has worked extensively to sign-up leading distributors in a number of international markets to help with sales efforts.

 

Agriculture Technology Corporation

 

The Company has received a number of inquiries from potential customers in the hemp and cannabis industry regarding our ability to detect pesticides. This led to development of our first product, which is nearing completion. We are in discussions with various channel partners that will help sell our products to target customers. We also plan to hire a sales team to go directly to customers.

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Astral Images

 

Astral is positioned to leverage the demand generated for 4K/HDR content by the release of the new 4K/HDR standard and the growth in sales of next-generation 4K/HDR televisions. Consumers are increasingly demanding content that is optimized for their new televisions, but the conversion of content lags the sale of televisions capable of displaying that content, similar to what we saw with the proliferation of HDTV and 3D. In order to remain relevant in over-the-top distribution (Netflix, Amazon Prime, Hulu, etc.), content owners will need to convert their content to conform to the new standards. Astral is positioned to facilitate this market when industry investment in content conversion to 4K/HDR accelerates, but has focused its efforts on exploring strategic alternatives at this time.

 

Competition

 

1st Detect

 

Competition for the TRACER 1000 comes from ion mobility spectrometers and traditional mass spectrometers.

 

There are several vendors that compete directly with 1st Detect; however, 1st Detect products combine a number of attributes in a single product not currently available in other products. While 1st Detect’s focus is on replacing IMS-based ETDs, it also competes with traditional mass spectrometry solutions and our products have a number of attractive features that we believe give it a competitive advantage in an attractive market niche.

 

Ion Mobility Spectrometers

1st Detect

High false alarms

Lower probability of detection

Numerous unscheduled bake-outs and calibrations

Limited library of compounds of interest

Fixed library requiring hardware changes to update

Causes delays at security/inspection checkpoints

Low price chemical detector

Near-zero false alarm rate

Higher probability of detection

Near 100% up-time

Unlimited library of compounds of interest

Instantaneous library updates

Improves throughput at checkpoints

Competitive with IMS

 

Traditional Mass Spectrometers

1st Detect

Very high price

Laboratory-quality sensitivity, specificity, and performance

Cumbersome clear-out and recalibration process

Large footprint

Heavy

Non-portable

High power requirements

Tandem mass spectrometry (“MS/MS”) available on high-end instruments

Stored Waveform Inverse Fourier Transform (“SWIFT”) available on select instruments

Much lower price

Laboratory-quality sensitivity, specificity, and performance

Automated calibration

Small footprint

Relatively light

Portable

Low power requirements

MS/MS provides secondary confirmation of an analysis

SMART (“Sinusoidal Multiplexed Array in Real Time”), an improved version of SWIFT, selectively eliminates specific chemicals to reduce false positives

 

Agriculture Technology Corporation

 

We believe the AG-LAB-1000 is the only solution on the market that can detect the presence of all regulated pesticides in real-time. There are many laboratories that provide detailed analysis for the hemp and cannabis market, but they traditionally require samples to be sent to their laboratory with results taking between five to eight days. We believe customers have a growing desire to have the analysis in real-time.

 


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Astral Images

 

Astral faces significant competition from several vendors in the scanning and restoration services industry. Our competitors are independent scanning boutiques at one end of the spectrum, and at the other end, fully-integrated post-production houses offering a breadth of services, including scanning and restoration. Our competitors all use the traditional manual restoration process that is laborious, non-exacting, inconsistent, and expensive. The level of automation provided by our AI algorithms gives us compelling cost advantages while maintaining high image quality. Our solutions are scalable, cost effective, and more consistent when compared to competitors’ traditional manual approaches.

 

Research and Development

 

1st Detect

 

We invest considerable resources into our internal research and development functions. We conduct research to improve system functionality, streamline and simplify the user experience, and optimize our capabilities for customer-defined specifications.

 

Agriculture Technology Corporation

 

Leveraging Astrotech’s investment in the development of mass spectrometry technology, AG-TECH is augmenting the technology for use in the agriculture market.

 

Astral Images

 

We have developed a suite of products through our research and development activities at Astral, but development of new products has been curtailed due to funding constraints and the slower than expected development of the 4K HDR conversion market. We believe in protecting our intellectual property as Astral has six U.S. patents.

 

Certain Regulatory Matters

 

We are subject to United States federal, state, and local laws and regulations designed to protect the environment and to regulate the discharge of materials into the environment. We are also beholden to certain regulations designed to protect our domestic technology from unintended foreign exploitation and regulate certain business practices. We believe that our policies, practices, and procedures are properly designed to prevent unreasonable risk of environmental damage and consequential financial liability. Our operations are also subject to various regulations under federal laws regarding the international transfer of technology, as well as to various federal and state laws related to business operations. In addition, we are subject to federal contracting procedures, audit, and oversight. Compliance with environmental laws and regulations and technology export requirements has not had and, we believe, will not have in the future, material effects on our capital expenditures, earnings, or competitive position.

 

Federal regulations that impact our operations include the following:

 

Foreign Corrupt Practices Act. The Foreign Corrupt Practices Act establishes rules for U.S. companies doing business internationally. Compliance with these rules is achieved through established and enforced corporate policies, documented internal procedures, and financial controls.

 

Iran Nonproliferation Act of 2000. This act authorizes the President of the United States to take punitive action against individuals or organizations known to be providing material aid to weapons of mass destruction programs in Iran.

 

Federal Acquisition Regulations. Goods and services provided by us to U.S. Government agencies are subject to Federal Acquisition Regulations (“FAR”). These regulations provide rules and procedures for invoicing, documenting, and conducting business under contract with such entities. The FAR also subjects us to audit by federal auditors to confirm such compliance.

 

Truth in Negotiations Act. The Truth in Negotiations Act was enacted for the purpose of providing full and fair disclosure by contractors in the conduct of negotiations with the U.S. Government. The most significant provision included in the Truth in

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Negotiations Act is the requirement that contractors submit certified cost and pricing data for negotiated procurements above a defined threshold.

 

Export Administration Act. This act provides authority to regulate exports, to improve the efficiency of export regulation, and to minimize interference with the ability to engage in commerce.

 

Export Administration Regulations. The Export Administration Regulations (“EAR”) govern whether a person or company may export goods from the U.S., re-export goods from a foreign country, or transfer goods from one person or company to another in a foreign country.

 

Regulatory Compliance and Risk Management

 

We maintain compliance with regulatory requirements and manage our risks through a program of compliance, awareness, and insurance, which includes maintaining certain insurances and a continued emphasis on safety to mitigate any risks.

 

Employees Update

 

As of June 30, 2019, we employed 30 employees, none of which were covered by any collective bargaining agreements.

 

Item 1A. Risk Factors

An investment in our securities involves a high degree of risk. This annual report will contain a discussion of the risks applicable to an investment in our securities. Prior to making a decision about investing in our securities, you should carefully consider the specific factors discussed under the heading “Risk Factors” in this annual report. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our operations. The occurrence of any of these known or unknown risks might cause you to lose all or part of your investment in the offered securities.

 

We have incurred significant losses since inception and anticipate that we will incur continued losses for the foreseeable future.

