# ASTROTECH Corp: Form 10-Q for the period ended Mar 31, 2014

- Company: [ASTROTECH Corp](/companies/astc.md) (CIK 1001907)
- Form: 10-Q
- Filed: 2014-05-14
- Accepted by EDGAR: May 14, 2014, 21:24 ET
- Period: 2014-03-31
- Accession: 0001571049-14-001849
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1001907/000157104914001849/t1400864_f10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1001907/000157104914001849/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2014-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2014-01-01 to 2014-03-31 | $1.6m | us-gaap:Revenues |
| Revenue | 9 months, 2013-07-01 to 2014-03-31 | $10.8m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2014-01-01 to 2014-03-31 | $2.3m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2013-07-01 to 2014-03-31 | $8.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2014-01-01 to 2014-03-31 | −$752.0k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2013-07-01 to 2014-03-31 | $2.7m | us-gaap:GrossProfit |
| Research and development | 3 months, 2014-01-01 to 2014-03-31 | $645.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2013-07-01 to 2014-03-31 | $1.8m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2014-01-01 to 2014-03-31 | $1.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2013-07-01 to 2014-03-31 | $5.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2014-01-01 to 2014-03-31 | −$3.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2013-07-01 to 2014-03-31 | −$4.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2014-01-01 to 2014-03-31 | $2.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2013-07-01 to 2014-03-31 | $9.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2014-01-01 to 2014-03-31 | −$2.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2013-07-01 to 2014-03-31 | −$4.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2014-01-01 to 2014-03-31 | −$0.15 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2013-07-01 to 2014-03-31 | −$0.21 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2014-01-01 to 2014-03-31 | −$0.15 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2013-07-01 to 2014-03-31 | −$0.21 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2014-01-01 to 2014-03-31 | 19,486,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2013-07-01 to 2014-03-31 | 19,479,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Capital expenditure | 9 months, 2013-07-01 to 2014-03-31 | $305.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2014-03-31 | $4.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2014-03-31 | $7.2m | us-gaap:AssetsCurrent |
| Total assets | at 2014-03-31 | $42.9m | us-gaap:Assets |
| Current liabilities | at 2014-03-31 | $11.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2014-03-31 | $11.6m | us-gaap:Liabilities |
| Long-term debt | at 2014-03-31 | $5.8m | us-gaap:LongTermDebt |
| Current portion of debt | at 2014-03-31 | $5.8m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2014-03-31 | $31.3m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 23,488 characters.

The following information should be read in conjunction with the unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Report, and the Risk Factors included in Part II Item 1A of this Report and Part I, Item 1A of our 2013 Annual Report on Form 10-K.

### Business Overview

Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” “the Company,” “we,” “us” or “our”), a Washington corporation, is a commercial aerospace company that was formed in 1984 to leverage the environment of space for commercial purposes. For nearly 30 years, the Company has remained a crucial player in space commerce activities. We have successfully supported the launch of 23 shuttle missions and more than 300 spacecraft. We have designed, operated and built space hardware and processing facilities. We currently own, operate and maintain world-class spacecraft processing facilities; prepare and process scientific research in microgravity and develop and manufacture sophisticated and cutting edge chemical sensor equipment.

Our efforts are focused on:

- Providing world-class facilities and related support services necessary for the preparation of satellites and payloads.
- Providing satellite and payload processing and integration services and support.
- Designing, fabricating and utilizing equipment and hardware for launch activities.
- Supplying propellant and associated services for spacecraft.
- Managing launch logistics and support.
- Working with development partners to build industry specific applications using our sensor equipment.
- Commercializing unique space-based technologies.

### Our Business Units

### Astrotech Space Operations (“ASO”)

ASO provides support to its government and commercial customers as they successfully process complex communication, earth observation and deep space satellites in preparation for their launch on a variety of launch vehicles. Processing activities include satellite ground transportation; pre-launch hardware integration and testing; satellite encapsulation, fueling and launch pad delivery; and communication linked launch control. Our ASO facilities can accommodate up to five meter class satellites, which includes almost all U.S.-based satellites. ASO’s service capabilities include designing and building spacecraft processing equipment and facilities. In addition, ASO provides propellant services including designing, building and testing propellant service equipment for fueling spacecraft. ASO accounted for 97% and 99% of our consolidated revenues for the three and nine months ended March 31, 2014, respectively. Revenue for our ASO business unit is generated primarily from various fixed-priced contracts with launch service providers in both the government and commercial markets and from the design, fabrication and use of critical space launch equipment. The services and facilities we provide to our customers support the final assembly, checkout and countdown functions required to launch a spacecraft. The revenue and cash flows generated by ASO are primarily driven by the number of spacecraft launches. Other factors that have impacted, and are expected to continue to impact, earnings and cash flows for this business include:

- The continuing limited availability of competing facilities at the major domestic launch sites that can offer comparable services, leading to an increase in government and commercial use of our services.
- Our ability to design and fabricate spacecraft preparation and processing equipment.
- Our ability to control our capital expenditures, which are primarily limited to modifications required to accommodate payload processing for new launch vehicles and upgrading building infrastructure.
- Our ability to complete customer specified facility modifications within budgeted costs and time commitments.
- Uncertainty in government funding and support for key space programs.
- The impact of competition and industry consolidation and our ability to win new contracts.

### Spacetech

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

**1st Detect —** 1st Detect develops, manufactures and sells ultra-small mass spectrometers and related equipment. Mass spectrometers, in general, measure the mass and relative abundance of ions in a sample to create a “mass spectrum”. This resulting mass spectrum is a unique fingerprint for each chemical that can be compared to a reference library of mass spectra to verify the identity of a sample. Mass spectrometers can identify chemicals with more accuracy and precision than competing instruments given their extreme sensitivity and specificity and they are a staple of almost all analytical laboratories. By leveraging technology initiated by an engagement with the National Aeronautics and Space Administration (“NASA”) to develop a mass spectrometer for the International Space Station (“ISS”), the Company has developed a series of instruments that are significantly smaller, lighter, faster and less expensive than competing mass spectrometers, and significantly more sensitive and accurate than other competing chemical detectors. Our efforts have resulted in a technology that can provide mass spectrometry analytics in real-time for explosive device detection in airports and the battlefield, industrial quality and process control, environmental field applications and laboratory research.

The MMS-1000TM is a small, low power mass spectrometer designed initially for the laboratory market at a fraction of the cost of competing mass spectrometers. The unique design of this unit enables mass spectrometric quality chemical analysis in a small (about the size of a shoebox), light and transportable package that operates from less power than a typical light bulb. This allows high quality chemical analysis to be performed in locations where mass spectrometers have not been used before without compromising the quality of the analysis. The OEM-1000 is a mass spectrometer component that is designed to be integrated into an OEM customers’ complementary technology and application. The OEM-1000 has recently been integrated into a Thermogravimetric Analyzer (“TGA”) manufactured by RIGAKU of Tokyo, Japan. The integrated instrument named Thermo iMS2 is the world’s first integrated TGA with MS/MS capabilities and is expected to be well received by the international research and development markets.

**Astrogenetix —** Astrogenetix is a biotechnology company formed to commercialize products processed in the unique environment of microgravity. Astrogenetix pursued an aggressive space access strategy to take advantage of the Space Shuttle program prior to its retirement in 2011. This strategy gave Astrogenetix unprecedented access to research in microgravity, as we flew experiments twelve times over a three year period. In collaboration with NASA, NASA has engaged leading vaccine development experts through a premier educational institution to independently evaluate Astrogenetix’s platform with specific direction to aid in the filing of an Investigational New Drug (“IND”) application for Salmonella. While investment in Astrogenetix has been scaled back considerably until Astrogenetix’s platform is independently verified, the team is also evaluating a vaccine target for Methicillin-Resistant Staphylococcus Aureus (“MRSA”) based on discoveries made in microgravity. In December 2011, we negotiated a Space Act Agreement with NASA for a minimum of twenty eight additional space flights.

### Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP for interim financial statements. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are reviewed periodically. Actual results may differ from these estimates under different assumptions or conditions.

Management believes there have been no significant changes during the period ended March 31, 2014 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2013 Annual Report on Form 10-K.

