Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

**(MarkOne)**

 

| x | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|---|------------|----------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended March 31, 2009**

 

**OR**

 

| **o** | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934.** |
|-------|------------|-------------------------------------------------------------------------------------------------|

 

**For the transition period from             to              **

 

**Commission File Number: 0-27206**

 

**AstrotechCorporation**

(Exact name of registrant asspecified in this charter)

 

| **Washington**                     | ** ** | **91-1273737**       |
|------------------------------------|------------|----------------------|
| (State or  other jurisdiction      |       | (I.R.S.  Employer    |
| of  incorporation or organization) |       | Identification  No.) |

 

**907Gemini Street**

**Houston,Texas 77058-2762**

(Addressof principal executive offices and zip code)

 

**(713)558-5000**

(Registrant’stelephone number, including area code)

 

**SPACEHAB, Incorporated**

(Formername, former address and former fiscal year, if changed since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes xNo o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).  Yes x No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definition of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.

 

| Large accelerated filer £                |   | Accelerated filer £    |
|-----------------------------------------------|--------|-----------------------------|
|                                          |   |                        |
| Non-accelerated filer £                  |   | Smaller reporting company x |
| (Do not check if a smaller reporting company) |   |                        |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act.)  Yes o No x

 

As of May 7, 2009 therewere 16,323,968 shares of the registrant’s common stock outstanding.

 

 

** **

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**Table ofContents**

** **

**ASTROTECHCORPORATION AND SUBSIDIARIES**

**MARCH31, 2009 QUARTERLY REPORT ON FORM 10-Q**

** **

**TABLEOF CONTENTS**

** **
| ** **        | ** **                                                                                  | **Page** |
|-------------------|---------------------------------------------------------------------------------------------|----------|
|              |                                                                                        |     |
| DEFINITIONS       | 1                                                                                           |
|              |                                                                                        |     |
| **PART I:**  | **FINANCIAL INFORMATION**                                                                   | 2        |
|              |                                                                                        |     |
| ITEM  1.          | UNAUDITED  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                      | 2        |
|              |                                                                                        |     |
| ITEM 2.           | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 17       |
|              |                                                                                        |     |
| ITEM 3.           | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 | 25       |
|              |                                                                                        |     |
| ITEM 4.           | CONTROLS AND  PROCEDURES                                                                    | 25       |
|              |                                                                                        |     |
| **PART II:** | **OTHER INFORMATION**                                                                       | 26       |
|              |                                                                                        |     |
| ITEM  1.          | LEGAL  PROCEEDINGS                                                                          | 26       |
|              |                                                                                        |     |
| ITEM  1A.         | RISK  FACTORS                                                                               | 26       |
|              |                                                                                        |     |
| ITEM 2.           | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                | 26       |
|              |                                                                                        |     |
| ITEM 3.           | DEFAULTS  UPON SENIOR SECURITIES                                                            | 26       |
|              |                                                                                        |     |
| ITEM 4.           | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                        | 26       |
|              |                                                                                        |     |
| ITEM  6.          | EXHIBITS                                                                                    | 28       |
|                   |                                                                                             |          |  |

 

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# **DEFINITIONS**

# ** **

As used in this Form 10-Q, the abbreviations andacronyms contained herein have the meanings set forth below. Additionally, theterms “Astrotech”, “the Company”, “we”, “us” and “our” refer to AstrotechCorporation and its subsidiaries, unless the context clearly indicatesotherwise.

 
| 1994 Plan    |   | 1994 Stock Incentive Plan                     |
|--------------|--------|-----------------------------------------------|
| 2008 Plan    |   | 2008 Stock Incentive Plan                     |
| Astrium      |   | Astrium GmbH                                  |
| CMC          |   | Cargo Mission Contract                        |
| Common stock |   | Astrotech Corporation common stock            |
| EPS          |   | Earnings Per Share                            |
| ICC          |   | Integrated Cargo Carrier                      |
| ISS          |   | International Space Station                   |
| NASA         |   | National Aeronautics and Space Administration |
| PI&C     |   | Program Integration and Control               |
| SEC          |   | Securities and Exchange Commission            |
| SFAS         |   | Statement of Financial Accounting Standards   |
| VCC          |   | Vertical Cargo Carrier                        |

 

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# **PART I:  FINANCIAL INFORMATION**

# **ITEM1.  UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

# ** **

**ASTROTECHCORPORATION AND SUBSIDIARIES**

**UnauditedCondensed Consolidated Balance Sheets**

(In thousands, except share data)

 
| ** **                                                                                                           | ** ** | **March 31,** | ** ** | **June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                                                                                           | ** ** | **2009**           | ** ** | **2008**          | ** ** |
| **Assets**                                                                                                           |       |               |       |              |       |
| Current assets                                                                                                       |       |               |       |              |       |
| Cash and cash equivalents                                                                                            |       | $                  | 1,250      |              | $          | 2,640 |   |
| Accounts receivable, net                                                                                             |       | 9,402              |       | 3,872             |       |
| Short term note receivable, net                                                                                      |       | 103                |       | 175               |       |
| Prepaid expenses and other current assets                                                                            |       | 513                |       | 464               |       |
| Total current assets                                                                                                 |       | 11,268             |       | 7,151             |       |
| Property and equipment                                                                                               |       |               |       |              |       |
| Flight assets                                                                                                        |       | 49,210             |       | 49,210            |       |
| Capital improvements in progress                                                                                     |       | 275                |       | 76                |       |
| Payload processing facilities                                                                                        |       | 42,600             |       | 42,600            |       |
| Furniture, fixtures, equipment and leasehold improvements                                                            |       | 18,552             |       | 18,244            |       |
|                                                                                                                 |       | 110,637            |       | 110,130           |       |
| Less accumulated depreciation and amortization                                                                       |       | (70,769            | )          | (69,131           | )          |
| Property and equipment, net                                                                                          |       | 39,868             |       | 40,999            |       |
| Restricted cash                                                                                                      |       | 3,224              |       | 8,386             |       |
| Aerospace metals                                                                                                     |       | 466                |       | 482               |       |
| Deferred financing costs, net                                                                                        |       | 99                 |       | 264               |       |
| Long term note receivable, net                                                                                       |       | 699                |       | 717               |       |
| Other assets, net                                                                                                    |       | 232                |       | 212               |       |
| Total assets                                                                                                         |       | $                  | 55,856     |              | $          | 58,211 |   |
| **Liabilities and Stockholders’ Equity**                                                                        |       |               |       |              |       |
| Current liabilities                                                                                                  |       |               |       |              |       |
| Revolving note payable                                                                                               |       | $                  | 550        |              | $          | — |   |
| Term note payable - current                                                                                          |       | 267                |       | 267               |       |
| Accounts payable                                                                                                     |       | 1,443              |       | 1,845             |       |
| Accounts payable- Astrium                                                                                            |       | 297                |       | 754               |       |
| Income tax payable                                                                                                   |       | 556                |       | 463               |       |
| Accrued interest                                                                                                     |       | 166                |       | 83                |       |
| Accrued expenses                                                                                                     |       | 1,853              |       | 2,124             |       |
| Deferred gains on sale of buildings, current portion                                                                 |       | 86                 |       | 86                |       |
| Deferred revenue, current portion                                                                                    |       | 2,745              |       | 1,007             |       |
| Total current liabilities                                                                                            |       | 7,963              |       | 6,629             |       |
| Accrued contract costs and other                                                                                     |       | 57                 |       | 40                |       |
| Advances on construction contract                                                                                    |       | 295                |       | 4,863             |       |
| Deferred gains on sale of buildings, non-current                                                                     |       | 64                 |       | 129               |       |
| Deferred revenue, non-current                                                                                        |       | 1,162              |       | 1,227             |       |
| Term note payable - non current (net of discount)                                                                    |       | 3,382              |       | 3,526             |       |
| Senior convertible subordinated notes payable — 5.5%                                                            |       | 5,111              |       | 6,861             |       |
| Total liabilities                                                                                                    |       | 18,034             |       | 23,275            |       |
| Commitments and contingencies                                                                                        |       |               |       |              |       |
| Stockholders’ equity                                                                                            |       |               |       |              |       |
| Common stock, no par value, 75,000,000 shares authorized 16,323,968 and  14,942,718 shares outstanding, respectively |       | 183,306            |       | 183,306           |       |
| Treasury stock, 311,660 shares at cost                                                                               |       | (237               | )          | (117              | )          |
| Additional paid-in capital                                                                                           |       | 1,595              |       | 691               |       |
| Accumulated deficit                                                                                                  |       | (146,842           | )          | (148,944          | )          |
| Total stockholders’ equity                                                                                      |       | 37,822             |       | 34,936            |       |
| Total liabilities and stockholders’ equity                                                                      |       | $                  | 55,856     |              | $          | 58,211 |   |

 

See accompanying notes to unaudited condensedconsolidated financial statements.

 

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** **

**ASTROTECHCORPORATION AND SUBSIDIARIES**

**UnauditedCondensed Consolidated Statements of Operations**

(In thousands, except per share data)

 
| ** **                                           | ** ** | **Three Months**         | ** ** | **Nine Months**          | ** ** |
|------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                                           | ** ** | **Ended March 31,** | ** ** | **Ended March 31,** | ** ** |
| ** **                                           | ** ** | **2009**                 | ** ** | **2008**                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Revenue                                              |       | $                        | 11,849     |                     | $          | 6,588 |   | $ | 21,608 |   | $ | 19,494 |   |
| Costs of revenue                                     |       | 4,825                    |       | 4,158                    |       | 11,593 |   | 15,050 |   |
| Gross profit                                         |       | 7,024                    |       | 2,430                    |       | 10,015 |   | 4,444 |   |
| Operating  expenses:                                 |       |                     |       |                     |       |   |   |   |   |
| Selling, general  and administrative                 |       | 2,671                    |       | 2,311                    |       | 6,520 |   | 6,324 |   |
| Research and  development                            |       | 553                      |       | 593                      |       | 1,636 |   | 1,355 |   |
| Total operating  expenses                            |       | 3,224                    |       | 2,904                    |       | 8,156 |   | 7,679 |   |
| Income (loss)  from operations                       |       | 3,800                    |       | (474                     | )          | 1,859 |   | (3,235 | ) |
| Interest expense                                     |       | (167                     | )          | (119                     | )          | (577 | ) | (1,232 | ) |
| Debt conversion  expense                             |       | —                   |       | (3                       | )          | — |   | (30,194 | ) |
| Gain on notes  repurchased                           |       | —                   |       | —                   |       | 665 |   | — |   |
| Interest and  other income, net                      |       | 62                       |       | 112                      |       | 248 |   | 478 |   |
| Income (loss)  before income taxes                   |       | 3,695                    |       | (484                     | )          | 2,195 |   | (34,183 | ) |
| Income tax  (expense) benefit                        |       | (93                      | )          | (350                     | )          | (93 | ) | (350 | ) |
| Net income  (loss)                                   |       | $                        | 3,602      |                     | $          | (834 | ) | $ | 2,102 |   | $ | (34,533 | ) |
|                                                 |       |                     |       |                     |       |   |   |   |   |
| Net income  (loss) per share, basic                  |       | $                        | 0.22       |                     | $          | (0.06 | ) | $ | 0.13 |   | $ | (4.48 | ) |
| Weighted average  common shares outstanding, basic   |       | 16,547                   |       | 13,645                   |       | 16,444 |   | 7,702 |   |
|                                                 |       |                     |       |                     |       |   |   |   |   |
| Net income  (loss) per share, diluted                |       | $                        | 0.21       |                     | $          | (0.06 | ) | $ | 0.12 |   | $ | (4.92 | ) |
| Weighted average  common shares outstanding, diluted |       | 17,316                   |       | 13,645                   |       | 16,867 |   | 7,702 |   |

 

See accompanying notes to unaudited condensed consolidated financialstatements.

