Note: The balance sheet at June 30, 2020, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by the United States generally accepted accounting principles for complete financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(1) General Information
Description of the Company – Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” “the Company,” “we,” “us,” or “our”), a Delaware corporation organized in 1984, is a science and technology development and commercialization company that launches, manages, and builds scalable companies based on innovative technology in order to maximize shareholder value.
Basis of Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the six months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the year ending June 30, 2021. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020.
Our Business Units
Astrotech Technologies, Inc.
Astrotech Technologies, Inc. (“ATI”) owns and licenses the Astrotech Mass Spectrometer Technology™ (the “AMS Technology”), the platform mass spectrometry technology originally developed by 1st Detect Corporation (“1st Detect”). The intellectual property includes 32 patents granted with two additional patents in process along with extensive trade secrets. With a number of diverse market opportunities for the core technology, ATI is structured to license the intellectual property for different fields of use. ATI currently licenses the AMS Technology to three wholly-owned subsidiaries of Astrotech, including to 1st Detect for use in the security and detection market, to AgLAB Inc. (“AgLAB”) for use in the agriculture market, and to BreathTech Corporation (“BreathTech”) for use in breath analysis.
1st Detect Corporation
1st Detect, a licensee of ATI for the security and detection market, has developed the TRACER 1000™, the world’s first mass spectrometer (“MS”) based explosives trace detector (“ETD”) certified by the European Civil Aviation Conference (“ECAC”), designed to replace the ETDs used at airports, cargo facilities, secured facilities, and borders worldwide. The Company believes that ETD customers are unsatisfied with the currently deployed ETD technology, which is driven by ion mobility spectrometry (“IMS”). The Company believes that IMS-based ETDs are fraught with false positives, as they often misidentify personal care products and other common household chemicals as explosives, causing unnecessary delays, frustration, and significant wasted security resources. In addition, there are hundreds of different types of explosives, but IMS-based ETDs have a very limited threat detection library reserved only for those several explosives of largest concern. Adding additional compounds to the detection library of an IMS-based ETD fundamentally reduces the instrument’s performance, further increasing the likelihood of false alarms. In contrast, adding additional compounds does not degrade the TRACER 1000’s detection capabilities, as it has a virtually unlimited and expandable threat library.
In order to sell the TRACER 1000 to airport and cargo security customers in the European Union, ECAC certification is required. Certain other countries also accept ECAC certification. After receiving ECAC certification for the TRACER 1000 on February 21, 2019, the Company is now marketing to and taking orders from airports and cargo facilities outside of the U.S. that accept ECAC certification.
On June 26, 2019, the Company announced the official launch of the TRACER 1000, and on November 22, 2019, also announced the first commercial sale of TRACER 1000 units to a global shipping and logistics company.
In the United States, the Company is working with the Transportation Security Administration (“TSA”) towards Air Cargo certification. On March 27, 2018, the Company announced that the TRACER 1000 was accepted into TSA’s Air Cargo Screening Technology Qualification Test (“ACSQT”) and, on April 4, 2018, the Company announced that the TRACER 1000 was beginning testing with TSA for passenger screening at airports. On November 14, 2019, the Company announced that the TRACER 1000 had been selected by the TSA’s Innovation Task Force (“ITF”) to conduct live checkpoint screening at Miami International Airport. With similar protocols as ECAC testing, the Company has received valuable feedback from all programs. Following ECAC certification and the Company's early traction within the cargo market, testing for cargo security continued with the TSA. With the COVID-19 pandemic, all testing within the TSA was put on hold; however, cargo non-detection testing resumed this summer, and the Company subsequently announced on September 9, 2020 that the TRACER 1000 passed the non-detection testing portion of the TSA’s ACSQT. TSA cargo detection testing resumed this fall and continues to move forward. This is the next and final step to be listed on the Air Cargo Screening Technology List (“ACSTL”) as an “approved” device and,
7
if approved, thereby approved for cargo sales in the United States. Given the deterioration in air traffic caused by the pandemic, TSA certification testing for passenger checkpoint security has been put on indefinite hold.
Finally, on October 28, 2020, the Company announced that it had surpassed $1.0 million in purchase orders for the TRACER 1000 and an additional $1.0 million in future service and support commitments, also announcing DHL (Deutsche Post AG) as its largest flagship customer.
AgLAB Inc.
AgLAB is a licensee of ATI and has developed the AgLAB-1000™ series of mass spectrometers for use in the agriculture industry for both process control and the detection of trace amounts of solvents and pesticides. The AgLAB product line is a derivative of the Company’s core AMS Technology.
BreathTech Corporation
BreathTech is developing the BreathTest-1000™, a breath analysis tool to screen for volatile organic compound (“VOC”) metabolites found in a person’s breath that could indicate they may have an infection, including COVID-19 or pneumonia.
Development of the BreathTest-1000 follows the Company’s results in pre-clinical trials for the BreathDetect-1000™, a rapid self-serve breathalyzer that is designed to detect bacterial infections in the respiratory tract, including pneumonia. The pre-clinical trials were conducted in collaboration with UT Health San Antonio in 2017.
