##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 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: 001-34426
 Astrotech Corporation
  Washington
    
    91-1273737(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 401 Congress Avenue, Suite 1650
Austin, Texas 78701
 (512) 485-9530
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



ASTROTECH CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 PagePART I: FINANCIAL INFORMATION
    
    
    3ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    
    
    3ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    16ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    20ITEM 4. CONTROLS AND PROCEDURES
    
    
    20PART II: OTHER INFORMATION
    
    
    20ITEM 1. LEGAL PROCEEDINGS
    
    
    20ITEM 1A. RISK FACTORS
    
    
    20ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    20ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    20ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    21ITEM 5. OTHER INFORMATION
    
    
    21ITEM 6. EXHIBITS
    
    
    22Exhibit 31.1Exhibit 31.2Exhibit 32
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PART I: FINANCIAL INFORMATION
 
  ASTROTECH CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
 September 30,
    
    
    June 30,2010
    
    
    2010(unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    9,686
    
    
    $
    8,085Accounts receivable, net
    
    
    4,746
    
    
    
    5,676Short-term note receivable, net
    
    
    675
    
    
    
    675Prepaid expenses and other current assets
    
    
    804
    
    
    
    528Total current assets
    
    
    15,911
    
    
    
    14,964Property & equipment, net
    
    
    39,479
    
    
    
    39,920Other assets, net
    
    
    7
    
    
    
    19Total assets
    
    $
    55,397
    
    
    $
    54,903Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    745
    
    
    $
    859Accrued liabilities and other
    
    
    1,765
    
    
    
    2,083Deferred revenue
    
    
    2,111
    
    
    
    854Term note payable
    
    
    3,298
    
    
    
    3,356Senior convertible notes payable- 5.5%
    
    
    5,111
    
    
    
    5,111Other
    
    
    30
    
    
    
    78Total current liabilities
    
    
    13,060
    
    
    
    12,341Deferred revenue
    
    
    948
    
    
    
    350Total liabilities
    
    $
    14,008
    
    
    $
    12,691Stockholders equityPreferred stock, no par value, convertible,
2,500,000 authorized
shares, 0 issued and
outstanding shares, at September 30, 2010
and June 30, 2010
    
    
    
    
    
    
    Common stock, no par value, 75,000,000 shares
authorized 17,964,291 and 17,081,543
shares issued at September 30, 2010 and
June 30, 2010, respectively
    
    $
    183,699
    
    
    $
    183,515Treasury stock, 311,660 shares at cost
    
    
    (237
    )
    
    
    (237
    )Additional paid-in capital
    
    
    552
    
    
    
    639Retained deficit
    
    
    (145,125
    )
    
    
    (143,959
    )Noncontrolling interest
    
    
    2,500
    
    
    
    2,254Total stockholders equity
    
    
    41,389
    
    
    
    42,212Total liabilities and stockholders equity
    
    $
    55,397
    
    
    $
    54,903
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ASTROTECH CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations
 Three Months EndedSeptember 30,2010
    
    
    2009(unaudited)Revenue
    
    $
    5,306
    
    
    $
    7,762Costs of revenue
    
    
    3,486
    
    
    
    2,928Gross profit
    
    
    1,820
    
    
    
    4,834Operating expenses:Selling, general and administrative
    
    
    2,307
    
    
    
    3,075Research and development
    
    
    823
    
    
    
    674Total operating expenses
    
    
    3,130
    
    
    
    3,749Income (loss) from operations
    
    
    (1,310
    )
    
    
    1,085Interest and other expense, net
    
    
    (103
    )
    
    
    (260
    )Income (loss) before income taxes
    
    
    (1,413
    )
    
    
    825Income tax expense
    
    
    (6
    )
    
    
    (25
    )Net income (loss)
    
    
    (1,419
    )
    
    
    800Less: Net loss attributable to noncontrolling
interest
    
    
    256
    
    
    
    Net income (loss) attributable to Astrotech Corporation
    
    $
    (1,163
    )
    
    $
    800Net income (loss) per share-basic
    
    $
    (0.07
    )
    
    $
    0.05Weighted average common shares outstanding, basic
    
    
    17,362
    
    
    