 

As of June 30, 2019, we had an accumulated deficit of approximately $191.7 million and reported a net loss of $7.5 million for the fiscal year 2019. We are unable to predict the extent of any future losses or when we will become profitable, if at all. If we are unable to achieve and then maintain profitability, the market value of our common stock will likely experience significant decline.

 

Our business units are in development stage. They have earned limited revenues and it is uncertain whether they will earn any revenues in the future or whether any of them will ultimately be profitable.

 

Our business units are in an early stage with a limited operating history. Their future operations are subject to all of the risks inherent in the establishment of a new business including, but not limited to, risks related to capital requirements, failure to establish business relationships, and competitive disadvantages against larger and more established companies. These business units will require substantial amounts of funding to continue to commercialize their products. If such funding comes in the form of equity financing, such equity financing may involve substantial dilution to existing shareholders. Even with funding, our products may fail to be effective or attractive to the market or lack the necessary financial or other resources or relationships to be successful.

 

These business units can be expected to experience continued operating losses until they can generate sufficient revenues to cover their operating costs. Furthermore, there can be no assurance that the business units will be able to develop, manufacture, or market additional products in the future, that future revenues will be significant, that any sales will be profitable, or that the business units will have sufficient funds available to complete their commercialization efforts.

 

Any products and technologies developed and manufactured by our business units may require regulatory approval prior to being made, marketed, sold, and used. There can be no assurance that regulatory approval of any products will be obtained.

 

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The commercial success of any of our business units will depend, in part, on obtaining patent and other intellectual property protection for the technologies contained in any products it developed. In addition, our business units may need to license intellectual property to commercialize future products or avoid infringement of the intellectual property rights of others. There can be no assurance that licenses will be available on acceptable terms and conditions, if at all. Our business units may suffer if any licenses terminate, if the licensors fail to abide by the terms of the license or fail to prevent infringement by third parties, if the licensed patents or other rights are found to be invalid, or if our respective business unit is unable to enter into necessary licenses on acceptable terms. If such business unit, or any third-party, from whom it licenses intellectual property, fails to obtain adequate patent or other intellectual property protection for intellectual property covering its products, or if any protection is reduced or eliminated, others could use the intellectual property covering the products, resulting in harm to the competitive business position of this business unit. In addition, patent and other intellectual property protection may not provide our business units with a competitive advantage against competitors that devise ways of making competitive products without infringing any patents that this business unit owns or has rights to. Such competition could adversely affect the prices for any products or the market share of any of our business units and could have a material adverse effect on its results of operations and financial condition.

 

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 and our ability to manage product development efforts.

 

We cannot be certain that additional financing will be available on reasonable terms when needed, or at all, which could seriously harm our business.

 

We have incurred net losses and negative cash flow from operations in recent prior periods, and we may not achieve or maintain profitability in the future. As a result, we may need additional financing. Our ability to obtain additional financing, if and when required, will depend on investor demand, our operating performance, the condition of the capital markets, and other factors. Therefore, we may need to raise additional funds and we cannot assure investors that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked, or debt securities, those securities may have rights, preferences, or privileges senior to the rights of our common stock, and our existing stockholders may experience dilution.

 

There is substantial doubt about our ability to continue as a going concern, indicating the possibility that we may not be able to operate in the future. The report of our independent registered public accounting firm also includes an explanatory paragraph about our ability to continue as a going concern.

 

As of June 30, 2019, the Company has working capital of $1.9 million. 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 fiscal year 2018, the Company reported a net loss of $13.3 million and net cash used in operating activities of $10.8 million. This raises substantial doubt about the Company’s ability to continue as a going concern. Our ability to continue as a going concern is contingent upon, among other factors, the sale of the shares of our common stock or obtaining alternate financing.

 

The Company remains resolute in identifying the optimal solution to its liquidity issue. The Company is currently evaluating several potential sources of additional liquidity. These include, but are not limited to, selling the Company or a portion thereof, debt financing, equity financing, merging, or engaging in a strategic partnership. On July 3, 2018, management filed a 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. As of June 30, 2019, the

11


 

Company has received net proceeds of approximately $1.0 million through the sale of shares of common stock through an “at-the-market offering” program (the “ATM Offering”). The Company is currently evaluating potential offerings of any combination of common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities, or any combination of the foregoing, either individually or as units comprised of one or more of the other securities. However, additional funding may not be available when needed or on terms acceptable to us.  If we are unable to generate funding within a reasonable timeframe, we may have to delay, reduce or terminate our research and development programs, limit strategic opportunities, or curtail our business activities. Astrotech’s consolidated financial statements as of June 30, 2019 do not include any adjustments that might result from the outcome of this uncertainty.

 

Our success depends significantly on the establishment and maintenance of successful relationships with our customers.

 

We cannot make any assurances that any customer will require our services in the future. Therefore, we continue to work on diversifying our customer base, while going to great lengths to satisfy the needs of our current customer base.

 

Third parties may claim we are infringing their intellectual property rights, and we could suffer significant litigation or licensing expenses or be prevented from selling products.

 

As we introduce any new and potentially promising product or service, or improve existing products or services with new features or components, companies possessing competing technologies, or other companies owning patents or other intellectual property rights, may be motivated to assert infringement claims in order to generate royalty revenues, delay or diminish potential sales, and challenge our right to market such products or services. Even if successful in defending against such claims, patent and other intellectual property related litigation is costly and time consuming. In addition, we may find it necessary to initiate litigation in order to protect our patent or other intellectual property rights, and even if the claims are well-founded and ultimately successful, such litigation is typically costly and time-consuming and may expose us to counterclaims, including claims for intellectual property infringement, antitrust, or other such claims. Third parties could also obtain patents or other intellectual property rights that may require us to either redesign products or, if possible, negotiate licenses from such third parties. Adverse determinations in any such litigation could result in significant liabilities to third parties or injunctions, or could require us to seek licenses from third parties, and if such licenses are not available on commercially reasonable terms, prevent us from manufacturing, importing, distributing, selling, or using certain products, any one of which could have a material adverse effect on us. In addition, some licenses may be non-exclusive, which could provide our competitors access to the same technologies. Under any of these circumstances, we may incur significant expenses.

 

Our ongoing success is dependent upon the continued availability of certain key employees.

 

We are dependent in our operations on the continued availability of the services of our employees, many of whom are individually key to our current and future success, and the availability of new employees to implement our growth plans. The market for skilled employees is highly competitive, especially for employees in technical fields. While our compensation programs are intended to attract and retain the employees required for us to be successful, ultimately, we may not be able to retain the services of all of our key employees or a sufficient number to execute on our plans. In addition, we may not be able to continue to attract new employees as required.

 

Our operating results may be adversely affected by increased competition.

 

We generally sell our products in industries that have increased competition through frequent new product and service introductions, rapid technological changes, and changing industry standards. Without the timely introduction of new products, services, and enhancements, our products and services will become technologically obsolete over time, in which case our revenue and operating results would suffer. The success of our new products and services will depend on several factors, including our ability to:

 

 

properly identify customer needs and predict future needs;

 

innovate and develop new technologies, services, and applications;

 

successfully commercialize new technologies in a timely manner;

 

manufacture and deliver our products in sufficient volumes and on time;

 

differentiate our offering from our competitors’ offerings;

 

price our products competitively;

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anticipate our competitors’ development of new products, services, or technological innovations; and

 

control product quantity in our manufacturing process.

