UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

Commission File Number 001-34426

Astrotech Corporation

(Exact name of registrant as specified in its charter)

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

401 Congress Ave. Suite 1650
Austin, Texas 78701
(Address of principal executive offices) (Zip code)

(512) 485-9530
(Registrant’s telephone number, including area code)

Securities Registered pursuant to Section 12(b) of the Act:

Title of each class Common Stock (no par value)		Name of each exchange on which registered NASDAQ Capital Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on it corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO þ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ

The aggregate market value of the registrants voting and non-voting common equity held by non-affiliates of the registrant, based upon the closing price of such stock on the NASDAQ Capital Market on such date of $1.13 was approximately $20,259,580 as of December 31, 2010.

As of September 9, 2011, 19,374,895 shares of the registrant’s Common Stock, no par value, were outstanding, including 1,171,946 shares of restricted stock with voting rights.

 

 

Table of Contents

PART I			4
Item 1. Business			4
Item 1A. Risk Factors			8
Item 1B. Unresolved Staff Comments			11
Item 2. Properties			11
Item 3. Legal Proceedings			12
Item 4. Removed and Reserved			12
PART II			13
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			13
Item 6. Selected Financial Data			15
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			24
Item 8. Financial Statements and Supplementary Data			24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			45
Item 9A. Controls and Procedures			45
Item 9B. Other Information			46
PART III			46
Item 10. Directors, Executive Officers and Corporate Governance			46
Item 11. Executive Compensation			52
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			64
Item 13. Certain Relationships and Related Transactions, and Director Independence			66
Item 14. Principal Accounting Fees and Services			66
PART IV			68
Item 15. Exhibits, Financial Statement Schedules			68
SIGNATURES			77
Exhibit 23.1
Exhibit 23.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

FORWARD-LOOKING STATEMENTS

This Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. Forward-looking statements may include the words “may,” “will,” “plans,” “believes,” “estimates,” “expects,” “intends” and other similar expressions. Such statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in the statements. Such risks and uncertainties include, but are not limited to:

•		The effect of economic conditions in the United States or other space faring nations that could impact our ability to access space and support or gain customers;
•		Our ability to raise sufficient capital to meet our long and short-term liquidity requirements;
•		Our ability to successfully pursue our business plan and execute our strategy;
•		Whether we will fully realize the economic benefits under our NASA and other customer contracts;
•		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 governmental or commercial customers;
•		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, including the International Space Station;
•		Delays in the timing of performance of our contracts;
•		Our ability to meet technological development milestones and overcome development challenges; and
•		Risks described in the “Risk Factors” section of this Form 10-K.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate, therefore we cannot assure you that the forward-looking statements included in this Form 10-K will prove to be accurate. In light of the significant uncertainties inherent in our forward-looking statements, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Some of these and other risks and uncertainties that could cause actual results to differ materially from such forward-looking statements are more fully described in Item 1A “Risk Factors” of this Form 10-K and elsewhere in this Form 10-K, or in the documents incorporated by reference herein. Except as may be required by applicable law, we undertake no obligation to publicly update or advise of any change in any forward-looking statement, whether as a result of new information, future events or otherwise. In making these statements, we disclaim any obligation to address or update each factor in future filings with the Securities and Exchange Commission (“SEC”) or communications regarding our business or results, and we do not undertake to address how any of these factors may have caused changes to discussions or information contained in previous filings or communications. In addition, any of the matters discussed above may have affected our past results and may affect future results, so that our actual results may differ materially from those expressed in this Form 10-K and in prior or subsequent communications.

PART I

Item 1.		Business.

Our Company

Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” “the Company,” “we,” “us” or “our”), a Washington corporation, is a commercial aerospace company that provides spacecraft payload processing and related services, designs and manufactures space hardware, and commercializes space technologies for use on Earth. The Company serves the U.S. Government and commercial spacecraft customers with our pre-launch services from our Astrotech Space Operations (“ASO”) business unit and incubates space technology businesses through its Spacetech business unit, now focusing on two companies: 1^st Detect Corporation (“1^st Detect”), which is developing a Miniature Chemical Detector first developed for the International Space Station; and Astrogenetix, Inc. (“Astrogenetix”), which is utilizing the unique microgravity environment of space as a research platform for drug discovery and development.

Astrotech was formed in 1984 to leverage the environment of space for commercial purposes. For the last 27 years, the Company has remained a crucial player in space commerce activities. We have supported the launch of 23 shuttle missions and more than 290 spacecraft, built space hardware and processing facilities, designed and manufactured ground support equipment, and prepared and processed scientific research for microgravity.

We offer products and services in the following areas:

	•		Facilities and ancillary support services necessary for the preparation of satellites and payloads for launch.
	•		Design and fabrication of equipment and hardware for space launch activities.
	•		Propellant services support for spacecraft.
	•		Commercialization of space-based technologies into real-world applications.

The Company has experience supporting both manned and unmanned missions to space with product and service support including space hardware design and manufacturing, research and logistics expertise, engineering and support services, and payload processing and integration. Through new Spacetech business initiatives such as 1^st Detect and Astrogenetix, Astrotech is paving the way in the commercialization of space by translating space-based technology into terrestrial applications.

Our Business Units

Astrotech Space Operations

ASO is the leading commercial supplier of satellite launch processing services in the United States. ASO provides processing support for government and commercial customers for their complex communication, earth observation and deep space satellites. ASO’s spacecraft processing capabilities are among the elite in the industry, with ideally located facilities that can support the largest five-meter class satellites, encompassing the majority of U.S. based satellite preparation services. ASO has provided launch processing support for government and commercial customers for more than a quarter century, successfully processing more than 290 spacecraft without negatively impacting a customer launch schedule.

ASO accounted for 98% of our consolidated revenues for the year ended June 30, 2011 (See Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations). Revenue for our ASO business unit is primarily generated from various fixed-priced contracts with launch service providers in both the commercial and governmental markets. The services and facilities we provide to our customers support the final assembly, checkout, and countdown functions associated with preparing a spacecraft for launch. Other factors that have impacted, and are expected to continue to impact earnings and cash flows for this business include:

	•		Our ability to control our capital expenditures, which are primarily 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 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.

Spacetech

Our Spacetech business unit is an incubator intended to develop space-industry technologies into commercial applications to be sold to consumers and industry. Spacetech is currently working on two business initiatives: 1^st Detect Corporation and Astrogenetix, Inc. 1^st Detect’s business began under a Space Act Agreement with the National Aeronautics and Space Administration (“NASA”) for a chemical detection unit to be used on the International Space Station. 1^st Detect engineers have developed a Miniature Chemical Detector, based on ion trap mass spectrometry, that we believe fills a niche by being highly accurate, lightweight, battery-powered, durable and inexpensive. Astrogenetix is a biotechnology company created to use the unique environment of space to discover and develop novel vaccine and novel therapeutic products. A natural extension of the many years of experience preparing, launching, and operating scientific payloads in space, Astrogenetix is in the process of developing products from microgravity discoveries.

Business Strategy

Astrotech Space Operations

As a leading commercial provider of payload processing services, ASO strives to provide our customers with the most advanced facilities and customer support that are unparalleled in the industry. With that mission in mind, ASO is continuously working to secure additional government and commercial customers that require our unique capabilities. Additionally, ASO works to further grow the business with our service offering designing, building, and operating spacecraft processing equipment and facilities.

Spacetech

1^st Detect is developing what we expect will be a revolutionary chemical detector based on ion trap mass spectrometry, which allows for the device’s portability, versatility, sensitivity, durability and high speed at a low cost. Potential markets that 1^st Detect may serve include Security and Defense, Industrial, Medical and Healthcare, Critical Infrastructure, and First Responders.

Over the last three years, Astrogenetix has pursued an aggressive space access strategy to take advantage of the Space Shuttle program prior to its retirement. This strategy gave Astrogenetix unprecedented access to research in microgravity, as the company flew twelve experiments in this three year period. Astrogenetix dedicated its limited resources on pursuing this strategy of maximizing flight opportunities. Astrogenetix is currently focused on developing a Salmonella vaccine as part of the ongoing commercialization strategy. Concurrently, Astrogenetix is working on the continued development of a vaccine target for Methicilin-resistant Staphylococcus Aureus (“MRSA”) based on discoveries made in microgravity.

Products and Services

Astrotech Space Operations

From our state of the art facilities in Titusville, Florida and Vandenberg Air Force Base (“VAFB”) in California, ASO has provided support for pre-launch ground based operations for nearly 30 years for both commercial and government satellites, and we are the leader in this sector. Our service offering includes advance planning; use of our unique facilities; and spacecraft checkout, encapsulation, fueling, and transport. Additionally, ASO has extensive experience in designing, building, and operating spacecraft processing equipment and facilities. ASO also provides propellant services including designing, building and testing propellant service equipment for servicing spacecraft.