On October 20, 2020, the Company announced a joint development agreement with the Cleveland Clinic Foundation to explore leveraging the BreathTest-1000 to rapidly screen for COVID-19 or related indicators. The goal of the agreement is to develop a non-invasive device that will use breath samples to identify COVID-19 strains, with the potential to provide a low-cost, self-service screening option that could be deployed on a large-scale.
(2) Leases
As of July 1, 2019, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02 Leases: Topic 842 (“Topic 842”), using the modified retrospective method of adoption. Astrotech elected to use the transition option that allowed the Company to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. The adoption of Topic 842 resulted in an adjustment to accumulated deficit of $230 thousand at the beginning of fiscal year 2020.
The Company had two existing facility leases and several small equipment leases. Astrotech leased office space consisting of 5,219 square feet in Austin, Texas that housed executive management, finance and accounting, sales, and marketing and communications. The lease began in November 2016 and originally expired in December 2023. On August 3, 2020, the Company decided to terminate the lease. Upon lease termination, the Company recognized a decrease in the related operating right-of-use (“ROU”) asset and operating lease liability of approximately $506 thousand and $540 thousand, respectively.
In May 2013, 1st Detect completed build-out of a 16,540 square foot leased research and development and production facility in Webster, Texas. This facility is equipped with state-of-the-art laboratories, a clean room, a production shop, and offices for staff. The term of the lease is 62 months and includes options to extend for two additional five-year periods. In February 2015, 1st Detect exercised its right of first refusal on the adjoining space of 9,138 square feet. The original lease began in May 2013 and was to expire in June 2018; these dates were amended in October 2014 with the amended lease beginning February 1, 2015, and expiring April 30, 2020, with provisions to renew and extend the lease for the entire premises, but not less than the entire premises, for two renewal terms of five years each. On June 1, 2018, the Company entered into its third amendment of the original lease removing 8,118 square feet from its leased space, leaving leased premises with a total square footage of 17,560. On January 21, 2020, the Company entered into its fourth amendment of the original lease, with the amended lease beginning May 1, 2020 and expiring April 30, 2021, with the option to renew and extend the lease for one renewal term of one year. During the second quarter of fiscal year 2021, the Company has decided to allow the Webster lease to expire on its expiration date and declined the option to renew the lease. This resulted in a reduction of the related operating ROU asset and operating lease liability of $171 thousand and $192 thousand, respectively.
Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate in determining the present value of lease payments. Significant judgement is required when determining the Company’s incremental borrowing rate. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Upon the adoption of Topic 842, the Company’s accounting for financing leases, previously referred to as capital leases, remains substantially unchanged from prior guidance.
8
The balance sheet presentation of the Company’s operating and finance leases is as follows:
(In thousands)
|
|
Classification on the Condensed Consolidated Balance Sheet
|
|
December 31, 2020
|
|
Assets:
|
|
|
|
|
|
|
Operating lease assets
|
|
Operating leases, right-of-use assets, net
|
|
$
|
72
|
|
Financing lease assets
|
|
Property and equipment, net
|
|
|
52
|
|
Total lease assets
|
|
|
|
$
|
124
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Operating lease obligations
|
|
Lease liabilities, current
|
|
$
|
72
|
|
Financing lease obligations
|
|
Lease liabilities, current
|
|
|
10
|
|
Non-current:
|
|
|
|
|
|
|
Operating lease obligations
|
|
Lease liabilities, non-current
|
|
|
8
|
|
Financing lease obligations
|
|
Lease liabilities, non-current
|
|
|
34
|
|
Total lease liabilities
|
|
|
|
$
|
124
|
|
Future minimum lease payments under non-cancellable leases are as follows:
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended June 30,
|
|
Operating Leases
|
|
|
Financing Leases
|
|
|
Total
|
|
2021
|
|
$
|
72
|
|
|
$
|
6
|
|
|
$
|
78
|
|
2022
|
|
|
6
|
|
|
|
12
|
|
|
|
18
|
|
2023
|
|
|
6
|
|
|
|
12
|
|
|
|
18
|
|
2024
|
|
|
—
|
|
|
|
12
|
|
|
|
12
|
|
2025
|
|
|
—
|
|
|
|
8
|
|
|
|
8
|
|
Thereafter
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total lease obligations
|
|
|
84
|
|
|
|
50
|
|
|
|
134
|
|
Less: imputed interest
|
|
|
4
|
|
|
|
6
|
|
|
|
10
|
|
Present value of net minimum lease obligations
|
|
|
80
|
|
|
|
44
|
|
|
|
124
|
|
Less: lease liabilities - current
|
|
|
72
|
|
|
|
10
|
|
|
|
82
|
|
Lease liabilities - non-current
|
|
$
|
8
|
|
|
$
|
34
|
|
|
$
|
42
|
|
Other information as of December 31, 2020 is as follows:
Weighted-average remaining lease term (years):
|
|
|
|
|
Operating leases
|
|
|
|
|
0.3
|
|
Financing leases
|
|
|
|
|
4.2
|
|
Weighted-average discount rate:
|
|
|
|
|
Operating leases
|
|
|
|
|
11.0
|
%
|
Financing leases
|
|
|
|
|
6.2
|
%
|
Cash payments for operating leases for the three months ended December 31, 2020 and December 31, 2019 totaled $53 thousand and $96 thousand, respectively. Cash payments for operating leases for the six months ended December 31, 2020 and December 31, 2019 totaled $123 thousand and $192 thousand, respectively.
