Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the financial condition and results of operations of Astra Space, Inc. should be read together with our audited consolidated financial statements as of and for the years ended December 31, 2022 and 2021 and unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2023 and 2022, together with related notes thereto. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those projected in these forward-looking statements as a result of various factors, including those set forth in the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 30, 2023, as updated by factors disclosed in the section titled "Risk Factors" in this Quarterly Report on Form 10-Q ("Quarterly Report"). Certain amounts may not foot due to rounding. Unless the context otherwise requires, all references in this section to “the Company” “Astra,” “us,” “our” or “we” refer to Astra Space, Inc.
A discussion regarding our financial condition and results of operations for the three months ended March 31, 2023 and 2022 is presented below.
Overview
Our mission is to launch a new generation of Launch Services and Space Products to Improve Life on Earth from Space®. These services and products are enabled by new constellations of small satellites in Low Earth Orbit (“LEO”), which have rapidly become smaller, cheaper, and many times more numerous than legacy satellites. Launch vehicles, however, have not evolved in the same way—most rockets remain focused on serving legacy satellites and human spaceflight missions and we aim to provide the world’s first mass-produced orbital launch system. Our primary focus remains the growth and development of our Launch Services and Space Products offerings to support our overall mission to Improve Life on Earth from Space®. We manage our business and report our financial results in two segments: Launch Services and Space Products.
Launch Services
On April 25, 2023, Astra hosted its second annual Spacetech Day at both our Alameda Skyhawk factory and Sunnyvale Oakmead facility where we unveiled Rocket 4.
As part of the development cycle for Rocket 4, we expect to conduct a test launch of this new launch system in the later part of 2023, and, at this time, we do not expect that we will be able to conduct paid commercial launches until 2024 using this new launch system. Our ability to conduct paid commercial launches in 2024 will depend in part upon the success of test launches.
Our new launch system is intended to support launch vehicles that will serve a market focused on populating mega constellations. We have designed this launch system to support more payload capacity, greater reliability, and a more frequent launch cadence, which we believe will allow us to offer our customers more dependable services. We recently announced an agreement with the U.S. Space Force for an order valued at $11.5 million for a launch of an ESPA-class space vehicle and additional cubesats through the Orbital Services Program (OSP-4) contract, which is intended to fly on Rocket 4 when our commercial launch services restart.
Space Products
The Astra Spacecraft EngineTM is a propulsion engine that assists satellites in achieving and maintaining targeted orbits. During our Spacetech Day, on April 25, 2023, we introduced the Spacecraft Propulsion Kit, a new product offering. The Spacecraft Propulsion Kit disaggregates the four subsystems of the Astra Spacecraft EngineTM module, enabling satellite builders to take advantage of shorter lead times to access key components of their propulsion system that they can customize for their unique missions. We announced on April 27, 2023, we had entered into a contract with Apex Technology, Inc. to initially provide 5 Spacecraft Propulsion Kits for Apex's satellite bus platform, to be delivered in 2023.
Segments
Our reportable segments changed during the year ended December 31, 2022. The segment reporting for prior periods was recast to conform to the current period presentation.
We identify our reporting segments based on the organizational units used by management to monitor performance and make operating decisions. The Company previously had one operating, as well as one reportable, segment. Following the realignment of our management and internal reporting in the third quarter of 2022, the Company now has the following two operating and reportable segments: (i) Launch Services and (ii) Space Products. The Company reclassified corresponding assets, including goodwill, and liabilities to the reporting units for all prior year periods.
Refer to Note 11 – Segment Information to our consolidated financial statements for more information regarding our segment reporting.
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Key Components of Results of Operations
We are an early-stage company and our historical results may not be indicative of our future results for reasons that may be difficult to anticipate. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical or future results of operations.
Revenues
We commenced our first paid commercial launch in February 2022, followed by subsequent paid commercial launches in March 2022 and June 2022. These launches represented the start of our paid commercial launch operations. In August 2022, we discontinued the production of launch vehicles supported by our Launch System 1. Therefore, we did not conduct any further commercial launches in late 2022 as we shifted resources to the development of our Launch System 2.
We also commenced delivery of Space Products to our customers during the year ended December 31, 2022. The Company did not record any Space Products revenue for the three months ended March 31, 2023.
