# ASTROTECH Corp: Form 10-Q for the period ended Mar 31, 2015

- Company: [ASTROTECH Corp](/companies/astc.md) (CIK 1001907)
- Form: 10-Q
- Filed: 2015-05-11
- Accepted by EDGAR: May 11, 2015, 18:37 ET
- Period: 2015-03-31
- Accession: 0001628280-15-004032
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1001907/000162828015004032/astc10-q3312015.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1001907/000162828015004032/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-01-01 to 2015-03-31 | $12.0k | us-gaap:Revenues |
| Revenue | 9 months, 2014-07-01 to 2015-03-31 | $336.0k | us-gaap:Revenues |
| Cost of revenue | 3 months, 2015-01-01 to 2015-03-31 | $0 | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2014-07-01 to 2015-03-31 | $281.0k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2015-01-01 to 2015-03-31 | $12.0k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2014-07-01 to 2015-03-31 | $55.0k | us-gaap:GrossProfit |
| Research and development | 3 months, 2015-01-01 to 2015-03-31 | $659.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2014-07-01 to 2015-03-31 | $2.3m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2015-01-01 to 2015-03-31 | $1.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2014-07-01 to 2015-03-31 | $5.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2015-01-01 to 2015-03-31 | −$2.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2014-07-01 to 2015-03-31 | −$7.9m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2015-01-01 to 2015-03-31 | −$894.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2014-07-01 to 2015-03-31 | −$3.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-01-01 to 2015-03-31 | −$2.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2014-07-01 to 2015-03-31 | $18.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-01-01 to 2015-03-31 | −$0.11 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 9 months, 2014-07-01 to 2015-03-31 | $0.93 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted shares (weighted) | 3 months, 2015-01-01 to 2015-03-31 | 19,497,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2014-07-01 to 2015-03-31 | 19,561,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2014-07-01 to 2015-03-31 | −$7.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2014-07-01 to 2015-03-31 | $1.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2015-03-31 | $6.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-03-31 | $37.5m | us-gaap:AssetsCurrent |
| Total assets | at 2015-03-31 | $49.5m | us-gaap:Assets |
| Current liabilities | at 2015-03-31 | $2.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2015-03-31 | $3.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2015-03-31 | $46.5m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 32,402 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.*

### Business Overview

Astrotech Corporation (Nasdaq: ASTC) (“Astrotech”, “the Company”, “we”, “us” or “our”), a Washington corporation, is an Austin, TX based technology company that has evolved from over 30 years in the human spaceflight, Space Shuttle, and Department of Defense ("DOD") satellite programs. The Company has become a leader in the commercialization of government sponsored advanced space technologies. We also continuously evaluate potential investment opportunities where we can leverage our significant operating experience to add considerable value.

On August 22, 2014, the Company completed the previously announced sale (“Asset Sale”) of substantially all of its assets used in the Company's former Astrotech Space Operations (“ASO”) business unit (“the ASO business”) to Lockheed Martin Corporation for an agreed upon purchase price of $61.0 million, less a working capital adjustment. As of March 31, 2015, the estimated purchase price is $59.3 million, which included a working capital adjustment of $1.7 million. As of March 31, 2015, the Company has received cash of $53.2 million, and has recorded a receivable of $6.1 million for the indemnity holdback. The indemnity holdback is being held in escrow under the terms of an escrow agreement until February 2016 (the 18-month anniversary of the consummation of the transaction). The Company believes it will fully realize the indemnity holdback in February 2016. Our former ASO business consists of (i) ownership, operation and maintenance of spacecraft processing facilities in Titusville, Florida and Vandenberg Air Force Base, California (“VAFB”); (ii) supporting government and commercial customers processing complex communication, earth observation and deep space satellite launches; (iii) designing and building spacecraft processing equipment and facilities; and (iv) providing propellant services including designing, building and testing propellant service equipment for fueling spacecraft.

With the sale of the Company’s former ASO business, the Company now operates a single reportable business unit, Spacetech, and its efforts are focused on the following:

- Working with development partners to build industry specific applications using our chemical detection mass spectrometry technology;
- Enhancing and extending the capabilities and fields of use of our mass spectrometry technology;
- Enabling the shift from 2K resolution to Ultra-High Definition ("UHD") 4K resolution in the film scanning industry;
- Commercializing unique space and defense related technologies; and
- Developing next generation vaccines using the unique environment of microgravity.