Cash payments for financing leases for the three months ended December 31, 2020 and December 31, 2019 totaled $3 thousand and $0, respectively. Cash payments for financing leases for the six months ended December 31, 2020 and December 31, 2019 totaled $6 thousand and $0, respectively.
(3) Property and Equipment
As of December 31, 2020 and June 30, 2020, property and equipment, net consisted of the following:
(In thousands)
|
|
December 31, 2020
|
|
|
June 30, 2020
|
|
Furniture, fixtures, equipment & leasehold improvements
|
|
$
|
1,943
|
|
|
$
|
2,522
|
|
Software
|
|
|
315
|
|
|
|
326
|
|
Capital improvements in progress
|
|
|
—
|
|
|
|
—
|
|
Gross property and equipment
|
|
|
2,258
|
|
|
|
2,848
|
|
Accumulated depreciation
|
|
|
(2,173
|
)
|
|
|
(2,512
|
)
|
Property held for disposal, net
|
|
|
—
|
|
|
|
(237
|
)
|
Property and equipment, net
|
|
$
|
85
|
|
|
$
|
99
|
|
9
Depreciation expense of property and equipment for the three months ended December 31, 2020 and December 31, 2019 were $15 thousand and $58 thousand, respectively. Depreciation expense of property and equipment for the six months ended December 31, 2020 and December 31, 2019 were $37 thousand and $117 thousand, respectively.
On August 3, 2020, the Company terminated its corporate office lease in Austin, Texas and wrote-off the remaining net book value of the related leasehold improvement assets in the amount of $229 thousand.
(4) Stockholders’ Equity
Public Offerings of Common Stock
On October 21, 2020, the Company entered into a Securities Purchase Agreement (the “First Purchase Agreement”) with certain purchasers named therein, pursuant to which the Company agreed to issue and sell 7,826,086 shares (the “Public Offering Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at an offering price of $2.30 per share (the “Public Offering”).
The Public Offering resulted in gross proceeds of approximately $18.0 million before deducting the placement agent’s fees and related offering expenses.
Pursuant to an engagement agreement dated July 23, 2020, as amended, the Company engaged H.C. Wainwright & Co., LLC (the “Placement Agent”) to act as the Company’s exclusive placement agent in connection with the Public Offering. The Company issued to the Placement Agent, or its designees, warrants (the “Placement Agent’s Warrants No. 1”) to purchase up to 469,565 shares of Common Stock, which represents 6.0% of the Public Offering Shares sold in the Public Offering. The Placement Agent’s Warrants No. 1 have an exercise price of $2.875 per share, which represents 125% of the per share offering price of the Public Offering Shares, and a termination date of October 21, 2025. The Placement Agent’s Warrants No. 1 had a fair value per share of $2.01 as of the date of issuance.
On October 28, 2020, the Company entered into a Securities Purchase Agreement (the “Second Purchase Agreement”) with certain purchasers named therein, pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “Registered Offering”), 2,887,906 shares (the “Registered Offering Shares”) of the Company’s Common Stock, at an offering price of $2.15 per share.
The Registered Offering resulted in gross proceeds of approximately $6.2 million before deducting the placement agent’s fees and related offering expenses.
Pursuant to an engagement agreement dated July 23, 2020, as amended, the Company engaged the Placement Agent to act as the Company’s exclusive placement agent in connection with the Registered Offering. The Company also issued to the Placement Agent, or its designees, warrants (the “Placement Agent’s Warrants No. 2”) to purchase up to 173,274 shares of Common Stock, which represents 6.0% of the Registered Offering Shares sold in the Registered Offering. The Placement Agent’s Warrants No. 2 have an exercise price of $2.6875 per share, which represents 125% of the per share offering price of the Registered Offering Shares, and a termination date of October 28, 2025. The Placement Agent’s Warrants No. 2 had a fair value per share of $1.80 as of the date of issuance.
At-the-Market Agreements
From November 9, 2018 through March 25, 2020, the Company sold 793,668 shares of Common Stock pursuant to an At-the-Market Issuance Sales Agreement (the “B. Riley ATM Agreement”) with B. Riley FBR, under which B. Riley FBR acted as the sales agent. In connection with the sale of these shares of Common Stock, the Company received net proceeds of $2.3 million. The weighted-average sale price per share was $3.04. No additional shares of the Company’s Common Stock will be sold pursuant to the B. Riley ATM Agreement. The Company did not incur any termination penalties as a result of its termination of the B. Riley ATM Agreement.