 

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**ASTROTECHCORPORATION AND SUBSIDIARIES**

**UnauditedCondensed Consolidated Statements of Cash Flows**

**(Inthousands)**

 
| ** **                                                                                           | ** ** | **Nine Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                           | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| **Cash  flows from operating activities**                                                            |       |                                  |       |   |   |
| Net income  (loss)                                                                                   |       | $                                     | 2,104      |   | $ | (34,533 | ) |
| Adjustments to  reconcile net income (loss) to net cash (used in) provided by operating  activities: |       |                                  |       |   |   |
| Non-cash debt  conversion expense                                                                    |       | —                                |       | 30,194 |   |
| Gain on note  repurchase                                                                             |       | (665                                  | )          | — |   |
| Stock-based  compensation                                                                            |       | 251                                   |       | 212 |   |
| Common stock  paid for services                                                                      |       | —                                |       | 168 |   |
| Depreciation and  amortization                                                                       |       | 1,687                                 |       | 2,162 |   |
| Amortization of  deferred financing cost                                                             |       | 103                                   |       | — |   |
| Recognition of  deferred gain                                                                        |       | (65                                   | )          | (166 | ) |
| Loss on asset  sales                                                                                 |       | (11                                   | )          | — |   |
| Changes in  assets and liabilities:                                                                  |       |                                  |       |   |   |
| (Increase)  decrease in restricted cash                                                              |       | 5,162                                 |       | (229 | ) |
| (Increase) in  accounts receivable                                                                   |       | (5,440                                | )          | (2,798 | ) |
| (Increase) in  prepaid expenses and other current assets                                             |       | 69                                    |       | (671 | ) |
| Decrease in  aerospace metals                                                                        |       | 16                                    |       | — |   |
| Decrease in  other assets                                                                            |       | (27                                   | )          | 317 |   |
| Increase  (decrease) in deferred revenue                                                             |       | 1,673                                 |       | (510 | ) |
| (Decrease) in  accounts payable, accounts payable-Astrium, accrued interest, and accrued  expenses   |       | (286                                  | )          | (1,668 | ) |
| (Decrease) in  customer deposits                                                                     |       | —                                |       | (3,106 | ) |
| (Decrease) in  accrued subcontracting services and other                                             |       | —                                |       | (3,612 | ) |
| Increase  (decrease) in advance on construction contract                                             |       | (4,568                                | )          | 5,646 |   |
| (Decrease) in  long-term accrued contract costs and other liabilities                                |       | —                                |       | (96 | ) |
| Net cash  provided by (used in) operating activities                                                 |       | 3                                     |       | (8,690 | ) |
| **Cash  flows from investing activities**                                                            |       |                                  |       |   |   |
| Purchases of  property, equipment and leasehold improvements, net of reimbursements                  |       | (538                                  | )          | (108 | ) |
| Net cash (used  in) provided by investing activities                                                 |       | (538                                  | )          | (108 | ) |
| **Cash  flows from financing activities**                                                            |       |                                  |       |   |   |
| Proceeds  received from revolving credit facility, net of prepayments                                |       | 550                                   |       | — |   |
| Payment of term  note payable                                                                        |       | (200                                  | )          | 3,978 |   |
| Payment and  repurchase of junior notes not participating in exchange                                |       | (1,085                                | )          | (2,867 | ) |
| Repurchase of  treasury stock                                                                        |       | (120                                  | )          | — |   |
| Net cash (used  in) provided by financing activities                                                 |       | (855                                  | )          | 1,111 |   |
| Net change in  cash and cash equivalents                                                             |       | (1,390                                | )          | (7,687 | ) |
| Cash and cash  equivalents at beginning of period                                                    |       | 2,640                                 |       | 9,724 |   |
| Cash and cash  equivalents at end of period                                                          |       | $                                     | 1,250      |   | $ | 2,037 |   |
|                                                                                                 |       |                                  |       |   |   |
| Non-cash  financing activities:                                                                      |       |                                  |       |   |   |
| Issuance of  common stock for bonds                                                                  |       | $                                     | —     |   | $ | 83,031 |   |
| Issuance of  common stock for preferred stock                                                        |       | $                                     | —     |   | $ | 11,892 |   |
| Deemed dividend  related to induced conversion of preferred shares                                   |       | $                                     | —     |   | $ | 3,344 |   |
| Cash paid for  interest                                                                              |       | $                                     | 388        |   | $ | 340 |   |
| Cash paid for  income taxes                                                                          |       | $                                     | —     |   | $ | — |   |

 

See accompanying notes to unaudited condensedconsolidated financial statements.

 

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**ASTROTECH CORPORATION ANDSUBSIDIARIES**

**Notes to Unaudited CondensedConsolidated Financial Statements**

 

### **1.  Descriptionof the Company and Operating Environment**

### ** **

Astrotech Corporation (“Astrotech”) formerly SPACEHAB,Incorporated is a provider of governmental and commercial spacecraft pre-launchprocessing facilities and services, a provider of manned and unmanned payloadprocessing services, and an entrepreneurial force in space commerce providingaccess to, and utilization of, the unique environment of space. In February 2009,recognizing the mandated end of the U.S. space shuttle program, we changed ourname from SPACEHAB, Incorporated to Astrotech Corporation to better reflect ourheritage and brand recognition in providing pre-launch processing facilitiesand services.

 

Historically, a substantial portion of our revenue hasbeen generated under contracts with NASA, which were subject to periodicfunding allocations by the agency. NASA’s funding is dependent on receivingannual appropriations from the U.S. Government. During the quarters ended March31, 2009 and 2008 approximately 57% and 9% of our revenues were generated underNASA contracts, respectively.

 

Our Astrotech Ground Operations Business Unit providescommercial spacecraft launch processing services and payload processingfacilities in the U.S. These services are offered at the Astrotech facilitiesin Titusville, Florida and Vandenberg Air Force Base in California.Additionally, Astrotech supplies payload processing and facilities maintenancesupport services to Sea Launch Company, LLC for its Sea Launch program at theHome Port facilities in Long Beach, California. Our facilities and services areprovided on a fixed price per launch basis.

 

Our Astrotech Engineering Services Business Unitmanages projects in need of comprehensive engineering solutions, and providesunique capabilities such as specialty engineering, hardware design anddevelopment, and configuration and data management. We continuously review andseek new business opportunities with aerospace and defense contractors, NASA,the Department of Defense, and other governmental agencies, either throughprime contracts or teaming with other aerospace companies on new contract bidinitiatives.

 

We continue to offer spacecraft payload processingfacilities and services including our SPACEHAB Payload Processing Facilityadjacent to Cape Canaveral Air Force Base in Florida through our AstrotechSpace Operations Business Unit, formerly SPACEHAB Flight Services. In April 2009(see Subsequent Event Note 18). we contracted with RSC Energia of the RussianFederation to provide pre-launch services to the Russian MRM1 module which isscheduled to be joined with the ISS in 2010.

 

Through our SPACETECH, Inc. and Astrogenetix (formerlyBioSpace) subsidiaries, we are developing commercial applications for spacebased technologies. SPACETECH is an incubator envisioned to commercializespace-industry technologies into real-world applications to be sold toconsumers and industry. SPACETECH also designs and fabricates space flighthardware. The 1st Detect mini-mass spectrometer and the AirWardhazardous cargo containers, both developed by Astrotech engineers, are being positionedfor entry into the commercial marketplace. Astrogenetix is commercializing theuse of microgravity platforms, such as the Space Shuttle and the ISS, for thedevelopment of space-made products that are to be sold on earth. Astrogenetixhas successfully processed vaccine samples in space on Space Shuttle FlightsSTS-118, STS-123, and STS-124, which have resulted in preliminary salmonellavaccine production data.

 

### **Liquidity**

### ** **

As of March 31, 2009, we had cash and restrictedcash-on-hand of $4.5 million and our working capital was approximately $3.3million. Restricted cash, which consists of advance payments on a governmentcontract to modify certain spacecraft processing facilities and restricteddeposits relating to bank covenants, totaled $3.2 million at March 31, 2009. Wecarry a liability of $0.3 million for obligations under this constructioncontract.

 

In February 2008 (see Note 5), we consummated afinancing facility with a commercial bank. This facility provides for a threeyear $4.0 million term loan, payable in monthly installments of principal inthe amount of $22,222 plus interest and a $2.0 million revolving creditfacility. The term loan is secured by the assets of our Astrotech SpaceOperations, Inc. subsidiary and the one-year revolving credit facility issecured by Astrotech’s accounts receivable. As of March 31, 2009, $3.6 millionwas outstanding on this note. In February 2009, we renewed the revolving creditfacility until February 6, 2010. As of March 31, 2009, $0.6 million was outstandingunder the revolving credit facility.

 

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We believe we have sufficient liquidity and backlog tofund ongoing operations for at least the next fiscal year and expect to utilizeexisting cash and proceeds from operations to support strategies for newbusiness initiatives.

 

### **2.  Basis ofPresentation**

### ** **

In the opinion of management, the accompanyingunaudited condensed consolidated financial statements reflect all adjustments,consisting of only normal recurring accruals necessary, for a fair presentationof the consolidated financial position of Astrotech Corporation and itssubsidiaries as of March 31, 2009, and the results of its operations and cashflows for the periods ended March 31, 2009 and 2008. However, the unauditedcondensed consolidated financial statements do not include all related footnotedisclosures.

 

The consolidated results of operations for the ninemonth period ended March 31, 2009, are not necessarily indicative of theresults that may be expected for the full year. Our results of operationstypically fluctuate significantly from quarter to quarter. The interimunaudited condensed consolidated financial statements should be read inconjunction with our audited consolidated financial statements appearing in ourAnnual Report on Form 10-K for the fiscal year ended June 30, 2008.

 

Certain prior year amounts have been reclassified toconform to the current year presentation.

 

### **3.  Net Income(Loss) per Share**

### ** **

Basic net income (loss)per share is computed on the basis of the weighted average number of shares ofcommon stock outstanding during the period. Diluted net income (loss) per share is computed on the basis of theweighted average number of shares of common stock plus the effect of dilutivepotential common shares outstanding during the period using the treasury stockmethod and the if-converted method.  Dilutivepotential common shares include outstanding stock options, convertible debt,and shared-based awards. A reconciliation and the components of basic anddiluted net income (loss) per share are as follows (in thousands, except pershare data):

 
| ** **                                                                                                                              | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                              | ** ** | **2009**                          | ** ** | **2008**                         | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Numerator:**                                                                                                                          |       |                              |       |                             |       |   |   |   |   |
| Net income  (loss), basic                                                                                                               |       | $                                 | 3,602      |                             | $          | (834 | ) | $ | 2,102 |   | $ | (34,533 | ) |
| Dilutive  convertible debt                                                                                                              |       | 55                                |       | —                           |       | — |   | — |   |
| Dilutive share  based payments                                                                                                          |       | 3                                 |       | —                           |       | 1 |   | — |   |
| Dilutive deemed  dividend on preferred shares                                                                                           |       | —                            |       | —                           |       | — |   | (3,344 | ) |
| Net income  (loss), diluted                                                                                                             |       | $                                 | 3,660      |                             | $          | (834 | ) | $ | 2,103 |   | $ | (37,877 | ) |
| **Denominator:**                                                                                                                        |       |                              |       |                             |       |   |   |   |   |
| Denominator for  basic net income (loss) per share - weighted average common stock outstanding                                          |       | 16,547                            |       | 13,645                           |       | 16,444 |   | 7,702 |   |
| Dilutive common  stock equivalents - convertible notes payable                                                                          |       | 341                               |       | —                           |       | — |   | — |   |
| Dilutive common  stock equivalents - common stock options and share-based awards                                                        |       | 428                               |       | —                           |       | 423 |   | — |   |
| Denominator for  diluted net income (loss) per share - weighted average common stock  outstanding and dilutive common stock equivalents |       | 17,316                            |       | 13,645                           |       | 16,867 |   | 7,702 |   |
|                                                                                                                                    |       |                              |       |                             |       |   |   |   |   |
| Basic net income  (loss) per share                                                                                                      |       | $                                 | 0.22       |                             | $          | (0.06 | ) | $ | 0.13 |   | $ | (4.48 | ) |
| Diluted net  income (loss) per share                                                                                                    |       | $                                 | 0.21       |                             | $          | (0.06 | ) | $ | 0.12 |   | $ | (4.92 | ) |

 

The Senior Convertible Subordinated Notes Payableoutstanding as of March 31, 2009 and March 31, 2008, which are convertible into340,904 and 459,133 shares of common stock, respectively, at $15.00 per share,have not been included in the computation of diluted net income (loss) pershare for the three months ended March 31, 2008 and the nine months ended March31, 2009 and March 31, 2008, as the impact to net income (loss) per share isanti-dilutive.

 

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Certain share-based awards including 150,000 shares ofrestricted stock (see Note 9), were excluded from the computation of net income(loss) per share for the three months ended March 31, 2009 and the nine monthsended March 31, 2009 and March 31, 2008, as the impact to net income (loss) pershare is anti-dilutive.

 

Options to purchase 1,217,891 and 1,182,891 shares ofcommon stock at exercise prices ranging from $0.30 to $51.25 per share outstandingfor the three and nine months ended March 31, 2009, respectively, were notincluded in diluted net income per share, as the impact to net income per shareis anti-dilutive. Also at March 31, 2008, options to purchase 89,500 shares ofcommon stock at exercise prices ranging from $0.25 to $51.25 per share wereoutstanding, but were not included in the computation of diluted net income(loss) per share as their effect would be anti-dilutive for the three and ninemonths then ended.

 

### **4.  RevenueRecognition**

### ** **

Our business units’ revenue is derived primarily fromcontracts with the U.S. Government, U.S. Government contractors, and commercialcustomers. Revenue under these contracts is recognized using the methodsdescribed below. Estimating future costs and, therefore, revenues and profitsis a process requiring management judgment. Management bases its estimate onhistorical experience and on various assumptions that are believed to bereasonable under the circumstances. Costs to complete include, when appropriate,material, labor, subcontracting costs, lease costs, commissions, insurance, anddepreciation. Our business segment personnel perform periodic contract statusand performance reviews. In the event of a change in total estimated contractcost or profit, the cumulative effect of such change is recorded in the periodthat the change in estimate occurs.