As we are in the very early stages of developing our space services offering and have decided to put these development activities on hold for the near future, we do not expect to generate revenues by delivering space services to our customers at this time.
Cost of Revenues
Cost of revenues consist primarily of direct material, direct labor, manufacturing overhead, other personnel-related expenses, which include salaries, bonuses, benefits, stock-based compensation expense, and depreciation expense. Cost of revenues also includes inventory write-downs to reduce the carrying value of inventory related to Launch Services when the carrying value exceeds its estimated net realizable value. We anticipate recording write-downs to our inventory over the foreseeable future as we continue to ramp production of launch vehicles supported by our new launch system. We expect our cost of revenues to increase in future periods as we sell more Launch Services and Space Products. As we grow into our current capacity and execute on cost-reduction initiatives, we expect our gross margins to improve over time.
Operating Expenses
Research and Development ("R&D") Expense
Our R&D expenses consist primarily of internal and external expenses incurred in connection with our research activities and development programs. These expenses include, but are not limited to, development supplies, testing materials, personnel and personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation expense), depreciation expense, amortization of intangible assets, overhead allocation (consisting of various support and facility costs), and consulting fees. R&D costs are expensed as incurred.
We allocate R&D costs by function rather than by project, as a significant majority of our historical R&D spending was related to the initial development and testing of our underlying technology, including preparation for multiple test launches.
A change in the outcome of any of these variables could delay the development of our launch systems and Space Products, which in turn could impact the timing of commercialization of our offerings.
As we are developing and building our Launch Services, we have expensed all R&D costs associated with developing and building our Launch Services offering. We expect that our R&D expenses will increase in the short-term as we invest in improving and further reducing the costs of our launch system.
R&D is and will continue to be an important part of our business as we invest in improving our existing products and services, as well as potentially in developing new products or services. We make choices on where to invest resources into R&D based on our view of the market and how it will evolve, and by identifying those opportunities for new or improved products and services where Astra is well positioned to be successful.
Currently, our Launch Services business is investing in the R&D activities necessary to complete the design, build, and qualification of Launch System 2, which we expect will bring significantly more capability to the market as compared to the prior version of our Launch System.
Our Space Products business is focused on scaling our new production facility, though some R&D activities will continue to further improve the current product, develop and potentially introduce other versions of the Astra Spacecraft EngineTM, and potentially develop and introduce other Space Products to the marketplace.
Prior to January 1,2023, we invested some resources in R&D activities to support a future Space Services business, and we may do so again in the future.
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Sales and Marketing Expense
Sales and marketing expenses consist of personnel and personnel-related expenses (including stock-based compensation expense) for our business development team as well as advertising and marketing expenses. We expect to increase our sales and marketing activities in order to grow our customer base and increase market share in the future.
General and Administrative Expense
General and administrative expenses consist primarily of personnel and personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation expense) for personnel in executive, finance, accounting, corporate development and other administrative functions. General and administrative expenses also include legal fees, professional fees paid for accounting, auditing, consulting, tax, and investor relations services, insurance costs, facility costs not otherwise included in research and development expenses and costs associated with compliance with the rules and regulations of the SEC and the stock exchange.
We manufacture and assemble nearly all of our products in house, and as a result relies on a number of supplier partnerships for components and raw materials for the launch system and spacecraft engine products. We obtain these components in accordance with internal quality and traceability policies to ensure that our products can meet rigorous reliability requirements. Our design team goes to great effort to ensure that our components and assemblies are designed with simple, short lead time and commodity-based supply chains whenever possible. We engage into long term supplier contracts for those components that are critical to function or have a limited supply base in order to protect our ability to scale production. Astra has two manufacturing facilities and two test facilities, totaling over 300,000 square feet where engineering and manufacturing are co-located with their respective products. Each facility is maintained under a long-term lease and is designed with scaled operations in mind. Please refer to Item 2. Properties section for more details. Our headquarters is located in Alameda, CA and is where we conduct rocket and launch vehicle assembly and test, as well as machining and metal forming operations for all products. In 2022, Astra began work on its second factory in Sunnyvale, CA for spacecraft components which is expected to begin operations of producing spacecraft engines in the second quarter of 2023. Additionally, we maintain two primary launch locations with the unique ability to expand and bring up new sites with little infrastructure requirement.