On December 18, 2020, the Company entered into an at-the-market offering agreement (the “Wainwright ATM Agreement”) with H.C. Wainwright & Co., LLC as agent, pursuant to which the Company may offer and sell, from time to time through H.C. Wainwright, shares of the Company’s Common Stock, having an aggregate offering price of up to $3,582,614.
10
Warrants
A summary of the common stock warrant activity for the three months ended December 31, 2020 is presented below:
|
Shares
(In thousands)
|
|
|
Weighted Average Exercise Price
|
|
|
Aggregate Fair Market Value at Issuance (In thousands)
|
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Outstanding June 30, 2020
|
|
86
|
|
|
$
|
5.14
|
|
|
$
|
194
|
|
|
|
4.74
|
|
Warrants issued
|
|
643
|
|
|
|
2.82
|
|
|
|
1,256
|
|
|
|
4.81
|
|
Warrants exercised
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Warrants expired
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2020
|
|
729
|
|
|
$
|
3.10
|
|
|
$
|
1,450
|
|
|
|
4.74
|
|
The following represents a summary of the warrants outstanding at each of the dates identified:
|
|
|
|
|
|
|
|
|
|
Number of Shares Underlying Warrants
|
|
Issue Date
|
|
Classification
|
|
Exercise Price
|
|
|
Expiration Date
|
|
December 31, 2020
|
|
|
June 30, 2020
|
|
March 26, 2020
|
|
Equity
|
|
$
|
6.25
|
|
|
March 25, 2025
|
|
|
24,780
|
|
|
|
24,780
|
|
March 30, 2020
|
|
Equity
|
|
$
|
4.69
|
|
|
March 27, 2025
|
|
|
61,133
|
|
|
|
61,133
|
|
October 23, 2020
|
|
Equity
|
|
$
|
2.89
|
|
|
October 21, 2025
|
|
|
469,565
|
|
|
|
—
|
|
October 28, 2020
|
|
Equity
|
|
$
|
2.69
|
|
|
October 28, 2025
|
|
|
173,274
|
|
|
|
—
|
|
Total Outstanding
|
|
|
|
|
|
|
|
|
|
|
728,752
|
|
|
|
85,913
|
|
Nasdaq Compliance
As previously noted in our Form 10-K for the fiscal year ended June 30, 2020, the Company was not in compliance with the minimum stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1) for continued listing on The Nasdaq Capital Market because its stockholders’ equity was below the required minimum of $2.5 million at June 30, 2020. On September 11, 2020, the Company received a notice from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) stating that it was not in compliance with the required stockholder’s equity of $2.5 million.
The notice had no immediate effect on the Company’s listing on The Nasdaq Capital Market. The Company originally had until October 26, 2020 to submit a plan to regain compliance with the minimum stockholders’ equity requirement; however, Nasdaq granted an extension of the deadline to submit a plan until November 2, 2020.
Following the offerings mentioned above, the Company is now in compliance with the minimum stockholders’ equity requirement.
(5) Net Loss per Share
Basic net loss per share is computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed based on the weighted average number of common shares outstanding plus the effect of potentially dilutive common shares outstanding during the period using the treasury stock method and the if-converted method. Potentially dilutive common shares include outstanding stock options and share-based awards.
The following table reconciles the numerators and denominators used in the computations of both basic and diluted net loss per share:
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
(In thousands, except per share data)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,622
|
)
|
|
$
|
(2,083
|
)
|
|
$
|
(3,733
|
)
|
|
$
|
(4,151
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net loss per share — weighted average common stock outstanding
|
|
|
15,864
|
|
|
|
5,947
|
|
|
|
11,769
|
|
|
|
5,769
|
|
Basic and diluted net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.10
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.72
|
)
|
All unvested restricted stock awards for the six months ended December 31, 2020 are not included in diluted net loss per share, as the impact to net loss per share would be anti-dilutive. Options to purchase 321,225 shares of common stock at exercise prices ranging from $1.85 to $8.35 per share outstanding as of December 31, 2020 were not included in diluted net loss per share, as the impact to net loss per share would be anti-dilutive.
11
(6) Revenue Recognition
Astrotech recognizes revenue employing the generally accepted revenue recognition methodologies described under the provisions of Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers” (“Topic 606”), which was adopted by the Company in fiscal year 2019. The methodology used is based on contract type and how products and services are provided. The guidelines of Topic 606 establish a five-step process to govern the recognition and reporting of revenue from contracts with customers. The five steps are: (i) identify the contract with a customer, (ii) identify the performance obligations within the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations within the contract, and (v) recognize revenue when or as the performance obligations are satisfied.
An additional factor is reasonable assurance of collectability. This necessitates deferral of all or a portion of revenue recognition until collection. During the three months ended December 31, 2020, the Company had one revenue source that totaled $130 thousand. During the three and six months ended December 31, 2020, the Company had one material revenue source. Revenue was recognized at a point in time consistent with the guidelines in Topic 606.