### Spacetech

Spacetech is a technology incubator designed to commercialize space-industry technologies. Spacetech is currently pursuing three distinct opportunities:

### 1st Detect

1st Detect develops, manufactures and sells miniaturized transportable 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 that is 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 at a lower price point. Our efforts have resulted in a technology that has been or will be deployed in the following areas:

- Explosive device detection in airports - our device has at least 100 times the specificity of the current generation of screening devices, meaning fewer false alarms and a higher probability of threat detection. Our solution also has better resolution,

translating into the detection of a broader range of compounds, which allows us to see not only traditional explosives, but also homemade and improvised explosives, an area where the current technology lags.

- Military - our technology is extremely sensitive, so we can detect chemical warfare agents in much lower concentrations than incumbent technologies. The high level of specificity of our instrumentation not only improves detection of traditional threats, but also detects next generation chemical agents not easily detectable by current instrumentation. We expect that our products will be used to verify decontamination of previously contaminated sites and to positively identify a suspect compound following an alarm on a less sophisticated instrument.
- Industrial process control - we are enabling cost effective real-time in situ mass spectrometer analysis for the first time. While competing technologies can alarm when there is an anomaly in a process, our technology can provide production or line managers real-time insights about those deviations to enable quicker decisions.
- Food & beverage - we are also enabling cost effective real-time in situ mass spectrometer analysis for the first time in the food and beverage industry. Not only does our instrumentation provide a full set of information to more thoroughly analyze results when there is a deviation in quality, but we provide objectivity that is not possible with human taste testers.
- Semiconductor - our products can easily detect excursion events. Most incumbent technologies are tuned to actively look for a particular known potential contaminant. Rather than being limited to one or a small set of potential contaminants, our instrument can warn of virtually any potential contaminant, often exposing excursions that would have otherwise gone undetected, making our product a much more robust solution.
- Oil & gas - given the sensitivity and speed of our technology, we can detect smaller leaks in a pipeline sooner than the competition and we can more completely characterize production and potential production.
- Laboratory research - our products are significantly less expensive than the competition and have a minimal footprint, making our products a great solution for entities with limited funding and counter space.
- Petrochemical & refining - our products are able to provide real-time information upon which automated or human decisions may be made regarding product quality, efficiency of production and feedstock performance.

Our product portfolio currently consists of the following products:

- MMS-1000™ - the MMS-1000™ is a small, low power desktop mass spectrometer designed for the laboratory market. The unique design of this unit enables fast, quality chemical analysis and requires minimal benchtop space (about the size of a shoebox), requires less power than a typical light bulb, and unlike traditional instruments, requires no consumables or special infrastructure. It has been particularly well received by the laboratory research marketplace.
- OEM-1000 - the OEM-1000 is a mass spectrometer component that drives the MMS-1000™. It is designed to be integrated into customers specific packaging and enclosures, and is well suited to be integrated with application specific sampling or separation technology. A variant, the OEM-1000PI has recently been integrated into a Thermogravimetric Analyzer (“TGA”) manufactured by RIGAKU Corp. of Tokyo, Japan, one of the leading instrumentation companies in Asia. 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. A further variant of the OEM-1000 has been selected by Battelle, a leading supplier of military chemical detection equipment, for integration into the Next Generation Chemical Detector ("NGCD"), a program under development by the DOD’s Joint Program Executive for Chemical and Biological Defense.
- iONTRAC - the iONTRAC is a process analyzer utilizing the same mass spectrometer technology as the MMS-1000™. The iONTRAC provides near real-time monitoring of industrial processes such as petrochemical processing, food & beverage manufacturing and semiconductor cleanroom environmental monitoring. The instrument is designed to autonomously monitor processes and to provide reports using industry standard factory management system (“FMS”) infrastructure.

### 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 NASA 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. Given that NASA is providing much of the necessary funding for this research, additional investment in Astrogenetix has been scaled back considerably as efforts are concentrated on filing this IND. The team is also evaluating a vaccine target for Methicillin-Resistant Staphylococcus Aureus (“MRSA”) based on early discoveries made in microgravity. We have negotiated a Space Act Agreement with NASA for a minimum of twenty-eight additional space flights following the successful filing of the IND for Salmonella.