Income Tax (Benefit) Expense
Our income tax provision consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in the tax law. We maintain a valuation allowance against the full value of our U.S. and state net deferred tax assets because we believe the recoverability of the tax assets is not more likely than not.
Other Income (Expense), Net
Other income (expense), net primarily consists of income from government research and development contracts.
Critical Accounting Estimates
Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. Preparation of the financial statements requires our management to make a number of judgments, estimates and assumptions relating to the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our consolidated financial statements. We have made no updates or made additions to our significant accounting policies as described in Note 2 in our 2022 Annual Report.
There were no significant changes in our critical accounting estimates during the three months ended March 31, 2023 compared to those previously disclosed in “Critical Accounting Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2022 Annual Report.
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Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Period over period change |
|
(in thousands, except percentages) |
|
2023 |
|
|
2022 |
|
|
($) |
|
|
(%) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Launch services |
|
$ |
- |
|
|
$ |
3,911 |
|
|
$ |
(3,911 |
) |
|
n.m. |
|
Space products |
|
|
— |
|
|
|
— |
|
|
|
- |
|
|
n.m. |
|
Total revenues |
|
|
- |
|
|
|
3,911 |
|
|
|
(3,911 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Launch services |
|
|
- |
|
|
|
11,014 |
|
|
|
(11,014 |
) |
|
n.m. |
|
Space products |
|
|
- |
|
|
|
— |
|
|
|
- |
|
|
n.m. |
|
Total cost of revenues |
|
|
— |
|
|
|
11,014 |
|
|
|
(11,014 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Launch services |
|
|
- |
|
|
|
(7,103 |
) |
|
|
7,103 |
|
|
n.m. |
|
Space products |
|
|
- |
|
|
|
— |
|
|
|
- |
|
|
n.m. |
|
Total gross profit (loss) |
|
|
- |
|
|
|
(7,103 |
) |
|
|
7,103 |
|
|
|
— |
|
____________
n.m. = not meaningful.
Revenues
No revenues were recognized for the three months ended March 31, 2023. We do not anticipate any revenues related to Launch Services in 2023 as we work to develop and test the next version of our launch system: Rocket 4 (aka Launch System 2). Revenues were $3.9 million for the three months ended March 31, 2022, all of which related to Launch Services. We commenced paid commercial Launch Services during the three months ended March 31, 2022. We did not recognize any revenues in Space Products for the three months ended March 31, 2023.
Cost of Revenues
No cost of revenues were recognized for the three months ended March 31, 2023. During the second half of 2022, we discontinued paid commercial launches in order to focus on developing our Launch System 2. Cost of revenues were $11.0 million for the three months ended March 31, 2022, which was primarily driven by recording of $5.5 million of cost of launch services related to our launches of launch vehicles: LV0008 and LV0009 and a $5.5 million of inventory net realizable value write downs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Period over period change |
|
(in thousands, except percentages) |
|
2023 |
|
|
2022 |
|
|
($) |
|
|
(%) |
|
Gross profit (loss) |
|
$ |
- |
|
|
$ |
(7,103 |
) |
|
$ |
7,103 |
|
|
|
— |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
31,082 |
|
|
|
37,927 |
|
|
|
(6,845 |
) |
|
|
(18 |
) |
Sales and marketing |
|
|
2,484 |
|
|
|
4,764 |
|
|
|
(2,280 |
) |
|
|
(48 |
) |
General and administrative |
|
|
15,682 |
|
|
|
20,986 |
|
|
|
(5,304 |
) |
|
|
(25 |
) |
Loss (Gain) on change in fair value of contingent consideration |
|
|
(2,765 |
) |
|
|
15,500 |
|
|
|
(18,265 |
) |
|
|
(118 |
) |
Total operating expenses |
|
|
46,483 |
|
|
|
79,177 |
|
|
|
(32,694 |
) |
|
|
(41 |
) |
Operating loss |
|
|
(46,483 |
) |
|
|
(86,280 |
) |
|
|
39,797 |
|
|
|
(46 |
) |
Interest income |
|
|
1,330 |
|
|
|
174 |
|
|
|
1,156 |
|
|
|
664 |
|
Other income |
|
|
260 |
|
|
|
393 |
|
|
|
(133 |
) |
|
|
(34 |
) |
Loss before taxes |
|
|
(44,893 |
) |
|
|
(85,713 |
) |
|
|
40,820 |
|
|
|
(48 |
) |
Income tax (benefit) expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
n.m. |
|
Net loss |
|
|
(44,893 |
) |
|
|
(85,713 |
) |
|
|
40,820 |
|
|
|
(48 |
) |
Net loss attributable to common stockholders |
|
$ |
(44,893 |
) |
|
$ |
(85,713 |
) |
|
$ |
40,820 |
|
|
|
(48 |
) |
____________
n.m. = not meaningful.
