Sidus Space, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated financial statements. Sidus provides space-related hardware manufacturing and engineering services and is developing its LizzieSat satellite constellation and Space-as-a-Service offerings.
Financial performance and position
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Revenue | $1.85 million, versus $0.23 million | $3.65 million, versus $0.39 million |
| Gross profit (loss) / margin | $0.35 million / 19%; prior-year loss of $0.06 million / (24%) | $1.33 million / 36%; prior-year loss of $0.19 million / (49%) |
| Operating expenses | $2.75 million, versus $0.42 million | $5.99 million, versus $0.80 million |
| Net loss | $2.46 million, versus $0.50 million | $4.79 million, versus $0.70 million |
| Basic and diluted loss per share | $0.15, versus $0.05 | $0.29, versus $0.07 |
- Revenue increased substantially from the prior-year periods. Management attributed growth to increased sales staff, contract timing and larger contracts subcontracted through a related party. Related-party revenue was $368,000 in Q2 and $807,000 for the first half.
- Management attributed improved gross profit to higher revenue, fewer labor-intensive contracts and growth in the higher-margin Satellite-as-a-Service line. Operating costs grew faster than revenue, reflecting staff expansion, public-company costs, infrastructure investment and a one-time $1.2 million stock-based consulting charge.
- Cash flow: First-half operating cash use was $5.00 million; investing cash use was $0.86 million, primarily for property and equipment; financing cash use was $1.08 million, including related-party debt and lease repayments. Cash fell from $13.71 million at year-end 2021 to $6.77 million at June 30, 2022.
- Liquidity: Current assets were $10.92 million and current liabilities $2.86 million, producing working capital of $8.06 million, down from $12.20 million at December 31, 2021. Accumulated deficit was $20.20 million.
- Debt and leases: The balance sheet reported $1.08 million of non-current notes payable and no related-party notes payable at June 30. Operating lease liabilities totaled $395,538; finance leases were paid off during the first half. The company also reported $549,171 payable to its related-party majority shareholder, Craig Technical Consulting.
Material changes and unusual items
- First-half revenue rose 846% year over year; gross profit improved from a loss to $1.33 million, while net loss widened to $4.79 million as operating expenses increased 646%.
- Craig Technical Consulting forgave $1.62 million of related-party debt and accrued interest, recorded as additional paid-in capital. The company also repaid approximately $798,000 of related-party notes during the first half.
- Sidus issued 300,000 restricted shares for consulting services, valued at $1.21 million. This noncash charge was included in first-half expenses.
- Following quarter-end, Sidus entered into a B. Riley equity purchase agreement allowing it, subject to conditions, to sell up to $30 million of new Class A shares. Sales are at the company’s option; a Nasdaq exchange cap generally limits issuance to 3,373,121 shares absent stockholder approval, subject to stated exceptions. The agreement may provide capital but could dilute shareholders.
Outlook, risks and contingencies
- Management reported that NASA moved the initial LizzieSat launch from Q4 2022 to Q1 2023. Sidus said it expected no impact on production milestones or 2022 revenue, while noting the schedule remains subject to launch-industry, weather and other unforeseen conditions.
- The company expected LizzieSat operations to begin in 2023. It reported active customer discussions and planned payload-hosting and data opportunities, but provided no quantified financial guidance.
- Management cited the need for additional capital and the ability to continue as a going concern among forward-looking risks. The filing reports cash and working capital but does not provide a specific cash-runway estimate or a clear numerical forecast.
- Other stated risks include competition, reliance on suppliers, intellectual-property disputes, staffing and growth execution, and delays or cost overruns in launches, licensing or regulatory approvals, including NOAA licensing.
- Disclosure controls and procedures were deemed ineffective because of a material weakness: insufficient accounting and financial-reporting personnel, limiting segregation of duties and review. Management planned to add qualified staff and continue remediation. Management nevertheless stated that the financial statements fairly presented the periods in accordance with GAAP.
- The filing reported no legal proceedings known to have a material adverse effect and no material changes to previously disclosed risk factors. It reported an annual $120,000 spectrum reservation or license fee under the Aurea Alas agreement.
Investor verification priorities
- Track cash use, customer collections and financing needs against the $6.77 million June 30 cash balance; confirm subsequent cash levels and any equity-facility sales.
- Review the B. Riley agreement’s conditions, share issuance limits, pricing and actual utilization, including potential dilution.
- Monitor LizzieSat launch readiness, regulatory approvals, launch timing, customer payload contracts and conversion of planned services into recurring revenue.
- Assess the sustainability of gross-margin improvement and the extent to which revenue depends on related-party subcontracting.
- Check progress in remediating the material weakness and the effect of staffing and public-company costs on expenses.