### Results of Operation

**Quarter ended March 31, 2014 compared to Quarter ended March 31, 2013:**

Selected consolidated financial data for the quarter ended March 31, 2014 and 2013 is as follows (dollars in thousands):

|  | Quarter Ended March 31, 2014 | 2013 |
| --- | ---: | ---: |
| Revenue | $1,556 | $4,565 |
| Cost of revenue | 2,308 | 2,550 |
| **Gross profit (loss)** | **(752)** | **2,015** |
| **Gross margin** | **(48)%** | **44%** |
| Selling, general and administrative | 1,593 | 1,758 |
| Research and development | 645 | 459 |
| **Operating expenses** | **$2,238** | **$2,217** |
| Interest and other expense, net | (61) | (36) |
| Income tax expense | (2) | — |
| **Consolidated net loss** | **$(3,053)** | **$(238)** |
| Less: Net loss attributable to noncontrolling interest | (216) | (125) |
| **Net loss attributable to Astrotech Corporation** | **$(2,837)** | **$(113)** |

***Revenue —*** Total revenue decreased $3.0 million, or 65.9% during the third quarter of fiscal 2014 compared to the third quarter of fiscal 2013 primarily due to decreased mission related service revenue as a result of two fewer missions during the third quarter of fiscal 2014 compared to the third quarter of fiscal 2013.

***Gross Profit (Loss) —*** Gross profit decreased $2.8 million during the third quarter of fiscal 2014 compared to the third quarter of fiscal 2013 primarily due to our decrease in revenue as described above.

***Operating Expenses —*** Our operating expenses increased negligibly during the third quarter of fiscal 2014 compared to the same period in the prior fiscal year. Significant changes to operating expenses included the following:

- Selling, general and administrative expense decreased by $0.2 million and was a result of lower legal expense, lobbying expense, director’s fees, marketing expense and incentive compensation related costs offset by higher consulting and recruiting expense.
- Research and development expense increased by $0.2 million and was a result of the delivery and installation of one 1st Detect unit to a potential customer last year, which was recorded as an offset to research and development expense, increased depreciation expense due to leasehold improvements at 1st Detect, and higher material costs offset by a reduction in legal costs related to patents, as well as lower subcontractor costs.

**Nine months ended March 31, 2014 compared to nine months ended March 31, 2013:**

Selected consolidated financial data for the nine months ended March 31, 2014 and 2013 is as follows (dollars in thousands):

|  | Nine Months Ended March 31, 2014 | 2013 |
| --- | ---: | ---: |
| Revenue | $10,783 | $14,815 |
| Cost of revenue | 8,076 | 10,581 |
| **Gross profit** | **2,707** | **4,234** |
| **Gross margin** | **25%** | **29%** |
| Selling, general and administrative | 5,540 | 5,341 |
| Research and development | 1,801 | 1,494 |
| **Operating expenses** | **$7,341** | **$6,835** |
| Interest and other expense, net | (178) | (121) |
| Income tax expense | (9) | — |
| **Consolidated net loss** | **$(4,821)** | **$(2,722)** |
| Less: Net loss attributable to noncontrolling interest | (681) | (382) |
| **Net loss attributable to Astrotech Corporation** | **$(4,140)** | **$(2,340)** |

***Revenue —*** Total revenue decreased $4.0 million, or 27.2% for the nine months ended March 31, 2014 compared to the nine months ended March 31, 2013 primarily due to lower mission and non-mission specific project related revenue.

***Gross Profit —*** Gross profit decreased $1.5 million, or 36.1% for the nine months ended March 31, 2014 compared to the nine months ended March 31, 2013 primarily due to our decrease in revenue as described above.

***Operating Expenses —*** Our operating expenses increased $0.5 million, or 7.4% during the nine months ended March 31, 2014 compared to the same period in the prior fiscal year. Significant changes to operating expenses included the following:

- Selling, general and administrative expense increased $0.2 million primarily driven by the immediate vesting of stock options awarded under our 2008 and 2011 stock incentive plans when the Company’s stock achieved a closing price of $1.50, higher consulting related costs within our corporate and 1st Detect operations, a severance payment related to the resignation of our former Chief Financial Officer, offset by decreased legal and incentive compensation related costs and lower marketing expense.
- Research and development expense increased $0.3 million as a result of the delivery and installation of three 1st Detect units to potential customers last year, which was recorded as an offset to research and development expense, increased depreciation expense due to leasehold improvements at 1st Detect, offset by lower patent related legal costs and lower material costs.

### Liquidity and Capital Resources

The following table summarizes our cash flows from operating, investing and financing activities (in thousands):

| Net cash flows from: | Nine Months Ended March 31, 2014 | 2013 | change |
| --- | ---: | ---: | ---: |
| Operating activities | $34 | $(968) | $1,002 |
| Investing activities | (305) | (936) | 631 |
| Financing activities | (273) | (239) | (34) |
| **Net increase in cash and cash equivalents** | **$(544)** | **$(2,143)** | **$1,599** |

19

### Cash and Cash Equivalents

At March 31, 2014, we had cash and cash equivalents of $4.6 million and our working capital was approximately $(3.9) million. As of March 31, 2013, we had cash and cash equivalents of $8.0 million and our working capital was approximately $2.8 million. Cash and cash equivalents decrease by approximately $0.5 million during the nine months ended March 31, 2014.