The Company disaggregates revenue by reporting segment to depict the nature of revenue in a manner consistent with its business operations and to be consistent with other communications and public filings. Refer to Note 13 for additional details of revenues by reporting segment.
Contract Assets and Liabilities. The Company enters into contracts to sell products and provide services, and it recognizes contract assets and liabilities that arise from these transactions. The Company recognizes revenue and corresponding accounts receivable according to Topic 606 and, at times, recognize revenue in advance of the time when contracts give us the right to invoice a customer. The Company may also receive consideration, per the terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as deferred revenue. Additionally, the Company may receive payments, most typically for service and warranty contracts, at the onset of the contract and before services have been performed. In such instances, the Company records a deferred revenue liability. The Company recognizes these contract liabilities as sales after all revenue recognition criteria are met.
Practical Expedients. In cases where the Company is responsible for shipping after the customer has obtained control of the goods, the Company has elected to treat the shipping activities as fulfillment activities rather than as a separate performance obligation. Additionally, the Company has elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year. The Company only gives consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year.
Product Sales. The Company recognizes revenue from sales of products upon shipment or delivery when control of the product transfers to the customer, depending on the terms of each sale, and when collection is probable. In the circumstance where terms of a product sale include subjective customer acceptance criteria, revenue is deferred until the Company has achieved the acceptance criteria unless the customer acceptance criteria are perfunctory or inconsequential. The Company generally offers customers payment terms of less than one year.
Freight. The Company records shipping and handling fees that it charges to its customers as revenue and related costs as cost of revenue.
Multiple Performance Obligations. Certain agreements with customers include the sale of equipment involving multiple elements in cases where obligations in a contract are distinct and thus require separation into multiple performance obligations, revenue recognition guidance requires that contract consideration be allocated to each distinct performance obligation based on its relative standalone selling price. The value allocated to each performance obligation is then recognized as revenue when the revenue recognition criteria for each distinct promise or bundle of promises has been met.
The standalone selling price for each performance obligation is an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the good or service. When there is only one performance obligation associated with a contract, the entire amount of consideration is attributed to that obligation. When a contract contains multiple performance obligations the standalone selling price is first estimated using the observable price, which is generally a list price net of applicable discount or the price used to sell the good or service in similar circumstances. In circumstances when a selling price is not directly observable, the Company will estimate the standalone selling price using information available to it including its market assessment and expected cost plus margin.
The timetable for fulfilment of each of the distinct performance obligations can range from completion in a short amount of time and entirely within a single reporting period to completion over several reporting periods. The timing of revenue recognition for each performance obligation may be dependent upon several milestones, including physical delivery of equipment, completion of site acceptance test, and in the case of after-market consumables and service deliverables, the passage of time.
12
Impact of COVID-19 Pandemic
The Company has taken what it believes are necessary precautions to safeguard its employees from the COVID-19 pandemic. The Company continues to follow the Centers for Disease Control and Prevention’s (“CDC”) guidance and the recommendations and restrictions provided by state and local authorities. All of the Company’s employees who do not work in a lab setting are currently on a telecommunication work arrangement and have been able to successfully work remotely. The Company’s lab requires in-person staffing and the Company has been able to continue to operate its lab, minimizing infection risk to lab staff through a combination of social distancing and appropriate protective equipment. There can be no assurance, however, that key employees will not become ill or that the Company will be able to continue to operate its labs.
The continuing impact that the COVID-19 pandemic will have on the Company’s operations, including duration, severity, and scope, remains uncertain and cannot be fully predicted at this time. Accordingly, the Company believes that the COVID-19 pandemic could continue to adversely impact its results of operations, cash flows, and financial condition in the future.
As the Company’s business operations continue to be impacted by the pandemic, the Company continues to monitor the situation and the guidance that is being provided by relevant federal, state, and local public health authorities. The Company may take additional actions based upon their recommendations. However, it is possible that the Company may have to make further adjustments to its operating plans in reaction to developments that are beyond its control.
(7) Fair Value Measurement
The accounting standard for fair value measurements defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. The standard is applicable whenever assets and liabilities are measured and included in the financial statements at fair value.
The fair value hierarchy established in the standard prioritizes the inputs used in valuation techniques into three levels as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
As of December 31, 2020, the fair value of the Company’s cash and cash equivalents approximate their carrying value due to their short-term nature.
(8) Debt
On September 5, 2019, the Company entered into a private placement transaction with Thomas B. Pickens III, the Chief Executive Officer and Chairman of the Board of Directors of the Company for the issuance and sale of a secured promissory note (“Note No. 1”) to Mr. Pickens with a principal amount of $1.5 million. Interest on Note No. 1 shall accrue at 11% per annum. The principal amount and accrued interest on Note No. 1 shall become due and payable on September 5, 2020 (the “Maturity Date”). The Company may prepay the principal amount and all accrued interest on Note No. 1 at any time prior to the Maturity Date. In connection with the issuance of Note No. 1, the Company, along with 1st Detect Corporation and Astrotech Technologies, Inc. (the “Subsidiaries”), entered into a security agreement, dated as of September 5, 2019, with Mr. Pickens (the “Security Agreement No. 1”), pursuant to which the Company and the Subsidiaries granted to Mr. Pickens a security interest in all of the Company’s and the Subsidiaries’ Collateral, as such term is defined in Security Agreement No. 1. In addition, the Subsidiaries jointly and severally agreed to guarantee and act as surety for the Company’s obligation to repay Note No. 1 pursuant to a subsidiary guarantee.