    17,303Net income (loss) per share, diluted
    
    $
    (0.07
    )
    
    $
    0.04Weighted average common shares outstanding, diluted
    
    
    17,362
    
    
    
    18,166
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ASTROTECH CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
 Three Months EndedSeptember 30,2010
    
    
    2009(unaudited)Cash flows from operating activitiesNet income (loss)
    
    $
    (1,419
    )
    
    $
    800Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:Stock-based compensation
    
    
    466
    
    
    
    147Depreciation and amortization
    
    
    550
    
    
    
    540Other
    
    
    
    
    
    
    21Changes in assets and liabilities:Accounts receivable
    
    
    930
    
    
    
    (3,260
    )Deferred revenue
    
    
    1,855
    
    
    
    (465
    )Accounts payable
    
    
    (114
    )
    
    
    (2,137
    )Advances for construction contract
    
    
    
    
    
    
    2,330Other assets and liabilities
    
    
    (642
    )
    
    
    (282
    )Net cash provided by (used in) operating activities
    
    
    1,626
    
    
    
    (2,306
    )Cash flows from investing activitiesPurchases of property, equipment and leasehold improvements
    
    
    (109
    )
    
    
    (698
    )Net cash used in investing activities
    
    
    (109
    )
    
    
    (698
    )Cash flows from financing activitiesTerm loan payment
    
    
    (58
    )
    
    
    (58
    )Proceeds from issuance of common stock
    
    
    142
    
    
    
    29Note payable on revolving credit facility
    
    
    
    
    
    
    1,000Net cash provided by financing activities
    
    
    84
    
    
    
    971Net change in cash and cash equivalents
    
    
    1,601
    
    
    
    (2,033
    )Cash and cash equivalents at beginning of period
    
    
    8,085
    
    
    
    4,730Cash and cash equivalents at end of period
    
    
    9,686
    
    
    
    2,697Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    43
    
    
    $
    46Cash paid for income taxes
    
    $
    
    
    
    $
    
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ASTROTECH CORPORATION AND SUBSIDIARIES
 Notes to Unaudited Condensed Consolidated Financial Statements
 (1) Description of the Company and Operating Environment
  st
 Our Business Units
 Astrotech Space Operations (ASO)
  Spacetech
 st st st st
 (2) Basis of Presentation
   6




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(3) Noncontrolling Interest
 st
 (In thousands)Beginning balance at July 1, 2010
    
    $
    2,254Net loss attributable to noncontrolling interest
    
    
    (256
    )Vesting of restricted stock and warrants
    
    
    (305
    )Prior year retained earnings
    
    
    588Stock based compensation
    
    
    219Ending balance at September 30, 2010
    
    $
    2,500
 st
 (4) Net
Income (Loss) per Share
  Three Months EndedSeptember 30,2010
    
    
    2009Numerator:Net income (loss), basic and diluted
    
    $
    (1,163
    )
    
    $
    800Denominator:Denominator for basic net income
(loss) per share  weighted
average common stock outstanding
    
    
    17,362
    
    
    
    17,303Dilutive common stock equivalents 
common stock options, share-based
awards and convertible debt
    
    
    
    
    
    
    863Denominator for diluted net income
(loss) per share  weighted
average common stock outstanding
and dilutive common stock
equivalents
    
    
    17,362
    
    
    
    18,166Basic net income (loss) per share
    
    $
    (0.07
    )
    
    $
    0.05Diluted net income (loss) per share
    
    $
    (0.07
    )
    
    $
    0.04
  7




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(5) Revenue Recognition
   A Summary of Revenue Recognition Methods
 Services/Products Provided
    
    Contract Type
    
    Method of Revenue RecognitionPayload Processing Facilities
    
    Firm Fixed Price  Mission Specific
    
    Ratably, over the occupancy period of a satellite within the facility from arrival through launchFirm Fixed Price  Guaranteed Number of Missions
    
    For multi-year contract payments recognized ratably over the contract periodCommercial Space Habitat Modules, Integration & Operations Support Services and Construction contracts
    
    Firm Fixed Price
    
    Percentage-of-completion based on costs incurredConfiguration Management, Engineering Services
    
