Business context and reporting period
Astrotech Corporation’s filing covers the quarter and six months ended December 31, 2014 (fiscal 2015 second quarter), not 2013 Q2 as indicated in the request metadata. The filing is a 10-Q, with unaudited interim financial statements. Following its August 22, 2014 sale of substantially all Astrotech Space Operations (ASO) assets to Lockheed Martin, Astrotech operates one reportable business unit, Spacetech. Its activities include developing mass spectrometers through 1st Detect and microgravity-based vaccine research through Astrogenetix.
Financial results and liquidity
Unless otherwise noted, amounts are in millions of dollars; financial statement figures are reported in thousands.
| Metric | Three months ended Dec. 31, 2014 | Six months ended Dec. 31, 2014 |
|---|---|---|
| Revenue | $0.004 | $0.324 |
| Gross profit (margin) | $0 (0%) | $0.043 (13%) |
| Operating expenses | $2.996 | $5.648 |
| Loss from continuing operations | $2.238 | $3.510 |
| Net income (loss) | $(2.422) | $20.861 |
| Net income (loss) per share | $(0.12) | $1.04 |
The six-month net income primarily reflects the $25.6 million pretax gain on the ASO sale ($23.7 million after tax); continuing operations remained loss-making. Six-month operating cash use was $4.2 million from continuing operations and $5.7 million consolidated, including discontinued operations.
At December 31, 2014, cash and cash equivalents were $6.8 million and short-term investments were $35.6 million. Working capital was approximately $41.5 million, excluding the $6.1 million indemnity holdback. Total assets were $50.7 million, total liabilities $2.1 million, and stockholders’ equity $48.6 million. The company reported no debt after repaying the ASO term loan. Management said available liquidity should fund expected needs over the coming fiscal year.
Material changes versus comparable periods
- Quarterly revenue fell to $4,000 from $82,000; the prior-year quarter included legacy handrail work. Six-month revenue rose to $324,000 from $82,000, mainly from the first phase of a new subcontract on the Next Generation Chemical Detector program.
- Quarterly operating expenses increased 26% to $3.0 million, with R&D up $634,000; six-month operating expenses increased 19% to $5.6 million, including higher legal, employee and R&D costs.
- Six-month net results swung from a $1.3 million loss attributable to Astrotech in the prior year to $20.9 million income, largely because of the ASO sale gain. ASO results are presented as discontinued operations.
- Cash and short-term investments were materially higher than at December 31, 2013, primarily due to ASO sale proceeds. Sale proceeds also funded repayment of the $5.7 million term loan and $2.3 million settlement of State of Texas funding.
Outlook, risks, contingencies and unusual items
- The company gave no quantified revenue or earnings guidance. It said existing cash and investments were expected to cover operating expenses, capital equipment and other expected liquidity needs for the coming year; future capital requirements depend on product development, market expansion, strategic arrangements and other factors.
- The ASO sale had an estimated purchase price of $59.3 million after a $1.7 million working-capital adjustment. Astrotech had received $52.6 million cash and recorded a $0.6 million working-capital receivable and a $6.1 million indemnity escrow receivable. The working-capital settlement remained subject to agreement; the indemnity holdback was scheduled for release in February 2016, subject to claims. Management expected full realization, but this remains a collection risk.
- The sale generated an approximately $27.0 million taxable gain. Astrotech expected tax attributes to offset all but $2.2 million; the estimated net federal and state tax impact was $0.5 million. The company maintained a full valuation allowance on deferred tax assets to the extent not usable against discontinued-operation income.
- Key stated risks include ability to commercialize products and secure customers, product demand and competition, government funding, technology and development milestones, access to space, contract timing, and access to sufficient capital.
- A 50,000-share issuance under the 2011 Stock Incentive Plan was unregistered when issued because the required Form S-8 had not been filed. The company later filed the form and warned of possible regulatory penalties and rescission rights. It also reported a $5 million share-repurchase authorization and approximately $148,000 repurchased by December 31, 2014.
- The filing reported no material pending legal proceedings; a Florida foreclosure-related matter was dismissed and closed after a $50,000 payment, less legal fees, and release of liability. Management concluded disclosure controls were effective and reported no material internal-control changes during the quarter.
Important facts for investors to verify
- Confirm the request’s stated period: this filing reports the quarter ended December 31, 2014, not 2013 Q2.
- Track collection and final settlement of the $0.6 million working-capital holdback and $6.1 million indemnity escrow, including any buyer claims.
- Assess Spacetech’s recurring revenue, product commercialization progress and cash burn against the $42.4 million of cash and short-term investments.
- Verify actual tax paid on the ASO gain and the extent to which tax attributes offset the taxable gain.
- Monitor potential consequences of the unregistered share issuance and the use and remaining authorization under the repurchase program.