### Astral Images

Astral Images, Inc. ("Astral") was created to commercialize identified government funded satellite image correction technologies. During the third quarter of 2015, Astral acquired certain defect correction technologies ("software") from Image Trends, Inc. ("Image Trends") in a transaction pursuant to Section 363 of the U.S. Bankruptcy Code. This acquisition excluded certain assets, including their consulting practice, which was the bulk of their revenue, and existing customer contracts that used acquired software as well as all their liabilities. Image Trends established a gold standard in film defect correction by expanding upon technology first developed by IBM and Kodak, and was the intellectual property of interest in this acquisition. The total cost of the selected assets Astral acquired was $1.6 million, which was predominately for the software. Of the $1.6 million, $165 thousand was contributed by the non-controlling interest owner, which securitized his interest in the software. His $165 thousand later became his non-controlling basis in Astral, and was used as part of the asset purchase agreement with the bankruptcy court. The processes that were critical in producing sales from the software "as is" were not acquired. In conjunction with the asset purchase, we were able to hire several engineers who were critical in the creation of this technology. The engineers will allow the Company to enhance this technology to future opportunities in the digital conversion and repair of feature films and film-based television series industries to the next generation Ultra-High Definition ("UHD") 4K standards.

### Business Developments

#### Sale of Astrotech Space Operations business (“Asset Sale”)

On August 22, 2014, the Company completed the Asset Sale. As of March 31, 2015, the estimated purchase price is $59.3 million, which includes a working capital adjustment of $1.7 million. As of March 31, 2015, the Company has received cash of $53.2 million and has recorded a receivable of $6.1 million for the indemnity holdback. The indemnity holdback is being held in escrow under the terms of an escrow agreement until February 2016 (the 18-month anniversary of the consummation of the transaction). The Company expects to fully realize the indemnity holdback in February 2016. Our former ASO business consists of (i) ownership, operation and maintenance of spacecraft processing facilities in Titusville, Florida and VAFB; (ii) supporting government and commercial customers processing complex communication, earth observation and deep space satellite launches; (iii) designing and building spacecraft processing equipment and facilities; and (iv) providing propellant services including designing, building and testing propellant service equipment for fueling spacecraft.

During the first quarter of fiscal 2015, we recorded a pre-tax gain of $25.6 million ($23.7 million, after tax) on the Asset Sale. All of the operations of our former ASO business, which were previously reported within our former ASO business unit segment, have been reclassified as discontinued operations in our unaudited condensed consolidated financial statements for the quarter ended September 30, 2014, and as of June 30, 2014.

#### Payoff of Term Loan

On August 22, 2014, the Company used a portion of the proceeds from the Asset Sale to pay off the outstanding balance of its term loan of $5.7 million. The Company has no outstanding debt as of March 31, 2015.

#### Payoff of Texas Emerging Technology Fund Award

On August 28, 2014, the Company used a portion of the proceeds from the Asset Sale to settle its funding from the State of Texas Emerging Technology Fund for $2.3 million.

### 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 United States Generally Accepted Accounting Principles (“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.

With the sale of our former ASO business unit, several of our critical accounting policies will no longer be applicable in subsequent fiscal years. Management will update its disclosure of our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2015 Annual Report on Form 10-K.

### Results of Operations

**Quarter ended March 31, 2015 compared to Quarter ended March 31, 2014:**

Selected consolidated financial data for the quarter ended March 31, 2015 and 2014 is as follows (in thousands):

|  | Quarter Ended March 31, 2015 | 2014 |
| --- | ---: | ---: |
| Revenue | $12 | $48 |
| Cost of revenue | — | — |
| **Gross profit** | **12** | **48** |
| **Gross margin** | **—%** | **—%** |
| Selling, general and administrative | 1,681 | 1,432 |
| Research and development | 659 | 645 |
| **Operating expenses** | **2,340** | **2,077** |
| **Loss from operations** | **(2,328)** | **(2,029)** |
| Other income, net | 76 | — |
| Income tax benefit (expense) | 894 | (360) |
| **Loss from continuing operations** | **(1,358)** | **(2,389)** |
| **Discontinued operations** |  |  |
| Loss from operations of former ASO business | — | (1,022) |
| Income tax (expense) benefit | (753) | 358 |
| **Loss from discontinued operations** | **(753)** | **(664)** |
| **Net loss** | (2,111) | **(3,053)** |
| Less: Net loss attributable to noncontrolling interest | (11) | (216) |
| **Net loss attributable to Astrotech Corporation** | **$(2,100)** | **$(2,837)** |