Spacetech

1^st Detect’s Miniature Chemical Detector is a universal chemical analyzer that provides rapid analysis time and is capable of detecting residues and vapors from a wide range of chemicals including explosives, chemical warfare agents, toxic chemicals, and volatile organic compounds. 1^st Detect’s proprietary technology, leveraging advances in low power electronics and miniaturization technologies developed for the space program, allows for the device’s portability, versatility, sensitivity, durability and efficiency at a low cost. In the fourth quarter of fiscal year 2011, the United States Patent and Trademark Office issued a key patent to 1^st Detect for its unique method to drive a mass spectrometer ion trap used for chemical detection and identification.

Astrogenetix has used the unique environment of microgravity to discover a potential vaccine candidate for Salmonella, which validates the use of microgravity in identifying commercially viable biomarkers. Astrogenetix believes this provides significant advantages over traditional earthbound vaccine discovery processes, thus reducing the development time and cost significantly for researchers. Follow on work with MRSA has resulted in the identification of a potential vaccine target for that microbe as well. In addition to Astrogenetix’s proprietary research, the company has the capabilities to provide external researchers with the knowledge and access needed for microgravity research.

Customers, Sales and Marketing

Astrotech Space Operations

ASO services a variety of domestic and international government and commercial customers sending satellites and spacecraft to low-earth-orbit, geosynchronous orbit, or on planetary missions. ASO has long-term contracts in place with NASA, other U.S. Governmental agencies, and United Launch Alliance. ASO continues to look for opportunities to support spacecraft processing for government and commercial customers. During fiscal year 2011, ASO accounted for 98% of our consolidated revenues.

Spacetech

The broadband nature of the 1^st Detect technology, as well as the high performance provided by the ion trap architecture, opens up 1^st Detect to a variety of applications. Potential markets that 1^st Detect may serve include Security and Defense, Industrial, Medical and Healthcare, Critical Infrastructure, and First Responders. Astrogenetix is currently focused on starting the FDA process with the Salmonella vaccine candidate and is continuing drug development work for MRSA.

Competition

Astrotech Space Operations

The majority of the Company’s revenue is derived from ASO, which processes satellites for U.S. launch locations. The only significant competition to ASO’s facilities is from commercial competitor Spaceport Systems International (“SSI”) and certain U.S. Government facilities. However, we believe that the majority of domestic satellites, including many government satellites, are processed at ASO due to the state-of-the-art, professionally operated, full-service environment.

Commercial

SSI operates and manages a commercial spaceport at VAFB and is a provider of payload processing and launch services for both commercial and government users. The SSI facility throughput capability is significantly less than that of ASO in VAFB and it is heavily influenced by government customers. The ASO VAFB contract award for the five-meter high bay construction significantly improves ASO’s competitive advantage at VAFB. SSI does not provide payload processing services in support of the Cape Canaveral Air Force Station (“CCAFS”) / Kennedy Space Center (“KSC”) launch site, and therefore, does not compete with ASO in Florida.

Governmental

NASA and the United States Air Force own and operate payload processing facilities at both the CCAFS/KSC and VAFB launch sites. These facilities, however, are used to process select government spacecraft only. They are not used to process commercial spacecraft. Therefore, ASO’s competition from the U.S. Government is limited in scope.

Spacetech

There are many incumbent vendors that will compete with 1^st Detect’s Miniature Chemical Detector. However, we believe the 1^st Detect product offers a combination of attributes that are currently unavailable in the marketplace in a single product.

Regarding Astrogenetix, there are many earthbound developers of vaccines, including most large pharmaceutical companies and many smaller biotechnology firms. However, there are no known competitors to Astrogenetix developing vaccines in microgravity. With the completion of the construction of the ISS and the focus of the ISS now on operations through year 2020, competition from foreign governments, academia and commercial companies is anticipated.

Research and Development

We incurred $3.8 million and $2.8 million in research and development expense during fiscal years 2011 and 2010, respectively. Research and development in fiscal year 2011 has been primarily directed towards development of 1^st Detect’s Miniature Chemical Detector and Astrogenetix’s Microgravity Processing Platform. Astrogenetix continues to work on its investigational new drug application for its Salmonella vaccine candidate while also furthering its research on MRSA which has led to a potential vaccine target for the deadly microbe, but the primary focus of 2011 and 2010 was to utilize the last remaining Space Shuttle flights before the program retirement.

Backlog

The Company’s 18-month rolling backlog at June 30, 2011, which includes contractual backlog, scheduled but uncommitted missions and grants is $35.2 million.

(In thousands)
Contract Backlog		18-Month Rolling
ASO Missions		$	18,452
ASO Facility Programs			16,326
Spacetech Grants			448
Total Backlog		$	35,226

The 18-month rolling backlog for ASO consists of pre-launch satellite processing services, which include hardware launch preparation, advance planning, use of unique satellite preparation facilities and spacecraft checkout, encapsulation, fueling, and transport and design and fabrication of equipment and hardware for space launch activities at our Titusville, Florida and VAFB locations. The 18-month rolling backlog for Spacetech consists of grant revenue from the SBIR program.

Certain Regulatory Matters

We are subject to federal, state, and local laws and regulations designed to protect the environment and to regulate the discharge of materials into the environment in order to protect our domestic technology from unintended foreign exploitation and to regulate certain business practices. We believe that our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and consequential financial liability to us. Compliance with environmental laws and regulations and technology export requirements has not had in the past, and, we believe, will not have in the future, material effects on our capital expenditures, earnings, or competitive position. Our operations are also subject to various regulations under federal laws relative to the international transfer of technology, as well as to various federal and state laws relative to business operations. In addition, we are subject to federal contracting procedures, audit, and oversight.

Significant federal regulations impacting our operations include the following:

Federal Regulation of International Business. We are subject to various federal regulations as it relates to the export of certain goods, services, and technology. These regulations, which include the Export Administration Act of 1979 administered by the Commerce Department and the Arms Export Control Act administered by the State Department, impose substantial restrictions on the sharing or transfer of technology to foreign entities. Our activities in the development of space technology and in the processing of commercial satellites deal with the type of technology subject to these regulations. Our operations are conducted pursuant to a comprehensive export compliance policy that provides close review and documentation of activities subject to these laws and regulations.

Foreign Corrupt Practices Act. The Foreign Corrupt Practices Act establishes rules for U.S. companies doing business internationally. Compliance with these rules is achieved through established and enforced corporate policies, documented internal procedures, and financial controls.

Iran Nonproliferation Act of 2000. This act includes specific prohibitions on commercial activities with certain specified Russian entities engaged in providing goods or services to the International Space Station. Our activities with RSC Energia of Russia are not subject to this act.

Federal Acquisition Regulations. Goods and services provided by us to NASA and other U.S. Government agencies are subject to Federal Acquisition Regulations. These regulations provide rules and procedures for invoicing, documenting, and conducting business under contract with such entities. The Federal Acquisition Regulations also subject us to audit by federal auditors to confirm such compliance.

Truth in Negotiations Act. The Truth in Negotiations Act was enacted for the purpose of providing full and fair disclosure by contractors in the conduct of negotiations with the U.S. Government. The most significant provision included in the Truth in Negotiations Act is the requirement that contractors submit certified cost and pricing data for negotiated procurements above a defined threshold.

Defense Security Service. Occasionally, we are requested to process government spacecraft payloads that must be handled under federal security clearances. To accommodate these requirements, we maintain facility security clearances within certain subsidiaries of the Company and have persons engaged by the Company with necessary active security clearances to support these requirements. Maintenance of an active facility clearance requires dedicated trained personnel, specified facility standards and recordkeeping.

Regulatory Compliance and Risk Management

We maintain compliance with regulatory requirements and manage our risks through a program of compliance, awareness, and insurance, which includes the following:

Safety. We place a continual emphasis on safety throughout our organization. At the corporate level, safety programs and training are monitored by a corporate safety manager.

Export Control Compliance. We have a designated senior officer responsible for export control issues and the procedures detailed in our export control policy. This officer and the designated export compliance administrator monitor training and compliance with regulations relative to foreign business activities. Employees are provided comprehensive training in compliance with regulations relative to export and foreign activities through our interactive training program and are certified as proficient in such regulations as are relative to their job responsibilities.

Insurance. Our ASO operations, which are centered around specialized and unique processing facilities in Titusville, Florida and VAFB, are subject to risk and potential loss due to a number of factors, but most notably, the transportation of heavy equipment and the consistent use by customers and employees. To mitigate this risk we strive to maintain our facilities in optimal condition and we hold property and casualty lines of insurance on each of our facilities and a general liability policy for Astrotech.

Employees Update

As of June 30, 2011, we employed 66 regular full-time employees, none of which were covered by any collective bargaining agreements.

In June 2010, General (Ret.) Lance W. Lord resigned from the Board of Directors of Astrotech and as the Chief Executive Officer of Astrotech Space Operations. The vacancy on the Board of Directors created by General Lord’s resignation was fulfilled pursuant to the election of Daniel T. Russler, Jr. at our annual meeting of shareholders on April 20, 2011. The company does not currently have any plans to fill the role of Chief Executive Officer, Astrotech Space Operations.

