Astrotech Corporation — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2019, compared with fiscal 2018. The filing provided is a FY2019 annual report, not a 2017 Q4 filing as indicated in the request metadata.
Business context
Astrotech develops and commercializes technology through subsidiaries. Its main near-term focus is 1st Detect’s TRACER 1000 explosives and narcotics trace detector. Astral Images develops film-restoration software, but investment and activity were curtailed because its market developed more slowly than expected. Agriculture Technology Corporation (AG-TECH), which develops trace detectors for agricultural and hemp/cannabis applications, was announced after year-end.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $127,000 | $86,000 |
| Gross profit / margin | $37,000 / 29% | $50,000 / 58% |
| Operating expenses | $8.454 million | $13.387 million |
| Loss from operations | $8.417 million | $13.337 million |
| Net loss | $7.534 million | $13.251 million |
| Net loss per share | $1.53 | $3.26 |
| Cash used in operating activities | $8.475 million | $10.784 million |
| Cash and cash equivalents at year-end | $1.588 million | $552,000 |
| Working capital | $1.9 million | $3.3 million |
Revenue remained very small relative to operating costs. FY2019 revenue included $87,000 from TRACER 1000 sales and $40,000 from a now-discontinued ColorTime agreement. Gross margin fell as cost of revenue rose to $90,000 from $36,000. Lower SG&A and R&D spending and the absence of FY2018 impairment charges helped reduce the net loss; an $858,000 income tax benefit also reduced the FY2019 loss. The tax note’s reconciliation reports a different tax-benefit figure, so the amount should be checked against the filed statements and notes.
Total assets were $3.692 million and total liabilities were $984,000 at June 30, 2019. The company reported no credit facilities or debt at that date. Cash increased during FY2019, supported by $5.908 million of net stock issuance proceeds and $3.597 million of investing cash inflows, including investment sales and maturities; these inflows offset only part of operating cash use. The company held no investments at year-end.
Material changes and financing
- Operating expenses declined $4.933 million, or 37%, year over year; R&D fell from $6.065 million to $3.578 million and SG&A from $5.629 million to $4.876 million.
- FY2018 included $1.693 million of impairment charges, principally related to Astral assets and a reduction in leased space at 1st Detect; no impairment was recorded in FY2019.
- The company raised approximately $3.0 million in an October 2018 private placement and approximately $2.0 million in an April 2019 private placement. It also received about $1.042 million net from its ATM share offering through June 30, 2019.
- After year-end, the company sold additional ATM shares for $327,891 net proceeds through September 24, 2019, and on September 5, 2019 issued a $1.5 million secured note to CEO and Chairman Thomas B. Pickens III. The note bears 11% interest, matures September 5, 2020, and is secured by company and subsidiary collateral, with subsidiary guarantees.
- Common shares outstanding increased during the year through financing and other issuances. Further equity or equity-linked financing could dilute existing shareholders.
Outlook, risks and unusual items
- Going concern: Management and the independent auditor disclosed substantial doubt about the company’s ability to continue as a going concern, citing recurring losses and operating cash outflows. Management was considering asset or company sales, debt or equity financing, a merger, or a strategic partnership. The financial statements contain no adjustments for the outcome of this uncertainty.
- Commercialization: TRACER 1000 received ECAC certification for passenger and cargo screening and was officially launched in June 2019. TSA testing continued, but the filing gives no assurance of TSA approval. Customer demos and trials had generated interest, but sales remained limited.
- Customer concentration: Two customers accounted for all FY2019 revenue; the mass spectrometer distributor represented 69% and a post-production film company 31%.
- Other business risks: The company’s units are early-stage, have limited revenue, and may require substantial additional funding. Other disclosed risks include product acceptance and regulatory approval, competition, technology development, intellectual-property claims, access to capital, and possible dilution. Astral’s commercial market and revenue prospects were uncertain.
- Lease accounting: Adoption of the new lease standard in FY2020 was expected to add approximately $1.8 million of right-of-use assets and corresponding lease liabilities, without a material effect on operations or total cash flows.
- The company reported no material pending legal proceedings and stated that management considered internal controls over financial reporting effective. The auditor’s opinion was unqualified but included a going-concern explanatory paragraph.
The filing provides no formal financial guidance or quantified revenue outlook.
Important facts for investors to verify
- Near-term cash runway, operating cash burn, and whether additional financing is available on acceptable terms.
- Progress and commercial orders for TRACER 1000, including the outcome of TSA passenger and cargo qualification programs.
- Whether reported revenue growth can become recurring and less concentrated across customers.
- The tax-benefit amount: the financial statements and MD&A report $858,000, while the tax-note reconciliation shows $429,000.
- Terms and collateral details of the post-year-end secured note, and its effect on liquidity and the priority of other claims.
- Potential dilution from preferred-stock conversion, ATM sales, and any future equity or equity-linked financing.