***Revenue –*** Total revenue decreased $36 thousand or, 75%, during the third quarter of fiscal 2015, compared to the third quarter of fiscal 2014. During the third quarter of fiscal 2014, we had revenue associated with a legacy handrail project of $48 thousand, and we had $12 thousand of incentive grant revenue related project that was completed during the third quarter of fiscal 2015.

***Gross Profit –*** Gross profit decreased $36 thousand or, 75%, during the third quarter of fiscal 2015 compared to the third quarter of fiscal 2014 due to our decrease in revenue as described above. Also, cost of revenues remained unchanged during the third quarter of fiscal 2015 at no cost of revenues in both the third quarter of fiscal 2015 and 2014.

***Operating Expenses –*** Our operating expenses increased $263 thousand, or 13%, during the third quarter of fiscal 2015 compared to the same period in the prior fiscal year. Significant changes to operating expenses included the following:

- Selling, general and administrative expense increased by $249 thousand or, 17%, primarily driven by additional headcount during the quarter.
- Research and development expense increased $14 thousand, or 2%, primarily driven by additional headcount during the quarter.

***Income Taxes on Continuing Operations –*** Our income tax benefit increased $1.3 million, or 348%, due to higher losses on continuing operations during the third quarter of fiscal 2015, compared to the same period in the prior fiscal year.

***Discontinued Operations –*** Discontinued operations includes the reclassification of operations of the Company’s former ASO business unit for the three months ended March 31, 2014. The loss from discontinued operations increased $89 thousand during the third quarter of fiscal 2015, compared to the same period in the prior year. Significant changes included the following:

- Operating loss from discontinued operations decreased $1 million as our former ASO business unit’s operating results were only included through August 21, 2014; therefore, there was no income recognition for the three months ending March 31, 2015.
- Cost of revenues from discontinued operations decreased $2 million due to our decreases in operating income as described above.

**Nine months ended March 31, 2015 compared to Nine months ended March 31, 2014:**

Selected consolidated financial data for the nine months ended March 31, 2015 and 2014 is as follows (in thousands):

|  | Nine Months Ended March 31, 2015 | 2014 |
| --- | ---: | ---: |
| Revenue | $336 | $130 |
| Cost of revenue | 281 | — |
| **Gross profit** | **55** | **130** |
| **Gross margin** | **16%** | **—%** |
| Selling, general and administrative | 5,653 | 5,007 |
| Research and development | 2,335 | 1,800 |
| **Operating expenses** | **7,988** | **6,807** |
| **Loss from operations** | **(7,933)** | **(6,677)** |
| Other income | 112 | 9 |
| Income tax benefit | 2,953 | 1,371 |
| **Loss from continuing operations** | **(4,868)** | **(5,297)** |
| **Discontinued operations** |  |  |
| Income from operations of former ASO business | 26,933 | 1,855 |
| Income tax expense | (3,315) | (1,379) |
| **Income from discontinued operations** | **23,618** | **476** |
| **Net income (loss)** | **18,750** | **(4,821)** |
| Less: Net loss attributable to noncontrolling interest | (11) | (681) |
| **Net income (loss) attributable to Astrotech Corporation** | **$18,761** | **$(4,140)** |

***Revenue –*** Total revenue increased $206 thousand, or 158%, for the nine months ended March 31, 2015, compared to the nine months ended March 31, 2014, due to the first phase of a new subcontract agreement with a third party on the NGCD program.

***Gross Profit –*** Gross profit decreased $75 thousand, or 58%, during the nine months ended March 31, 2015 compared to the nine months ended March 31, 2014, due to no cost of revenues being recorded during the nine months ended March 31, 2014.