In July 2010, the Company simultaneously announced the termination of James Royston, President of Astrotech Corporation, and a realignment of its corporate structure in order to optimize operational efficiencies. The Company’s action follows an evaluation of each business and a review of strategic alternatives. The corporate realignment will allow Astrotech to put a greater focus on the pre-launch satellite service offering of its ASO business unit.

Item 1A.		Risk Factors.

Given the inherent uncertainty and complexity of the businesses that we engage in, our results from operations and financial condition could be materially adversely impacted as set forth below.

Our success depends significantly on the establishment and maintenance of successful relationships with our customers.

We have relied on governmental customers for a substantial portion of our revenue. Approximately 73% of our revenue in fiscal year 2011 was generated by various NASA and U.S. Government contracts or subcontracts. The loss of these customers could have a material adverse effect on our business, financial condition and results of operations. We cannot make any assurances that any customer will require our services in the future. Therefore, we continue to work on diversifying our customer base to include other government agencies and commercial industries, while going to great lengths to satisfy the needs of our current customer base.

Termination of our future orders could negatively impact our revenues.

The Company’s rolling backlog at June 30, 2011, which includes contractual backlog and scheduled but uncommitted missions, is $35.2 million. The majority is for ASO pre-launch satellite processing services, which include hardware launch preparation; advance planning; use of unique satellite preparation facilities; and spacecraft checkout, encapsulation, fueling and transport. Since our backlog is not yet earned and can be terminated by our customers, we cannot assure that our backlog will ultimately result in revenues.

A branch of the U.S. Government or a commercial competitor could construct spacecraft ground processing facilities, which could significantly reduce the number of missions using Astrotech facilities.

Astrotech provides services for domestic launch sites. In the event that the U.S. Government constructs spacecraft ground processing facilities for the launch sites currently serviced by Astrotech, there could be a reduced need for the use of Astrotech facilities. This would result in direct competition for our existing customers in connection with servicing domestic launch sites, which could significantly reduce our revenues. There can be no assurance that we will be able to compete successfully against any new competitor in this area or that these competitive pressures we may face will not result in reduced revenues and market share.

Compliance with environmental and other government regulations could be costly and could negatively affect our financial condition.

Our business, particularly our ASO business unit, is subject to numerous laws and regulations governing the operation and maintenance of our facilities and the release or discharge of hazardous or toxic substances, including spacecraft fuels and oxidizers, into the environment. Under these laws and regulations, we could be liable for personal injury and cleaning costs and other environmental and property damages, as well as administrative, civil, and criminal penalties. In the event of a violation of these laws, or a release of hazardous substances at or from our facilities, our business, financial condition, and results of operations could be materially adversely affected.

As a U.S. Government contractor, we are subject to a number of rules and regulations, the violation of which could result in us being barred from future U.S. Government contracts.

We must comply with, and are affected by, laws and regulations relating to the award, administration, and performance of U.S. Government contracts. These laws and regulations, among other things:

•		Require certification and disclosure of all cost or pricing data in connection with certain contract negotiations.
•		Impose acquisition regulations that define allowable and unallowable costs and otherwise govern our right to reimbursement under certain cost-based U.S. Government contracts.
•		Restrict the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.

A violation of specific laws and regulations could result in the imposition of fines and penalties, the termination of our contracts, or disbarment from bidding on U.S. Government contracts. Additionally, U.S. Government contracts generally contain provisions that allow the U.S. Government to unilaterally suspend us from receiving new contracts pending resolution of alleged violations of certain federal laws or regulations, reduce the value of existing contracts, issue modifications to a contract, and control and potentially prohibit the export of our services and associated materials. Prohibition against bidding on future U.S. Government contracts would have a material adverse effect on our financial condition and results of operations.

Our failure to comply with U.S. export control laws and regulations could adversely affect our business.

We are obligated by law and under contract to comply, and to ensure that our subcontractors comply, with all U.S. export control laws and regulations, including the International Traffic in Arms Regulations and the Export Administration Regulations. We are responsible for obtaining all necessary licenses or other approvals, if required, for exports of hardware, technical data, and software, or for the provision of technical assistance. We are also required to obtain export licenses, if required, before utilizing foreign persons in the performance of our contracts if the foreign person will have access to export-controlled technical data or software. The violation of any of the applicable export control laws and regulations, whether by us or any of our subcontractors, could subject us to administrative, civil, and criminal penalties.

Our business could be adversely affected by a negative audit by the U.S. Government.

U.S. Government agencies routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure, and compliance with applicable laws, regulations, and standards. The U.S. Government may also review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation, and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed, while such costs already reimbursed must be refunded. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or prohibition from doing business with the U.S. Government. In addition, we could suffer serious reputational harm that may affect our non-governmental business if allegations of impropriety were made against us.

Our Spacetech business unit is in an early development stage. It has earned limited revenues and it is uncertain whether it will earn any revenues in the future or whether it will ultimately be profitable.

Our Spacetech business unit is in an early development stage with limited commercial sales and a limited operating history. Its future operations are subject to all of the risks inherent in the establishment of a new business enterprise including, but not limited to, risks related to capital requirements, failure to establish business relationships and competitive disadvantages as against larger and more established companies. The Spacetech business unit will require substantial amounts of funding to develop, test, and commercialize its products. If such funding comes in the form of equity financing, such equity financing may involve substantial dilution to existing shareholders. Even with funding, our product development program may not lead to commercial products, either because our product candidates fail to be effective or are not attractive to the market or because we lack the necessary financial or other resources or relationships to pursue our programs through commercialization.

The Spacetech business unit can be expected to experience significant operating losses until it can generate sufficient revenues to cover its operating costs. The Spacetech business unit currently has no commercial products and there can be no assurance that the business will be able to develop, manufacture or market any products in the future, that future revenues will be significant, that any sales will be profitable or that the business will have sufficient funds available to complete its marketing and development programs or to market any products which it may develop.

Any products and technologies developed and manufactured by our Spacetech business unit may require regulatory approval prior to being made, marketed, sold, and used. There can be no assurance that regulatory approval of any products will be obtained.

The commercial success of the Spacetech business unit is expected to depend, in part, on obtaining patent and other intellectual property protection for the technologies contained in any products it develops. In addition, the Spacetech business unit may need to license intellectual property to commercialize future products or avoid infringement of the intellectual property rights of others. There can be no assurance that licenses will be available on acceptable terms and conditions, if at all. The Spacetech business unit may suffer if any licenses terminate, if the licensors fail to abide by the terms of the license or fail to prevent infringement by third parties, if the licensed patents or other rights are found to be invalid, or if the Spacetech business unit is unable to enter into necessary licenses on acceptable terms. If the Spacetech business unit, or any third party, from whom it licenses intellectual property, fails to obtain adequate patent or other intellectual property protection for intellectual property covering its products, or if any protection is reduced or eliminated, others could use the intellectual property covering the products, resulting in harm to the competitive business position of the Spacetech business unit. In addition, patent and other intellectual property protection may not provide the Spacetech business unit with a competitive advantage against competitors that devise ways of making competitive products without infringing any patents that the Spacetech business unit owns or has rights to. Such competition could adversely affect the prices for any products or the market share of the Spacetech business unit and could have a material adverse effect upon its results of operations and financial condition.

Our facilities located in Florida and California are susceptible to damage caused by hurricanes, earthquakes, or other natural disasters.

Our ASO spacecraft processing facilities on the east coast of Florida are susceptible to damage caused by hurricanes or other natural disasters. In addition, our satellite processing facilities at VAFB are subject to damage caused by earthquakes. Although we insure our properties and maintain business interruption insurance, there can be no guarantee that the coverage would be sufficient or a claim will be fulfilled. A natural disaster could result in a temporary or permanent closure of our business operations, thus impacting our future financial performance.

Due to our dependence on the timing of spacecraft launches, our results may fluctuate significantly from quarter to quarter.

The use of our ASO spacecraft processing facilities is highly dependent upon the number of satellite launches planned and executed each year. Additionally, factors beyond our direct control, such as a delay or accident at a launch vehicle support facility, could cause a material change in our financial results. As a result, significant fluctuations should be expected from quarter to quarter in our operating results.

The loss of key management and other employees could have a material adverse effect on our business.

We are dependent on the personal efforts and abilities of our senior management, and our success will also depend on our ability to attract and retain additional qualified employees. Failure to attract personnel sufficiently qualified to execute our strategy, or to retain existing key personnel, could have a material adverse effect on our business.

If we are unable to anticipate technological advances and customer requirements in the commercial and governmental markets, our business and financial condition may be adversely affected.