 

We, from time to time, make expenditures for specificenhancements and/or additions to our facilities as required by certaincontracts where the customer agrees to reimburse us for all or substantiallyall of such expenditures. We account for such reimbursements as a reduction inthe cost of such investments and recognize any excess of such reimbursementsover the required investment as revenue.

 

**A Summary of Revenue Recognition Methods Follows:**

 
| **Business Segment**            | ** ** | **Services/Products  Provided**                                                  | ** ** | **Contract Type**                                      | ** ** | **Method of Revenue  Recognition**                                                                 | ** ** |
|---------------------------------|------------|----------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|
| Astrotech Ground  Operations    |       | Payload Processing  Facilities                                                   |       | Firm Fixed Price —  Mission Specific              |       | Ratably, over the occupancy  period of a satellite within the facility from arrival through launch |       |
|                            |       |                                                                             |       |                                                   |       |                                                                                               |       |
|                            |       |                                                                             |       |                                                   |       | Fixed Fee payable per  launch                                                                      |       |
|                            |       |                                                                             |       |                                                   |       |                                                                                               |       |
|                            |       |                                                                             |       | Sea Launch Facility  Management Contract               |       |                                                                                               |       |
|                            |       |                                                                             |       | Firm Fixed Price —  Guaranteed Number of Missions |       | For multi-year contract  payments recognized ratably over the contract period                      |       |
|                            |       |                                                                             |       |                                                   |       |                                                                                               |       |
| Astrotech Engineering  Services |       | Configuration  Management, Engineering Services                                  |       | Cost Plus Award/Fixed  Fee                             |       | Earned as reimbursable  costs incurred plus award/fixed fee                                        |       |
|                            |       |                                                                             |       |                                                   |       |                                                                                               |       |
| Astrotech Space  Operations     |       | Commercial Space  Habitat Modules, Integration & Operations Support Services |       | Firm Fixed Price                                       |       | Percentage-of-completion  based on costs incurred                                                  |       |

 

Revenue for Astrotech Ground Operations recognizedunder a building modification contract with a government agency (see Note 12)is being accounted for under the percentage-of-completion method based on costsincurred over the period of the agreement.

 

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### **Table ofContents**

 

### **5.  Long TermDebt**

### ** **

### **Credit Facilities**

### ** **

On February 6, 2008, we entered into a financingfacility with a bank providing a $4.0 million term loan terminating February 2011and a $2.0 million revolving credit facility terminating in February 2009. Theterm loan requires monthly payments of principal totaling $22,222, plusinterest at the rate of prime plus 1.75% and the revolving credit facilityincurs interest at the rate of prime plus 1.75%. Funds available under therevolving credit facility are limited to 80% of eligible accounts receivable.Effective February 6, 2009, we renewed the $2.0 million revolving creditfacility for an additional one-year period expiring February 2010. The renewalchanged the interest rate to the bank’s prime rate plus 0.75% (5.0% at March 31,2009). On February 14, 2009, we further amended the facility to change the nameof SPACEHAB, Incorporated to Astrotech Corporation. The bank financingfacilities are secured by the assets of our Astrotech Space Operations, Inc.subsidiary’s Florida facilities and other covenants including a minimumtangible net worth covenant, a cash flow coverage covenant, a debt servicecoverage ratio, and a ratio of total liabilities to tangible net worthcovenant. In addition, the covenants require us to restrict a $0.6 milliondeposit account balance. The balance of the $4.0 million term loan at March 31,2009, was $3.6 million. As of March 31, 2009, $0.6 million was outstanding onthe $2.0 million revolving credit facility and no amounts were outstanding on June30, 2008.

 

### **Senior Convertible Subordinated Notes Payable**

### ** **

The Company’s 5.5% Senior Convertible Notes payablemature on October 15, 2010 and pay interest on April 15 and October 15annually. On October 31, 2008, the Company repurchased $1,750,000 principalamount of its Senior Convertible Notes (see Note 14).

 

### **6.  Fair Valueof Financial Instruments**

### ** **

In general, fair values utilize quoted prices(unadjusted) in active markets for identical assets or liabilities. Thefollowing table presents the carrying amounts and estimated fair values ofcertain of the Company’s financial instruments as of March 31, 2009 and June 30,2008 in accordance with SFAS No. 107, *Disclosuresabout Fair Value of Financial Instruments* (in thousands):

 
| ** **                                   | ** ** | **March 31, 2009** | ** ** | **June 30, 2008** | ** ** |
|----------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                   | ** ** | **Carrying**       | ** ** | **Fair**          | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **                                   | ** ** | **Amount**         | ** ** | **Value**         | ** ** | **Amount** | ** ** | **Value** | ** ** |
|                                         |       |               |       |              |       |   |   |   |   |
| Term Loan Payable                            |       | $                  | 3,649      |              | $          | 3,649 |   | $ | 3,793 |   | $ | 3,793 |   |
|                                         |       |               |       |              |       |   |   |   |   |
| Senior Convertible Notes Payable — 5.5% |       | $                  | 5,111      |              | $          | 3,169 |   | $ | 6,861 |   | $ | 3,775 |   |

 

The fair value of our long term debt is based onquoted market prices, or is estimated based on the current rates offered to usfor debt of similar remaining maturities and other terms. The carrying amountsof cash and cash equivalents, investments, accounts receivable, accountspayable, and accrued expenses approximate their fair market value because ofthe relatively short duration of these instruments.

 

### **7.  Business andCredit Risk Concentration**

### ** **

Historically, a substantial portion of our revenue hasbeen generated under contracts with NASA, which were subject to period fundingallocations by the agency. NASA’s funding is dependent on receiving annualappropriations from the U.S. Government. During the nine month periods ended March31, 2009 and 2008, approximately 57% and 61%, respectively, of our revenueswere generated under U.S. Government contracts. Of the accounts receivablebalance as of March 31, 2009, totaling $9.4 million, 60% of the balance isattributed to three customers. For June 30, 2008, the $3.9 million ofreceivables was comprised of $3.0 million or 77% from the same three customers.

 

We maintain our cash primarily with major U.S.domestic banks and other financial institutions. The amounts held in interest bearingaccounts periodically exceed the insured limit of $250,000 ($100,000 at June 30,2008) and exceeded that balance as of March 31, 2009 by $1.4 million and at June30, 2008 by $6.3 million. The terms of other deposits are on demand and aresubject to guarantees in full by the FDIC under the Transaction AccountGuarantee Program.

 

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In addition, on March, 31, 2009, we held an investmentaccount of $1.6 million, which is included as part of restricted cash, with afinancial institution other than a bank. These funds are invested in moneymarket funds. We have not incurred losses related to these deposits.

 

### **8.  SegmentInformation**

### ** **

Based on our organization, weoperate in four business segments: Astrotech Ground Operations, AstrotechEngineering Services, Astrotech Space Operations and SPACETECH. AstrotechGround Operations provides payload processing facilities and services to servethe spacecraft manufacturing and launch services industry. Our GroundOperations business segment encompasses our Titusville, Florida, Vandenberg AirForce Base, and Sea Launch services and facilities. Astrotech EngineeringServices is primarily engaged in providing engineering services and products tothe Government, including NASA. Astrotech Space Operations provides spaceflight assets and integration and operations support services for NASA, foreignspace agencies, and commercial customers. Through SPACETECH, the Company istransforming space-based technologies for use on earth. Included in SPACETECHare the Company’s new microgravity processing initiatives operated throughAstrogenetix, our AirWard, Inc. containers, and 1st Detect,Inc’s. mini-mass spectrometer, as well as our heritage hardware design andfabrication, developed in support of commercial customers.

 

Our chief operating decisionmaker utilizes both revenue and income (loss) before income taxes in assessingperformance and making overall operating decisions and resource allocations.

 

Three Months Ended March 31, 2009 (in thousands):

 
| ** **           | ** ** | ** **  | ** **   | ** **              | ** ** | **Net**    | ** ** | **Depreciation** | ** ** |
|----------------------|------------|-------------|--------------|-------------------------|------------|------------|------------|------------------|------------|
| ** **           | ** ** | ** **  | ** **   | **Income (Loss)**       | ** ** | **Fixed**  | ** ** | **And**          | ** ** |
| ** **           | ** ** | **Revenue** | ** **   | **before income taxes** | ** ** | **Assets** | ** ** | **Amortization** | ** ** |
| Ground Operations    |       | $           | 11,604       |                    | $          | 6,706      |       | $                | 39,485     |   | $ | 520 |   |
| Engineering Services |       | 107         |         | 2                       |       | —     |       | —           |       |
| Space Operations     |       | —      |         | (500                    | )          | 242        |       | 5                |       |
| SPACETECH            |       | 138         |         | (308                    | )          | —     |       | —           |       |
| Corporate and Other  |       | —      |         | (2,205                  | )          | 141        |       | 33               |       |
|                 |       | $           |  11,849 |                    | $          | 3,695      |       | $                | 39,868     |   | $ | 558 |   |

 

Three Months Ended March 31, 2008(in thousands):

 
| ** **           | ** ** | ** **  | ** **  | ** **              | ** ** | **Net**    | ** ** | **Depreciation** | ** ** |
|----------------------|------------|-------------|-------------|-------------------------|------------|------------|------------|------------------|------------|
| ** **           | ** ** | ** **  | ** **  | **Income (Loss)**       | ** ** | **Fixed**  | ** ** | **And**          | ** ** |
| ** **           | ** ** | **Revenue** | ** **  | **before income taxes** | ** ** | **Assets** | ** ** | **Amortization** | ** ** |
| Ground Operations    |       | $           | 4,975       |                    | $          | 1,856      |       | $                | 41,276     |   | $ | 537 |   |
| Engineering Services |       | 1,453       |        | (74                     | )          | —     |       | —           |       |
| Space Operations     |       | 160         |        | (297                    | )          | 269        |       | 21               |       |
| SPACETECH            |       | —      |        | (451                    | )          | —     |       | —           |       |
| Corporate and Other  |       | —      |        | (1,518                  | )          | 463        |       | 41               |       |
|                 |       | $           |  6,588 |                    | $          | (484       | )          | $                | 42,008     |   | $ | 599 |   |

 

Nine Months Ended March 31, 2009(in thousands):

 
| ** **           | ** ** | ** **  | ** **   | ** **              | ** ** | **Net**    | ** ** | **Depreciation** | ** ** |
|----------------------|------------|-------------|--------------|-------------------------|------------|------------|------------|------------------|------------|
| ** **           | ** ** | ** **  | ** **   | **Income (Loss)**       | ** ** | **Fixed**  | ** ** | **And**          | ** ** |
| ** **           | ** ** | **Revenue** | ** **   | **before income taxes** | ** ** | **Assets** | ** ** | **Amortization** | ** ** |
| Ground Operations    |       | $           | 21,003       |                    | $          | 9,671      |       | $                | 39,485     |   | $ | 1,567 |   |
| Engineering Services |       | 273         |         | (14                     | )          | —     |       | —           |       |
| Space Operations     |       | —      |         | (1,642                  | )          | 242        |       | 20               |       |
| SPACETECH            |       | 332         |         | (1,090                  | )          | —     |       | —           |       |
| Corporate and Other  |       | —      |         | (4,730                  | )          | 141        |       | 100              |       |
|                 |       | $           |  21,608 |                    | $          | 2,195      |       | $                | 39,868     |   | $ | 1,687 |   |

 

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Nine Months Ended March 31, 2008(in thousands):

 
| ** **           | ** ** | ** **  | ** **   | ** **              | ** ** | **Net**    | ** ** | **Depreciation** | ** ** |
|----------------------|------------|-------------|--------------|-------------------------|------------|------------|------------|------------------|------------|
| ** **           | ** ** | ** **  | ** **   | **Income (Loss)**       | ** ** | **Fixed**  | ** ** | **And**          | ** ** |
| ** **           | ** ** | **Revenue** | ** **   | **before income taxes** | ** ** | **Assets** | ** ** | **Amortization** | ** ** |
| Ground Operations    |       | $           | 11,125       |                    | $          | 3,509      |       | $                | 41,276     |   | $ | 1,600 |   |
| Engineering Services |       | 4,128       |         | 240                     |       | —     |       | —           |       |
| Space Operations     |       | 4,241       |         | (1,369                  | )          | 269        |       | 448              |       |
| SPACETECH            |       | —      |         | (451                    | )          | —     |       | —           |       |
| Corporate and Other  |       | —      |         | (36,112                 | )          | 463        |       | 114              |       |
|                 |       | $           |  19,494 |                    | $          | (34,183    | )          | $                | 42,008     |   | $ | 2,162 |   |

### ** **

### **9.  Common StockOptions, Stock Purchase Plans and Other Long Term Incentive Plans**

### ** **

We grant options to employees and directors utilizingthree shareholder-approved plans and issued Company stock under an EmployeeStock Purchase Plan. Stock options and other equity awards are granted at thesole discretion of the Compensation Committee of the Board of Directors. Thenumber and price of the options granted are specifically defined by theCompensation Committee at the time of each award. Such options typically vestincrementally over a period of four years and generally expire within ten yearsof the date of grant. In July 2008, the Compensation Committee made a specialgrant of stock options to most employees of the Company. These options have atwo-year term and vested in full on January 15, 2009. Equity awards are valuedat the closing bid price for the Company’s stock on the day of grant. As of March31, 2009, there were 2,598,713 shares available for future grant under theCompany’s shareholder approved plans.

