Astrotech Corporation (NASDAQ: ASTC) — Form 10-Q summary
Period clarification: The supplied filing is for the quarter and nine months ended March 31, 2019—not 2017 Q3 as stated in the request. It is an unaudited quarterly report filed May 13, 2019.
Business context
Astrotech is a science and technology commercialization company with two reportable businesses: 1st Detect, which develops trace detectors for explosives and narcotics, and Astral Images, which develops film-restoration software. Management prioritized 1st Detect; Astral’s staffing and spending were minimized because its market had developed more slowly than expected and funding was constrained.
Financial results and liquidity
- Revenue: No revenue in the March 2019 quarter or the comparable 2018 quarter. Revenue for the nine months was $40,000, versus $41,000 a year earlier; 2019 revenue came from a now-discontinued ColorTime agreement.
- Profitability: Third-quarter operating expenses were $2.264 million, down 21% year over year, and net loss was $1.394 million versus $2.855 million. For nine months, operating expenses were $6.694 million, down 27%; net loss was $5.792 million versus $8.998 million. Nine-month gross margin was 73%, compared with 41%, on very small revenue. The quarter had no revenue or gross profit.
- Per-share results: Net loss per share was $0.25 for the quarter and $1.22 for nine months, compared with $0.70 and $2.22, respectively, in the prior-year periods. Weighted-average shares increased to 5.467 million for the quarter and 4.734 million for nine months.
- Tax item: A $858,000 income-tax benefit, associated with refundable alternative minimum tax credits, reduced reported losses. Most deferred tax assets remained subject to a valuation allowance.
- Cash flow: Nine-month operating cash use was $6.550 million, down from $8.641 million. Investing activities provided $3.597 million, mainly from selling or receiving maturities of investments; financing provided $3.925 million, principally from equity issuance. Cash increased by $972,000 over the period.
- Balance sheet and liquidity: At March 31, cash was $1.524 million, working capital was approximately $1.5 million, and total assets were $3.363 million. Investments had been fully liquidated. Total liabilities were $1.002 million; the filing reports no debt balance or interest paid. Cash at June 30, 2018 was $552,000, with $3.551 million of short-term investments.
Material changes and financing
- Operating costs and cash used in operations declined, but cash and investments available at the start of the fiscal year were substantially consumed; working capital fell from approximately $3.3 million at June 30, 2018.
- The October 2018 private placement generated approximately $3.0 million gross; preferred shares issued to the CEO converted to common shares in December. The ATM program generated approximately $998,000 net through March 31, 2019, with a reported weighted-average sale price of $5.11 per share.
- After quarter-end, on April 17, 2019, the company agreed to raise approximately $2.0 million gross through convertible preferred stock issued to the CEO and an accredited investor.
- Common shares outstanding were 5,776,509 as of May 8, 2019. The filing describes potential further equity or debt offerings and other strategic alternatives; these may cause additional dilution.
Outlook, risks and unusual items
- Going concern: Management states that recurring losses and operating cash use raise substantial doubt about the company’s ability to continue as a going concern. Management was pursuing financing, a sale, merger, or strategic partnership; funding might not be available on acceptable terms. Without timely funding, research and development or other business activity may be delayed, reduced, or curtailed.
- 1st Detect: The TRACER 1000 received ECAC certification for passenger and cargo screening in February 2019, enabling international airport-market sales. TSA passenger and cargo qualification programs were still in progress; approval was not assured. The filing reports no product revenue for the quarter.
- Other risks: Product acceptance, certification, competition, development milestones, government funding, and the company’s ability to raise capital are identified risks. No material pending legal proceeding was reported.
- Guidance: The filing provides no numerical revenue, earnings, or cash-flow guidance. Management cautions that nine-month results are not necessarily indicative of full-year results.
Most important facts for investors to verify
- Whether the April 2019 financing closed as agreed, and the preferred shares’ conversion rights and resulting dilution.
- Available cash, operating cash burn, and the timing and terms of any further financing; the filing explicitly identifies substantial going-concern doubt.
- Whether TSA testing results in approval and whether ECAC certification converts into orders, revenue, and collections.
- The sustainability of reported expense reductions and the amount of cash required to continue 1st Detect development and commercialization.
- The realization and timing of AMT tax-credit refunds and the recoverability of deferred tax assets.