 

Our insurance coverage may be inadequate to cover all significant risk exposures.

 

We are exposed to liabilities that are unique to the products and services we provide. We maintain insurance for certain risks, and we believe our insurance coverage is consistent with general practices within our industry. However, the amount of our insurance coverage may not cover all claims or liabilities and we may be forced to bear substantial costs.

 

Increased cybersecurity requirements, vulnerabilities, threats, and more sophisticated and targeted computer crime could pose a risk to our systems, networks, products, services, and data.

 

Increased global cybersecurity vulnerabilities, threats, and more sophisticated and targeted cyber-related attacks pose a risk to the security of our and our customers’, suppliers’, and third-party service providers’ products, systems, and networks and the confidentiality, availability, and integrity of our and our customers’ data. Although we have implemented policies, procedures, and controls to protect against, detect, and mitigate these threats, we remain potentially vulnerable to additional known or unknown threats. We also have access to sensitive, confidential, or personal data or information that is subject to privacy and security laws, regulations, and customer-imposed controls. Despite our efforts to protect sensitive, confidential, or personal data or information, we may be vulnerable to material security breaches, theft, misplaced or lost data, programming errors, employee errors, and/or malfeasance that could potentially lead to the compromising of sensitive, confidential, or personal data or information, improper use of our systems or networks, unauthorized access, use, disclosure, modification, or destruction of information, defective products, production downtimes, and operational disruptions. In addition, a cyber-related attack could result in other negative consequences, including damage to our reputation or competitiveness and remediation or increased protection costs, and could subject us to fines, damages, litigation, and enforcement actions.

 

Our facilities located in Houston are susceptible to damage caused by hurricanes or other natural disasters.

 

Our 1st Detect facilities in Houston are susceptible to damage caused by hurricanes or other natural disasters. Although we insure our properties and maintain business interruption insurance, there can be no guarantee that the coverage would be sufficient or a claim will be fulfilled. A natural disaster could result in a temporary or permanent closure of our business operations, thus impacting our future financial performance.

 

If we are unable to anticipate technological advances and customer requirements in the commercial and governmental markets, our business and financial condition may be adversely affected.

 

Our business strategy employs our personnel’s decades of experience to expand the services and products we offer to our customers. We believe that our growth and future financial performance depend upon our ability to anticipate technological advances and customer requirements. There can be no assurance that we will be able to achieve the necessary technological advances for us to remain competitive. Our failure to anticipate or respond adequately to changes in technological and market requirements, or delays in additional product development or introduction, could have a material adverse effect on our business and financial performance. Additionally, the cost of capital to fund these businesses will likely require dilution of shareholders.

 

We plan to develop new products and services. No assurances can be given that we will be able to successfully develop these products and services.

 

Our business strategy outlines the use of the decades of experience we have accumulated to expand the services and products we offer to both U.S. government agencies and commercial industries. These services and products involve new and untested technologies and business models. These technologies and business models may not be successful, which could result in the loss of any investment we make in developing them.

 


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We incur substantial upfront, non-reimbursable costs in preparing proposals to bid on contracts that we may not be awarded.

 

Preparing a proposal to bid on a contract is labor-intensive and results in the incurrence of substantial costs that are generally not retrievable. Additionally, although we may be awarded a contract, work performance does not commence for several months following completion of the bidding process. If funding problems by the party awarding the contract or other matters further delay our commencement of work, these delays may lower the value of the contract, or possibly render it unprofitable.

 

A failure of a key information technology system, process, or site could have a material adverse impact on our ability to conduct business.

 

We rely extensively on information technology systems to interact with our employees and our customers. These interactions include, but are not limited to, ordering and managing materials from suppliers, converting materials to finished products, shipping product to customers, processing transactions, summarizing and reporting results of operations, transmitting data used by our service personnel and by and among our wide-spread personnel and facilities, complying with regulatory, legal, and tax requirements, and other processes necessary to manage our business. If our systems are damaged or cease to function properly due to any number of causes, ranging from the failures of third-party service providers, to catastrophic events, to power outages, to security breaches, and our business continuity plans do not effectively compensate on a timely basis, we may suffer interruptions in our ability to manage operations which may adversely impact our results of operations and/or financial condition.

 

The market price of our common stock may be volatile and adversely affected by several factors.

 

The market price of our common stock could fluctuate significantly in response to various factors and events, including:

 

 

our ability to execute our business plan;

 

operating results below expectations;

 

our issuance of additional securities, including debt or equity or a combination thereof, necessary to fund our operating expenses;

 

announcements of technological innovations or new products by us or our competitors;

 

economic and other external factors;

 

period-to-period fluctuations in our financial results; and

 

whether an active trading market in our common stock develops and is maintained.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

 

We have not paid cash dividends in the past and do not expect to pay cash dividends in the foreseeable future. Any return on investment in shares of common stock may be limited to the value of our common stock.

 

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our capital stock will depend on our earnings, financial condition, and other business and economic factors affecting us at such time as the Board of Directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on any investment in shares of our common stock will only occur if the common stock price appreciates.

 

A sale of a substantial number of shares of the common stock may cause the price of our common stock to decline.

 

If our shareholders sell, or the market perceives that our shareholders intend to sell for various reasons, substantial amounts of our common stock in the public market may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 


14


 

If we fail to comply with the continued listing requirements of The NASDAQ Capital Market LLC, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.

 

Our shares of common stock are currently listed on The NASDAQ Capital Market. On August 24, 2017, we received a written notice (the “Notice”) from NASDAQ that we were not in compliance with NASDAQ Listing Rule 5550(a)(2) (the “Rule”), as the minimum bid price of our common stock had been below $1.00 per share for 30 consecutive business days. To regain compliance, on October 13, 2017, we effectuated a 1-for-5 reverse stock split of all of our outstanding shares of common stock and a proportional reduction in the number of our authorized shares of common stock. The closing bid price of our common stock met or exceeded $1.00 per share for 10 consecutive business days following the effective date of our reverse stock split and we then regained compliance with the Rule.

 

There can be no assurances that we will continue to satisfy the continued listing requirements of The NASDAQ Capital Market, including the minimum bid price requirement, the minimum stockholder’s equity requirement or other corporate governance requirements. If we fail to satisfy the continued listing requirements, NASDAQ may take steps to de-list our common stock. A delisting of our common stock could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and fewer business development opportunities.

 

We are a smaller reporting company and, as a result of the reduced disclosure and governance requirements applicable to such companies, our common stock may be less attractive to investors.

 

We are a smaller reporting company, (i.e. a company with less than $250 million of public float) and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies. We have elected to adopt these reduced disclosure requirements. We cannot predict if investors will find our common stock less attractive as a result of our taking advantage of these exemptions. If some investors find our common stock less attractive as a result of our choices, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

We are required to evaluate the effectiveness of our internal control over financial reporting on an annual basis and publicly disclose any material weaknesses in our controls. Any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and significant expense to remediate, and ultimately could have an adverse effect on our stock price.