 

### **The 1994 Stock Incentive Plan**

### ** **

Under the terms of the 1994 Plan, the number and priceof the options granted to employees is determined by the Board of Directors andsuch options vest, in most cases, incrementally over a period of four years andexpire no more than ten years after the date of grant. The total number ofshares that are available under this plan is 395,000. As of March 31, 2009,there are 242,769 available for grant.

 

### **The Directors’ Stock Option Plan**

### ** **

Prior to suspension of the Directors’ Stock OptionPlan in January 2008, each new non-employee director received a one-time grantof an option to purchase 1,000 shares of common stock at an exercise priceequal to the fair market value on the date of grant. In addition, effective asof the date of each annual meeting of our stockholders, each non-employeedirector who was elected or continued as a member of the Board of Directors ofthe Company was awarded an option to purchase 500 shares of common stock.Options under the Director’s Plan vest after one year and expire seven yearsfrom the date of grant. The total number of options that are available underthis plan is 50,000. As of March 31, 2009, there are 23,500 available forgrant.

 

### **1997 Employee Stock Purchase Plan**

### ** **

We adopted an employee stock purchase plan thatpermits eligible employees to purchase shares of common stock of the Company atprices no less than 85% of the current market price. Eligible employees mayelect to participate in the plan by authorizing payroll deductions from 1% to10% of gross compensation for each payroll period. On the last day of eachquarter, each participant’s contribution account is used to purchase themaximum number of whole and fractional shares of common stock determined bydividing the contribution account’s balance by the lesser of 85% of the priceof a share of common stock on the first day of the quarter or the last day of aquarter. The number of shares of common stock that may be purchased under theplan is 150,000. Through March 31, 2009, employees have purchased 148,265shares under this plan. During the fourth quarter of fiscal year 2007, wesuspended purchases under this plan. The shares purchased under this plan areconsidered compensatory for accounting and reporting purposes.

 

### **2008 Stock Incentive Plan**

### ** **

On March 27, 2008, the stockholders of the Companyapproved the 2008 Stock Incentive Plan. The purpose of the 2008 Plan is tofoster and promote the long-term financial success of the Company, and toincrease shareholder value by attracting, motivating, and retaining keyemployees, consultants, and directors and providing such participants in the2008 Plan with a program for obtaining an ownership interest in the Companythat links and aligns their personal 

 

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interests with the Company’s stockholders. The 2008Plan authorizes grants of stock compensation, restricted stock, stock options,performance units, and other equity based performance awards. The total numberof shares that are available under the 2008 Plan is 5,500,000. During the ninemonths ended March 31, 2009, 1,169,291 options net of cancellations weregranted to employees. As of March 31, 2009, there were 2,330,709 sharesavailable for future grant.

 

### **Other Stock Based Incentive Awards**

### ** **

·                  Specialperformance shares — We issued 62,200 performance shares on December 21, 2007,that were to vest on January 15, 2009, subject to certain events or upondesignation by the Compensation Committee. The Compensation Committee hassubsequently determined that the requirements for vesting were not met as of January15, 2009. The Company has therefore terminated the outstanding performanceshares and reflected a recovery of $13,637 previously expensed costs.

·                  2007performance shares — We issued 239,900 performance shares on December 21, 2007,that vest on February 15, 2011 subject to certain events or upon designation bythe Compensation Committee. Termination of employment for any cause is an eventof forfeiture. We valued the 2007 performance shares granted at the close ofbusiness on the date of grant, and recognize expense and accrue an incentivecompensation liability, pro rata over the vesting period. 158,500 shares weresubsequently forfeited and the stock price decreased from $2.05 to $0.43 which allowedfor an expense in the amount of $4,510 for the three months ended March 31,2009.

·                  Restrictedstock grants — On March 27, 2008 the Board of Directors granted 25,000 sharesof restricted stock to each non-employee director of the Company. On February 10,2009, the Board of Directors granted 25,000 shares of restricted stock to anewly elected director and terminated 25,000 shares of unvested restrictedstock held by a director who left the Board of Directors prior to the vestingdate. The Restricted Stock vests annually over a period of four years andunvested shares are forfeited if the director leaves the Board of Directorsprior to the vesting date. On July 18, 2008, the Board of Directors granted atotal of 400,000 shares of restricted stock to its named executive officers.The restricted stock vests 50% on January 15, 2009, 25% on January 15, 2010,and 25% on January 15, 2011. In the three months ended March 31, 2009, werecognized compensation and director fee expense of $32,135 for restricted stockgrants.

·                  Other equityawards — On July 18, 2008, the Board of Directors granted an award of 1,100,000shares of unrestricted common stock to Mr. Thomas B. Pickens, III, the Company’sChief Executive Officer, 200,000 shares of unrestricted common stock to Mr. BarryA. Williamson, then a director, and 150,000 shares of unrestricted common stockto Mr. Mark E. Adams, a director. Such grants of unrestricted common stock weremade from the 2008 Plan and compensation expense of $1,002,500 was recognizedin fiscal year 2008.

 

### **Cash Based Long Term Incentive Awards**

### ** **

In December 2007 the Compensation Committee of theBoard of Directors adopted and implemented a Long Term Cash Incentive plan. Theplan makes cash incentive awards to employees based on the successfulcompletion of certain events and passage of time as established by theCommittee. These units vest on February 15, 2011 and are subject to materialrisk of forfeiture. The Committee has granted such awards to employees valuedat $344,900. As of March 31, 2009, the Company had a remaining commitment forsuch awards of $129,400. We have accrued $58,507 towards this futurecommitment.

 

### **Accounting for Stock Issued to Employees**

### ** **

The fair value of each option award is estimated onthe date of grant using the Black Scholes option pricing model, whichdetermines inputs as shown in the following table.

 
| ** **                      | ** ** | **Grants made in three  months ended** | ** ** |
|---------------------------------|------------|----------------------------------------|------------|
| ** **                      | ** ** | **March 31, 2009**                     | ** ** | **March 31, 2008*** | ** ** |
| Expected Dividend Yield         |       | 0                                      |       | N/A |   |
| Expected Volatility             |       | 115%                                   |       | N/A |   |
| Risk Free Interest Rates        |       | 2.23-2.48%                             |       | N/A |   |
| Expected Option Life (in years) |       | 6.25                                   |       | N/A |   |

 

----

*No options wereissued for the period ended March 31, 2008

 

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The assumptions are asfollows:

 

·                  We estimatedvolatility using our historical share price performance over the last tenyears. Management considered the guidance in SFAS No. 123R and believes thehistorical estimated volatility is materially indicative of expectations aboutexpected future volatility.

·                  We use thesimplified method outlined in the Securities and Exchange Commission (“SEC”)Staff Accounting Bulletin No. 107 to estimate expected lives for optionsgranted.

·                  The risk-freeinterest rate is based on the U.S. Treasury yield curve in effect at the timeof grant for the expected term of the option.

·                  The expecteddividend yield is based on our current dividend yield and the best estimate ofprojected dividend yield for future periods within the expected life of theoption, which is zero.

 

A summary of our stockoption activity as of March 31, 2009, and changes during the first nine monthsof fiscal year 2009 are presented in the following table:

 
| ** **                     | ** ** | **Shares Under  Fixed Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|--------------------------------|------------|---------------------------------|------------|----------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at  June 30, 2008  |       | 85,400                          |       | $                                      | 26.475     |                                                | 3.65       |                            | $          | — |   |
| Granted                        |       | 1,266,708                       |       | $                                      | 0.412      |                                                | 6.31       |                            | $          | — |   |
| Exercised                      |       | —                          |       | $                                      | —     |                                                | —     |                            | $          | — |   |
| Forfeited/Expired              |       | (103,917                        | )          | $                                      | 1.338      |                                                | —     |                            | $          | — |   |
| Outstanding at  March 31, 2009 |       | 1,247,891                       |       | $                                      | 2.116      |                                                | 5.38       |                            | $          | — |   |
| Exercisable                    |       | 723,291                         |       | $                                      | 3.305      |                                                | 2.91       |                            | $          | — |   |

 

The weighted-average grant-date fair value of optionsgranted during the first nine months of fiscal year 2009 was $0.25 per share.The intrinsic value for stock options is defined as the difference between thecurrent market value ($0.43 per share as of March 31, 2009) and the grantprice. There were no options exercised during the first nine months of fiscalyear 2009. As of March 31, 2009, there was $195,248 of unamortized expense,including external forfeitures, related to our stock option plans.

 

### **Director Compensation**

### ** **

On February 10, 2009, the Board of Directors grantedannual restricted stock, stock options, and cash compensation to the directorsof the Company. Compensation was granted in accordance with the directorcompensation program adopted by the Board of Directors at its 2007 annualmeeting held on March 27, 2008 and confirmed at its 2008 annual meeting held onFebruary 10, 2009.

 

Company non-employee directors, other than theChairman of the Audit Committee, Chairman of the Compensation Committee, andChairman of the Corporate Governance and Nominating Committee, receive anannual stipend of $30,000 paid upon the annual election of each non-employeedirector or upon joining the Board of Directors. The Chairman of the AuditCommittee receives an annual stipend of $40,000 and the Chairman of theCompensation Committee and Chairman of the Corporate Governance and Nominating Committeereceives an annual stipend of $35,000, recognizing the additional duties andresponsibilities of those roles. In addition, each non-employee directorreceives a meeting fee of $3,000 for each meeting of the Board of Directorsattended in person and $1,000 for each such meeting attended by conference calland $500 for each committee meeting attended, except that members of the AuditCommittee are compensated at $750 per meeting. All directors are reimbursedordinary and reasonable expenses incurred in exercising their responsibilitiesin accordance the Company’s Travel and Entertainment Expense Reimbursementpolicy applicable to all employees of the Company.

 

Under provisions adopted by the Board of Directors,each non-employee director receives 25,000 shares of restricted common stockissued upon his or her first election to the Board of Directors and an optionto purchase an additional 20,000 shares of common stock upon each annualre-election to the Board of Directors. Stock options granted under the plan arepriced at the closing market price of the Company’s stock on the day of grant.Restricted stock and stock options granted under the plan vest 25% annually,beginning after 1 year, and expire in 10 years.

 

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The 25,000 shares of restricted stock and the 80,000options to purchase stock granted to directors on February 10, 2009, werevalued based on $0.32 per share, the closing bid price of the Company’s stockon February 10, 2009. The equity grants were made from the Company’s 2008Stock Incentive Plan. Total director compensation expense of $30,016 will berecognized over the vesting periods of grants.

 

### **10.  Related PartyTransactions**

### ** **

We engaged in certain transactions with directors andexecutive officers during the nine months ended March 31, 2009. Followingis a description of these transactions:

 

### **Astrium GmbH**

### ** **

Dr. Graul, a member of the Company’s Board ofDirectors until his resignation in August 2007, is the Executive VicePresident for Astrium GmbH (“Astrium”). Astrium provides unpressurized payloadand integration efforts to the Company on a fixed-price basis in addition toproviding engineering services as required. For the nine months ended March 31,2008, Astrium’s payload and integration services included in cost of revenuewere approximately $1.0 million. Astrium did not provide such services to theCompany during the nine months ended March 31, 2009. In August 2007the Company terminated its ICC/VCC lease agreements with Astrium North America.We agreed to reimburse Astrium North America $1.4 million upon termination ofthese leases and agreed to provide certain facilities for Astrium’s use withoutcost to Astrium through December 2008. Since January 2009, Astriumhas paid rent for continued use of these facilities. As of March 31, 2009,the Company has a payable of $0.3 million due to Astrium.

 

### **Executive Credit Cards**

### ** **

Certain Named Executive Officers of the Company havecompany paid credit cards for ordinary business expenses. Although the Companypays the amounts on the credit cards, the executive officer is obligated tosubstantiate the charges and reimburse the Company for any non-business relatedcharges. As of March 31, 2009, the Company had no outstanding receivableson such executive credit cards.

 

### **R. Scott Nieboer**

### ** **

On October 31, 2008, (see Note 14) CurtiswoodCapital LLC sold $1,750,000 principal amount of the Company’s 5.5% convertiblenotes due October 2010 to the Company for $1,085,000 plus accruedinterest. Mr. Nieboer was a beneficial owner of the repurchased notes. In March 2009,the Company purchased 300,000 shares of its common stock pursuant to its Boardapproved stock repurchase program (see Note 14) at a price of $0.40 per share.Curtiswood Capital LLC provided transactional services in this transaction.

