ASP Isotopes Inc. — Form 10-Q Summary
Business context and reporting period
ASP Isotopes Inc. is a pre-commercial isotope-enrichment company incorporated in September 2021. It is developing Aerodynamic Separation Process technology for enriched Mo-100, intended for medical imaging applications, and U-235, intended for advanced nuclear energy applications. The company is constructing its first Mo-100 enrichment facility in South Africa and relies substantially on Klydon for technology, plant construction, commissioning, regulatory support and personnel.
The filing covers the unaudited three and nine months ended September 30, 2022. The company had no approved products, customers or isotope sales and generated no revenue. The September 2021 comparison represents the period from inception on September 13, 2021 through September 30, 2021 and is not a full comparable quarter.
Financial condition and key metrics
| Metric | Three months ended September 30, 2022 | Nine months ended September 30, 2022 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $745,461 | $1,191,901 |
| General and administrative expense | $1,208,319 | $2,448,091 |
| Total operating expenses | $1,953,780 | $3,639,992 |
| Loss from operations | $(1,953,780) | $(3,639,992) |
| Net loss | $(1,956,230) | $(3,640,988) |
| Net loss per share, basic and diluted | $(0.06) | $(0.13) |
| Net cash used in operating activities | Not separately provided | $(2,077,859) |
| Net cash used in investing activities | Not separately provided | $(3,570,632) |
| Net cash provided by financing activities | Not separately provided | $2,850,549 |
There were no meaningful operating margins because the company had no revenue. Stock-based compensation was $715,410 in the third quarter and $946,958 for the nine-month period, materially reducing the cash component of reported expenses.
At September 30, 2022, cash was $431,565, total current assets were $1,584,112 and total assets were $9,481,238. Construction in progress was $6,891,721, compared with $2,988,210 at December 31, 2021. Total liabilities were $3,163,019, including $33,854 of notes payable, $1,156,253 of accounts payable, $977,539 of accrued expenses and $751,488 of operating lease liabilities. The filing states that the company had no bank debt.
Material changes versus the prior period
- Operating expenses increased substantially from the inception-period comparison, including the commencement of research and development spending and higher corporate and public-company preparation costs.
- Net loss increased to $1.96 million in the third quarter from $508,247 in the inception-period comparison; the nine-month net loss was $3.64 million.
- Cash declined from $2,953,721 at December 31, 2021 to $431,565 at September 30, 2022, driven primarily by operating losses and $3.57 million of construction spending.
- Property and equipment increased to $6.89 million, all classified as construction in progress because the South African plant was not complete or in service.
- The company raised $3,119,560 of gross proceeds through the issuance of 1,559,780 common shares during the first nine months, before issuance costs.
- Shares outstanding increased from 20,652,500 at December 31, 2021 to 30,107,127 at September 30, 2022. The company also had 2,901,000 outstanding options and 2,800,000 unvested restricted shares at quarter-end.
- In July 2022, the company entered into an omnibus, royalty-free Klydon license covering isotopes produced using the ASP technology. It also acquired dormant Silicon-28 plant assets for approximately $354,000, payable under specified conditions.
Guidance, outlook, risks and unusual items
- Management expected Phase 1 of the Klydon turnkey project to be completed during the first quarter of 2023, with approximately nine additional months for Phase 2. The contract has a maximum consideration of $12.8 million, including $6.8 million for the initial proof-of-concept stage and $6.0 million to expand capacity from approximately 5 kg to 20 kg of enriched Mo-100 annually. Approximately $5.972 million had been paid through September 30, 2022.
- Management did not expect Mo-100 to be commercially available until at least 2024 and did not expect U-235 sales for several years, if ever. No revenue or profitability guidance was provided.
- The financial statements disclose substantial doubt about the company’s ability to continue as a going concern. The company reported recurring losses and negative operating cash flow and stated that additional equity, debt or collaboration financing would be required.
- The filing contains inconsistent liquidity language: the notes state that cash at September 30, 2022 plus approximately $3.7 million of IPO proceeds would not fund operations and capital requirements for more than 12 months, while the MD&A states that those resources were expected to fund operations for at least the next 12 months. This should be reconciled with subsequent filings.
- The company completed its IPO in November 2022, selling 1,250,000 shares at $4.00 per share and receiving approximately $3.7 million of net proceeds after underwriting discounts and estimated offering expenses. The underwriters also had an option for 187,500 additional shares.
- On October 25, 2022, NMS asserted that Klydon’s license to the company may conflict with a pre-existing exclusive sublicense to Radfarma. The company believes the claims lack merit, but an adverse outcome could impair or invalidate critical licensed rights and result in litigation, arbitration, damages or operating restrictions.
- The company depends heavily on Klydon and a limited number of suppliers, faces extensive South African and international nuclear, export-control and regulatory requirements, and has not yet demonstrated commercial-scale isotope production.
- The company disclosed a material weakness in internal control over financial reporting related to insufficient finance and accounting personnel and information-technology logical security and privileged access. Disclosure controls and procedures were therefore not effective as of September 30, 2022.
- The company relies primarily on trade secrets and confidentiality arrangements; neither it nor Klydon had filed patent applications protecting the ASP technology as of the filing.
Important facts for investors to verify
- Reconcile the conflicting statements regarding whether cash plus IPO proceeds provides more than 12 months of liquidity.
- Confirm the current cash balance, burn rate, financing completed after the IPO and the timing and terms of any additional capital requirements.
- Track completion, commissioning, regulatory approvals, production testing and total remaining cost of the Klydon Mo-100 plant.
- Assess the status and potential impact of the NMS/Radfarma license dispute and any related claims or proceedings.
- Monitor remediation of the disclosed material weaknesses and whether subsequent filings report effective disclosure and internal controls.
- Review dilution from options, restricted stock, placement-agent shares, the 2022 equity incentive plan and future financing.
- Verify the company’s progress toward regulatory approval, customer adoption and commercial availability, given that it had no sales or approved products at the reporting date.