 

Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to assess the effectiveness of our internal control over financial reporting and to disclose if such controls were unable to provide assurance that a material error would be prevented or detected in a timely manner. We have an ongoing program to review the design of our internal controls framework in keeping with changes in business needs, implement necessary changes to our controls design, and test the system and process controls necessary to comply with these requirements. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our Company will have been detected.

 

If we or our independent registered public accounting firm identifies material weaknesses in our internal controls, the disclosure of that fact, even if quickly remedied, may cause investors to lose confidence in our financial statements and our stock price may decline. Remediation of a material weakness could require us to incur significant expenses and, if we fail to remedy any material weakness, our ability to report our financial results on a timely and accurate basis may be adversely affected, our access to the capital markets may be restricted, our stock price may decline, and we may be subject to sanctions or investigation by regulatory authorities, including the SEC or NASDAQ. We may also be required to restate our financial statements from prior periods. Execution of restatements create a significant strain on our internal resources and could cause delays in our filing of quarterly or annual financial results, increase our costs, and cause management distraction. Restatements may also significantly affect our stock price in an adverse manner.

 

We can sell additional shares of common stock without consulting shareholders and without offering shares to existing shareholders, which would result in dilution of shareholders’ interests in the Company and could depress our stock price.

 

Our Certificate of Incorporation authorizes 15,000,000 shares of common stock, of which 5,775,171 were outstanding as of June 30, 2019, and our Board is authorized to issue additional shares of our common stock. In addition, our Certificate of

15


 

Incorporation authorizes 2,500,000 shares of “blank check preferred stock. Shares of “blank check preferred stock” may be issued in such series and with such rights, privileges, and limitations as the Board may, in its sole discretion, determine. Our Board has designated 300,000 shares as Series A Junior Preferred Stock, none of which are outstanding. The Board has also designated Series B Preferred Stock, none of which are outstanding. In connection with the Securities Purchase Agreement that was signed on April 17, 2019, our Board authorized the creation of Series C convertible preferred shares and Series D convertible preferred shares. Pursuant to this Agreement, the Company agreed to sell to Mr. Pickens an aggregate of 280,898 Series D Preferred Shares and sell to the other Investor an aggregate of 280,898 Series C Preferred Shares, each at a purchase price equal to $3.56 per share which was equal to the closing consolidated bid price on The NASDAQ Capital Market on April 16, 2019 for aggregate gross proceeds of $1,999,993.76.

 

Although our Board intends to utilize its reasonable business judgment to fulfill its fiduciary obligations to our then existing shareholders in connection with any future issuance of our capital stock, the future issuance of additional shares of our capital stock would cause immediate, and potentially substantial, dilution to our existing shareholders, which could also have a material effect on the market value of the shares. Furthermore, our Board may authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock, and the right to the redemption of the shares, together with a premium, prior to the redemption of the common stock. In addition, our Board could authorize the issuance of a series of preferred stock that has greater voting power than the common stock or that is convertible into our common stock, which could decrease the relative voting power of the common stock or result in dilution to our existing shareholders.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

Astrotech’s corporate headquarters is located in Austin, Texas. The leased office is 5,219 square feet and houses executive management, finance and accounting, and marketing and communications as well as the staff of our Astral subsidiary. 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 new 16,540 square foot leased research and development and production facility in Webster, Texas. This new 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.

 

We believe that our current facilities and equipment are well maintained, in good condition, and are adequate for our present and foreseeable needs.

 

Item 3. Legal Proceedings

 

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. As of June 30, 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.

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Item 4. Mine Safety Disclosures

 

Not applicable.

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

 

Market Information

 

Our common stock is principally traded on The NASDAQ Capital Market under the symbol ASTC. We have never paid cash dividends.

 

The following table identifies all repurchases during the year ended June 30, 2019 of any of the Company’s securities registered under Section 12 of the Exchange Act, as amended, by or on behalf of the Company or any affiliated purchaser.

 

Fiscal Month

 

Total Number

of Shares

Purchased

 

 

Average Price

Paid per Share

 

August 1, 2018 through August 31, 2018 (1)

 

 

389

 

 

$

3.75

 

Total

 

 

389

 

 

$

3.75

 

 

(1)

These shares were surrendered by employees to cover tax withholding obligations associated with equity compensation.

 

We have 15,000,000 shares of common stock authorized for issuance. As of September 27, 2019, we had 5,923,629 shares of common stock outstanding, which were held by approximately 5,500 holders. The last reported sale price of our common stock as reported by The NASDAQ Capital Market on September 27, 2019 was $1.95 per share.

 

Sales of Unregistered Securities

 

On October 9, 2018, the Company entered into Agreement No. 1 with Mr. Pickens, and the Investor. Pursuant to Agreement No. 1, the Company agreed to sell an aggregate of 866,950 shares of its Series B Preferred Shares to Mr. Pickens and 409,645 of its shares of 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). The securities issued pursuant to Agreement No. 1 were issued by the Company pursuant to the private placement exemption from registration provided by Section 4(a)(2) of the Securities Act and by Rule 506 of Registration D, promulgated by the SEC, and on similar exemptions under applicable state laws. On October 24, 2018, the Company filed a Form S-3 registration statement in order to register the 409,645 Common Shares sold to the Investor referenced above. The Form S-3 became effective on November 8, 2018.

 

On April 17, 2019, the Company entered into 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 Series C Preferred Shares to the Investor and 280,898 of 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 securities issued pursuant to Agreement No. 2 were issued by the Company pursuant to the private placement exemption from registration provided by Section 4(a)(2) of the Securities Act and by Rule 506 of Registration D, promulgated by the SEC, and on similar exemptions under applicable state laws.

 

Item 6.    Selected Financial Data

 

The information called for under this item is not applicable to smaller reporting companies.

 

 


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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes included below in Item 8 of this Annual Report on Form 10-K.  This discussion contains forward-looking statements that involve risks and uncertainties.  Our actual results may differ materially from those anticipated in these forward-looking statements.

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 currently operates two reportable business units, 1st Detect Corporation (“1st Detect”) and Astral Images Corporation (“Astral”), and their efforts are focused on the following:

 

1st Detect is a manufacturer of explosives and narcotics trace detectors developed for use at airports, secured facilities, and borders worldwide.

 

Astral is a developer of advanced film restoration and enhancement software.

 

Our Business Units

 

Astrotech Technology, Inc.

 

There are a number of different market opportunities for the mass spectrometry technology that was originally developed by 1st Detect Corporation. ATI was formed to own and license the intellectual property, which includes 37 patents granted with five additional patents in process, for use in different fields. ATI currently licenses the intellectual property to 1st Detect Corporation for use in the security and detection market and to Agriculture Technology Corporation 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 and narcotics 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. In fact, we believe that adding additional compounds to the detection library of an IMS-based ETD reduces the instrument’s performance further, causing more false alarms. In contrast, adding additional compounds does not degrade the TRACER 1000’s detection capabilities, as it has what we believe to be 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. On June 19, 2018, the Company announced that the TRACER 1000 had entered the ECAC Common Evaluation Process (“CEP”) to obtain certification in Europe. On December 12, 2018,

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the Company announced that the TRACER 1000 passed the ECAC CEP tests for airport checkpoint screening of passengers. On January 9, 2019, the Company subsequently announced that the TRACER 1000 passed the CEP tests for airport cargo screening. On February 21, 2019, the Company announced that 1st Detect received ECAC certification for both passenger and cargo screening for the TRACER 1000. Finally, on June 26, 2019, the Company announced the official launch of the TRACER 1000. 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 demos and field trials.