 

### **James D. Royston**

### ** **

Effective December 1, 2008, the Company enteredinto a seven month lease agreement with Mr. Royston to lease a house locatedin Melbourne Florida to be used by employees of the Company while conductingbusiness on behalf of the Company. The lease provides for monthly rentalpayments of $2,900 to Mr. Royston with expenses of utilities andconsumables to be paid by the Company.

 

### **11.  Recent Accounting Pronouncements**

### ** **

As of July 1, 2008, the Company implemented FAS No. 157,*Fair Value Measurements* (“FAS 157”)for its financial assets and liabilities that are remeasured and reported atfair value at each reporting period and non-financial assets and liabilitiesthat are remeasured and reported at fair value at least annually. In accordancewith the provisions of FSP No. FAS 157-2, *EffectiveDate of FASB Statement No. 157*, the Company elected to deferimplementation of FAS 157 as it relates to its non-financial assets andnon-financial liabilities that are recognized and disclosed at fair value inthe consolidated financial statements on a nonrecurring basis until its fiscalyear beginning July 1, 2009.

 

In general, fair values determined by Level 1 inputsutilize quoted prices (unadjusted) in active markets for identical assets orliabilities. Fair values determined by Level 2 inputs utilize observable inputsother than Level 1 prices, such as quoted prices for similar assets or liabilities,quoted prices in markets that are not active or other inputs that areobservable or can be corroborated by observable market data for substantiallythe full term of the related assets or liabilities. Fair values determined byLevel 3 inputs are unobservable data points for the asset or liability, andinclude situations where there is little, if any, market activity for the assetor liability.

 

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Effective December 31, 2008, the Company adoptedthe Emerging Issues Task Force (“EITF”) Issue No. 08-4: *Transition Guidance for Conforming Changes to Issue No. 98-5(EITF 08-4)*, which was ratified by the consensus of the FASB in June 2008.The objective of EITF 08-4 is to provide transition guidance for conformingchanges made to Issue No. 98-5 “Accounting for Convertible Securities withBeneficial Conversion Features or Contingently Adjustable Conversion Ratios”that resulted from Issue No. 00-27, “Application of Issue No. 98-5 toCertain Convertible Instruments,” and FASB Statement No. 150, *Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity*. This transitionguidance is unique in that the current changes reflect matters that should havebeen addressed in the past, but were missed. Issue No. 08-4 concludes thatconforming changes made to Issue No. 98-5 that result from Issue No. 00-27and Statement No. 150 are effective for financial statements issued forfiscal years ending after December 15, 2008. The effect of these changesis to be applied retrospectively with the cumulative effect of the change beingreported in retained earnings. If a company must make a change in itsaccounting to implement these changes, then the disclosure requirements in FAS154 should be followed. The Company is currently evaluating the impact ofadoption of EITF 08-4. The adoption of EITF 08-4 did not impact the Company’sconsolidated financial statements.

 

In June 2008, the FASB issued Staff Position(FSP) EITF 03-6-1, *Determining WhetherInstruments Granted in Share-Based Payment Transactions are ParticipatingSecurities*. This staff position addresses whether instrumentsgranted in share-based payment transactions are participating securities priorto vesting and, therefore, need to be included in the allocation in computingearnings per share under the two-class method described in SFAS 128, *Earnings Per Share*. The FASB concludedthat all outstanding unvested share-based payment awards that contain rights tononforfeitable dividends participate in undistributed earnings with commonshareholders. If awards are considered participating securities, the Company isrequired to apply the two-class method of computing basic and diluted earningsper share. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15,2008 and interim periods within those fiscal years. Early adoption isprohibited. The implementation of EIFT 03-6-1 did not impact the Company’sconsolidated financial statements.

 

In November 2007, FASB issued EITF 07-1, “*Accounting for Collaborative Arrangements*”(“EITF 07-1”).” EITF 07-1 requires additional disclosures related tocollaborative arrangements. EITF 07-1 is effective for fiscal years beginningafter December 15, 2008. The implementation of EITF 03-6-1 did not impactthe Company’s consolidated financial statements.

 

### **12.  RestrictedCash, Advances on Construction Contract, and Contingency**

### ** **

In December 2006, our Astrotech Ground Operationsbusiness unit subsidiary was awarded a contract with a governmental agency tomodify one of our payload processing facilities to specific requirements of aprogrammed mission. Under the terms of this $20.0 million fixed-price contract,which has subsequently been increased to $36.2 million, we will own theimprovements after completion of the contract obligations. We have entered intoa firm fixed price construction subcontract with J. P. DonovanConstruction, Inc. to provide a significant portion of the design andconstruction work that will be required under our contract. The contractrequires us to complete the construction on the facility by September 30,2009 and contains penalties if we do not meet the contracted completion date.As a result we have a contingency of up to $3.0 million in penalties. Inaccordance with our contracts, payments will be received from our customer on amilestone schedule that generally provides receipt of cash before payments arerequired to the contractor under their milestone schedule. Receipts in advanceof disbursements are retained in a restricted cash account within oursubsidiary company and used exclusively for purposes of the contractobligations. As of March 31, 2009, net cash receipts of $2.6 million havebeen designated as restricted cash for this. A liability of $0.3 million isrecognized on the balance sheet as of March 31, 2009, for accruedobligations under this contract relating to such advances. In addition, $0.6million of cash is held as restricted to comply with bank covenants on our termnote and revolving credit facility.

 

### **13.  EarlyTermination of Cost Plus Award Fee Contract**

### ** **

On May 7, 2008, the Company received a letterfrom ARES Corporation notifying us of ARES’s intent to terminate its Cost PlusAward Fee Subcontract with the Company. We continued under open task ordersrelevant to the subcontract until June 5, 2008. The Company and ARES havenot resolved certain issues relative to the early termination of thesubcontract, including, but not limited to certain accounts receivable fromARES under this subcontract totaling $1.4 million. ARES does not dispute theamount or validity of accounts receivable. The Company has made notice andrequest under FAR 32.112 to NASA in pursuit of resolution of such withheldpayments.

 

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### **14.  Purchase of Common Stock and ConvertibleNotes**

### ** **

### **Common Stock and Convertible Note Repurchase Program**

### ** **

On March 25, 2003 the Board of Directorsauthorized us to repurchase up to $1.0 million of our outstanding common stockat market prices. On September 25, 2008, the Board of Directors authorizedthe repurchase of up to an additional $6.0 million of the Company’s commonstock and outstanding convertible notes due October 2010 (see Repurchaseof Outstanding Notes below). Any purchases under the Company’s securityrepurchase program may be made from time-to-time, in the open market, throughblock trades or otherwise in accordance with applicable regulations of theSecurities and Exchange Commission. Depending on market conditions and otherfactors, these purchases may be commenced or suspended at any time or fromtime-to-time without prior notice. Additionally, the timing of suchtransactions will depend on other corporate strategies and will be at thediscretion of the management of the Company. On March 24, 2009, theCompany repurchased 300,000 shares at a price of $0.40 per share pursuant tothe program. As of March 31, 2009, including the shares repurchased on March 24,2009, we had repurchased 311,660 shares of common stock at a cost of $237,320under the program, which represents an average cost of $0.76 per share. In October 2008,as described below, the Company purchased $1,750,000 principle amount of itsoutstanding convertible notes at a price of $1,085,000 plus accrued interest.

 

### **Repurchase of Outstanding Notes**

### ** **

On October 31, 2008, the Company purchased$1,750,000 principal amount of its outstanding 5.5% convertible notes due October 2010from Curtiswood Capital LLC. Mr. R. Scott Nieboer, a director of theCompany, was a beneficial owner of the repurchased securities. The repurchasednotes were acquired at an established market price on the day of trade and willbe retired by the Company. The Company has recognized a gain of $665,000 on thetransaction in the three months ended December 31, 2008.

 

### **15.  InducedConversion of Convertible Securities and Reverse Stock Split**

### ** **

On October 5, 2007, we announced the successfulclosing of our offer to exchange (the “Exchange Offer”) any and all of ouroutstanding 8.0% Convertible Subordinated Notes due 2007 (the “Junior Notes”)and any and all of our outstanding 5.5% Senior Convertible Notes due 2010 (the “SeniorNotes”). As a result of the closing of the Exchange Offer, for theapproximately $7.4 million in principal amount of Junior Notes tendered, theholders received approximately 550,000 shares of common stock and 8,927 sharesof Series C Convertible Preferred Stock on a pre reverse split basis.Following the closing of the Exchange Offer, approximately $2.9 million ofJunior Notes remained outstanding pursuant to the original terms of theindenture governing the Junior Notes. On October 15, 2007, we redeemed theoutstanding Junior Notes, including accrued interest, for cash. In addition,for the approximately $46.1 million in principal amount of outstanding SeniorNotes tendered, the holders received approximately 30.7 million shares ofcommon stock and 46,083 shares of Series C Convertible Preferred Stock ona pre reverse split basis. Following the closing of the Exchange Offer,approximately $6.9 million of Senior Notes remained outstanding pursuant to anindenture governing the Senior Notes that was amended through the eliminationof substantially all of the indenture’s restrictive covenants.

 

In addition, as a result of the closing of theRestructuring and Exchange Agreement, effective as of August 31, 2007,among the Company and certain holders of Junior Notes and Senior Notes, theCompany issued to Astrium GmbH 1,333,334 shares of common stock and 6,540shares of Series C Convertible Preferred Stock in exchange for Astrium’sexisting 1,333,334 shares of Series B Convertible Preferred Stock on a prereverse split basis.

 

As a consequence of the Exchange Transaction, werecognized a non cash debt conversion expense of ($30.2) million in the ninemonths ended March 31, 2008, and we increased our common stock by $98.3million.

 

In November 2007 we converted the 61,550 sharesof Series C convertible preferred stock into 89.9 million shares of commonstock on a pre reverse split basis and affected a 1 for 10 reverse stock split,reducing our issued and outstanding common stock to 13.6 million shares. Allshare amounts have been stated to reflect this split for all periods presented.

 

### **16.  Commitments**

### ** **

On January 8, 2009, we entered into an employmentagreement with Lance W. Lord.  We enteredinto this new agreement to harmonize terms among our executives, to conform tothe requirements of Internal Revenue Code Section 409A, to defineemployment terms for certain executive officers who had been employed without aformal 

 

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employment agreement and to extend employment terms ofexecutives for periods ranging from one to two years, thereby ensuringcontinuity and stability in the ranks of our executive management.

 

According to the terms of his Employment Agreementeffective as of October 6, 2008, Mr. Lord acts as Chief ExecutiveOfficer of Astrotech Space Operations, Incorporated. Mr. Lord’s EmploymentAgreement expires on October 6, 2009, subject to renewal unless otherwisenoticed by either Mr. Lord or the Company, for subsequent one year renewalterms. He received an annual base salary of $175,000 and effective January 1,2009, he received an annual base salary of $225,000. Mr. Lord will participatein the 2008 Key Employee Incentive Bonus Plan with a targeted annual bonuspotential of 30% of his base salary. In addition, Mr. Lord willparticipate in the stock-based long-term incentive compensation program of theCompany in accordance with the Company’s practice for administering its LongTerm Incentive Compensation Program with respect to Executive Officers. Mr. Lordwill be eligible to participate in any pension, retirement, 401(k),profit-sharing and other employee benefits plans or programs of the Companyavailable to other officers of the Company under the terms and conditions ofsuch plans or programs. Mr. Lord is also entitled to certain otherperquisites, including supplemental term life, accident, and disabilityinsurance with payment of such premiums by the Company. Mr. Lord hasagreed to certain provisions relating to non-competition, confidentiality andnon-solicitation of customers and employees.

 

### **17.  EstablishNew Subsidiaries and Terminate Certain Inactive Subsidiaries**

### ** **

On October 21, 2008, the Company formed AirWardCorporation and on November 1, 2008, the Company formed 1st Detect Corporation, each being a wholly-ownedsubsidiary of the Company. On January 28, 2009 the Company formedAstrotech Corporation, a Delaware corporation, for the purposes ofre-incorporation of the Company through the merger of Astrotech Corporation, aWashington corporation, into the Delaware corporation, which has not receivedshareholder approval for consummation. On January 14, 2009, the Companycancelled the Certificates of Incorporation for Space Station Enterprise LLCand Intermedia LLC, both inactive Limited Liability Companies wholly owned bythe Company. On January 26, 2009, the Company’s BioSpace Technologies, Inc.subsidiary changed its name to Astrogenetix, Inc.