23
Table of Contents
Research and Development
R&D costs were $31.1 million and $37.9 million for the three months ended March 31, 2023 and 2022, respectively. The $6.8 million decrease mainly reflected a $4.7 million reduction in stock-based compensation expense, $3.6 million decrease in personnel-related costs due to lower headcount in R&D departments and $2.1 million decrease in professional services. The decreased R&D costs were partially offset by a $1.9 million increase in facilities and other expenses and $1.7 million increased R&D materials costs.
Sales and Marketing
Sales and marketing expenses were $2.5 million and $4.8 million for the three months ended March 31, 2023 and 2022, respectively. The $2.3 million decrease mainly reflected a $1.2 million reduction in stock-based compensation expense, $0.4 million decrease in depreciation and amortization, $0.4 million decrease in professional services expense and $0.3 million decrease in personnel-related expenses reflecting decreased headcount.
General and Administrative
General and administrative expenses were $15.7 million and $21.0 million for the three months ended March 31, 2023 and 2022, respectively. The $5.3 million decrease was primarily due to a $5.9 million reduction in stock-based compensation expense, partially offset by a $0.6 million increase in professional services expense.
Gain/(Loss) on Change in Fair Value of Contingent Consideration
Gain on change in fair value of contingent consideration of $2.8 million for the three months ended March 31, 2023, as compared to the loss of $15.5 million on the change in fair value of contingent consideration three months ended March 31, 2022, was primarily due to lower revenues forecasted in estimating the fair value of contingent consideration.
Interest Income
Interest income was $1.3 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively. The $1.2 million increase in interest income was primarily due to an increase in interest earned on investments.
Other Income
Other income was $0.3 million and $0.4 million for the three months ended March 31, 2023 and 2022, respectively. The $0.1 million decrease in other income was primarily due to lower income from government research and development contracts for the three months ended March 31, 2023 as compared to the corresponding prior year period.
Income Tax Expense
We did not incur income tax expense for the three months ended March 31, 2023 and 2022.
Liquidity and Capital Resources
Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase.
We measure liquidity in terms of our ability to fund the cash requirements of our research and development activities and our current business operations, including our capital expenditure needs, contractual obligations and other commitments. Our current liquidity needs relate to our business operations, research and development activities, mainly in connection with the ongoing development of our technology, products and services, lease obligations and capital expenditures, which primarily relate to the development of our manufacturing facilities.
Given our current liquidity position and historical operating losses, we believe there is substantial doubt that we can continue as a going concern. Substantial doubt about an entity’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued.
We have, however, prepared the unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report on a going concern basis, assuming that our financial resources will be sufficient to meet our capital needs over the next twelve months. Accordingly, our financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
As of March 31, 2023, our existing sources of liquidity included cash and cash equivalents of $16.8 million and marketable securities of $45.9 million. We have a limited history of operations and have incurred negative cash flows from operating activities and loss from operations in the past as reflected in the accumulated deficit of $1.9 billion as of March 31, 2023. We expect to continue to incur
24
Table of Contents
operating losses due to the investments we intend to make in our business, including the development of our products and services, although we expect those losses to be offset by revenues recognized through the delivery of our Space Products in 2023. We remain focused on managing cash expenditures, including but not limited to, reducing capital expenditures, consulting services and limiting hiring efforts to key positions within our Space Products business. In addition, we continue to evaluate opportunities to strengthen our financial position, including through the issuance of additional equity securities or by entering into new financing arrangements, as appropriate. We believe that the Company has limited cash resources at the current level to fund commercial scale production and sale of its services and products. However, if we execute on our Space Products deliverables and we are able to obtain additional financing and assuming our plans to manage capital expenditures are effective, we expect that our existing sources of liquidity will be sufficient to fund operating and capital expenditure requirements through at least 12 months from the date of this Quarterly Report, or May 2024 Our current liquidity may not be sufficient to meet the required long-term liquidity needs associated with continued use of cash from operating activities at historical levels, other liquidity needs associated with capital expenditures, as well as other investing needs. We are actively evaluating other sources of liquidity to further support long-term business operations. As of March 31, 2023, the Company is not party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. The cash requirements for the upcoming 12 months relate to our leases and operating and capital purchase commitments.