 

In addition, on March 27, 2018, the Company announced that the TRACER 1000 was accepted into TSA’s Air Cargo Screening Technology Qualification Test (“ACSQT”) and, on April 4, 2018, the Company announced that the TRACER 1000 was beginning testing with TSA for passenger screening at airports. With similar protocols as ECAC testing, we have received positive feedback under both programs, as anticipated. Both programs continue to progress as expected; however, there is no assurance that the TRACER 1000 will be approved by either TSA program.

 

Agriculture Technology Corporation

 

AG-TECH, a licensee of ATI, has developed the AG-LAB-1000™ series of trace detectors for use in the agricultural market. The technology is ideal for detecting trace levels of pesticides in agricultural products.in real-time. With the increasing number of U.S. states and countries legalizing hemp and cannabis, pesticide regulations have become increasingly more important. In addition to detecting pesticides, the AG-LAB-1000 instrumentation can characterize and quantify the cannabinoids (including tetrahydrocannabinol (“THC”), cannabidiol (“CBD”), and may other constituents) and terpenes (aromatic oils) present in hemp and cannabis. This information can be used by growers, distributors, and retailers to customize products, to ensure quality control, or to verify delivered products match the order. It can also be used by regulators and law enforcement to track and trace products.

 

Astral Images Corporation

 

Astral Images is a developer of advanced film restoration and enhancement software. Astral’s intelligent algorithms remove dust, scratches, and defects from film while converting the content to a digital format with significantly enhanced resolution. In addition, Astral employs artificial intelligence (“AI”) to automatically extend the color gamut and enhance the dynamic range to be viewed in 4K and/or high-dynamic range (“HDR”), collectively known as ultra-high definition (“UHD”).

 

Although we believe Astral has developed valuable technology fortified by patents and trade secrets, the potential market has not evolved as quickly as anticipated. Due to funding constraints, the Company’s primary focus remains on the pursuit of opportunities for 1st Detect. Consequently, headcount and expenditures at Astral have been minimized and new development is exclusively focused on strategic initiatives that would 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 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 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.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that directly affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Management continuously evaluates its critical accounting policies and estimates, including those used in evaluating the recoverability of long-lived assets, recognition of revenue, valuation of inventory, and the recognition and measurement of loss contingencies, if any.

20


 

 

Revenue Recognition

 

In fiscal year 2018, Astrotech recognized revenue employing two generally accepted revenue recognition methodologies. The methodology used was based on contract type and the manner in which products and services are provided.

 

Software Licensing Agreements

 

When revenue for sale of manufactured product is commenced or when we license our software for use, we will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when a firm sales contract or invoice is in place, delivery has occurred or services have been provided, and collectability is reasonably assured.

 

Construction-Type and Production-Type Contracts

 

In fiscal year 2018, some of the Company’s revenue was derived from contracts to manufacture a product to a buyer’s specification. These contracts are accounted for under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605-35 “Revenue Recognition: Construction-Type and Production-Type Contracts.” This contract was fixed-price and was revenue was recorded once completed and shipped. In fiscal year 2018, we had two revenue sources and, in both arrangements, there were no undelivered elements at June 30, 2018.

 

Astrotech recognizes revenue employing the generally accepted revenue recognition methodologies described under the provisions of FASB ASC Topic 606 “Revenue from Contracts with Customers,” 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) identify fixed or determinable 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 revenue recognition until collection has occurred or collection is reasonably assured. In fiscal years 2019 and 2018, we had two revenue sources and, in both arrangements, revenue was recognized at a point in time consistent with the guidelines in Topic 606.

 

Research and Development

 

Research and development costs are expensed as incurred. Research and development expenses for the fiscal years ended June 30, 2019 and 2018 were $3.6 million and $6.1 million, respectively, after adjusting for $18 thousand and $19 thousand in research and development expenses that were reclassified to cost of sales due to certain activities being associated with revenue recognition. The reason for this decrease was reduced compensation and related expenses and a reclassification of research and development materials to inventory on the balance sheet as we transition to selling TRACER 1000 units to the international airport security market.

 

Net Loss per Common Share

 

Basic net loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share as the potential dilutive shares are considered to be anti-dilutive (see Note 11 to the consolidated financial statements).

 

Cash and Cash Equivalents

 

The Company considers short-term investments with original maturities of three months or less to be cash equivalents. Cash equivalents are comprised primarily of operating cash accounts, money market investments, and certificates of deposit.

 

Accounts Receivable

 

The carrying value of the Company’s accounts receivable, net of an allowance for doubtful accounts, represents their estimated net realizable value. Astrotech estimates an allowance for doubtful accounts based on type of customer, age of

21


 

outstanding receivable, historical collection trends, and existing economic conditions. If events or changes in circumstances indicate that a specific receivable balance may be unrealizable, further consideration is given to the collectability of those balances, and the allowance is adjusted accordingly. Receivable balances deemed uncollectible are written off against the allowance. The Company anticipates collecting all unreserved receivables within one year. As of June 30, 2019 and 2018, there was no allowance for doubtful accounts deemed necessary.

 

Inventory

 

The Company computes inventory cost on a first-in, first-out basis, and inventory is valued at the lower of cost or net realizable value. The valuation of inventory also requires the Company to estimate obsolete and excess inventory as well as inventory that is not of saleable quality.

 

Property and Equipment

 

Property and equipment are stated at cost. All furniture, fixtures, and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets, which is generally five years. Purchased software is typically depreciated over three years. Leasehold improvements are amortized over the shorter of the useful life of the improvement or the term of the lease. Repairs and maintenance are expensed when incurred.

 

Impairment of Long-Lived Assets

 

The Company continuously evaluates its long-lived assets for impairment to assess whether the carrying amount of an asset may not be recoverable. Our evaluation is based on an assessment of potential indicators of impairment, such as an adverse change in the business climate that could affect the value of an asset, current or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of an asset, and a current expectation that, more likely than not, an asset will be disposed of before the end of its previously estimated useful life. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Recoverability of long-lived assets is dependent on a number of conditions, including uncertainty about future events and demand for our services.

 

During the fourth quarter of fiscal year 2018, the Company determined that there was an impairment indicator associated with the Color ICE™ software platform and scanner of Astral (“Astral assets”). During the quarter, management’s push to sell a newer version of Astral’s Color ICE™ software to a major scanning company was postponed, possibly indefinitely. In addition, even though the Company secured its first contract that utilized Astral’s latest software, the contract yielded minimal revenues. In light of the Company’s limited resources, expenses in Astral have been reduced and efforts have been scaled back until the market begins to develop. Due to the delay in the development of the market which has to date not yielded significant revenues, management believes that, for the foreseeable future, it is probable that Astral net cash flows will continue to fall short of the value of the Astral assets. Management therefore recorded an impairment charge of $1.6 million in fiscal year 2018. As of June 30, 2019 and 2018, the fair value of these assets was immaterial.