 

### **18.  SubsequentEvents**

### ** **

### **NASDAQ Deficiency Letter**

### ** **

On April 6, 2008, we received a NASDAQ StaffDetermination letter indicating that we failed to comply with NASDAQMarketplace Rule 4310(c)(4) and that our securities were, therefore,subject to delisting from The NASDAQ Capital Market. Marketplace Rule 4310(c)(4) requiresthat we maintain a $1.00 bid price. Pursuant to NASDAQ rules we weregranted a grace period, which expired on October 6, 2008. On October 7,2008, we received an additional NASDAQ Staff Determination letter advising usthat because we had failed to regain compliance under the $1.00 bid price rule,our shares were to be delisted from the NASDAQ Capital Markets exchange. Wefiled for an appeal of NASDAQ’s action and were granted a hearing date in November 2008.On October 16, 2008, NASDAQ announced the suspension of Marketplace Rule 4310(c)(4) untilJanuary 16, 2009, and advised the Company that it was no longer out ofcompliance with the Marketplace Rule. On December 23, 2008, NASDAQ advisedthe Company that its suspension of Marketplace Rule 4310(c)(4) wasextended until April 20, 2009, which on March 31, 2009, was furtherextended to July 19, 2009.

 

### **Change in Trading Symbol**

### ** **

Effective May 4, 2009, the Company changed its stocktrading symbol to ASTC on the NASDAQ Capital Markets stock exchange.

 

### **MRM1 Contract**

### ** **

On April 2, 2009, the Company’s wholly ownedsubsidiary SPACEHAB Orbital Transportation, Inc. entered into a $1.8million contract with RSC Energia of the Russian Federation to providepre-launch facilities and services in preparation of the Mini Research Modulefor flight aboard the U.S. Space Shuttle. The Mini Research Module is scheduledfor launch in May 2010 to become a permanent component of theInternational Space Station.

 

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# **ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

# ** **

*You should read the following discussion andanalysis together with our consolidated financial statements and notes theretoand the discussion “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and Item 1A. — “Risk Factors” included in our 2008Annual Report Form 10-K. The following information containsforward-looking statements, which are subject to risks and uncertainties.Should one or more of these risks or uncertainties materialize, our actualresults may differ from those expressed or implied by the forward-lookingstatements.*

 

**OVERVIEW**

** **

### **Forward Looking Statements**

### ** **

This document may contain “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934, including (without limitation)statements under “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and “Liquidity and Capital Resources.” Suchstatements are subject to risks and uncertainties that could cause actualresults to differ materially from those projected in the statements. Inaddition to those risks and uncertainties discussed herein, such risks anduncertainties include, but are not limited to, whether we will fully realizethe economic benefits under our NASA and other customer contracts, completionof the International Space Station, continued availability and use of the U.S.space shuttle system, technological difficulties, product demand, marketacceptance risks, the effect of economic conditions, uncertainty in governmentfunding, and the impact of competition, delays, and uncertainties in futurespace shuttle and ISS programs.

 

### **Financial Summary**

### ** **

Astrotech Corporation’s first nine months operatingresults for fiscal year 2009 reflected net profit of $2.1 million. For thefirst nine months of fiscal year 2008 we recorded a net loss of ($34.5)million.

 

The following table illustrates financial highlightsfor the nine months ended March 31, 2009 and March 31, 2008 (inmillions):

 
| ** **                                | ** ** | **2009**                                   | ** ** | **2008** | ** ** | **Percent  Change** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|----------|------------|---------------------|------------|
| ** **                                | ** ** | **(in millions except per share amounts)** | ** ** |
| For the Nine  Months Ended March 31: |       |                                       |       |     |       |                |       |
| Revenue                                   |       | $                                          | 21.6       |     | $          | 19.5                |       | 11 | % |
| Net Profit  (Loss)                        |       | $                                          | 2.1        |     | $          | (34.5               | )          | (106 | )% |
| Diluted EPS                               |       | $                                          | 0.12       |     | $          | (4.92               | )          | — |   |
| As of  March 31:                     |       |                                       |       |     |       |                |       |
| Cash and Cash  Equivalents                |       | $                                          | 1.3        |     | $          | 2.0                 |       | (35 | )% |
| Restricted Cash                           |       | $                                          | 3.2        |     | $          | 6.5                 |       | (51 | )% |
| Total Debt                                |       | $                                          | 9.3        |     | $          | 10.8                |       | (14 | )% |
| Stockholders  Equity                      |       | $                                          | 37.8       |     | $          | 35.6                |       | 6 | % |

### ** **

### **Business Segments**

### ** **

For the first nine months of fiscal year 2009, ourCompany operated in three primary business segments. The following is a briefdiscussion of each of these segments, including a list of key factors that haveaffected, and are expected to continue to affect, their respective earnings andcash flows. We also present a brief discussion of our corporate-level expensesalong with a summary of our current liquidity position and items that couldimpact our liquidity position in fiscal year 2009 and beyond.

 

### **Astrotech Ground Operations**

### ** **

Astrotech Ground Operations provides all supportnecessary for its government and commercial customers to successfully processcomplex communication, Earth observation and deep space satellites inpreparation for their launch on a variety of domestic and foreign launchvehicles. Processing activities include satellite ground transportation;pre-launch hardware integration and testing; satellite encapsulation, fueling,launch pad delivery; and communication linked launch control. Our AstrotechGround Operations facilities can accommodate five meter class 

 

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satellites with weights of 11,000 kilograms,encompassing the majority of U.S. based satellite preparation services. Duringthe quarters ended March 31, 2009 and March 31, 2008, AstrotechGround Operations accounted for 98% and 76%, respectively, of our consolidatedrevenues.

 

Revenue for our Astrotech Ground Operations businessunit is generated from various fixed-priced contracts with launch serviceproviders in both the commercial and government markets. The services andfacilities we provide to our customers support the final assembly, checkout,and countdown functions associated with preparing a spacecraft for launch. Theearnings and cash flows generated from our Ground Operations are related to thenumber of commercial spacecraft launches, which reflects the growth in thesatellite-based communications industries; and, the replacement requirementsinherent in aging satellites. Other factors that have impacted, and areexpected to continue to impact earnings and cash flows for this businessinclude:

 

·                  Our ability tocontrol our capital expenditures, which are primarily limited to modificationsto accommodate payload processing for new launch vehicles, upgradingcommunications infrastructure, maintenance and safety, environmental andreliability projects, and other costs, through disciplined management and safe,efficient operations;

·                  The continuinglimited availability of competing facilities at the major domestic launch sitesthat can offer compatible services, leading to an increase in government use ofour services; and

·                  Our ability tocomplete customer specified facility modifications within budgeted costs andtime commitments.

 

### **Astrotech Engineering Services, Inc.**

### ** **

Formerly SPACEHAB Government Services, AstrotechEngineering Services provides large scale program technical support andspecialized engineering analysis, products and services, and configuration anddata management support to NASA, Department of Defense, and other governmentcustomers. Through the second quarter of fiscal year 2008, Engineering Servicesderived most of its revenue from NASA’s Program Integration and Control (“PI&C”)contract for the International Space Station. The Company’s role in thePI&C contract was terminated in June of 2008. During the quartersended March 31, 2009 and March 31, 2008, our Engineering Servicesbusiness unit accounted for 1% and 22%, respectively, of our consolidatedrevenues.

 

Earnings from Engineering Services are dependent uponour ability to continue to win contracts with NASA, aerospace and defensecontractors, or other government entities through the competitive biddingprocess; and, our ability to sustain exemplary performance scores in order toachieve performance bonuses. Other factors that have impacted, and are expectedto continue to impact earnings and cash flows for this business include:

 

·                  The terminationof the PI&C contract with the International Space Station program;

·                  Our ability tomaintain small business qualification for the Engineering Services businessunit under NASA and Department of Defense contracting rules;

·                  Our ability tosecure other engineering services contracts with public or private sectorentities; and

·                  Our ability tocontrol costs within our budget commitments.

 

### **Astrotech Space Operations**

### ** **

Historically called SPACEHAB Flight Services,Astrotech Space Operations, through our SPACEHAB Orbital Transportation, Inc.subsidiary, offers a range of engineering, research, logistics, integration,operations, and ground support services supporting our space shuttle module andpallet assets, and spacecraft owned by other entities. At this time, there areno more scheduled missions to be performed under this business segment as theshuttle space transportation system nears retirement in 2010. During the fiscalyear 2008, the Company completed space shuttle mission STS-118, its lastcontracted module mission, and recognized residual Space Operations activityfrom previous missions. We continue to retain our space shuttle module assetsto be available for future opportunities should they arise. In April 2009we entered into a contract with RSC Energia of the Russian Federation toprovide payload processing and pre-launch facilities and services to preparethe Russian MRM1 module for deployment aboard the U.S. space shuttle to be joinedas a permanent component of the International Space Station. During thequarters ended March 31, 2009 and March 31, 2008, our SpaceOperations business accounted for 0% and 2%, respectively, of our consolidatedrevenues.

 

The primary factors impacting our Space Operationsbusiness unit earnings and cash flows are the number of space shuttle missionsflown, the requirements for use of our space shuttle hardware and theconfiguration of the cargo 

 

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handling and research logistics required for eachmission. Other factors that have impacted, and are expected to continue toimpact earnings and cash flows for this business unit include:

 

·                  NASA’s use ofour space shuttle modules and related space assets that utilize ourcompetencies in configuration and cargo handling;

·                  Commercialdemand for access to space launch capability and need for research cargologistics; and

·                  Space shuttlemission requirements for the manufacture of specialized cargo handlingequipment.

 

### **Corporate and Other**

### ** **

Significant items impacting future corporate expenses,earnings, and cash flow includes:

 

·                  Our ability tocontrol sales, general and administrative costs in a period of economicuncertainty and pursuit of new business opportunities;

·                  Interest costson our variable rate bank financings and interest earnings on our decliningrestricted cash balances; and

·                  Income taxesand our ability to utilize net operating loss carry forwards to offset futuretaxes, state income taxes, and the Texas margin tax.

 

### **NEW BUSINESS INITIATIVES**

### ** **

Our identified new business initiatives are focused onspace-based life sciences, end-to-end space mission assurance services, andcommercialization of space-based technologies, which are natural extensions ofour 23 years of space industry experience and our core capabilities in thesefields. These new business initiatives will require large investments ofcapital and technical expertise. As of March 31, 2009, we have recorded norevenue from these new business initiatives.

 

### **SPACETECH, Inc.**

### ** **

SPACETECH is an incubator envisioned to commercializespace-industry technologies into real-world applications to be sold toconsumers and industry. The 1st Detect mini-massspectrometer and the AirWard hazardous cargo containers, both developed by ourengineers, are being positioned for entry into the commercial marketplace.

 

### **Astrogenetix, Inc. formerly BioSpace Technologies, Inc.**

### ** **

Through Astrogenetix, a natural extension of our manyyears of experience preparing, launching, and operating over 1,500 sciencepayloads in space, the Company is transitioning from supportinggovernment-sponsored basic research into producing commercial products from themicrogravity discoveries. This new business initiative involves the use ofmicrogravity platforms, such as the Space Shuttle and the ISS, for thedevelopment of space-made products that are to be sold on Earth. Astrogenetixhas successfully processed vaccine samples in space on Space Shuttle Flights,STS-118, STS-123, and STS-124, which have resulted in preliminary salmonellavaccine production data.

 

### **1st Detect, Inc.**

### ** **

Beginning under a NASA sponsored space act agreement,our engineers are pursuing the development of a spectrometer capable ofwithstanding the environmental demands of space while providing rapid andaccurate analysis of chemical components. The 1st Detect mini-mass spectrometer offers a lowpower, portable detection device with potential applications in homelandsecurity, medical, and defense industries. 1st Detect has been awarded a DevelopmentalTesting and Evaluation designation from the U.S. Department of HomelandSecurity as a “promising anti-terrorism technology.” In March 2009 we werenotified of an award from the U.S. Defense Threat Reduction Agency as aninitial phase grant to promote development of the 1st Detect technology. We are currently inadvanced stages of negotiation regarding a grant of up to $1.8 million from theTexas Emerging Technology Fund further supporting our development program.

 

### **AirWard, Inc.**

### ** **

AirWard is a shipping container designed to meet thespecific requirements of the U.S. Department of Transportation for allcommercial airlines in U.S. airspace to protect pressurized oxygen bottles fromflame and heat during flight. We have developed and certified several models ofthe AirWard container to accommodate different sized oxygen bottles. TheAirWard containers are currently in production to fill orders with delivery datesbeginning in May 2009.

 

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# **RESULTSOF OPERATIONS**

# ** **

*For the three months ended March 31, 2009, ascompared to the three months ended March 31, 2008.*

 

Revenue. Revenue increasedapproximately 79% to $11.8 million for the three months ended March 31,2009, as compared to $6.6 million for the three months ended March 31,2008 (in millions).

 
| ** **                      | ** ** | **Three months Ended** | ** ** | ** ** | ** ** | ** **  | ** ** |
|---------------------------------|------------|------------------------|------------|------------|------------|-------------|------------|
| ** **                      | ** ** | **March 31,**     | ** ** | **Dollar** | ** ** | **Percent** | ** ** |
| ** **                      | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change**  | ** ** | **Change** | ** ** |
| Astrotech Ground  Operations    |       | $                      | 11.6       |       | $          | 5.0         |       | $ | 6.6 |   | 132 | % |
| Astrotech  Engineering Services |       | 0.1                    |       | 1.4        |       | (1.3        | )          | (93 | )% |
| Astrotech Space  Operations     |       | —                 |       | —     |       | —      |       | — |   |
| SPACETECH                       |       | 0.1                    |       | 0.2        |       | (0.1        | )          | (50 | )% |
| Other                           |       | —                 |       | —     |       | —      |       |   |   |
|                            |       | $                      |  11.8 |       | $          | 6.6         |       | $ | 5.2 |   | 79 | % |

 

Revenue from our Astrotech Ground Operations businessunit increased by $6.6 million for the three months ended March 31, 2009,as compared to the three month period ended March 31, 2008. The followingsummarizes significant items that affected the three months ended March 31,2009, as compared to the same period ended March 31, 2008:

 

·                  Decrease inrevenue of $1.0 million as a result of having no Sea Launch missions launchedduring the three months ended March 31, 2009, whereas the three monthsended March 31, 2008, include two such missions.