Committed Equity Purchases
On August 2, 2022, we entered into a $100.0 million Class A common stock purchase agreement with B. Riley to support working capital and other general corporate needs. Under the terms of this agreement, we have the right, without obligation, to sell and issue up to $100.0 million of our Class A common stock over a period of 24 months beginning on September 13, 2022 to B. Riley at the Company’s sole discretion, subject to certain limitations and conditions including that our per share closing price is above the Threshold Price. As of March 31, 2023, no shares have been sold to B. Riley under this agreement. See Note 8 — Stockholders' Equity to the condensed consolidated financial statements included elsewhere in this Quarterly Report for more details.
Summary Statement of Cash Flows for the Three Months Ended March 31, 2023 and 2022
The following table sets forth the primary sources and uses of cash and cash equivalents for the periods presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Period over period change |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
Net cash used in operating activities |
|
$ |
(35,999 |
) |
|
$ |
(48,274 |
) |
|
$ |
12,275 |
|
|
|
(25 |
)% |
Net cash provided by (used in) investing activities |
|
|
18,719 |
|
|
|
(115,683 |
) |
|
|
134,402 |
|
|
|
(116 |
) |
Net cash provided by financing activities |
|
|
441 |
|
|
|
471 |
|
|
|
(30 |
) |
|
|
(6 |
) |
Net decrease in cash and cash equivalents |
|
$ |
(16,839 |
) |
|
$ |
(163,486 |
) |
|
$ |
146,647 |
|
|
|
(90 |
)% |
Cash Flows used in Operating Activities
Our cash flows from operating activities are significantly affected by our cash expenditures to support the growth of our business in areas such as research and development and general and administrative and working capital. Our operating cash inflows include cash from milestone billing under certain Space Products contracts in 2023 and Launch Services contracts in 2022. These cash inflows are offset by our payments to suppliers for production materials and parts used in our manufacturing process as we ramp up our production for space products, payments to our employees and other operating expenses.
For the three months ended March 31, 2023, net cash used in operating activities was $36.0 million. The primary factors affecting the Company’s operating cash flows during the period were a net loss of $44.9 million. This is offset by non-cash charges of $4.4 million including stock-based compensation expense of $5.3 million, depreciation and amortization expense of $1.3 million and non-cash lease expense of $0.9 million, partially offset by a gain on change in fair value of contingent consideration of $2.8 million. Changes in operating working capital items were mainly due to an increase in accounts payable of $7.0 million, partially offset by a decrease in trade accounts receivable of $1.5 million, a decrease in prepaid and other current assets of $1.4 million.
For the three months ended March 31, 2022, net cash used in operating activities was $48.3 million. The primary factors affecting the Company’s operating cash flows during the period were a net loss of $85.7 million. This is offset by non-cash charges including stock-based compensation expense of $17.0 million, loss on change in fair value of contingent consideration of $15.5 million, inventory net realizable value write-downs of $5.5 million, depreciation and amortization expense of $2.8 million, non-cash lease expense of $0.4 million and accretion of marketable securities purchased at premium of $0.1 million. Changes in operating working capital items is mainly due to ramp-up of our production and primarily reflect the increase in inventories of $6.5 million, accounts payable of $0.1 million and other non-current liabilities of $0.5 million. Changes in operating working capital items was partially offset by a decrease in trade accounts receivable of $1.4 million, prepaid and other current assets of $1.0 million, other non-current assets of $0.1 million, lease liabilities of $0.3 million and accrued expenses and other current liabilities of $0.1 million.
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Table of Contents
Cash Flows used in Investing Activities
For the three months ended March 31, 2023, net cash provided by investing activities was $18.7 million, which was comprised mainly of maturities of marketable securities of $23.8 million, partially offset by $5.0 million of purchases of property, plant and equipment related to leasehold improvements at our Sunnyvale manufacturing facility and production equipment at our manufacturing facility and corporate headquarters in Alameda, California.