On February 13, 2020, the Company entered into a second private placement transaction with Mr. Pickens for the issuance and sale of a secured promissory note (“Note No. 2”) to Mr. Pickens with a principal amount of $1.0 million. Interest on Note No. 2 shall accrue at 11% per annum. The principal amount and accrued interest on Note No. 2 shall become due and payable on the Maturity Date. The Company may prepay the principal amount and all accrued interest on Note No. 2 at any time prior to the Maturity Date. In connection with the issuance of Note No. 2, the Company, along with the Subsidiaries, entered into a second security agreement, dated as of February 13, 2020, with Mr. Pickens (the “Security Agreement No. 2”), pursuant to which the Company and the Subsidiaries granted to Mr. Pickens a security interest in all of the Company’s and the Subsidiaries’ Collateral, as such term is defined in Security Agreement No. 2. In addition, the Subsidiaries jointly and severally agreed to guarantee and act as surety for the Company’s obligation to repay Note No. 2 pursuant to a subsidiary guarantee.
On August 24, 2020, the Company and Mr. Pickens agreed to extend the Maturity Date of both the notes and payment of accrued interest to September 5, 2021.
13
On April 14, 2020, the Company entered into a promissory note under the Paycheck Protection Program “(PPP”) for $542 thousand (the “PPP Promissory Note”) with a commercial bank (the “Bank”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Promissory Note bears interest at a rate of 1.0% per annum. Payments are due monthly beginning November 10, 2020. The remaining principal amount of the PPP Promissory Note along with any unpaid interest is due on April 1, 2022. The principal and interest may be forgiven if the proceeds are used for forgivable purposes as defined by the terms in the PPP Promissory Note, and the Company has used the proceeds from the PPP Promissory Note for forgivable purposes as defined by the terms of the PPP Promissory Note. The Company has applied for forgiveness under the provisions of the CARES Act and escrowed the balance of the note with the lender. Forgiveness is subject to the sole approval of the Small Business Administration (“SBA”) and it may deny our application for forgiveness in whole or in part. Interest expense for the three and six months ended December 31, 2020 was approximately $1 thousand and $2 thousand, respectively.
On October 19, 2020, as required by the SBA prior to executing the First Purchase Agreement on October 21, 2020, the Company and the Bank entered into a Cash Reserve Agreement wherein the Company agreed to deliver to the Bank an amount equal to $542 thousand to be held in a separate restricted cash account in accordance with the terms and conditions of the Cash Reserve Agreement for the purpose of establishing a source of payment for the Company’s obligations to repay and/or obtain forgiveness of the PPP Promissory Note.
(9) Business Risk and Credit Risk Concentration Involving Cash
For the three and six months ended December 31, 2020 and 2019, the Company had one customer that materially comprised all of the Company’s revenue.
The Company maintains funds in bank accounts that may exceed the limit insured by the Federal Deposit Insurance Corporation of $250 thousand per depositor. The risk of loss attributable to these uninsured balances is mitigated by depositing funds in what we believe to be high credit quality financial institutions. The Company has not experienced any losses in such accounts.
(10) Stock-Based Compensation
Stock Option Activity Summary
The Company’s stock option activity for the six months ended December 31, 2020 is as follows:
|
|
Shares
(in thousands)
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at June 30, 2020
|
|
|
325
|
|
|
$
|
5.68
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Canceled or expired
|
|
|
(4
|
)
|
|
|
5.30
|
|
Outstanding at December 31, 2020
|
|
|
321
|
|
|
$
|
5.68
|
|
The aggregate intrinsic value of options exercisable at December 31, 2020 was $0, as the fair value of the Company’s common stock is less than the exercise prices of these options. The remaining stock-based compensation expense of $2 thousand related to stock options will be recognized over a weighted-average period of 1.78 years.
The table below details the Company’s stock options outstanding as of December 31, 2020:
Range of exercise prices
|
|
Number
Outstanding
|
|
|
Options
Outstanding
Weighted-
Average
Remaining
Contractual
Life (years)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Options
Exercisable
Weighted-
Average
Exercise
Price
|
|
$1.85 – 3.55
|
|
|
76,500
|
|
|
|
2.28
|
|
|
$
|
3.43
|
|
|
|
66,500
|
|
|
$
|
3.43
|
|
$5.30 – 5.85
|
|
|
114,725
|
|
|
|
6.36
|
|
|
|
5.49
|
|
|
|
113,203
|
|
|
|
5.49
|
|
$6.00 – 8.35
|
|
|
130,000
|
|
|
|
3.89
|
|
|
|
7.19
|
|
|
|
86,000
|
|
|
|
6.59
|
|
$1.85 – 8.35
|
|
|
321,225
|
|
|
|
4.39
|
|
|
$
|
5.68
|
|
|
|
265,703
|
|
|
$
|
5.33
|
|
Compensation costs recognized related to stock option awards were $0 and $41 thousand for the three months ended December 31, 2020, and 2019, respectively and $1 thousand and $85 thousand for the six months ended December 31, 2020 and 2019, respectively.