 

On June 1, 2018, the Company entered into its third amendment of the original lease for the 1st Detect facility removing 8,118 square feet from its leased space. Management therefore wrote-off the leasehold improvements and other assets associated with this reduction of square footage. The total amount associated with this impairment recognized during the year ended June 30, 2018 was $114 thousand. See Note 13 to the consolidated financial statements for more information relating to the amended lease agreement. There was no impairment of long-lived assets recognized during the year ended June 30, 2019.

 

Fair Value of Financial Instruments

 

Astrotech’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities. The Company’s management believes the carrying amounts of these assets and liabilities approximates their fair value. For more information about the Company’s accounting policies surrounding fair value investments, see Note 6 to the consolidated financial statements.

 


22


 

Available-for-Sale Investments

 

Investments that are designated as available-for-sale are reported at fair value, with unrealized gains and losses recorded in accumulated other comprehensive loss. The Company determines the cost of investments sold based on a first-in, first-out cost basis at the individual security level. The Company also considers specific adverse conditions related to the financial health of, and the business outlook for, the investee, which may include industry and sector performance, changes in technology, operational and financing cash flow factors, and changes in the investee’s credit rating. The Company records other than temporary impairments on marketable equity securities and marketable equity method investments in gains (losses) on equity investments, net of previously recorded gains (losses). For more information on investments, see Note 4 to the consolidated financial statements.

 

Operating Leases

 

The Company leases space under operating leases. Lease agreements often include tenant improvement allowances, rent holidays, and rent escalation clauses, as defined in the respective lease agreements. Most of the Company’s lease agreements include renewal periods at the Company’s option. The Company recognizes rent holiday periods, tenant improvement allowances, and scheduled rent increases on a straight-line basis over the lease term beginning with the date the Company takes possession of the leased property. The Company records tenant improvement allowances and rent holidays as deferred rent liabilities on the consolidated balance sheets and amortizes the deferred rent over the terms of the leases to rent expense on the consolidated statements of operations.

 

Share-Based Compensation

 

The Company accounts for share-based awards to employees based on the fair value of the award on the grant date. The fair value of stock options is estimated using the expected dividend yields of the Company’s stock, the expected volatility of the stock, the expected length of time the options remain outstanding, and the risk-free interest rates. Changes in one or more of these factors may significantly affect the estimated fair value of the stock options. The Company recognizes forfeitures as they occur. The fair value of awards that are likely to meet goals, if any, are recorded as an expense over the vesting period. For more information on share-based compensation, see Note 9 to the consolidated financial statements.

 

Income Taxes

 

The Company accounts for income taxes under the liability method, whereby deferred tax asset or liability account balances are determined based on the difference between the financial statement and the tax bases of assets and liabilities using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

Preferred Stock

 

The Company has issued Series C and Series D convertible preferred stock. The holder of the Series C Preferred Shares is restricted from converting said shares to common shares if the number of common shares held by the Series C Preferred Shares holder after such conversion would exceed 9.99% of the Company’s then issued and outstanding shares of common stock. The holder of Series D Preferred Shares has the option to convert said shares to common stock at the holder’s discretion. Both Series C and Series D Preferred Shares are convertible to common stock on a one-to-one basis. The Preferred C and Preferred D are not callable by the Company. The holders of the preferred stock are entitled to receive, and the Company shall pay, dividends on shares equal to and in the same form as dividends actually paid on shares of the common stock when, and if, such dividends are paid on shares of common stock. No other dividends are paid on the preferred shares.  Preferred shares have no voting rights. Upon liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, the preferred shares have preference over common stock.

 

Treasury Stock

 

The Company records treasury stock at the cost to acquire it and includes treasury stock as a component of stockholders’ equity.

 

23


 

Results of Operations for the Years Ended June 30, 2019 and 2018

 

Selected financial data for the fiscal years ended June 30, 2019 and 2018 of our operations are as follows:

 

 

 

Years Ended June 30,

 

(In thousands)

 

2019

 

 

2018

 

 

Variance

 

Revenue

 

$

127

 

 

$

86

 

 

$

41

 

Cost of revenue

 

 

90

 

 

 

36

 

 

 

54

 

Gross profit

 

 

37

 

 

 

50

 

 

 

(13

)

Gross margin percentage

 

 

29

%

 

 

58

%

 

 

-29

%

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

4,876

 

 

 

5,629

 

 

 

(753

)

Research and development

 

 

3,578

 

 

 

6,065

 

 

 

(2,487

)

Loss on impairment of long-lived assets

 

 

 

 

 

1,693

 

 

 

(1,693

)

Total operating expenses

 

 

8,454

 

 

 

13,387

 

 

 

(4,933

)

Interest and other income, net

 

 

25

 

 

 

86

 

 

 

(61

)

Income tax benefit

 

 

858

 

 

 

 

 

 

858

 

Net loss

 

$

(7,534

)

 

$

(13,251

)

 

$

5,717

 

 

Revenue – Total revenue increased by $41 thousand, or 48%, to $127 thousand for the fiscal year ended June 30, 2019, compared to $86 thousand for the fiscal year ended June 30, 2018. Of the fiscal year 2019 revenue, $87 thousand was from a sale of our TRACER 1000 units to an international distributor of innovative technologies and $40 thousand was associated with the Company’s now-discontinued agreement with ColorTime, a post-production house specializing in media content creation, restoration, and distribution. Of the fiscal year 2018 revenue, $41 thousand was from a software license agreement with a large post-production film company and $45 thousand was associated with space-grade handrail manufacturing sales, an opportunity born from our legacy space business for which the Company has unique expertise.

 

Cost of Revenue and Gross Profit – Cost of revenue is comprised of labor, materials, depreciation, and overhead. Gross profit is comprised of revenue less cost of revenue. Cost of revenue increased $54 thousand, or 150%, for the fiscal year ended June 30, 2019, compared to the year ended June 30, 2018. Gross profit decreased $13 thousand, or 29%, during the fiscal year ended June 30, 2019, compared to the year ended June 30, 2018, due to the increase in costs of revenue described above.

 

Operating Expenses – Our operating expenses decreased $4.9 million, or 37%, during the fiscal year ended June 30, 2019, compared to the fiscal year ended June 30, 2018. Significant changes to operating expenses include the following:

 

Selling, General and Administrative Expenses – As a result of management’s ongoing commitment to optimizing our available resources, our selling, general and administrative expenses decreased $0.8 million, or 13%, for the year ended June 30, 2019, compared to the year ended June 30, 2018. This reduction was driven by decreases in compensation and related expenses, lobbying, investor relations, directors fees, legal, consulting, and audit fees.

 

Research and Development Expenses – Research and development expenses, prior to a reclassification of $18 thousand and $19 thousand to cost of revenue in fiscal years 2019 and 2018, respectively, were $3.6 million and $6.1 million. The reason for this decrease was reduced compensation and related expenses and a reclassification of research and development materials to inventory on the balance sheet as we transition to selling TRACER 1000 units to the international airport security market.

