Astrotech Corporation (ASTC) — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended March 31, 2020 (fiscal 2020 third quarter), not 2018 Q3 as stated in the request metadata. Amounts below are in U.S. dollars; financial statement amounts are generally shown in millions.
Business context and reporting period
Astrotech develops and commercializes technology through subsidiaries. Its primary focus is mass spectrometry: 1st Detect’s TRACER 1000 explosives trace detector, AgLAB instruments for agriculture, and BreathTech’s developing breath-analysis product. ATI owns and licenses related intellectual property. The company said Astral Images’ market had not developed as expected and it was pursuing strategic options for that business.
The report covers the three and nine months ended March 31, 2020, compared with the corresponding 2019 periods. TRACER 1000 received European ECAC certification in February 2019, and the company announced its first commercial sale in November 2019. U.S. TSA testing was placed on indefinite hold amid COVID-19.
Financial results and liquidity
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue, 2020 / 2019 | $0.118m / $0 | $0.324m / $0.040m |
| Gross profit; gross margin, 2020 | $0.007m; 6% | $0.017m; 5% |
| Operating expenses, 2020 / 2019 | $2.007m / $2.264m | $6.113m / $6.694m |
| Net loss, 2020 / 2019 | $2.068m / $1.394m | $6.219m / $5.792m |
| Net loss per share, 2020 / 2019 | $(0.34) / $(0.25) | $(1.05) / $(1.22) |
| Cash used in operations, 2020 / 2019 | Not presented in the supplied filing text for the quarter alone | $4.956m / $6.550m |
Revenue for the 2020 periods was substantially related to the TRACER 1000 launch; one customer represented substantially all revenue. Quarterly revenue was new compared with zero in the prior-year quarter, but the 6% quarterly gross margin was low. Management attributed low margins to FIFO inventory costs, including materials acquired at R&D volume pricing, and expected material costs to decline with additional orders and scale. Nine-month revenue rose $0.284m, while gross margin fell from 73% to 5%; the 2019 comparison included revenue from Astral’s now-discontinued ColorTime agreement.
Quarterly operating expenses decreased 11%, chiefly from lower R&D spending; nine-month expenses decreased 9%. The quarterly net loss increased year over year, partly because the 2019 quarter included an $0.858m income tax benefit from an AMT credit. Nine-month net loss also increased despite lower operating expenses. The company recorded no income tax benefit in the 2020 periods and maintained a valuation allowance against all net deferred tax assets.
At March 31, 2020, cash and cash equivalents were $4.660m, restricted cash was $0.122m, working capital was approximately $2.0m, and total assets were $7.508m. Current liabilities were $4.146m, including a $2.5m related-party term note; total liabilities were $4.857m and stockholders’ equity was $2.651m. The cash-flow statement reports $8.150m of financing cash inflows, including $5.650m net proceeds from stock issuance and $2.5m of related-party borrowing. No cash interest was reported paid during the nine-month period.
The related-party notes from CEO and Chairman Thomas B. Pickens total $2.5m, bear 11% interest, are secured and guaranteed by subsidiaries, and are due September 5, 2020. The balance sheet classifies the note as current. Operating lease liabilities totaled $0.985m and financing lease liabilities $0.052m at March 31.
Material changes, outlook, risks and unusual items
- Going concern: Management stated that recurring losses and operating cash use raise substantial doubt about the company’s ability to continue as a going concern. It was evaluating further liquidity options, including asset or company sales, licensing, capital raises, debt, mergers, and strategic partnerships; additional funding may not be available on acceptable terms.
- Capital and dilution: The company completed two registered direct offerings in March 2020: 354,000 shares at $5.00 and 873,335 shares at $3.75, with reported net proceeds of approximately $1.6m and $2.9m. The ATM program, which had generated $2.3m net since November 2018, was terminated March 25, 2020. Placement-agent warrants were also issued. Common shares outstanding were 7,575,742 at March 31, 2020.
- Subsequent financing and Nasdaq: On April 14, 2020, the company received a $541,500 PPP loan bearing 1% interest and maturing April 1, 2022. Nasdaq had notified the company it was below the $2.5m minimum equity requirement; it submitted a compliance plan on April 14, and any extension was conditional on Nasdaq accepting the plan.
- COVID-19: The company reported supply-chain disruption delaying AgLAB test systems, slower TRACER 1000 product acceptance, and an indefinite pause in TSA testing. Further effects on customers, collections, certification, operations, and financing remained uncertain. BreathTech’s COVID-19-related product was in development; successful development, approval, and market adoption were not assured.
- Accounting and contingencies: Adoption of lease accounting Topic 842 on July 1, 2019 added about $1.6m of right-of-use assets and lease obligations and increased opening retained earnings by $0.230m; prior periods were not restated. The company reported no material pending legal proceedings and no off-balance-sheet arrangements. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether Astrotech secured adequate financing and addressed the going-concern uncertainty after March 31, including the status and repayment terms of the secured $2.5m related-party debt.
- Whether Nasdaq accepted the compliance plan and whether the company maintained the required stockholders’ equity.
- Subsequent cash burn, operating cash-flow needs, and the effect of the PPP loan and any additional financing or share issuance.
- Whether TRACER 1000 sales, orders, customer acceptance, and TSA certification progress resumed, and whether gross margins improved as management anticipated.
- Whether COVID-19 disrupted supply, customer payments, or product development further, and whether BreathTech and AgLAB achieved meaningful technical, regulatory, or commercial milestones.
- The filing reports $4.5m approximate net proceeds from the two March offerings in its liquidity discussion, while the cash-flow statement reports $5.650m net proceeds from stock issuance for the nine months. Verify the components and reconciliation in the underlying filing and related offering documents.