14
Restricted Stock
The Company’s restricted stock activity for the six months ended December 31, 2020, is as follows:
|
|
Shares
(in thousands)
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Outstanding at June 30, 2020
|
|
|
133
|
|
|
$
|
3.95
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(54
|
)
|
|
|
1.79
|
|
Canceled or expired
|
|
|
(23
|
)
|
|
|
5.40
|
|
Outstanding at December 31, 2020
|
|
|
56
|
|
|
$
|
3.92
|
|
Stock compensation expenses related to restricted stock were $46 thousand and $42 thousand for the three months ended December 31, 2020, and 2019, respectively and $90 thousand and $102 thousand for the six months ended December 31, 2020 and 2019, respectively. The remaining stock-based compensation expense of $161 thousand related to restricted stock awards granted will be recognized over a weighted-average period of 0.98 years.
(11) Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. As of December 31, 2020, the Company established a valuation allowance against all of its net deferred tax assets.
For the three months ended December 31, 2020 and 2019, the Company incurred pre-tax losses in the amount of $1.6 million and $2.1 million, respectively. For the six months ended December 31, 2020 and 2019, the Company incurred pre-tax losses in the amount of $3.7 million and $4.2 million, respectively. The total effective tax rate was approximately 0% for the each of the three and six months ended December 31, 2020 and 2019.
For each of the six months ended December 31, 2020 and 2019, the Company’s effective tax rate differed from the federal statutory rate of 21%, primarily due to the valuation allowance placed against its net deferred tax assets.
The CARES Act was signed into law on March 27, 2020. The CARES Act provided certain tax relief measures including the acceleration of the alternative minimum tax (“AMT”) credit previously paid. The CARES Act allows for the acceleration of the refundable AMT credit up to 100% of the AMT credit. In response to the impact of the CARES Act, the Company received the remaining AMT credit of $429 thousand for AMT previously paid during the three months ended September 30, 2020.
FASB ASC 740, “Income Taxes” addresses the accounting for uncertainty in income tax recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company had no unrecognized tax benefit for the three and six months ended December 31, 2020 or 2019.
Loss carryovers are generally subject to modification by tax authorities until three years after they have been utilized; as such, the Company is subject to examination for the fiscal years ended 2001 through present for federal purposes and fiscal years ended 2006 through present for state purposes.
(12) Commitments and Contingencies
The Company is subject to various lawsuits and other claims in the normal course of business. In addition, from time to time, the Company receives communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which the Company operates.
The Company establishes reserves for the estimated losses on specific contingent liabilities, for regulatory and legal actions where the Company deems a loss to be probable and the amount of the loss can be reasonably estimated. In other instances, the Company is not able to make a reasonable estimate of liability because of the uncertainties related to the outcome or the amount or range of potential loss.
Litigation, Investigations, and Audits – We are not party to, nor are our properties the subject of, any material pending legal proceedings.
15
(13) Segment Information
The Company currently has two reportable business units: 1st Detect Corporation and AgLAB Inc.
1st Detect Corporation
1st Detect is a manufacturer of explosives and narcotics trace detectors developed for use at airports, secured facilities, and borders worldwide.
AgLAB Inc.
AgLAB is developing a series of mass spectrometers for use in the agriculture market for process control and the detection of trace amounts of solvents and pesticides.
All intercompany transactions between business units have been eliminated in consolidation.