Our business strategy outlines the use of decades of experience to expand the services and products we offer to both government agencies and commercial industries. We believe that our growth and future financial performance depend upon our ability to anticipate technological advances and customer requirements. There can be no assurance that we will be able to achieve the necessary technological advances for us to remain competitive. In fiscal year 2011, we continued new business initiatives for advancing commerce in space. These new business initiatives will require substantial investments of capital and technical expertise. Our failure to anticipate or respond adequately to changes in technological and market requirements, or delays in additional product development or introduction, could have a material adverse effect on our business and financial performance. Additionally, the cost of capital to fund these businesses will likely require dilution of shareholders.

Our inability to generate sufficient cash flow to pay off or refinance our indebtedness with near-term maturities could have a material adverse effect on our financial condition.

We cannot assure that our business will generate cash flows from operations or that future borrowings will be available to us in an amount sufficient to pay our maturing indebtedness as it comes due. As a result, we may need to refinance all or a portion of the debt or we may need to secure new financing before maturity. We cannot be sure that we will be able to obtain financing on reasonable terms or at all, particularly given the general economic situation and lending environment we currently face.

Our earnings and margins may vary due to the nature of our fixed-priced contracts.

Our business mix includes cost-reimbursable and fixed-price contracts. Cost-reimbursable contracts generally have lower profit margins than fixed-price contracts. Our ASO business unit contracts are mainly fixed-price contracts. If we are unable to control costs we incur in performing under the contract, our financial condition and operating results could be materially adversely affected. Additionally, the costs incurred to operate our core ASO business are near-term fixed. As a result, if we are not able to schedule payload processing in order to optimize our facilities, our financial results could be adversely affected.

We plan to develop new products and services. No assurances can be given that we will be able to successfully develop these products and services.

Our business strategy outlines the use of the decades of experience we have accumulated to expand the services and products we offer to both U.S. Government and commercial industries. These services and products generally involve the commercial exploitation of space, and involve new and untested technologies and business models. These technologies and business models may not be successful, which could result in the loss of any investment we make in developing them.

Our financial results could be adversely affected if the estimates that we use in accounting for contracts are incorrect and need to be changed.

Contract accounting requires judgment relative to assessing risks, estimating contract revenues and costs, and making assumptions for scheduling and technical issues. We rely on the application of consistent business processes in order to minimize material error and maximize reporting transparency. The estimation of total revenues and cost at completion for many of our contracts is complicated and subject to many unknown variables.

If our performance under a cost reimbursable contract results in an award fee that is lower than we have estimated, we would be required to refund previously billed fee amounts and would have to adjust our revenue recognition accordingly. If our performance was determined to be significantly deficient, we may be required to reimburse our customers for the entire amount of previously billed awards. Changes in underlying assumptions, circumstances, or estimates may adversely affect future period financial performance.

Our spacecraft payload processing facilities are specifically designed to process satellites and other payloads and we would lose a substantial portion of their value if we no longer provide these services.

Our ASO spacecraft processing facilities were built specifically to process satellites and space related payloads. If we were required to terminate the processing businesses, the value of these facilities could be impaired and, as a result, our financial condition and results of operations would likely be negatively impacted.

Our inability to maintain required government security clearances and the impact of foreign ownership or control could result in a loss of potential future spacecraft ground processing and other opportunities.

In order to be a service and product provider for spacecraft ground processing and other related activities, we are required to maintain certain government security clearances and we must comply with laws that limit foreign ownership and control. We may be subject to regulatory action and other sanctions if we fail to comply with applicable laws and regulations relating to required security clearances and foreign ownership and control. This could harm our reputation, our prospects for future work, and our operating results.

We incur substantial upfront, non-reimbursable costs in preparing proposals to bid on contracts that we may not be awarded.

Preparing a proposal to bid on a contract is generally a three to six month process. This process is labor-intensive and results in the incurrence of substantial costs that are generally not retrievable. Additionally, although we may be awarded a contract, work performance does not commence for several months following completion of the bidding process. If funding problems by the party awarding the contract or other matters further delay our commencement of work, these delays may lower the value of the contract, or possibly render it unprofitable.

On August 30, 2011, we received a NASDAQ Staff Determination letter indicating that we failed to comply with NASDAQ Marketplace Rule 4310(c)(4), which requires that we maintain a $1.00 bid price, and our securities were, therefore, subject to delisting from The NASDAQ Capital Market. In order to regain compliance, the closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days. There can be no assurance that we will be able to regain compliance with this requirement. If our common stock ceases to be listed for trading on the NASDAQ Capital Market, the level of trading activity of our common stock may decline and it may harm our stock price, increase the volatility of our stock price and make it more difficult to sell your shares of our common stock.

Item 1B.		Unresolved Staff Comments.

Not applicable.

Item 2.		Properties.

Astrotech relocated its corporate headquarters to Austin, Texas in June 2009. The leased office houses executive management, finance and accounting, and marketing and communications. We continue to maintain leased offices in Houston, Texas which are primarily focused on supporting the engineering efforts of Spacetech.

ASO’s headquarters, and Florida operations team, are located in a nine-building complex located on a 62-acre space technology campus in Titusville, Florida. This campus encompasses 140,000 square feet of facility space supporting non-hazardous and hazardous flight hardware processing, payload storage, and customer offices.

In September 2009, we completed construction of a 23,000 square foot payload processing facility at VAFB in California which enhanced our capability to process five-meter class satellite payloads. Additionally, in December 2009, we completed construction of a 5,600 square foot office building used by customers for administrative and operational support of teams processing satellites in the new five-meter payload facility. ASO presently leases the 60-acre site located on VAFB in California, where we own four buildings totaling over 50,000 square feet of space. The present land lease expires in July 2013, with provisions to extend the lease at the request of the lessee and the concurrence of the lessor. Upon final expiration of the land lease, all improvements on the property revert, at the lessor’s option, to the lessor at no cost.

We maintain a separate 58,000 square foot payload processing facility located in Cape Canaveral, Florida. We negotiated an agreement with the Canaveral Port Authority for the lease of the land for a forty-three year period, expiring 2040. Upon expiration of the land lease, all improvements on the property revert at no cost to the lessor. In May 2005, we sold the facility in Cape Canaveral, Florida for $4.8 million. We now lease back 100% of the facility through December 31, 2012, with an option for an additional year. We may elect to exercise a purchase option by delivering written notice to the Landlord at any time on or prior to December 31, 2013.

We believe that our current facilities and equipment are generally well maintained and in good condition, and are adequate for our present and foreseeable needs.

Item 3.		Legal Proceedings.

The Company is not a party to any significant pending or threatened proceedings, which in management’s opinion, would have a material adverse effect on our business, financial condition, or results of operation.

Item 4.		Removed and Reserved.

PART II

Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our Common Stock is principally traded on the NASDAQ Global Market. The following table sets forth the quarterly high and low intra-day bid prices for the periods indicated:

Fiscal 2011		High				Low
First Quarter		$	1.93			$	1.15
Second Quarter		$	1.78			$	1.00
Third Quarter		$	1.56			$	1.05
Fourth Quarter		$	1.23			$	0.74

Fiscal 2010		High				Low
First Quarter		$	3.84			$	0.98
Second Quarter		$	3.66			$	1.36
Third Quarter		$	4.06			$	1.88
Fourth Quarter		$	3.58			$	1.24

We have never paid cash dividends. It is our present policy to retain earnings to finance the growth and development of our business; therefore, we do not anticipate paying cash dividends on our Common Stock in the foreseeable future.

We have 75,000,000 shares of Common Stock authorized for issuance. As of September 9, 2011, we had 19,374,895 shares of Common Stock outstanding, including 1,171,946 shares of restricted stock with voting rights, which were held by approximately 2,700 holders. The last reported sale price of our Common Stock as reported by the NASDAQ Global Market on September 9, 2011 was $0.74 per share.

Securities Available for Issuance

As of June 30, 2011, the following securities are available for issuance:

Number of securities to

Weighted average exercise

be issued upon exercise

price of outstanding

Number of securities

of outstanding options,

options, warrants, and

remaining available

Astrotech Equity Available for Issuance

warrants, and rights

rights

for future issuance

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders

377,350

$

1.28

2,241,425

Equity compensation plans not approved by security holders

—

—

—

Total

377,350

$

1.28

2,241,425

Number of securities to

Weighted average exercise

be issued upon exercise

price of outstanding

Number of securities

of outstanding options,

options, warrants, and

remaining available

1st Detect Equity Available for Issuance

warrants, and rights

Rights

for future issuance

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders

2,500

$

—

2,500

Equity compensation plans not approved by security holders

—

—

—

Total

2,500

$

—

2,500

Stock Performance Graph

The following performance graph and table do not constitute soliciting material and the performance graph and table should not be deemed filed or incorporated by reference into any other previous or future filings by us under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate the performance graph and table by reference therein.

The performance graph and table below compare the five-year cumulative total return of our common stock with the comparable five-year cumulative total returns of the Standard & Poor’s Aerospace & Defense Stock Index (“S&P Aerospace & Defense”) and the NASDAQ Composite Stock Index (“NASDAQ Composite”). The figures assume an initial investment of $100 at the close of business on June 30, 2006 in Astrotech Corporation, S&P, and NASDAQ, and the reinvestment of all dividends.