    Cost Reimbursable Award/Fixed Fee
    
    Reimbursable costs incurred plus award/fixed feeCommercial Products
    
    Specific Purchase Order Based
    
    At shipment
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(6) Debt
 Credit Facilities
  Senior Convertible Notes
  (7) Fair Value Measurement
  September 30, 2010
    
    
    June 30, 2010Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueTerm loan payable
    
    $
    3,298
    
    
    $
    3,311
    
    
    $
    3,356
    
    
    $
    3,378Senior convertible notes payable  5.5%
    
    $
    5,111
    
    
    $
    5,111
    
    
    $
    5,111
    
    
    $
    4,808
   (8) Business and Credit Risk Concentration
    9




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(9) Segment Information
   Three Months Ended
    
    
    Three Months EndedSeptember 30, 2010
    
    
    September 30, 2009Revenue and Income (Loss)
    
    
    Income (loss)
    
    
    
    
    
    
    Income (loss)(in thousands)
    
    Revenue
    
    
    before income taxes
    
    
    Revenue
    
    
    before income taxesASO
    
    $
    5,306
    
    
    $
    316
    
    
    $
    7,762
    
    
    $
    2,391Spacetech
    
    $
    
    
    
    $
    (1,729
    )
    
    $
    
    
    
    $
    (1,566
    )$
    5,306
    
    
    $
    (1,413
    )
    
    $
    7,762
    
    
    $
    825
 Assets
    
    September 30, 2010
    
    
    June 30, 2010(in thousands)
    
    Fixed Assets, net
    
    
    Total Assets
    
    
    Fixed Assets, net
    
    
    Total AssetsASO
    
    $
    39,227
    
    
    $
    48,317
    
    
    $
    40,184
    
    
    $
    57,235Spacetech
    
    $
    252
    
    
    $
    7,080
    
    
    $
    200
    
    
    $
    2,861$
    39,479
    
    
    $
    55,397
    
    
    $
    40,384
    
    
    $
    60,096
 (10) State of Texas Funding
 st st st st
 st
 st st st st st
  (11) Equity and Other Long Term Incentive Plans
   10




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st st
  Equity Grants
  Stock Options
   Shares
    
    
    Weighted Average(in thousands)
    
    
    Exercise PriceOutstanding at July 1, 2010
    
    
    745
    
    
    $
    1.45Granted
    
    
    
    
    
    
    Exercised
    
    
    (329
    )
    
    
    0.43Cancelled or expired
    
    
    (12
    )
    
    
    16.49Outstanding at September 30, 2010
    
    
    404
    
    
    $
    1.81
 Restricted Stock
   WeightedAverageShares
    
    
    Grant-Date(in thousands)
    
    
    Fair ValueNon-vested at June 30, 2010
    
    
    2,336
    
    
    $
    1.17Granted
    
    
    
    
    
    
    Vested
    
    
    (573
    )
    
    
    1.15Cancelled or expired
    
    
    (90
    )
    
    
    1.85Non-vested at September 30, 2010
    
    
    1,673
    
    
    $
    1.13
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Restricted Stock 1 st Detect
  st
 WeightedAverageGrant-DateShares
    
    
    Fair ValueNon-vested at June 30, 2010
    
    
    1,180
    
    
    $
    212.00Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Cancelled or expired
    
    
    
    
    
    
    Non-vested at September 30, 2010
    
    
    1,180
    
    
    $
    212.00
 Restricted Stock Astrogenetix
   WeightedAverageGrant-DateShares
    
    
    Fair ValueNon-vested at June 30, 2010
    
    
    1,550
    
    
    $
    167.00Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Cancelled or expired
    
    
    (300
    )
    
    
    167.00Non-vested at September 30, 2010
    
    
    1,250
    
    
    $
    167.00
 (12) Early Termination of Cost Plus Award Fee Contract
  (13) Purchase of Common Stock and Convertible Notes
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(14) Strategic Financial and Business Alternatives
  (15) Board of Director Resignation
  (16) Related Party Transactions
 Director Compensation
  Executive Compensation
 st .
 st st
 st
  13




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(17) Subsequent Events
 Debt
     14