 

Loss on Impairment of Long-Lived Assets – During the fourth quarter of fiscal year 2018, the Company determined that there was an impairment indicator associated with the Color ICE™ software platform and scanner of the Astral assets. During that quarter, management’s push to sell a newer version of Astral’s Color ICE software to a major scanning company was postponed, possibly indefinitely. In addition, even though the Company secured its first contract that utilized Astral’s latest software, the contract yielded minimal revenues. In light of the Company’s limited resources, expenses in Astral have been reduced and efforts have been scaled back until the market begins to develop. Due to the delay in the development of the market which has to date not yielded significant revenues, management believes that, for the foreseeable future, it is probable that Astral net cash flows will continue to fall short of the value of the Astral assets. Management therefore recorded an impairment charge of $1.6 million in fiscal year 2018. As of June 30, 2019 and 2018, the fair value of these assets was immaterial. In addition, on June 1, 2018,

24


 

 

the Company entered into its third amendment of the original lease for the 1st Detect facility removing 8,118 square feet from its leased space. Management therefore wrote-off the leasehold improvements and other assets associated with this reduction of square footage. The total amount associated with this impairment was $114 thousand. There was no impairment of long-lived assets recognized during the year ended June 30, 2019.

 

Income Taxes – Our income tax benefit increased $858 thousand for the year ended June 30, 2019, compared to the year ended June 30, 2018 due to the Alternative Minimum Tax (“AMT”) credit from the removal of the AMT in the Tax Cuts and Jobs Act.

 

FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY

 

Balance Sheet

 

Total assets for the year ended June 30, 2019 were $3.7 million compared to total assets of $5.1 million as of the end of fiscal year 2018. The following table sets forth the significant components of the balance sheet as of June 30, 2019, compared with 2018:

 

 

 

Years Ended June 30,

 

(In thousands)

 

2019

 

 

2018

 

 

Variance

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

2,722

 

 

$

4,276

 

 

$

(1,554

)

Property and equipment, net

 

 

469

 

 

 

733

 

 

 

(264

)

Long-term investments

 

 

 

 

 

50

 

 

 

(50

)

Long-term tax receivable

 

 

429

 

 

 

 

 

 

429

 

Other assets, net

 

 

72

 

 

 

81

 

 

 

(9

)

Total

 

$

3,692

 

 

$

5,140

 

 

$

(1,448

)

Liabilities and stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

838

 

 

$

960

 

 

$

(122

)

Other long-term liabilities

 

 

146

 

 

 

188

 

 

 

(42

)

Stockholders’ equity

 

 

2,708

 

 

 

3,992

 

 

 

(1,284

)

Total

 

$

3,692

 

 

$

5,140

 

 

$

(1,448

)

 

Current assets – Current assets decreased $1.6 million as of June 30, 2019, compared to June 30, 2018, as a result of funding our normal operating activities.

 

Property and equipment, net – Property and equipment decreased $0.3 million as of June 30, 2019, compared to June 30, 2018 due to continuing depreciation.

 

Long-term investments – Long-term investments decreased $0.1 million due to the sale of all of our available-for-sale investments.

 

Long-term tax receivable – Long-term tax receivable increased $0.4 million due to the AMT credit referenced above.

 

Current liabilities – Current liabilities decreased $0.1 million as of June 30, 2019, compared to June 30, 2018, primarily due to a reduction in payroll related accruals and other accrued expenses.

 

Other long-term liabilities – Other long-term liabilities decreased $42 thousand for the year ended June 30, 2019, compared to June 30, 2018, due to amortization of tenant improvement allowances associated with the corporate and 1st Detect offices.


25


 

Liquidity and Capital Resources

 

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

 

 

 

Years Ended June 30,

 

(In thousands)

 

2019

 

 

2018

 

 

Variance

 

Change in cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(8,475

)

 

$

(10,784

)

 

$

2,309

 

Net cash provided by investing activities

 

 

3,597

 

 

 

9,159

 

 

 

(5,562

)

Net cash provided by (used in) financing activities

 

 

5,914

 

 

 

(7

)

 

 

5,921

 

Net change in cash and cash equivalents

 

$

1,036

 

 

$

(1,632

)

 

$

2,668

 

 

Cash and Cash Equivalents

 

At June 30, 2019, we held cash and cash equivalents of $1.6 million and our net working capital was approximately $1.9 million. At June 30, 2018, we held cash and cash equivalents of $0.6 million and our net working capital was approximately $3.3 million. Cash and cash equivalents increased by approximately $1.0 million during the year ended June 30, 2019.

 

Operating Activities

 

Net cash used in operating activities was $8.5 million for the year ended June 30, 2019, compared to cash used in operating activities of $10.8 million for the year ended June 30, 2018. The decrease in cash used in operating activities was primarily due to a reduction in our expenses, partially offset by increases in income tax receivable and inventory.  

 

Investing Activities

 

Net cash provided by investing activities for the year ended June 30, 2019 was $3.6 million, compared to cash provided by investing activities of $9.2 million for the year ended June 30, 2018. The decrease in cash provided by investing activities was due to fewer maturities and sales of our available-for-sale investments.

 

Financing Activities

 

Cash provided by financing activities was $5.9 million for the year ended June 30, 2019, compared to cash used in financing activities of $7 thousand for the year ended June 30, 2018. The increase in cash provided by financing activities was the result of two private placements of equity securities as well as the sale of shares of common stock through the ATM Offering.

 

Debt

 

As of June 30, 2019 and 2018, the Company had no credit facilities.

 

Liquidity

 

As of June 30, 2019, we had cash and cash equivalents of $1.6 million and our working capital was approximately $1.9 million. The Company reported a net loss of $7.5 million for the fiscal year 2019 and a net loss of $13.3 million for the fiscal year 2018, 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 $10.8 million for the fiscal year 2018. These factors raise substantial doubt about the Company’s ability to continue as a going concern, but the Company remains resolute in identifying the optimal solution to the liquidity issue. The Company is currently evaluating several potential sources for additional liquidity. These include, but are not limited to, selling the Company or a portion thereof, debt financing, equity financing, merging, or engaging in a strategic partnership. On July 3, 2018, management filed a Form S-3 to raise funds through the capital markets. On October 9, 2018, the Company entered into Agreement No. 1 with Thomas B. Pickens III, the Chief Executive Officer and Chairman of the Board of Directors of the Company, and the Investor. Pursuant to Agreement No. 1, the Company agreed to sell an aggregate of 866,950 Series B Preferred Shares, par value $0.001 per share to Mr. Pickens and 409,645 Common Shares, par value $0.001 per share 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 Agreement No. 2 with Mr. Pickens and the Investor. Pursuant to Agreement No. 2, the Company agreed to sell an

26


 

aggregate of 280,898 Series C Preferred Shares, par value $0.001 per share to the Investor and 280,898 Series D Preferred Shares, par value $0.001 per share 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 holder of the Series C Preferred Shares has agreed to restrict its ability to convert the Series C Preferred Shares such that the number of shares of the Company’s common stock held by such holder and its affiliates after such conversion does not exceed 9.99% of the Company’s then issued and outstanding shares of common stock. The Series D Preferred Shares are convertible into an aggregate of 280,898 shares of common stock at the option of the holder. As of June 30, 2019, the Company has sold 214,202 shares of common stock pursuant to an ATM 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 $1,042,243. The weighted-average sale price per share was $5.02.