		6/06				6/07				6/08				6/09				6/10				6/11
Astrotech Corporation			100.00				55.08				4.84				9.75				10.51				8.74
NASDAQ Composite			100.00				122.33				108.31				86.75				100.42				132.75
S&P Aerospace & Defense			100.00				124.18				109.66				83.46				102.73				136.26

Issuer Purchases of Equity Securities

In March 2003, our Board of Directors authorized us to repurchase up to $1.0 million of our outstanding stock at market prices. Additionally, in September 2008, the Board of Directors authorized the repurchase of the Company’s outstanding Common Stock or Senior Convertible Notes payable, up to a cumulative amount of $6.0 million. During the year ended June 30, 2009, we repurchased 300,000 shares at a cost of $0.1 million. To date, a total of 311,660 shares at a cost of $0.2 million have been repurchased by the Company. We did not repurchase any shares during the year ended June 30, 2011.

Item 6.		Selected Financial Data.

The following table sets forth our selected consolidated financial data as of and for the years ended June 30, 2007, 2008, 2009, 2010, and 2011. Such data has been derived from our consolidated financial statements audited by PMB Helin Donovan, LLP for the fiscal years ended June 30, 2007, 2008, 2009 and 2010 and by Ernst & Young LLP for the fiscal year ended June 30, 2011. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and our Consolidated Financial Statements and Notes included in this annual report.

		Years Ended June 30,
		2011				2010				2009				2008				2007
		(In thousands, except per share data)
Operating Results:
Revenue		$	20,149			$	27,979			$	31,985			$	25,544			$	52,762
Costs of revenue			13,668				12,858				15,723				19,540				51,029
Gross profit			6,481				15,121				16,262				6,004				1,733
Selling, general and administrative expenses			8,402				12,170				9,760				9,361				13,762
Research and development expenses			3,834				2,798				2,330				1,375				801
Income (loss) from operations			(5,755	)			153				4,172				(4,732	)			(12,830	)
Gain on bond exchange			—				—				665				—				—
Debt conversion expense			—				—				—				(30,194	)			—
Interest and other expense, net			(279	)			(459	)			(622	)			(427	)			(3,531	)
Income tax benefit (expense)			53				(22	)			510				(675	)			69
Net income (loss)			(5,981	)			(328	)			4,725				(36,028	)			(16,292	)
Less: net loss attributable to noncontrolling interest			(998	)			(588	)			—				—				—
Net income (loss) attributable to Astrotech Corporation			(4,983	)			260				4,725				(36,028	)			(16,292	)
Net income (loss) per common share — basic		$	(0.28	)		$	0.02			$	0.29			$	(4.26	)		$	(12.61	)
Shares used in computing net income (loss) per common share — basic			17,822				16,567				16,365				9,254				1,292
Net income (loss) per common share — diluted		$	(0.28	)		$	0.01			$	0.28			$	(4.26	)		$	(12.61	)
Shares used in computing net income (loss) per common share — diluted			17,822				18,283				16,904				9,254				1,292
Balance Sheet Data (End of Period):
Cash and Cash Equivalents		$	14,994			$	8,085			$	4,730			$	2,640			$	9,724
Total assets			57,620				54,903				58,919				58,211				72,475
Current debt			348				8,467				267				267				—
Long-term debt, excluding current portion			6,422				—				8,435				10,387				52,944
Stockholders’ equity			37,558				42,212				40,548				34,936				(13,131	)
Working capital (deficit) surplus		$	5,020			$	2,623			$	8,418			$	522			$	(6,105	)
Other Data:
Net cash provided by operating activities		$	9,234			$	4,437			$	4,972			$	(8,598	)		$	6,028
Net cash used in investing activities			(776	)			(1,829	)			(1,427	)			(158	)			(1,077	)
Net cash provided by (used in) financing activities			(1,549	)			747				(1,455	)			1,672				(1,544	)

Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements and notes included elsewhere in this report.

Overview

Astrotech was formed in 1984 to leverage the environment of space for commercial purposes. For the last 27 years, the Company has remained a crucial player in space commerce activities. We have supported the launch of 23 shuttle missions and more than 290 spacecraft, built space hardware and processing facilities, and prepared and processed scientific research for microgravity.

We offer products and services in the following areas:

	•		Facilities and support services necessary for the preparation of satellites and payloads for launch.
	•		Design and fabrication of equipment and hardware for space launch activities.
	•		Propellant services support for spacecraft.
	•		Commercialization of space-based technologies into real-world applications.

Our Business Units

Astrotech Space Operations

ASO provides support for its government and commercial customers to successfully process complex communication, earth observation and deep space satellites in preparation for their launch on a variety of launch vehicles. Processing activities include satellite ground transportation; pre-launch hardware integration and testing; satellite encapsulation, fueling, launch pad delivery; and communication linked launch control. Our ASO facilities can accommodate five meter class satellites encompassing the majority of U.S. based satellite preparation services. In addition to satellite processing, ASO services also include designing, building spacecraft processing equipment and facilities. Additionally, ASO provides propellant services including designing, building and testing propellant service equipment for servicing spacecraft. ASO accounted for 98% of our consolidated revenues for the year ended June 30, 2011. Revenue for our ASO business unit is generated primarily from various fixed-priced contracts with launch service providers in both the commercial and government markets. The services and facilities we provide to our customers support the final assembly, checkout, and countdown functions associated with preparing a spacecraft for launch. The revenue and cash flows generated from our ASO operations are related to the number of spacecraft launches, which reflects the growth in the satellite-based communications industries and the requirement to replace aging satellites. Other factors that have impacted, and are expected to continue to impact earnings and cash flows for this business include:

	•		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.

Spacetech

Our other business unit is an incubator intended to commercialize space-industry technologies into commercial applications to be sold to consumers and industry. The 1^st Detect Miniature Chemical Detector and the Astrogenetix microgravity processing platform are initiatives developed under our Spacetech business unit. The 1^st Detect Miniature Chemical Detector, which is in development, is a low power, portable chemical detection device. 1^st Detect has been awarded a Developmental Testing and Evaluation designation from the U.S. Department of Homeland Security as a “promising anti-terrorism technology”, and is the recipient of a Phase I and Phase II award from the U.S. Army’s Chemical and Biological Defense (“CBD”) Small Business Innovation Research (“SBIR”) Program. Following the successful execution of the Phase I SBIR, 1st Detect was awarded a $0.8 million Phase II SBIR contract from the Joint Science and Technology Office for Chemical and Biological Defense. Additionally, 1^st Detect received a $1.8 million award from the Texas Emerging Technology Fund in March 2010. Astrogenetix is a biotechnology company formed to commercialize products processed in the unique environment of microgravity. Astrogenetix has pursued an aggressive space access strategy to take advantage of the Space Shuttle program prior to its retirement, which occurred in 2011. This strategy gave Astrogenetix unprecedented access to research in microgravity, as the company flew twelve experiments over a three year period. Astrogenetix is currently developing a Salmonella vaccine as part of the ongoing commercialization strategy. Concurrently, Astrogenetix is working on the continued development of a vaccine target for methicilin-resistant Staphylococcus aureus (“MRSA”) based on discoveries made in microgravity.

Critical Accounting Policies

Revenue Recognition

Astrotech recognizes revenue employing several generally accepted revenue recognition methodologies across its business units. The methodology used is based on contract type and the manner in which products and services are provided.

Revenue generated by Astrotech’s payload processing facilities is recognized ratably over the occupancy period of the satellite while in the Astrotech facilities. The percentage-of-completion method is used for all contracts where incurred costs can be reasonably estimated and successful completion can be reasonably assured at inception. Changes in estimated costs to complete and provisions for contract losses are recognized in the period they become known. Revenue for the sale of commercial products is recognized at shipment.

A Summary of Revenue Recognition Methods

Services/Products Provided		Contract Type		Method of Revenue Recognition
Payload Processing Facilities		Firm Fixed Price — Mission Specific		Ratably, over the occupancy period of a satellite within the facility from arrival through launch
		Firm Fixed Price — Guaranteed Number of Missions		For multi-year contract, payments recognized ratably over the contract period
Commercial Space Habitat Modules, Integration & Operations Support Services and Construction contracts		Firm Fixed Price		Percentage-of-completion based on costs incurred
Configuration Management, Engineering Services		Cost Reimbursable Award/Fixed Fee		Reimbursable costs incurred plus award/fixed fee
Commercial Products		Specific Purchase Order Based		At shipment
Grant		Cost Reimbursable Award		As costs are incurred for related research and development expenses

Under certain contracts, we make expenditures for specific enhancements and/or additions to our facilities where the customer agrees to pay a fixed fee to deliver the enhancement or addition. We account for such agreements as a reduction in the cost of such investments and recognize any excess of amounts collected above the expenditure as revenue. Revenue for ASO recognized under a building modification contract with a government agency was accounted for under the percentage-of-completion method based on costs incurred over the period of the agreement.