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FORWARD-LOOKING STATEMENTS
  
    
    The effect of economic conditions in the U.S. or other space faring nations that could impact our
ability to access space and support or gain customers;
    
    Uncertainty about, and our ability to raise sufficient capital to meet our long and short-term
liquidity requirements;
    
    Our ability to successfully pursue our business plan;
    
    Whether we will fully realize the economic benefits under our NASA and other customer contracts;
    
    Continued availability and use of the U.S. Space Shuttle and the International Space Station;
    
    Technological difficulties and potential legal claims arising from any technological difficulties;
    
    Product demand and market acceptance risks, including our ability to develop and sell products
and services to be used by the manned and unmanned space programs that replace the Space Shuttle
Program;
    
    Uncertainty in government funding and support for key space programs;
    
    The impact of competition on our ability to win new contracts;
    
    Uncertainty in securing reliable and consistent access to space;
    
    Delays in the timing of performance of other contracts; and
    
    Risks described in the Risk Factors section of our 2010 Form 10-K.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  Overview
   
    
    Facilities and support services necessary for the preparation of satellites and payloads for launch.
    
    Commercialization of space-based technologies into real-world applications.
    
    Expertise in qualifying hardware for spaceflight and the habitability and occupational challenges
of space.
 Our Business Units
 Astrotech Space Operations (ASO)
  
    
    Our ability to control our capital expenditures, which primarily are limited to modifications to
accommodate payload processing for new launch vehicles, upgrading communications infrastructure and
other building improvements.
    
    The continuing limited availability of competing facilities at the major domestic launch sites that can
offer comparable services, leading to an increase in government use of our services.
    
    Our ability to complete customer specified facility modifications within budgeted costs and time
commitments.
    
    Our ability to control and reduce costs in order to maximize profitability of our fixed-priced contracts.
  16




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Spacetech
 st st st st
 Critical Accounting Policies
   Results of Operation
 Three months ended September 30, 2010 compared to three months ended September 30, 2009
  Three Months EndedSeptember 30,2010
    
    
    2009Revenue
    
    $
    5,306
    
    
    $
    7,762Gross profit
    
    
    1,820
    
    
    
    4,834Gross margin
    
    
    34
    %
    
    
    62
    %Selling, general and administrative
    
    
    2,307
    
    
    
    3,075Research and development
    
    
    823
    
    
    
    674Operating expenses
    
    $
    3,130
    
    
    $
    3,749Interest and other expense, net
    
    
    (103
    )
    
    
    (260
    )Income tax expense
    
    
    (6
    )
    
    
    (25
    )Consolidated net income (loss)
    
    $
    (1,419
    )
    
    $
    800Less: Net loss, noncontrolling interest
    
    
    256
    
    
    
    Net income (loss), attributable to Astrotech Corporation
    
    $
    (1,163
    )
    
    $
    800
  17




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Revenue.
 Gross Profit.
 Selling, General and Administrative Expense.
 Research and Development Expense. st
 Interest and Other Expense, net.
 Liquidity and Capital Resources
   Three Months EndedSeptember 30,2010
    
    
    2009Net cash provided by (used in) operating activities
    
    $
    1,626
    
    
    $
    (2,306
    )Net cash used in investing activities
    
    
    (109
    )
    
    
    (698
    )Net cash provided by financing activities
    
    
    84
    
    
    
    971Net change in cash and cash equivalents
    
    $
    1,601
    
    
    $
    (2,033
    )
  18




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Operating Activities
   Assets.
 Liabilities.
 Investing Activities
  Financing Activities
  Debt Facilities
   Off-Balance Sheet Arrangements
   19




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 (a) Evaluation of Disclosure Controls and Procedures
  (b) Changes in Internal Control over Financial Reporting
  
 PART II: OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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ITEM 5. OTHER INFORMATION
   21




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ITEM 6. EXHIBITS
  Exhibit No.
    
    Description31.1
    
    
    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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Astrotech CorporationDate: November 5, 2010
    
    /s/ Thomas B. Pickens, III

Thomas B. Pickens, IIIChief Executive Officer/s/ John M. Porter

John M. PorterSenior Vice President andChief Financial Officer
  23