·                  Revenuedecreased $1.3 million from the prior year third quarter due to the percentageof completion recognized on the VAFB high bay construction project.

·                  Increase of $6.7million due to seven missions being processed versus only two for the samequarter last year.

·                  Increase of$2.2 million from construction of launch equipment.

 

Revenue from our Engineering Services business unitdecreased by $1.3 million for the period ended March 31, 2009, as comparedto the same period ended March 31, 2008, as a result of the termination ofthe subcontract with ARES on the PI&C contract of $1.3 million. Thecontract was completed in June 2008.

 

There was no revenue generated from our AstrotechSpace Operations business unit for period ended March 31, 2009 or periodended March 31, 2008.

 

Cost of Revenue. Cost of revenue forthe three months ended March 31, 2009, increased by 14% to approximately$4.8 million, as compared to $4.2 million for the same period of the prior year(in millions).

 
| ** **                      | ** ** | **Three months Ended** | ** ** | ** ** | ** ** | ** **  | ** ** |
|---------------------------------|------------|------------------------|------------|------------|------------|-------------|------------|
| ** **                      | ** ** | **March 31,**     | ** ** | **Dollar** | ** ** | **Percent** | ** ** |
| ** **                      | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change**  | ** ** | **Change** | ** ** |
| Astrotech Ground  Operations    |       | $                      | 4.4        |       | $          | 2.4         |       | $ | 2.0 |   | 83 | % |
| Astrotech  Engineering Services |       | 0.1                    |       | 1.3        |       | (1.2        | )          | (92 | )% |
| Astrotech Space  Operations     |       | —                 |       | 0.1        |       | (0.1        | )          | (100 | )% |
| SPACETECH                       |       | 0.3                    |       | 0.2        |       | 0.1         |       | 50 | % |
| Other                           |       | —                 |       | 0.2        |       | (0.2        | )          | (100 | )% |
|                            |       | $                      |  4.8  |       | $          | 4.2         |       | $ | 0.6 |   | 14 | % |

 

The following summarizessignificant items that affected the three months ended March 31, 2009, ascompared to the same period ended March 31, 2008 for Astrotech SpaceOperations:

 

The increase in cost of revenue from our AstrotechGround Operations business unit of $2.0 million is attributed to the increasednumber of missions processed in the three months ended March 31, 2009, ascompared to the three months ended March 31, 2008.

 

The decrease in cost of revenue of $1.2 million in ourEngineering Services business unit is primarily resulting from the eliminationof labor cost associated with the PI&C contract that terminated in June 2008.

 

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Cost of revenues for our Astrogenetix and SPACETECHbusiness segments in the three months ended March 31, 2009, increased to$0.3 million from $0.2 million for the three months ended March 31, 2008:

 

The remaining cost decrease of $0.3 million related tostaff reductions and other cost saving measures initiated subsequent to COTSbid proposal in addition to the reduction in Space Operations cost.

 

Operating Expenses. Operatingexpenses were $3.2 million for the three months ended March 31, 2009,compared to $2.9 million for the three months ended March 31, 2008. Thefollowing summarizes the significant differences between the two periods:

 

·                  Selling,general and administrative expenses increased by $0.4 million or 17% for thethree months ended March 31, 2009, as compared to the three months ended March 31,2008, as the cost of the Company’s Austin, Texas administrative office andpersonnel off-set staff reductions and relocation of the Houston, Texasadministrative office.

·                  R&Dexpenses of $0.6 million were approximately the same for the three months endedMarch 31, 2009, as compared to the three months ended March 31, 2008,as the Company continued its efforts related to the 1st Detect and AirWard programs.

 

Interest Expense. Interest expensewas approximately $0.2 million for the three months ended March 31, 2009,as compared to approximately $0.1 million for the three months ended March 31,2008. The increase in interest expense is primarily due to the Company’s $4.0million term note closed in February 2008 and advances on the Company’srevolving credit facility.

 

Interest and Other Income. Interestincome is earned on our mortgage receivable due to the sale of our payloadprocessing facility in our Space Operations segment and on investment of ourrestricted cash. For the three months ended March 31, 2009, we earned $0.1million on our investment of restricted cash compared to $0.1 million for thethree months ended March 31, 2008. The change was a result of higher cashbalances and interest rates for the three months ended March 31, 2008 ascompared to the three months ended March 31, 2009.

 

Income Taxes. Based on our projectedeffective tax rate for fiscal year 2008, we recorded no tax expense in thethree months ended March 31, 2008. In the three months ended March 31,2009, we recognized income tax expenses of $0.9 million based upon year to datenet income, net of net operating loss carryforward limited due to the Company’sexchange of debt for common stock in October 2007.

 

Net Profit (Loss). Net Loss for thethree months ended March 31, 2008, was approximately ($0.8) million or($0.06) per diluted share as compared to net profit of approximately $3.6million or $0.21 per diluted share for the three months ended March 31,2009.

 

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*For the nine months ended March 31, 2009 ascompared to the nine months ended March 31, 2008.*

 

Revenue. Revenue increasedapproximately 11% to $21.6 million for the nine months ended March 31,2009, as compared to $19.5 million for the nine months ended March 31,2008 (in millions).

 
| ** **                      | ** ** | **Nine months Ended** | ** ** | ** ** | ** ** | ** **  | ** ** |
|---------------------------------|------------|-----------------------|------------|------------|------------|-------------|------------|
| ** **                      | ** ** | **March 31,**    | ** ** | **Dollar** | ** ** | **Percent** | ** ** |
| ** **                      | ** ** | **2009**              | ** ** | **2008**   | ** ** | **Change**  | ** ** | **Change** | ** ** |
| Astrotech Ground  Operations    |       | $                     | 21.0       |       | $          | 11.1        |       | $ | 9.9 |   | 89 | % |
| Astrotech  Engineering Services |       | 0.3                   |       | 4.1        |       | (3.8        | )          | (93 | )% |
| Astrotech Space  Operations     |       | —                |       | 4.3        |       | (4.3        | )          | (100 | )% |
| SPACETECH                       |       | 0.3                   |       | —     |       | 0.3         |       | 100 | % |
| Other                           |       | —                |       | 0.0        |       | —      |       | — |   |
|                            |       | $                     |  21.6 |       | $          | 19.5        |       | $ | 2.1 |   | 11 | % |

 

Revenue from our Astrotech Ground Operations business unitincreased by $9.9 million for the nine months ended March 31, 2009, ascompared to the nine month period ended March 31, 2008. The followingsummarizes significant items that affected the nine months ended March 31,2009, as compared to the nine months ended March 31, 2008:

 

·                  Increase inrevenue of $8.8 million due to the processing of all or part of ten missions atour Florida and California facilities whereas only five were processed for thenine months ended March 31, 2008.

·                  Decrease of$1.0 million as a result of two Sea Launch missions processed and launchedduring the nine months ended March 31, 2008, as compared to no missionsfor this same period ended March 31, 2009.

·                  Revenuerecognized on the California high-bay facility resulted in a $0.4 milliondecrease over the nine months ended March 31, 2008, where revenue of $2.0million was recognized.

·                  Revenuerecognized from the construction of payload processing support equipment for acustomer resulted in $2.5 million in revenue for the period ended March 31,2009, whereas no revenue of this kind was earned during the period ended March 31,2008.

 

Revenue from our Astrotech Engineering Servicesbusiness unit decreased by $3.8 million for the period ended March 31,2009, as compared to the same period ended March 31, 2008, due to oursubcontract with ARES on the PI&C contract being terminated in June 2008.

 

Revenue from our Space Operations business unitdecreased by $4.3 million for the period ended March 31, 2009, as comparedto the same period ended March 31, 2008. The following summarizes thesignificant items that affected the nine month period ended March 31,2009, as compared to the period ended March 31, 2008:

 

·                  Completion ofmission work related to the Lockheed Martin CMC contract that ended in September 2007resulted in a decrease of $3.3 million.

·                  Remainingdecrease of $1.0 million due to the completion and delivery of the EVA and PFIPflight hardware in November 2007 and other miscellaneous machine shop workfor the period ended March 31, 2008.

 

Cost of Revenue. Cost of revenue forthe nine months ended March 31, 2009, decreased by 23% to approximately$11.6 million, as compared to $15.0 million for the same period of the prioryear (in millions).

 
| ** **                      | ** ** | **Nine months Ended** | ** ** | ** ** | ** ** | ** **  | ** ** |
|---------------------------------|------------|-----------------------|------------|------------|------------|-------------|------------|
| ** **                      | ** ** | **March 31,**    | ** ** | **Dollar** | ** ** | **Percent** | ** ** |
| ** **                      | ** ** | **2009**              | ** ** | **2008**   | ** ** | **Change**  | ** ** | **Change** | ** ** |
| Astrotech Ground  Operations    |       | $                     | 10.1       |       | $          | 7.0         |       | $ | 3.1 |   | 44 | % |
| Astrotech  Engineering Services |       | 0.2                   |       | 3.4        |       | (3.2        | )          | (94 | )% |
| Astrotech Space  Operations     |       | 0.3                   |       | 3.4        |       | (3.1        | )          | (91 | )% |
| SPACETECH                       |       | 1.0                   |       | 1.0        |       | —      |       | — |   |
| Other                           |       | —                |       | 0.2        |       | (0.2        | )          | (100 | )% |
|                            |       | $                     |  11.6 |       | $          | 15.0        |       | $ | (3.4 | ) | (23 | )% |

 

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Thefollowing summarizes significant items that affected the nine months ended March 31,2009, as compared to the nine months ended March 31, 2008 for Astrotech GroundOperations:

 

·                  Cost recordedfor the California high-bay construction contract excluding the subcontractcost was $0.3 million for the nine months ended March 31, 2009. comparedto $0.5 million for the nine months ended March 31, 2008.

·                  Cost associatedwith support equipment constructed for customers increased cost of revenue byapproximately $1.0 million in the period ended March 31, 2009, as comparedto the period ended march 31, 2008.

·                  Increased costassociated with the processing of ten missions for the period ended March 31,2009, as opposed to five for the period ended March 31, 2008, wasapproximately $2.3 million.

 

The decrease of $3.2 million in our AstrotechEngineering Services business unit is primarily due to the termination of thePI&C contract in June 2008 that resulted in a significant reduction inassociated labor cost.

 

The following summarizes significant items thataffected the nine months ended March 31, 2009, as compared to the ninemonths ended March 31, 2008 for Astrotech Space Operations:

 

·                  Reductions incost of revenue from the lease payments on the ICC/VCC assets that ceased withthe completion of the Lockheed Martin CMC contract amounted to $1.0 million.

·                  Depreciationexpense decreased by $0.4 million due to a further write down of flight assetsin September 2007.

·                  Decrease oflabor associated with the reductions in the workforce amounted to $1.5 million.

·                  Decrease infacilities cost of $0.2 million resulting from the relocation of offices.

 

Operating Expenses. Operatingexpenses increased to $8.2 million for the nine months ended March 31,2009, as compared to approximately $7.7 million for the nine months ended March 31,2008. The following summarizes the significant differences between the twoperiods:

 

·                  Selling,general and administrative expenses were $6.5 million for the nine months endedMarch 31, 2009, as compared to $6.3 million for the nine months ended March 31,2008, as the cost of the Company’s Austin, Texas administrative office andpersonnel offset staff reductions and relocation of the Houston, Texasadministrative office.

·                  R&Dexpenses increased approximately $0.3 million for the nine months ended March 31,2009, as compared to the nine months ended March 31, 2008, as the Companyincreased its R&D of its mini-mass spectrometer and Astrogenetix vaccineprogram.

 

Interest Expense. Interest expensewas approximately $0.6 million for the nine months ended March 31, 2009,as compared to approximately $1.2 million for the nine months ended March 31,2008. Interest expense in the nine months ended March 31, 2009, includesinterest on our $4.0 million term note and advances on our revolving creditfacility. The reduction in long-term notes payable related to the bond exchangetransaction in October 2007 and the repurchase of $1.8 million in notesduring October 2008 attributed to the decrease.