***Operating Expenses –*** Our operating expenses increased $1.2 million, or 17%, during the nine months ended March 31, 2015, compared to the same period in the prior fiscal year. Significant changes to operating expenses included the following:

- Selling, general and administrative expense increased by $646 thousand, or 13%, primarily driven by transaction-related costs within Corporate operations, most notably an increase in legal expense as well as higher employee-related costs due to additional headcount within the Company.
- Research and development expense increased by $535 thousand, or 30%, primarily driven by additional headcount during the nine months ended March 31, 2015.

***Income Taxes on Continuing Operations –*** Our income tax benefit increased $1.6 million, or 115%, due to higher losses on continuing operations during the nine months ended March 31, 2015, compared to the same period in the prior fiscal year.

***Discontinued Operations –*** Discontinued operations includes the reclassification of operations of the Company’s former ASO business unit for the nine months ended March 31, 2014. Income from discontinued operations increased $23.1 million during the nine months ended March 31, 2015 compared to the same period in the prior year. Significant changes included the following:

- Gain on the Asset Sale of $25.6 million ($23.7 million after-tax) which reflects the excess of the sum of the cash proceeds received over the net book value of the net assets of the Company’s former ASO business unit.
- Operating income from discontinued operations increased by $25.1 million as our former ASO business unit’s operating results were only included through August 21, 2014 in the nine months ended March 31, 2015, compared to the full nine months ended March 31, 2014.
- Income tax expense increased $1.9 million due to the gain on the ASO transaction, offset by net operating loss carryforwards allocated to discontinued operations.

### Liquidity and Capital Resources

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

| Cash flows from continuing operations: | Nine Months Ended March 31, 2015 | 2014 | change |
| --- | ---: | ---: | ---: |
| Net cash used in operating activities | $(4,844) | $(4,040) | $(804) |
| Net cash used in investing activities | (34,956) | (149) | (34,807) |
| Net cash used in financing activities | (2,592) | — | (2,592) |
| Net cash used in continuing operations | (42,392) | (4,189) | (38,203) |
| Cash flows from discontinued operations: |  |  |  |
| Net cash provided by (used in) operating activities | (2,307) | 2,600 | (4,907) |
| Net cash provided by investing activities | 53,189 | 1,335 | 51,854 |
| Net cash used in financing activities | (5,655) | (290) | (5,365) |
| Net cash provided by discontinued operations | 45,227 | 3,645 | 41,582 |
| **Net change in cash and cash equivalents** | **$2,835** | **$(544)** | **$3,379** |

### Cash and Cash Equivalents and Short-Term Investments

As of March 31, 2015, we had cash and cash equivalents and short-term investments of $30.6 million, and our working capital was approximately $34.7 million. As of June 30, 2014, we had cash and cash equivalents and short-term investments of $3.8 million and our working capital was approximately $(4.4) million. Cash and cash equivalents and short-term investments increased by approximately $26.8 million as of March 31, 2015, as compared to June 30, 2014, due to proceeds received from the sale of our former ASO business unit.

### Operating Activities

Net cash used in operating activities from continuing operations increased to $4.8 million for the nine months ended March 31, 2015, compared to $4.0 million for the nine months ended March 31, 2014, which was primarily the result of increased losses and net income tax asset of $244 thousand associated with our net loss in continuing operations.

Net cash used in operating activities from discontinued operations was $2.3 million for the nine months ended March 31, 2015, compared to net cash provided by operating activities from discontinued operations of $2.6 million for the nine months ended March 31, 2014. The change was related to the sale of our former ASO business unit prior to the end of the nine months ended March 31, 2015.

### Investing Activities

Cash used in investing activities from continuing operations for the nine months ended March 31, 2015 increased $34.8 million compared to the nine months ended March 31, 2014. The proceeds from the sale of the ASO business were used to purchase investments.

Cash provided by investing activities from discontinued operations increased to $53.2 million for the nine months ended March 31, 2015, compared to $1.3 million for the nine months ended March 31, 2014, which was due to the sale of our former ASO business.