For the three months ended March 31, 2022, net cash used in investing activities was $115.7 million, which was comprised mainly of purchases of marketable securities of $93.9 million, purchases of property, plant and equipment of $20.9 million mainly related to the construction of our manufacturing facility and acquisition of an indefinite-lived intangible trademark asset of $0.9 million.
Cash Flows from Financing Activities
For the three months ended March 31, 2023, net cash provided by financing activities amounted to $0.4 million and consisted primarily of proceeds from the issuance of shares of Class A common stock under equity plans.
For the three months ended March 31, 2022, net cash provided by financing activities amounted to $0.5 million and consisted primarily of proceeds from employee stock purchase plan of $0.4 million and issuance of stock under equity plans of $0.1 million.
Compliance with the Continued Listing Standards of the Nasdaq Capital Market (“Nasdaq”)
On October 6, 2022, we received a deficiency notice from Nasdaq that we were not in compliance with Rule 5450(a)(1) of the listing requirements (the “Minimum Bid Price Requirement”) because our per share closing bid price has been below $1.00 for thirty consecutive business days. Currently, our Class A common stock trades on the Nasdaq Capital Market. At the time, our Class A common stock traded on the Nasdaq Global Select Market (see below for transition from Nasdaq Global Select Market to Nasdaq Capital Market effective April 12, 2023). Nasdaq’s notice stated that if, at any time before April 4, 2023, the per share closing bid price of Astra’s Class A common stock is at least $1.00 for a minimum of ten consecutive business days, Nasdaq’s staff will provide us written notice that we comply with the Minimum Bid Price Requirement. As of the date of this quarterly report, our per share closing bid price remains below $1.00. While this notice had no immediate effect on the listing of the Company’s Class A common stock, if we are unable to regain compliance with the Minimum Bid Price Requirement or otherwise maintain compliance with the other listing standards for Nasdaq, it could result in the delisting of our Class A common stock from Nasdaq.
On March 13, 2023, we submitted an application to Nasdaq for an additional 180-day period (the “Extended Compliance Period”) to comply with the minimum bid price requirement. On April 10, 2023, the Company received a letter from Nasdaq notifying the Company that, while the Company has not regained compliance with the Minimum Bid Price Requirement, the Staff has determined that Astra is eligible for an additional 180 calendar day period, or until October 2, 2023, to regain compliance. Nasdaq’s determination was based on (i) Astra meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on Nasdaq, with the exception of the Minimum Bid Price Requirement, and (ii) Astra’s written notice to Nasdaq of its intention to cure the deficiency during the Extended Compliance Period. In connection with our request for extension to cure our notice of deficiency, we transferred our Class A Common Stock from the Nasdaq Global Select Market to the Nasdaq Capital Market, effective April 12, 2023. If we are unable to cure the deficiency during the Extended Compliance Period, Nasdaq will give notice that our Class A common stock is subject to delisting and we will be able to appeal that delisting before a Nasdaq hearings panel.
On April 17, 2023, our Board adopted resolutions approving, declaring advisable, and recommending to our stockholders for their approval at our upcoming annual meeting of stockholders on June 8, 2023, a Certificate of Amendment to the Charter (the “Reverse Stock Split Charter Amendment”) to effect a reverse stock split of our issued and outstanding Class A Common Stock and Class B Common Stock (the “Reverse Stock Split”) with a ratio in the range between and including 1-for-5 shares and 1-for-15 shares of each of our Class A Common Stock and Class B Common Stock, such ratio to be determined by our Board in its discretion. If the Reverse Stock Split Charter Amendment is passed by stockholders at the annual meeting, the Board may determine that it is in the best interests of stockholders to effectuate the Reverse Stock Split in order to cure the deficiency.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, who serves as our principal executive officer, and Chief Financial Officer, who serves as our principal financial officer, as appropriate, to allow for timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2023, due to the material weaknesses in our internal control over financial reporting described below.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of our internal control over financial reporting as of March 31, 2023 based on the criteria described in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that our internal control over financial reporting as of March 31, 2023 was not effective due to the material weaknesses identified below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, material weaknesses identified are:
Control Environment
We did not design and maintain an effective control environment to enable the identification and mitigation of risks of material misstatement which contributed to the following material weaknesses:
•We did not design and maintain effective information technology (“IT”) general controls for information technology systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain:
oprogram change management controls to ensure that program and data changes are identified, tested, authorized and implemented appropriately,
ouser access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel,
ocomputer operations controls to ensure that processing and transfer of data, and data backups and recovery are monitored, and
oprogram development controls to ensure that new software development is tested, authorized and implemented appropriately.