### Operating Activities

Cash provided by operations increased by $1.0 million during the nine months ended March 31, 2014 compared to the nine months ended March 31, 2013. This increase in cash flow was primarily attributable to a decrease in accounts receivable and other liabilities, the timing of payments in accounts payable which was attributable to our GSE work, as well as an increase in deferred revenue.

### Investing Activities

Net cash used in investing activities decreased by $0.6 million during the nine months ended March 31, 2014 compared to the nine months ended March 31, 2013 as a result of decreased investments in leasehold improvement capital expenditures at ASO compared to the prior fiscal year.

### Financing Activities

Net cash used in financing activities increased negligibly due to lower proceeds on the issuance of common stock during the nine months ended March 31, 2014 compared to the nine months ended March 31, 2013.

### Debt

### Credit Facilities

In October 2010, we entered into a financing facility with a commercial bank providing a $7.0 million term loan note and a $3.0 million revolving credit facility. The $7.0 million term loan terminates in October 2015, and the $3.0 million revolving credit facility expired in October 2012. The Company had no outstanding balance on the revolving credit facility. The term loan requires monthly payments of principal plus interest at the rate of prime plus 0.25%, but not less than 4.0%. The bank financing facilities are secured by the assets of ASO, including accounts receivable, and require us to comply with designated covenants. The balance of the $7.0 million term loan at March 31, 2014 and 2013 was $5.8 million and $6.1 million, respectively.

Our bank financing facilities contain certain affirmative and negative covenants with which we must comply, including the maintenance by us of a debt service coverage ratio of not less than 1.00 to 1.00, maintaining a tangible net worth of not less than $32.50 million, and maintaining a leverage ratio of not greater than .50 to 1.00. These financial covenants are applicable to the results of ASO. In the event we are not in compliance with a covenant, the bank may, among other things, accelerate all outstanding borrowings, cease extending credit or foreclose on collateral. As of March 31, 2014, we were not in compliance with the debt service coverage ratio and minimum tangible net worth debt covenants. On May 7, 2014, the Company received a waiver for the existing defaults for the current quarter.

### Debt Covenant Compliance

The Company’s remaining debt repayments are due as follows, not including the effect of debt covenant violations (in thousands):

|  | Fiscal Year 2014(1) | Fiscal Year 2015 | Fiscal Year 2016 | Thereafter |
| --- | ---: | ---: | ---: | ---: |
| Term Note | $98 | $403 | $418 | $4,834 |
| (1) Represents remaining three months in fiscal year 2014. |  |  |  |  |

Our bank financing facilities contain certain affirmative and negative covenants with which we must comply, including the maintenance by us of a debt service coverage ratio of not less than 1.00 to 1.00, maintaining a tangible net worth of not less than $32.50 million, and maintaining a leverage ratio of not greater than .50 to 1.00. These financial covenants are applicable to the results of ASO. In the event we are not in compliance with a covenant, the bank may, among other things, accelerate all outstanding borrowings, cease extending credit or foreclose on collateral.

As of March 31, 2014, we were not in compliance with the debt service coverage ratio and tangible net worth debt covenants.

In October, 2013 we were notified by a customer that a previously booked payload processing contract would be deferred several weeks. Consequently, our financial projections for fiscal year 2014 indicated that we would likely not be in compliance with our debt service coverage ratio and minimum tangible net worth covenants by the third quarter ended March 31, 2014. As such, on October 11, 2013, we amended the debt agreement with our bank that updated the following with respect to our debt covenants: 1) provided a credit of $0.50 million and $2.25 million for the third and fourth quarter of fiscal year 2014, respectively, to our debt service coverage calculation, 2) reduced our minimum tangible net worth requirement to $32.0 million for the third and fourth fiscal quarter of fiscal year 2014, and 3) required that we maintain a minimum cash balance at the bank of $2.0 million through June 30, 2014 and $0.75 million thereafter. In November, 2013 we were subsequently notified by the same customer that this mission would be deferred. As a result of this deferral we did not meet our debt service coverage ratio and minimum tangible net worth covenants in the third quarter of fiscal 2014 and it is probable that we will not be in compliance as of June 30, 2014. As such, we have reclassified our long-term debt to current. We will continue to monitor this matter during the remainder of fiscal year 2014, and if necessary, pursue a debt amendment with our bank.