Long-Lived Asset

In assessing the recoverability of long-lived assets, fixed assets, assets under construction and intangible assets, we evaluate the recoverability of those assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that directly affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

Deferred Revenue

Deferred revenue represents amounts collected from customers for projects, products, or services expected to be provided at a future date. Deferred revenue is shown on the balance sheet as either a short-term or long-term liability, depending on when the service or product is expected to be provided.

Share Based Compensation

The Company accounts for share-based awards to employees based on the fair value of the award on the grant date. The fair value of the stock options is estimated using expected dividend yields of the Company’s stock, the expected volatility of the stock, the expected length of time the options remain outstanding and risk-free interest rates. Changes in one or more of these factors may significantly affect the estimated fair value of the stock options. Additionally, the Company estimates the number of instruments for which the required service is expected to be rendered. The Company estimates forfeitures using historical forfeiture rates for previous grants of equity instruments. The fair value of awards that are expected to vest is recorded as an expense over the vesting period.

Noncontrolling Interest

Noncontrolling interest accounting is applied for any entities where the Company maintains more than 50% and less than 100% ownership. The Company clearly identifies the noncontrolling interest in the balance sheets and income statements. We also disclose three measures of net income: net income, net income attributable to noncontrolling interest, and net income attributable to Astrotech Corporation. Our operating cash flows in our consolidated statements of cash flows reflect net income, while our basic and diluted earnings per share calculations reflect net income attributable to Astrotech Corporation.

State of Texas Funding

The Company accounts for the State of Texas funding in the amount of $1.8 million in its majority owned subsidiary 1^st Detect as a contribution of capital and has reflected the disbursement in the equity section of the consolidated balance sheet. While the award agreement includes both a common stock purchase right and a note payable to the State of Texas, the economic substance of the transaction is that the State of Texas has purchased shares of 1^st Detect in exchange for the granted award.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. As of June 30, 2011, the Company has established a full valuation allowance against all of its net deferred tax assets.

FASB ASC 740, Income Taxes (FASB ASC 740) addresses the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company had no liability for unrecognized tax benefits on June 30, 2010, but has recorded an unrecognized tax benefit of $0.1 million for the period ended June 30, 2011.

For the year ended June 30, 2011 and 2010, the Company’s effective tax rate differed from the federal statutory rate of 35%, primarily due to recording changes to the valuation allowance placed against its net deferred tax assets.

The Company files income tax returns in the U.S. federal jurisdiction and in various states. Due to the Company’s loss carryover position, it is subject to U.S. federal and state income tax examination adjustments to its carryover benefits generated after 1999.

Currently, the Company is under examination by the Internal Revenue Service for its 2008 through 2010 tax year.

CONSOLIDATED RESULTS OF OPERATIONS

Results of Operations for the Years Ended June 30, 2011 and 2010

The following table sets forth the significant components in the Consolidated Statements of Operations for the year ended June 30, 2011, compared with 2010. The financial information and the discussion below should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements.

		Year Ended June 30,
(In thousands)		2011				2010				Variance
Revenue		$	20,149			$	27,979			$	(7,830	)
Cost of Revenue			13,668				12,858				810
Gross profit			6,481				15,121				(8,640	)
Operating expenses
Selling, general and administrative			8,402				12,170				(3,768	)
Research and development			3,834				2,798				1,036
Total operating expenses			12,236				14,968				2,732
Income (loss) from operations			(5,755	)			153				(5,908	)
Interest and other expense, net			(279	)			(459	)			180
Loss before income taxes			(6,034	)			(306	)			(5,728	)
Income tax (expense) benefit			53				(22	)			75
Net loss			(5,981	)			(328	)			(5,653	)
Less: net loss attributable to noncontrolling interest			(998	)			(588	)			(410	)
Net income (loss) attributable to Astrotech Corporation		$	(4,983	)		$	260			$	(5,243	)

The following table sets forth the percentage of total revenue of certain items in the Consolidated Statements of Operations for the year ended June 30, 2011, compared with 2010:

		Year Ended June 30,
		2011				2010
Revenue			100	%			100	%
Cost of revenue			68	%			46	%
Gross profit			32	%			54	%
Operating expenses
Selling, general and administrative			42	%			44	%
Research and development			19	%			10	%
Total operating expenses			61	%			54	%
Income (loss) from operations			(29	)%			1	%
Interest and other expense, net			(1	)%			(2	)%
Income (loss) before income taxes			(30	)%			(1	)%
Income tax (expense) benefit			*				*	%
Net income (loss)			(30	)%			(1	)%
Less: net loss attributable to noncontrolling interest			(5	)%			(2	)%
Net income (loss) attributable to Astrotech Corporation			(25	)%			1	%

*		Represents less than 1% of period revenue

Revenue. Total revenue decreased to $20.1 million for the year ended June 30, 2011 from $28.0 million for the year ended June 30, 2010 primarily due to a decreased launch schedule. Additionally, total revenue for fiscal year 2010 includes revenue earned for the completion of construction on our newest five-meter satellite facility and associated building improvement projects at Vandenberg Airforce Base (“VAFB”), revenue earned from the multi-year guaranteed mission contract with United Launch Alliance and revenue earned from processing RSC-Energia’s MRM1 in our Cape Canaveral facility.

A breakdown of revenue for the years ended June 30, 2011 and 2010 is as follows:

		Year Ended June 30,
(In thousands)		2011				2010
ASO		$	19,817			$	27,979
Spacetech			332				—
Total		$	20,149			$	27,979

Gross Profit. Gross profit decreased to $6.5 million for the year ended June 30, 2011, as compared to $15.1 million for the year ended June 30, 2010. The decrease in gross profit was primarily attributable to the decline in revenue.

Selling, General and Administrative Expense. Selling, general and administrative expense decreased to $8.4 million for the year ended June 30, 2011 from $12.2 million for the year ended June 30, 2010. The decrease was primarily attributable to reduced costs associated with lower headcount as part of the fiscal year 2011 corporate realignment and a reduction in outside consulting fees.

Research and Development Expense. Research and development expense increased to $3.8 million for the year ended June 30, 2011 from $2.8 million for the year ended June 30, 2010. The increase was primarily attributable to our continued investments in the development of the 1^st Detect Miniature Chemical Detector, including an increase in headcount and employee compensation.

Interest and Other expense, net. Interest and other expense, net, decreased to $0.3 million for the year ended June 30, 2011 from $0.5 million for the year ended June 30, 2010. Interest and other expense, net, for fiscal 2010 include the write-off of $0.2 million of aerospace metals.

SEGMENT RESULTS OF OPERATIONS

ASO

Selected financial data for the years ended June 30, 2011, and 2010 of our ASO business unit is as follows:

		Year Ended June 30,
(In thousands)		2011				2010				Variance
Revenue		$	19,817			$	27,979			$	(8,162	)
Cost of revenue			13,668				12,854				814
Gross profit			6,149				15,125				(8,976	)
Gross margin percentage			31	%			54	%			(23	)%
Operating expenses
Selling, general and administrative			5,486				8,563				(3,077	)
Total operating expenses			5,486				8,563				(3,077	)
Interest and other expense, net			(225	)			(230	)			5
Net income			438				6,332				(5,894	)
Less: net loss attributable to noncontrolling interest			—				—				—
Net income attributable to ASO		$	438			$	6,332			$	(5,894	)

Revenue. Total revenue decreased to $19.8 million for the year ended June 30, 2011 from $28.0 million for the year ended June 30, 2010 primarily due to a decreased launch schedule. Additionally, total revenue for fiscal year 2010 includes revenue earned for the completion of construction on our newest five-meter satellite facility and associated building improvement projects at Vandenberg Airforce Base (“VAFB”), revenue earned from the multi-year guaranteed mission contract with United Launch Alliance and revenue earned from processing RSC-Energia’s MRM1 in our Cape Canaveral facility.

Gross Profit. Gross profit decreased to $6.1 million for the year ended June 30, 2011 from $15.1 million for the year ended June 30, 2010. The decrease in gross profit was primary attributable to the decline in revenue.

Selling, General and Administrative Expense. Selling, general and administrative expense decreased to $5.5 million for the year ended June 30, 2011 from $8.6 million for the year ended June 30, 2010. The decrease was primarily attributable to reduced costs associated with lower headcount as part of the fiscal year 2011 corporate realignment and a reduction in outside consulting fees.

Spacetech

Selected financial data for the years ended June 30, 2011, and 2010 of our Spacetech business unit is as follows:

		Year Ended June 30,
(In thousands)		2011				2010				Variance
Revenue		$	332			$	—			$	332
Gross profit (loss)			332				(4	)			336
Gross margin percentage			100	%			—	%			100	%
Operating expenses
Selling, general and administrative			2,916				3,607				(691	)
Research and development			3,834				2,798				1,036
Total operating expenses			6,750				6,405				345
Interest and other expense, net			(54	)			(229	)			175
Income tax expense			53				(22	)			75
Net loss			(6,419	)			(6,660	)			241
Less: net loss attributable to noncontrolling interest			(998	)			(588	)			(410	)
Net loss attributable to Spacetech		$	(5,421	)		$	(6,072	)		$	651

Revenue. Total revenue increased $0.3 million for the year ended June 30, 2011 as a result of the grant that 1^st Detect has received from the SBIR Program.

