Astrotech Corporation — Form 10-Q Summary
Period clarification: The supplied filing is for the three months ended September 30, 2018 (Astrotech’s fiscal first quarter of 2019), not 2017 Q1 as indicated in the request metadata. Amounts below are in U.S. dollars; financial statement figures are in thousands unless stated otherwise.
Business context and reporting period
Astrotech is a science and technology development and commercialization company with two reportable businesses: 1st Detect, which develops chemical detection instruments, and Astral Images, which develops film restoration and enhancement software. This is an unaudited quarterly filing. The company says its principal focus is to advance 1st Detect toward testing, certification, and commercial sales; Astral’s spending and headcount were reduced because of funding constraints and slower-than-expected market development.
Financial performance and liquidity
| Metric | Quarter ended Sep. 30, 2018 | Prior-year quarter |
|---|---|---|
| Revenue | $33 | $0 |
| Gross profit / margin | $22 / 67% | $0 |
| Operating expenses | $2,247 | $3,076 |
| Operating loss | $(2,225) | $(3,076) |
| Net loss | $(2,238) | $(3,006) |
| Net loss per share, basic and diluted | $(0.55) | $(0.74) |
| Cash used in operating activities | $(2,247) | $(3,468) |
Quarterly revenue came entirely from Astral’s ColorTime arrangement, under which Astral receives a share of revenue generated using its software and scanner hardware. 1st Detect reported no revenue. SG&A fell 19% and research and development fell 34% year over year, primarily due to lower consulting, lobbying, director, compensation, headcount, and depreciation costs. Interest and other expense was $13, versus $70 of income in the prior-year quarter.
At September 30, 2018, cash and cash equivalents were $1.906 million, working capital was approximately $1.3 million, and total assets were $2.950 million. Current liabilities were $946,000 and total liabilities were $1.123 million. The company reported no investments at quarter-end; it had liquidated its available-for-sale securities, contributing $3.595 million of investing cash inflow. Cash increased $1.354 million during the quarter. The filing does not present a separate borrowings or debt balance.
Material changes, outlook, and risks
- Management states that the fiscal 2018 net loss of $13.3 million, fiscal 2018 operating cash use of $10.8 million, and quarterly net loss and operating cash use of approximately $2.2 million raise substantial doubt about the company’s ability to continue as a going concern.
- After quarter-end, on October 9, 2018, Astrotech raised approximately $3.0 million in a private placement: 866,950 Series B convertible preferred shares and 409,645 common shares, priced at $2.35 per share. The preferred shares convert into common shares upon shareholder approval under the stated Nasdaq rule.
- Management is evaluating further liquidity options, including a sale of the company or part of it, debt or equity financing, a merger, or a strategic partnership. Additional funding may not be available on acceptable terms; without it, the company may have to delay, reduce, or terminate R&D, limit opportunities, or curtail operations. The September 30 financial statements do not reflect adjustments that could result from this uncertainty.
- For 1st Detect, the TRACER 1000 had entered DHS testing and evaluation and was accepted into TSA air-cargo and ECAC evaluation programs. Certification or qualification could support market access, but the filing cautions that none of the milestones or approvals is assured.
- There is no quantified revenue or earnings guidance in the supplied filing. Other stated risks include product demand and acceptance, competition, government funding and procurement, development milestones, and the ability to raise capital. The company reported no material pending legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the October 9 placement closed on the disclosed terms, and whether required shareholder approval for preferred-share conversion is obtained.
- How long the available cash and placement proceeds can fund operations given the quarterly operating cash outflow and going-concern warning.
- Progress, timing, and results of TRACER 1000 testing, certification, and qualification, and whether these lead to orders or recurring revenue.
- Whether Astral’s ColorTime revenue arrangement expands and whether the company’s reduced spending affects its ability to preserve or commercialize Astral’s technology.
- The filing reports 4,095,374 common shares outstanding at September 30, 2018; the cover reports 4,095,375 as of November 7. Investors should verify subsequent share counts and potential dilution from the preferred shares, options, and any future financing.