### Financing Activities

Cash used in financing activities from continuing operations increased $2.6 million for the nine months ended March 31, 2015, compared to the nine months ended March 31, 2014. The increase was due to the payoff of funding from the State of Texas Emerging Technology Fund for $2.3 million. There was also $0.5 million used for shares bought back during this period.

Cash used in financing activities from discontinued operations increased to $5.7 million for the nine months ended March 31, 2015, compared to $0.3 million for the nine months ended March 31, 2014. This increase was related to the payoff of our term loan that was secured by the assets of our former ASO business unit.

### Debt

### Credit Facilities

In October 2010, our former ASO business 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 was to terminate in October 2015, and the $3.0 million revolving credit facility expired in October 2012. On August 22, 2014, the Company used a portion of the proceeds from the sale of its former ASO business to pay off the outstanding balance of its term loan of $5.7 million.

### Liquidity

As of March 31, 2015, we had cash and cash equivalents and short-term investments of $30.6 million and our working capital was approximately $34.7 million, which excludes an indemnity cash holdback receivable of $6.1 million being held in escrow as part of the sale of our ASO business. The indemnity cash holdback may be received no later than February 2016 subject to certain conditions in the asset purchase agreement entered into in connection with the Asset Sale.

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 and 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 2015. 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 and our ability to manage product development efforts.

On August 22, 2014, we completed the Asset Sale. As of March 31, 2015, the estimated purchase price is $59.3 million, which includes a working capital adjustment of $1.7 million. As of March 31, 2015, the Company has received cash of $53.2 million and has recorded a receivables of $6.1 million for the indemnity holdback. The indemnity holdback is being held in escrow under the terms of an escrow agreement until February 2016 (the 18-month anniversary of the consummation of the transaction). A portion of the proceeds from the sale was used to pay off the term loan of $5.7 million and to settle our funding from the State of Texas Emerging Technology Fund for $2.3 million. The remaining funds will fund current operations and support strategies for our remaining business unit, Spacetech.

We believe we have sufficient liquidity to continue to fund our operating expenses, capital requirements and other expected liquidity requirements over the next fiscal year.

### 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, 2015, the Company has established a full valuation allowance against all of its net deferred tax assets to the extent they will not be utilized to offset the gain and income from discontinued operations.

To the extent that a loss from continuing operations can be utilized to offset the income otherwise resulting from discontinued operations, it has been recognized as a tax benefit from continuing operations. To the extent that a loss or credit carryover can be utilized to offset the income from discontinued operations, it has been recognized as a tax benefit from discontinued operations.

During the third quarter, the Company incurred losses from continuing operations in the amount of $2.1 million. As a result, there was a reclassification of approximately $735 thousand of additional benefit to continuing operations and additional expense to discontinued operations as there was less benefit to the discontinued operations for the use of prior year Net Operating Losses ("NOLs"). The total effective tax rate for continuing operations continues to be approximately 38% fiscal year to date.

The disposition of the ASO business resulted in the recognition of a taxable gain of approximately $26.9 million. The Company will utilize losses generated during its current fiscal year ending June 30, 2015, as well as loss carryovers and credits that are unrestricted by IRC Section 382 (which limits the utilization of loss carryovers). As of March 31, 2015, the Company expects that the gain will be offset by losses incurred during the fiscal year in the amount of $8.6 million; the remainder of the gain was offset by prior year NOLs. The Company is currently unable to reasonably estimate the impact of any additional losses that may occur during the remainder of its fiscal year ending June 30, 2015. As of March 31, 2015, the net federal and state tax impact of the disposition gain (net of the losses incurred during the nine months ended March 31, 2015 and the tax attribute carryovers from prior years) is $362 thousand, which is related to the Alternative Minimum Tax ("AMT") incurred in the amount of $337 thousand and current state tax expense of $25 thousand.

For the nine months ended March 31, 2015 and 2014, 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 three years after they have been utilized; as such, the Company is subject to examination for the fiscal years ended 2000 through present for federal purposes and fiscal years ended 2006 through present for state purposes.

### Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2015.

## Controls and procedures

As filed, 1,622 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, as amended (“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, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed May 11, 2015.
Source: SEC EDGAR, the filing index for accession 0001628280-15-004032. Last ingested by Listed: Oct 24, 2026, 15:01 ET. No prices; not investment advice.