### Liquidity and Capital Resources

Our future capital requirements will depend on a number of factors, including our success in developing and expanding markets for our products, payments under possible future strategic arrangements, continued progress of our research and development of potential products, the need to acquire licenses to new technology, costs associated with increasing our manufacturing and development facilities, costs associated with strategic acquisitions including integration costs and assumed liabilities, litigation expense, the status of competitive products and potential cost associated with both protecting and defending our intellectual property. In addition, actions taken as a result of the ongoing internal evaluation of our business could result in expenditures not currently contemplated in our estimates for 2014. We believe, however, that our existing cash and cash equivalents are sufficient to fund our operating expenses, capital equipment requirements and other expected liquidity requirements for the coming year. Factors that could affect our capital requirements, in addition to those listed above include continued collections of accounts receivable consistent with our historical experience, uncertainty surrounding mission launch schedules and our ability to manage product development efforts.

We believe we have sufficient liquidity and backlog to fund ongoing operations for at least the next fiscal year. We expect to utilize existing cash and proceeds from operations to grow our core business offering in ASO and to support strategies for Spacetech. However, in the event that the bank accelerates payments on borrowings due to a debt covenant violation, we would have to secure new funding in order to pay off the debt.

### Income Taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. As of March 31, 2014, the Company has established a full valuation allowance against all of its net deferred tax assets.

FASB ASC 740, Income Taxes (FASB ASC 740) addresses the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company has an unrecognized tax benefit of $0.1 million for the three months ended March 31, 2014 and 2013.

For the three and nine months ended March 31, 2014 and 2013, the Company’s effective tax rate differed from the federal statutory rate of 35%, primarily due to recording changes to the valuation allowance placed against its net deferred tax assets.

Loss carryovers are generally subject to modification by tax authorities until 3 years after they have been utilized; as such, the Company is subject to examination for the fiscal years ended 2000 through present for federal purposes and fiscal years ended 2006 through present for state purposes.

The Company’s examination by the Internal Revenue Service (“IRS”) for its fiscal years ended June 30, 2008 through 2010, has been closed with no tax due or refund.

### Off-Balance Sheet Arrangements

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

## Controls and procedures

As filed, 1,608 characters.

### (a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (Exchange Act), which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report. Based on the evaluation and criteria of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

### (b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 3,845 characters.

Other than the substitution of the first following risk factor for the final risk factor in our 2013 Annual Report on Form 10-K and the addition of the second following risk factor, there have been no material changes in the risk factors described in our 2013 Annual Report on Form 10-K.

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

On November 13, 2012, we received written notification from NASDAQ indicating that the minimum bid price of our common stock had fallen below $1.00 for 30 consecutive trading days and that we were therefore not in compliance with NASDAQ Listing Rule 5550(a)(2). On October 30, 2013, we received written notification from NASDAQ that for the previous ten business days, from October 16, 2013 to October 29, 2013, the closing bid price of the Company’s common stock had been at $1.00 per share or greater and the Company has regained compliance with Listing Rule 5550(a)(2). However, we cannot provide any assurance that we will be able to maintain future compliance with this requirement. Any delisting of our common stock from the NASDAQ Capital Market could adversely affect our ability to attract new investors, decrease the liquidity of our outstanding shares of common stock, reduce our flexibility to raise additional capital, reduce the price at which our common stock trades and increase the transaction costs inherent in trading such shares with overall negative effects for our shareholders. In addition, delisting of our common stock could deter broker-dealers from making a market in or otherwise seeking or generating interest in our common stock, and might deter certain institutions and persons from investing in our securities at all. For these reasons, delisting could adversely affect our business, financial condition and results of operations.

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

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

*Our inability to generate sufficient cash flow to pay off or refinance our indebtedness with near-term maturities could have a material adverse effect on our financial condition.*

We cannot assure that our business will generate cash flows from operations or that future borrowings will be available to us in an amount sufficient to pay our maturing indebtedness as it comes due. As a result, we may need to refinance all or a portion of the debt or we may need to secure new financing before maturity. We cannot be sure that we will be able to obtain financing on reasonable terms or at all, particularly given the general economic situation and lending environment we currently face.

Filed May 14, 2014.
Source: SEC EDGAR, the filing index for accession 0001571049-14-001849. Last ingested by Listed: Oct 24, 2026, 15:01 ET. No prices; not investment advice.