 

Interest and Other Income. Interestincome is earned on our mortgage receivable due to the sale of our payloadprocessing facility in our Space Operations segment and on our restricted cash.We earned interest income of $0.2 million over the nine months ended March 31,2009, from interest of our restricted cash which resulted from higher cashbalances and interest rates. We recognized a gain of $0.7 million on therepurchase of $1.8 million principal amount of our notes in the nine monthsended March 31, 2009.

 

Income Taxes. Based on our projectedeffective tax rate and net loss for fiscal year 2008, we recorded no taxexpense in the nine months ended March 31, 2008. In the nine months ended March 31,2009, we recorded income tax expenses of $0.9 million based upon year to datenet income net of net operating loss carryforward limited due to the Company’sexchange of debt for common stock in October 2007.

 

Net Profit (Loss). Net profit forthe nine months ended March 31, 2009, was approximately $2.1 million or$0.12 per diluted share as compared to net loss of approximately ($34.5)million or ($4.92) per diluted share for the nine months ended March 31,2008. The net loss for the nine months ended March 31, 2009, includes anon cash gain of $0.7 million for the note repurchase.

 

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### **Liquidity and Capital Resources**

### ** **

Our primary source of liquidity is cash flow fromoperations. The principal uses of cash flow that affect our liquidity positioninclude both operational expenditures and debt service payments. Management isfocused on increasing cash flow and on managing cash effectively throughlimiting cash investments in long-term assets and reducing overhead expenses.

 

*Cash Flows From Operating Activities.*Cashprovided by operations for the nine months ended March 31, 2009, was approximately $0.0 million. During thenine months ended March 31, 2008, cash used in operations was ($8.7)million. The significant items affecting the differences in cash flowsfrom operating activities for the nine months ended March 31, 2009, ascompared to the nine months ended March 31, 2008, are discussed below:

 

·                  Net loss for thenine months ended March 31, 2008, was($34.5) million as compared to net profit for the nine months ended March 31, 2009, of $2.1 million. The netprofit for the nine months ended March 31, 2009, included a non cash gainof $0.7 million on the purchase of $1.8 million of the Company’s notes on theopen market.

·                  Stock basedcompensation increased from $0.2 million in the nine months ended March 31,2008, to $0.3 million in the nine months ended March 31, 2009, due tospecial stock, restricted stock, and option grants in the nine months ended March 31,2009.

·                  Restricted cashdecreased in the nine months ended March 31, 2009, by $5.2 million whileadvances on the construction contract related to the restricted cash decreasedby $4.6 million resulting in a net increase in net cash provided by operationsof $0.6 million while restricted cash and advances on the construction contractincreased by a net amount using $2.4 million in the nine months ended March 31,2008.

·                  Accountsreceivable increased by $2.8 million in the nine months ended March 31,2008, compared to an increase of $5.4 million in the nine months ended March 31,2009.

·                  Deferredrevenue increased by $1.7 million in the nine months ended March 31, 2009,reflecting advance deposits on scheduled but delayed ground processingmissions. In the nine months ended March 31, 2008, deferred revenuedecreased by $0.6 million.

·                  Accountspayable decreased by $0.3 million in the nine months ended March 31, 2009.In the nine months ended March 31, 2008, accounts payable increased $2.0million.

 

*Cash Flows From Investing Activities*.For the nine months ended March 31, 2009 and 2008, cash flows used ininvesting activities were $0.5 million and $0.1 million, respectively,reflecting routine capital expenditures.

 

*Cash Flows From Financing Activities.*Forthe nine months ended March 31, 2009 and 2008, cash flows (used in)provided by financing activities were ($0.9) million and $1.1 million,respectively. The significant items affecting the differences in cash flowsfrom financing activities for the nine months ended March 31, 2009, ascompared to the nine months ended March 31, 2008, are discussed below:

 

·                  In the ninemonths ended March 31, 2009, we received net proceeds from the revolvingcredit facility of $0.5 million.

·                  In the ninemonths ended March 31, 2009, we had payments on our Astrotech payloadprocessing facility term note of $0.2 million.

·                  In the ninemonths ended March 31, 2009, we purchased $1.8 million principal amount ofour notes on the open market for $1.1 million.

·                  In the ninemonths ended March 31, 2009, the Company purchased 300,000 shares of itscommon stock at a price of $0.40 per share, totaling $0.1 million.

 

### **Liquidity**

### ** **

On March 25, 2003 the Board of Directorsauthorized us to repurchase up to $1.0 million of our outstanding common stockat market prices (see Note 14). On September 25, 2008, the Board ofDirectors authorized the repurchase of up to an additional $6.0 million of ouroutstanding common stock or our outstanding 5.5% convertible notes at marketprices. Any purchases under our stock repurchase program may be made from timeto time, in the open market, through block trades or otherwise in accordancewith applicable regulations of the SEC. As of March 31, 2009, we hadrepurchased 311,660 shares of common stock at a cost of $237,320 under theprogram, which represents an average cost of $0.76 per share. In October 2008,the Company purchased $1,750,000 principle 

 

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amount of its outstanding convertible notes at a priceof $1,085,000 plus accrued interest. We will continue to evaluate the stockrepurchase program and the funds authorized for the program.

 

Management continues to focus its efforts on improvingoverall liquidity through identifying new business opportunities within theareas of our core competencies, reducing operating expenses, and limiting cashcommitments for future capital investments and new asset development.Additionally, management continues to evaluate operating expenses in an effortto reduce or eliminate costs not required to effectively operate the Company.

 

As of March 31, 2009, we had cash and restrictedcash on hand of $4.5 million and our working capital was $3.3 million.Restricted cash, which consists of advance payments on a government contract tomodify certain spacecraft processing facilities and restricted deposits relatedto bank covenants, totaled $3.2 million at March 31, 2009. We carry acurrent liability of $0.3 million for obligations under this constructioncontract.

 

In February 2008 (see Note 5), we consummated afinancing facility with a commercial bank. This facility provides for a threeyear $4.0 million term loan, payable in monthly installments of principal inthe amount of $22,222 plus interest and a $2.0 million one-year revolvingcredit facility. In February 2009 we extended the $2.0 million revolvingcredit facility for a second year. The renewal changed the interest rate to thebank’s prime rate plus 0.75% (5.0% at March 31, 2009). The term loan issecured by the Titusville, Florida assets of our Astrotech subsidiary and theone-year revolving credit facility is secured by Astrotech’s accountsreceivable. As of March 31, 2009, we have a balance of $3.6 millionoutstanding on the term note and $0.6 million outstanding on the revolvingcredit facility.

 

### **Off-Balance Sheet Arrangements**

### ** **

We do not have any significant off-balance sheetarrangements, other than operating leases, that have, or are reasonably likelyto have, a current or future material effect on our financial condition,revenues or expenses, results of operations, liquidity, capital expenditures orcapital resources.

 

### **Construction Contract Contingency**

### ** **

In August 2007 we entered into a $14.2 millionmodification to our existing Vandenberg construction contract, which increasedthe contract to a total of $34.0 million. Subsequent modifications to thecontract have increased the amount to $36.2 million. The modification requiresus to complete the construction on the redesigned facility by September 30,2009. The modification contains penalties if we do not meet the contractedcompletion date. As a result we have a contingency of up to $3.0 million inpenalties.

 

# **ITEM3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

# ** **

We have no material changes to the disclosure made onthis matter in our Annual Report on Form 10-K for the year ended June 30,2008.

 

# **ITEM4.  CONTROLS AND PROCEDURES**

# ** **

Under the supervision andwith the participation of our management, including our principal executiveofficer and principal financial officer, we have evaluated the effectiveness ofthe design and operation of our disclosure controls and procedures as of theend of the period covered by this quarterly report, and, based on ourevaluation, our principal executive officer and principal financial officerhave concluded that these controls and procedures are effective. There havebeen no changes in our internal control over financial reporting that occurredduring our last fiscal quarter that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

 

Disclosure controls andprocedures are our controls and other procedures that are designed to ensurethat information required to be disclosed by us in the reports that we file orsubmit under the Exchange Act is recorded, processed, summarized, and reportedwithin the time periods specified in the SEC’s rules and forms. Disclosurecontrols and procedures include, without limitation, controls and proceduresdesigned to provide reasonable assurance that information required to bedisclosed by us in the reports that we file or submit under the Exchange Act isaccumulated and communicated to our management, including our principalexecutive officer and principal financial officer, as appropriate to allowtimely decisions regarding required disclosure.

 

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# **PART II:  OTHER INFORMATION**

# ** **

# **ITEM1.  LEGAL PROCEEDINGS**

# ** **

Currently, theCompany is not a party to any pending or threatened proceedings, which inmanagement’s opinion, would have a material adverse effect on our business,financial condition, or results of operation.

 

# **ITEM1A.  RISK FACTORS**

# ** **

There have been nomaterial changes in the risk factors described in our Annual Report on Form 10-Kfor the year ended June 30, 2008.

 

# **ITEM2.  UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

# ** **

During the nine months ended March 31, 2009 wedid not issue any unregistered securities.

 

# **ITEM3.  DEFAULTS UPON SENIOR SECURITIES**

# ** **

During the nine months ended March 31, 2009 wedid not have any defaults upon senior securities.

 

# **ITEM4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

# ** **

The Annual Meeting of Shareholders was held on February 10,2009. A quorum of 12,640,162 shares of the Company’s Common Stock, was presentand voting. The meeting was recessed to further consider Proposition 5 beforethe shareholders and was finally reconvened and concluded on May 7, 2009.

 

(a)          At the 2008 Annual Meeting ofShareholders, candidates for the Board of Directors stood for and were dulyelected, with each nominee receiving a vote of at least 11,918,413 votes.

 

The directors elected by the shareholders are:

 
| ** **                    | ** ** | **For**    | ** ** | **Withheld** | ** ** |
|-------------------------------|------------|------------|------------|--------------|------------|
| Mark E. Adams                 |       | 11,918,413 |       | 717,896      |       |
| General (Ret.)  Lance W. Lord |       | 12,200,585 |       | 435,723      |       |
| R. Scott Nieboer              |       | 12,198,024 |       | 438,285      |       |
| Sha-Chelle  Manning           |       | 12,201,284 |       | 435,024      |       |
| John A. Oliva                 |       | 11,920,701 |       | 715,607      |       |
| Thomas B.  Pickens, III  |       | 12,047,623 |       | 588,685      |       |
| William F.  Readdy            |       | 11,918,576 |       | 717,732      |       |

 

The followingmatters were brought to a vote of the shareholders at the meeting:

 

(b)         The ratification of the appointment ofPMB Helin Donovan, LLP as the Company’s independent auditors for fiscal year2008.

 
| ** ** | ** ** | **Number of Votes** | ** ** |
|------------|------------|---------------------|------------|
| For        |       | 12,550,109          |       |
| Against    |       | 31,667              |       |
| Abstain    |       | 54,532              |       |

 

(c)          The ratification of the approval of thereverse split of common stock in the ratio of 5 for 1.

 
| ** ** | ** ** | **Number of Votes** | ** ** |
|------------|------------|---------------------|------------|
| For        |       | 9,848,826           |       |
| Against    |       | 2,716,125           |       |
| Abstain    |       | 71,356              |       |

 

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(d)         The ratification of the approval of thename change from SPACEHAB, Incorporated to Astrotech Corporation.

 
| ** ** | ** ** | **Number of Votes** | ** ** |
|------------|------------|---------------------|------------|
| For        |       | 12,374,805          |       |
| Against    |       | 250,557             |       |
| Abstain    |       | 10,944              |       |

 

(e)          The ratification of the approval of there-incorporation by merging with and into a newly formed Delaware subsidiary.

 
| ** ** | ** ** | **Number of Votes** | ** ** |
|------------|------------|---------------------|------------|
| For        |       | 9,266,214           |       |
| Against    |       | 1,245,315           |       |
| Abstain    |       | 24,649              |       |

 

Under Washington statelaw the re-incorporation requires a two-thirds majority of the shareholdersvote in favor, in order to be approved and the proposal has not been approved.

 

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# **ITEM6.  EXHIBITS**

# ** **

The following exhibits are filed herewith:

 
| **Exhibit  No.** | ** ** | **Description**                                                                                                         |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                    |
| 31.1             |       | Certification of  Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities  Exchange Act of 1934. |
|             |       |                                                                                                                    |
| 31.2             |       | Certification of  Chief Financial Officer pursuant to Rule 13a-14(a) of the  Securities Exchange Act of 1934. |
|             |       |                                                                                                                    |
| 32               |       | Certification  pursuant to Rule 13a-14(b) of the Securities and Exchange Act of  1934.                        |

 

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**SIGNATURE**

** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                          | Astrotech Corporation                              |
|-------------------------------|----------------------------------------------------|
|                          |                                               |
|                          |                                               |
| Date:  May 14, 2009 | /s/ Thomas B.  Pickens, III                   |
|                          | Thomas B.  Pickens, III                       |
|                          | Chief Executive Officer                            |
|                          |                                               |
|                          |                                               |
|                          | /s/ Brian K. Harrington                            |
|                          | Brian K. Harrington                                |
|                          | Senior Vice President  and Chief Financial Officer |

 

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