•We did not design and maintain effective controls over formalizing certain policies and procedures.
•We did not design and maintain effective controls over business processes related to and including the preparation and recording of journal entries within our accounting systems related thereto.
•We did not design and maintain effective controls over accounting for complex transactions and instruments, including, the inaccurate accounting for Public and Private Placement Warrants and the inaccurate application of conversion accounting related to our convertible instruments.
Risk Assessment
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We did not design and maintain controls over an effective risk assessment, including: (i) identifying, assessing, and communicating appropriate objectives, (ii) identifying and analyzing risks to achieve these objectives, and (iii) identifying and assessing changes in the business that could impact our internal control over financial reporting.
Control Activities
We did not design and maintain effective control activities as the control activities did not adequately (i) address relevant risks, (ii) provide evidence of performance, (iii) provide appropriate segregation of duties, or (iv) operate at a sufficient level of precision.
Information and Communication
We did not design and maintain controls over information and communication relating to communicating accurate information internally and externally, including providing information pursuant to objectives, responsibilities, and functions of internal control.
Monitoring Activities
We did not design and maintain effective monitoring controls to ascertain whether the components of internal control are present and functioning.
These material weaknesses resulted in a restatement to additional paid-in-capital, accumulated deficit and adjustment to redemption value on convertible preferred stock for the quarterly period ended June 30, 2021. These material weaknesses also resulted in audit adjustments and immaterial errors to our accounts and disclosures, as of and for the years ended December 31, 2022 and 2021.
Additionally, these material weaknesses could result in a misstatement of substantially all of our account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Remediation Plan
Our management, including our Chief Executive Officer and Chief Financial Officer, continue to work to design and implement both a short-term and a long-term remediation plan to correct the material weaknesses in our internal control over financial reporting as described below. We are focused on enhancing the design and implementation of effective internal control measures to improve our internal control over financial reporting and remediate these material weaknesses.
To address the material weaknesses, management has completed, or is in the process of:
•Expanding the management and governance over IT system controls including the strengthening of;
oprogram change management controls to ensure that program and data changes are identified, tested, authorized and implemented appropriately and aligned with business and IT requirements,
ouser access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel,
ocomputer operations controls to ensure that processing and transfer of data, and data backups and recovery are monitored, and
oprogram development controls to ensure that new software development is tested, authorized and implemented appropriately.
•We are in the process of formalizing accounting, and other key business process policies and procedures.
•We are implementing and enhancing comprehensive business process controls over the preparation and review of journal entries, including the recent deployment of a new ERP system in the third quarter of 2022, and establishing additional controls to verify transactions are properly classified in the financial statements.
•We are enhancing our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards for complex transactions and instruments as well as the hiring of additional experienced internal resources. We have provided enhanced access to accounting literature, research materials, and documents as well as increased communication with third party consultants and specialists with whom we consult regarding the application of accounting standards over complex transactions and instruments to supplement our internal resources.
•We are in the process of enhancing and have completed some enhancements to our implementation of all of the components of the “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). This includes improvements to our Sarbanes-Oxley program, an overall Company-wide risk assessment process and assessing the effectiveness of control activities to contribute to the mitigation of risks and support achievement of objectives facilitated by Internal Audit. In addition, the Company has completed the assignment of responsibilities, internal and external, associated with the performance of internal controls over financial reporting and will
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continue to monitor the need to hire additional resources, contracting external resources, and continue providing additional training to existing resources as appropriate.
As we continue our evaluation and assess the effectiveness of our internal control over financial reporting going forward, management may modify the actions described above or identify and take additional measures to address control deficiencies. While we prioritize achieving the effectiveness of our internal control over financial reporting and disclosure controls and procedures, until our remediation efforts, including any additional measures management identifies as necessary, are completed, validated and tested over a sustained period, the material weaknesses described above will continue to exist and management will not be able to conclude that they are remediated. We are committed to continuous improvement and will continue to diligently review our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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