 

The Company is currently evaluating the potential offering of any combination of common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities, or any combination of the foregoing, either individually or as units comprised of one or more of the other securities. However, additional funding may not be available when needed or on terms acceptable to us. If we are unable to generate funding within a reasonable timeframe, we may have to delay, reduce, or terminate our research and development programs, limit strategic opportunities, or curtail our business activities. Astrotech’s consolidated financial statements as of June 30, 2019 do not include any adjustments that might result from the outcome of this uncertainty.

 

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, the need to acquire licenses to new technology, costs associated with increasing our manufacturing and development capabilities, costs associated with strategic acquisitions including integration costs and assumed liabilities, and the status of competitive products and potential costs associated with both protecting and defending our intellectual property. Factors that could affect our capital requirements, in addition to those listed above, include continued collections of accounts receivable consistent with our historical experience and our ability to manage product development efforts.

 

Off-Balance Sheet Arrangements

 

We did not have any off-balance sheet arrangements as of June 30, 2019.

 

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable to smaller reporting companies.

 


27


 

Item 8.    Financial Statements and Supplementary Data

 

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Stockholders

Astrotech Corporation

Austin, Texas

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Astrotech Corporation (the “Company”) and subsidiaries as of June 30, 2019, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2019, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has net cash flows deficiencies that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provide a reasonable basis for our opinion.

 

/s/ Armanino LLP

We have served as the Company's auditor since 2019.

San Francisco, California

September 30, 2019


28


 

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Stockholders

Astrotech Corporation

Austin, TX

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Astrotech Corporation (the “Company”) and subsidiaries as of June 30, 2018, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2018, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has net cash flows deficiencies that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ BDO USA, LLP

 

We served as the Company’s auditor from 2015 to 2019

Austin, Texas

September 25, 2018

29


 

ASTROTECH CORPORATION

Consolidated Balance Sheets

(In thousands, except share data)

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,588

 

 

$

552

 

Short-term investments

 

 

 

 

 

3,551

 

Accounts receivable

 

 

3

 

 

 

12

 

Inventory:

 

 

 

 

 

 

 

 

Raw materials, net

 

 

150

 

 

 

7

 

Work-in-process

 

 

181

 

 

 

 

Income tax receivable

 

 

429

 

 

 

 

Prepaid expenses and other current assets

 

 

371

 

 

 

154

 

Total current assets

 

 

2,722

 

 

 

4,276

 

Property and equipment, net

 

 

469

 

 

 

733

 

Long-term investments

 

 

 

 

 

50

 

Long-term tax receivable

 

 

429

 

 

 

 

Other assets

 

 

72

 

 

 

81

 

Total assets

 

$

3,692

 

 

$

5,140

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

160

 

 

$

112

 

Payroll related accruals

 

 

319

 

 

 

412

 

Accrued expenses and other liabilities

 

 

357

 

 

 

434

 

Income tax payable

 

 

2

 

 

 

2

 

Total current liabilities

 

 

838

 

 

 

960

 

Other liabilities

 

 

146

 

 

 

188

 

Total liabilities

 

 

984

 

 

 

1,148

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.001 par value, 2,500,000 shares authorized; 280,898 and no shares of Series C and 280,898 and no shares of Series D issued and outstanding at June 30, 2019 and 2018, respectively

 

 

 

 

 

 

Common stock, $0.001 par value, 15,000,000 shares authorized; 6,184,698 and 4,496,873 shares issued at June 30, 2019 and 2018, respectively; 5,775,171 and 4,097,346 shares outstanding at June 30, 2019 and 2018, respectively

 

 

190,571

 

 

 

190,570

 

Treasury stock, 399,916 and 399,527 shares at cost at June 30, 2019 and 2018, respectively

 

 

(4,129

)

 

 

(4,128

)

Additional paid-in capital

 

 

7,964

 

 

 

1,745

 

Accumulated deficit

 

 

(191,698

)

 

 

(184,164

)

Accumulated other comprehensive loss

 

 

 

 

 

(31

)

Total stockholders’ equity

 

 

2,708

 

 

 

3,992

 

Total liabilities and stockholders’ equity

 

$

3,692

 

 

$

5,140

 

 

See accompanying notes to consolidated financial statements.

30


 

ASTROTECH CORPORATION

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Revenue

 

$

127

 

 

$

86

 

Cost of revenue

 

 

90

 

 

 

36

 

Gross profit

 

 

37

 

 

 

50

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

4,876

 

 

 

5,629

 

Research and development

 

 

3,578

 

 

 

6,065

 

Loss on impairment of long-lived assets

 

 

 

 

 

1,693

 

Total operating expenses

 

 

8,454

 

 

 

13,387

 

Loss from operations

 

 

(8,417

)

 

 

(13,337

)

Interest and other income, net

 

 

25

 

 

 

86

 

Loss from operations before income taxes

 

 

(8,392

)

 

 

(13,251

)

Income tax benefit

 

 

858

 

 

 

 

Net loss

 

$

(7,534

)

 

$

(13,251

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

4,940

 

 

 

4,061

 

Basic and diluted net loss per common share:

 

 

 

 

 

 

 

 

Net loss

 

$

(1.53

)

 

$

(3.26

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,534

)

 

$

(13,251

)

Available-for-sale securities

 

 

 

 

 

 

 

 

Net unrealized losses, net of zero tax expense

 

 

 

 

 

(94

)

Reclassification adjustment for realized losses included in net loss, net

   of zero tax expense

 

 

31

 

 

 

124

 

Total comprehensive loss

 

$

(7,503

)

 

$

(13,221

)

 

See accompanying notes to consolidated financial statements.

 

31


 

 

ASTROTECH CORPORATION

Consolidated Statement of Changes in Stockholders’ Equity

(In thousands)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class C

 

 

Class D

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

Outstanding

 

 

Amount

 

 

Number of

Shares

Outstanding

 

 

Amount

 

 

Number of

Shares

Outstanding

 

 

Amount

 

 

Treasury

Stock

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

Stockholders’

Equity

 

Balance at June 30, 2017

 

 

 

 

$

 

 

 

 

 

$

 

 

 

4,111

 

 

$

190,382

 

 

$

(4,121

)

 

$

1,483

 

 

$

(170,913

)

 

$

(61

)

 

$

16,770

 

Net change in available-for-sale debt and marketable equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

30

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

262

 

 

 

 

 

 

 

 

 

262

 

Cancellation of restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share repurchases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

 

 

(7

)

Restricted stock issuance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

188

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,251

)

 

 

 

 

 

(13,251

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31

 

 

 

31

 

Issuance of shares, net of offering issuance costs of $113,726

 

 

281

 

 

 

 

 

 

281

 

 

 

 

 

 

1,491

 

 

 

1

 

 

 

 

 

 

5,907

 

 

 

 

 

 

 

 

 

5,908

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

177

 

 

 

 

 

 

 

 

 

177

 

Cancellation of restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25

)

 

 

(14

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

Share repurchases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)