Gross Profit (Loss). Gross profit increased to $0.3 million for the year ended June 30, 2011 as a result of the grant that 1^st Detect has received from the SBIR Program. Costs associated with this program are expensed to research and development.

Selling, General and Administrative Expense. Selling, general and administrative expense decreased to $2.9 million for the year ended June 30, 2011 from $3.6 million for the year ended June 30, 2010. The decrease was primarily attributable to a reduction in outside consulting fees.

Research and Development Expense. Research and development expense increased to $3.8 million for the year ended June 30, 2011 from $2.8 million for the year ended June 30, 2010. The increase in expense was the result of our investments in the development of the 1^st Detect Miniature Chemical Detector.

Interest and Other Expense, Net. Interest and other expense, net, decreased to $0.1 million in the year ended June 30, 2011, as compared to $0.2 million for the year ended June 30, 2010. Interest and other expense, net, for fiscal 2010 include the write-off of $0.2 million of aerospace metals.

FINANCIAL CONDITION, CAPITAL RESOURCES, AND LIQUIDITY

Balance Sheet

Total assets for the year ended June 30, 2011, were $57.6 million compared to total assets of $54.9 million as of the end of fiscal year 2010. The following table sets forth the significant components of the balance sheet as of June 30, 2011, compared with 2010 (in thousands):

		Year Ended June 30,
		2011				2010				Variance
Assets:
Current assets		$	18,386			$	14,964			$	3,422
Property and equipment, net			38,418				39,920				(1,502	)
Other assets, net			816				19				797
Total		$	57,620			$	54,903			$	2,717
Liabilities and stockholders’ equity:
Current debt		$	348			$	8,467			$	(8,119	)
Other current liabilities			13,018				3,874				9,144
Long-term debt			6,422				—				6,422
Other long-term liabilities			274				350				(76	)
Stockholders’ equity			37,558				42,212				(4,654	)
Total		$	57,620			$	54,903			$	2,717

Current assets. Current assets increased $3.4 million for the year ended June 30, 2011, as compared to June 30, 2010. This is the result of an increase in cash provided by operations.

Property and equipment, net. Depreciation and amortization expense of $2.3 million exceeded capital expenditures of $0.8 million.

Other assets, net. Other assets, net, increased $0.8 million for the year ended June 30, 2011, as compared to June 30, 2010. A note receivable of $0.7 million that was due within the next fiscal year as of June 30, 2010 is now classified as a long-term other asset as of June 30, 2011, given that the maturity of the note was extended to December 2012.

Current and long-term debt. The legacy term note outstanding in October 2010 of $3.4 million was paid in full upon entering into the new financing facility for $7.0 million. The $5.1 million of Senior Convertible Notes were also retired in October 2010.

Other current liabilities. Other current liabilities increased by $9.1 million for the year ended June 30, 2011, as compared to June 30, 2010. The primary driver was a $9.0 million increase in deferred revenue relating to the Ground Support Equipment (“GSE”) contract. Deferred revenue represents amounts collected from customers for projects, products, or services expected to be provided at a future date.

Other long-term liabilities. Other long-term liabilities decreased $0.1 million for the year ended June 30, 2011, as compared to June 30, 2010. This was due to a decrease in non-current deferred revenue.

Liquidity and Capital Resources

The following is a summary of the change in our cash and cash equivalents:

		June 30,
		2011				2010
Net cash provided by operating activities		$	9,234			$	4,437
Net cash used in investing activities			(776	)			(1,829	)
Net cash provided by (used in) financing activities			(1,549	)			747
Net increase in cash and cash equivalents		$	6,909			$	3,355

Cash and Cash Equivalents

At June 30, 2011, we held cash and cash equivalents of $15.0 million and our working capital was approximately $5.0 million. At June 30, 2010, we held cash and cash equivalents of $8.1 million and our working capital was approximately $2.6 million. Cash and cash equivalents have increased by approximately $6.9 million during the year ended June 30, 2011 from positive operating cash flows offset by capital expenditures of $0.8 million and financing activities of $1.5 million.

Operating Activities

Cash provided by operations increased to $9.2 million for the year ended June 30, 2011 from $4.4 million for the year ended June 30, 2010. The primary driver of 2011 operating cash flow was a $9.0 million increase in deferred revenue relating to the Ground Support Equipment (“GSE”) contract. Deferred revenue represents amounts collected from customers for projects, products, or services expected to be provided at a future date.

Investing Activities

Cash used in investing activities for the year ended June 30, 2011 decreased to $0.8 million from $1.8 million for the year ended June 30, 2010. Our investing activities are driven primarily by capital expenditures. The decline in capital expenditures resulted from the completion of an administrative customer support building at VAFB in 2010.

Financing Activities

Cash used in financing activities for the year ended June 30, 2011 increased to $1.5 million from $0.8 million of cash provided by financing activities for the year ended June 30, 2010. The increase is a result of repaying the Senior Convertible Notes of $5.1 million and retiring the legacy term loan of $3.4 million, partially offset by acquiring the current term loan of $7.0 million.

Debt

Credit Facilities

In October 2010, we entered into a financing facility with a commercial bank providing a $7.0 million term loan note and a $3.0 million revolving credit facility. The $7.0 million term loan terminates in October 2015 and the $3.0 million revolving credit facility expires October 2012. The term loan requires monthly payments of principal plus interest at the rate of prime plus 0.25%, but not less than 4.0%. The revolving credit facility allows multiple advances not to exceed $3.0 million, based on eligible accounts receivable, and incurs interest at the rate of prime plus 0.25%, but not less than 4.0%. The bank financing facilities are secured by the assets of ASO, including accounts receivable, and require us to comply with designated covenants. The balance of the $7.0 million term loan at June 30, 2011 was $6.8 million and there was no outstanding balance on the revolving credit facility at June 30, 2011.

The legacy term note outstanding in October 2010 of $3.4 million was paid in full upon entering into the new financing facility. The legacy term note and credit financing facility were closed as of October 2010.

The Company was in compliance with all covenants as of June 30, 2011.

Senior Convertible Notes

The $5.1 million of Senior Convertible Notes were retired in October 2010. The company paid the $5.1 million of principal, plus accrued interest of $0.1 million, on the Senior Convertible Notes at the scheduled maturity.

Contractual Obligations

In addition to the term loan (see “Debt” explanation above), the Company is obligated under non-cancelable operating leases for equipment, office space and the land for a payload processing facility. Future minimum payments under the term loan and non-cancelable operating leases are as follows (in thousands):

		Payments due by period
						Less than												More than 5
Contractual Obligations		Total				1 year				1-3 years				3-5 years				years
Term Loan		$	6,770			$	348			$	6,422			$	—			$	—
Operating Lease Obligations			1,152				847				305				—				—
Total		$	7,922			$	1,195			$	6,727			$	—			$	—

Rent expense for each of the years ended June 30, 2011, and 2010 was approximately $0.9 million. For fiscal year 2011, the Company received sublease payments of $0.2 million.

ASO presently leases the 60-acre site located on VAFB in California, where we own four buildings totaling over 50,000 square feet of space. The present land lease expires in July 2013, with provisions to extend the lease at the request of the lessee and the concurrence of the lessor. Upon final expiration of the land lease, all improvements on the property revert, at the lessor’s option, to the lessor at no cost.

State of Texas Funding

In March 2010, the Texas Emerging Technology Fund awarded 1^st Detect $1.8 million for the development and marketing of the Miniature Chemical Detector, a portable mass spectrometer designed to serve the security, healthcare and industrial markets (See Note 14). As of June 30, 2011, 1^st Detect has received the first of two $0.9 million disbursements. The disbursed amount of $0.9 million represents a contingency through March 2020, the date of cancellation. If an event of default should occur, the principal and accrued interest would be reclassified from equity to notes payable in the consolidated financial statements as amounts due to the State of Texas. Management considers the likelihood of an event of default to be remote due to the fact that the covenants that would necessitate repayment are within the control of the Company. As of June 30, 2011, no default events have occurred.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2011.

Item 7A.		Quantitative and Qualitative Disclosures about Market Risk.

Our primary exposure to market risk relates to interest rates. We do not currently use any interest rate swaps or derivative financial instruments to manage our exposure to fluctuations in interest rates. A one percent change in variable interest rates will not have a material impact on our financial condition.