Key financial metrics of the Company’s segments are as follows:
|
|
Three Months Ended
December 31, 2020
|
|
|
Three Months Ended
December 31, 2019
|
|
(In thousands)
|
|
Revenue
|
|
|
Depreciation
|
|
|
Loss before
Income Taxes
|
|
|
Revenue
|
|
|
Depreciation
|
|
|
Loss before
Income Taxes
|
|
1st Detect
|
|
$
|
130
|
|
|
$
|
15
|
|
|
$
|
(841
|
)
|
|
$
|
205
|
|
|
$
|
58
|
|
|
$
|
(2,083
|
)
|
AgLAB
|
|
|
—
|
|
|
|
—
|
|
|
|
(781
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
130
|
|
|
$
|
15
|
|
|
$
|
(1,622
|
)
|
|
$
|
205
|
|
|
$
|
58
|
|
|
$
|
(2,083
|
)
|
|
|
Six Months Ended
December 31, 2020
|
|
|
Six Months Ended
December 31, 2019
|
|
(In thousands)
|
|
Revenue
|
|
|
Depreciation
|
|
|
Loss before
Income Taxes
|
|
|
Revenue
|
|
|
Depreciation
|
|
|
Loss before
Income Taxes
|
|
1st Detect
|
|
$
|
270
|
|
|
$
|
37
|
|
|
$
|
(2,251
|
)
|
|
$
|
206
|
|
|
$
|
117
|
|
|
$
|
(4,151
|
)
|
AgLAB
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,482
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
270
|
|
|
$
|
37
|
|
|
$
|
(3,733
|
)
|
|
$
|
206
|
|
|
$
|
117
|
|
|
$
|
(4,151
|
)
|
|
|
December 31, 2020
|
|
|
June 30, 2020
|
|
(In thousands)
|
|
Fixed Assets,
Net
|
|
|
Total Capital
Expenditures
(1)
|
|
|
Total Assets
|
|
|
Fixed Assets,
Net
|
|
|
Total Capital
Expenditures
(2)
|
|
|
Total Assets
|
|
1st Detect
|
|
$
|
85
|
|
|
$
|
16
|
|
|
$
|
23,579
|
|
|
$
|
99
|
|
|
$
|
—
|
|
|
$
|
5,930
|
|
AgLAB
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
85
|
|
|
$
|
16
|
|
|
$
|
23,579
|
|
|
$
|
99
|
|
|
$
|
—
|
|
|
$
|
5,930
|
|
|
(1)
|
Total capital expenditures are for the six months ended December 31, 2020.
|
|
(2)
|
Total capital expenditures are for the twelve months ended June 30, 2020.
|
(14) Subsequent Events
Subsequent to the end of the second quarter of fiscal year 2021 and as of February 9, 2021, the Company has sold 1,139,323 shares of common stock pursuant to the Wainwright ATM Agreement. In connection with the sales of these shares of common stock, the Company has received net proceeds of approximately $3.5 million. The weighted-average sale price per shares was $3.14.
On February 11, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain purchasers named therein, pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “February Registered Offering”), 2,845,535 shares (the “Shares”) of the Company’s Common Stock at an offering price of $3.25 per share.
The February Registered Offering resulted in gross proceeds of approximately $9.25 million before deducting the placement agent’s fees and related offering expenses.
Pursuant to an engagement agreement, dated July 23, 2020, as amended, the Company engaged the Placement Agent to act as the Company’s exclusive placement agent in connection with the February Registered Offering. The Company will also issue to the Placement Agent, or its designees, warrants (the “Placement Agent’s Warrants”) to purchase up to 199,187 shares of Common
16
Stock, which represents 6.0% of the Shares sold in the February Registered Offering. The Placement Agent’s Warrants have an exercise price of $4.06 per share, which represents 125% of the per share offering price of the Shares and a termination date of February 11, 2026.
17
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are forward-looking statements for purposes of federal and state securities laws. Forward-looking statements may include the words “may,” “will,” “plans,” “believes,” “estimates,” “expects,” “intends,” and other similar expressions. Such statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in the statements. Such risks and uncertainties include, but are not limited to:
|
•
|
The impact of the COVID-19 outbreak on the global economy, including the possibility of a global recession, and more specifically the impact to our business, suppliers, consumers, customers, and employees;
|
|
•
|
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, including our recent collaboration with the Cleveland Clinic;
|
|
•
|
Our ability to continue as a going concern;
|
|
•
|
The effect of economic and political conditions in the United States or other nations that could impact our ability to sell our products and services or gain customers;
|
|
•
|
Product demand and market acceptance risks, including our ability to develop and sell products and services to be used by governmental or commercial customers;
|
|
•
|
The impact of trade barriers imposed by the U.S. government, such as import/export duties and restrictions, tariffs and quotas, and potential corresponding actions by other countries in which the Company conducts its business;
|
|
•
|
Technological difficulties and potential legal claims arising from any technological difficulties;
|
|
•
|
Supply chain delays and challenges;
|
|
•
|
Uncertainty in government funding and support for key programs, grant opportunities, or procurements;
|
|
•
|
The impact of competition on our ability to win new contracts; and
|
|
•
|
Our ability to meet technological development milestones and overcome development challenges.
|
Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate; therefore, we cannot assure you that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in our forward-looking statements, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Some of these and other risks and uncertainties that could cause actual results to differ materially from such forward-looking statements are more fully described in our 2020 Annual Report on Form 10-K, elsewhere in this Quarterly Report on Form 10-Q, or in the documents incorporated by reference herein. Except as may be required by applicable law, we undertake no obligation to publicly update or advise of any change in any forward-looking statement, whether as a result of new information, future events, or otherwise. In making these statements, we disclaim any obligation to address or update each factor in future filings with the Securities and Exchange Commission (“SEC”) or communications regarding our business or results, and we do not undertake to address how any of these factors may have caused changes to discussions or information contained in previous filings or communications. In addition, any of the matters discussed above may have affected our past results and may affect future results, so that our actual results may differ materially from those expressed in this Quarterly Report on Form 10-Q and in prior or subsequent communications.
18