Item 8.		Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Astrotech Corporation

We have audited the accompanying consolidated balance sheet of Astrotech Corporation as of June 30, 2011, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Astrotech Corporation at June 30, 2011, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Austin, Texas
September 20, 2011

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Astrotech Corporation and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Astrotech Corporation and its subsidiaries (the “Company”) as of June 30, 2010, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used, and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ PMB HELIN DONOVAN LLP
Austin, Texas
August 30, 2010

ASTROTECH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)

		June 30,
		2011				2010
Assets
Current assets
Cash and cash equivalents		$	14,994			$	8,085
Accounts receivable, net			2,429				5,676
Prepaid expenses and other current assets			963				528
Short term note receivable			—				675
Total current assets			18,386				14,964
Property and equipment, net			38,418				39,920
Long term note receivable			675				—
Other assets, net			141				19
Total assets		$	57,620			$	54,903
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	757			$	859
Accrued liabilities and other			1,342				2,083
Deferred revenue			10,919				854
Term note payable			348				3,356
Senior convertible subordinated notes payable — 5.5%			—				5,111
Other			—				78
Total current liabilities			13,366				12,341
Deferred revenue			274				350
Term note payable, net of current portion			6,422				—
Total liabilities			20,062				12,691
Commitments and contingencies (Note 13)			—				—
Stockholders’ equity
Preferred stock, no par value, convertible, 2,500,000 authorized shares, 0 issued and outstanding shares, at June 30, 2011 and 2010			—				—
Common stock, no par value, 75,000,000 shares authorized at June 30, 2011 and 2010, 18,339,609 and 17,062,793 shares issued at June 30, 2011 and 2010, respectively			183,712				183,515
Treasury stock, 311,660 shares at cost			(237	)			(237	)
Additional paid-in capital			1,104				639
Retained deficit			(148,942	)			(143,959	)
Noncontrolling interest			1,921				2,254
Total stockholders’ equity			37,558				42,212
Total liabilities and stockholders’ equity		$	57,620			$	54,903

See accompanying notes to consolidated financial statements.

ASTROTECH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)

		Year Ended June 30,
		2011				2010
Revenue		$	20,149			$	27,979
Cost of revenue			13,668				12,858
Gross profit			6,481				15,121
Operating expenses
Selling, general and administrative			8,402				12,170
Research and development			3,834				2,798
Total operating expenses			12,236				14,968
Income (loss) from operations			(5,755	)			153
Interest and other expense, net			(279	)			(459	)
Loss before income taxes			(6,034	)			(306	)
Income tax benefit (expense)			53				(22	)
Net loss			(5,981	)			(328	)
Less: Net loss attributable to noncontrolling interest			(998	)			(588	)
Net income (loss) attributable to Astrotech Corporation		$	(4,983	)		$	260
Net income (loss) per share, basic		$	(0.28	)		$	0.02
Weighted average common shares outstanding, basic			17,822				16,567
Net income (loss) per share, diluted		$	(0.28	)		$	0.01
Weighted average common shares outstanding, diluted			17,822				18,283

See accompanying notes to consolidated financial statements.

ASTROTECH CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders’ Equity
(In thousands)

		Common Stock								Treasury				Additional								Non-				Total
		Number of								Stock				Paid-In				Accumulated				Controlling				Stockholders’
		Shares				Amount				Amount				Capital				Deficit				Interest				Equity
Balance at June 30, 2009			16,443			$	183,341			$	(237	)		$	1,663			$	(144,219	)		$	—			$	40,548
Stock based compensation			—				—				—				862				—				116				978
Exercise of stock options			283				174				—				(60	)			—				—				114
Restricted stock issuance			25				—				—				—				—				—				—
Issuance of restricted stock and warrants in subsidiaries			—				—				—				(1,826	)			—				1,826				—
State of Texas Funding																							900				900
Net income (loss)			—				—				—				—				260				(588	)			(328	)
Balance at June 30, 2010			16,751			$	183,515			$	(237	)		$	639			$	(143,959	)		$	2,254			$	42,212
Stock based compensation			—				—				—				1,115				—				64				1,179
Exercise of stock options			344				197				—				(49	)			—				—				148
Restricted stock issuance			933				—				—				—				—				—				—
Capital contribution			—				—				—				(601	)			—				601				—
Net loss			—				—				—				—				(4,983	)			(998	)			(5,981	)
Balance at June 30, 2011			18,028			$	183,712			$	(237	)		$	1,104			$	(148,942	)		$	1,921			$	37,558

See the accompanying notes to consolidated financial statements.

ASTROTECH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)

		Year Ended June 30,
		2011				2010
Cash flows from operating activities
Net loss		$	(5,981	)		$	(328	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation			1,195				978
Depreciation and amortization			2,315				2,135
Changes in assets and liabilities:
Accounts receivable			3,247				6,603
Deferred revenue			9,989				(3,039	)
Accounts payable			(102	)			(2,106	)
Other assets and liabilities			(1,429	)			194
Net cash provided by operating activities			9,234				4,437
Cash flows from investing activities
Purchases of property, equipment and leasehold improvements			(776	)			(1,829	)
Net cash used in investing activities			(776	)			(1,829	)
Cash flows from financing activities
Term loan payment			(173	)			—
Term loan repayment			(3,356	)			(267	)
Senior convertible note repayments			(5,111	)			—
State of Texas Funding			—				900
Proceeds from issuance of common stock			148				114
Proceeds from term loan			6,943				—
Net cash provided by (used in) financing activities			(1,549	)			747
Net change in cash and cash equivalents			6,909				3,355
Cash and cash equivalents at beginning of period			8,085				4,730
Cash and cash equivalents at end of period		$	14,994			$	8,085
Supplemental disclosures of cash flow information:
Cash paid for interest		$	381			$	469

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Description of the Company and Operating Environment

Astrotech Corporation (Nasdaq: ASTC) (“Astrotech,” “the Company,” “we,” “us” or “our”) is a commercial aerospace company that provides spacecraft payload processing and related services, designs and manufactures space hardware, and commercializes space technologies for use on Earth.

The Company has experience supporting both manned and unmanned missions to space with product and service support including space hardware design and manufacturing, research and logistics expertise, engineering and support services, and payload processing and integration. Through new Spacetech business initiatives such as 1^st Detect and Astrogenetix, Astrotech is paving the way in the commercialization of space by translating space-based technology into terrestrial applications.

Our Business Units

Astrotech Space Operations (“ASO”)

ASO is the leading commercial supplier of satellite launch processing services in the United States. ASO provides processing support for government and commercial customers for their complex communication, earth observation and deep space satellites. ASO’s spacecraft processing capabilities are among the elite in the industry, with ideally located facilities that can support the largest five-meter class satellites, encompassing the majority of U.S. based satellite preparation services. ASO has provided launch processing support for government and commercial customers for more than a quarter century, successfully processing more than 290 spacecraft without negatively impacting a customer launch schedule.

Spacetech

Our Spacetech business unit is an incubator intended to develop space-industry technologies into commercial applications to be sold to consumers and industry. Spacetech is currently working on two business initiatives: 1^st Detect Corporation and Astrogenetix, Inc. 1^st Detect’s business began under a Space Act Agreement with the National Aeronautics and Space Administration (“NASA”) for a chemical detection unit to be used on the International Space Station. 1^st Detect engineers are developing a Miniature Chemical Detector, based on ion trap mass spectrometry, that we believe fills a niche by being highly accurate, lightweight, battery-powered, durable and inexpensive. Astrogenetix is a biotechnology company created to use the unique environment of space to discover and develop novel therapeutic products. A natural extension of the many years of experience preparing, launching, and operating scientific payloads in space, Astrogenetix is in the process of developing products from microgravity discoveries.

The Company’s significant legal entities include Astrotech Space Operations, Inc., 1^st Detect Corporation and Astrogenetix, Inc.

Liquidity

At June 30, 2011, we had cash and cash equivalents of $15.0 million and our working capital was approximately $5.0 million.

The Company’s debt repayments are due as follows (in thousands):

		Balance				Fiscal Year				Fiscal Year				Fiscal Year				Fiscal Year
		6/30/2011				2012				2013				2014				2015
Term Note		$	6,770			$	348			$	372			$	387			$	5,663

We believe we have sufficient liquidity and backlog to fund ongoing operations for at least the next fiscal year. We expect to utilize existing cash and proceeds from operations to grow our core business offering in ASO and to support strategies for new business initiatives, most notably, the 1^st Detect Miniature Chemical Detector.

(2) Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Astrotech Corporation and its majority-owned subsidiaries that are required to be consolidated. All significant intercompany transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that directly affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

Credit Risk

The Company maintains funds in bank accounts that, at times, may exceed the limit insured by the Federal Deposit Insurance Corporation, or “FDIC.” In October 2008, the FDIC increased its insurance to $250,000 per depositor, and to an unlimited amount for non-interest bearing accounts. The risk of loss attributable to these uninsured balances is mitigated by depositing funds in what we believe to be high credit quality financial institutions. The Company has not experienced any losses in such accounts.

Revenue Recognition

Astrotech recognizes revenue employing several generally accepted revenue recognition methodologies across its business units. The methodology used is based on contract type and the manner in which products and services are provided.

Revenue generated by Astrotech’s payload processing facilities is recognized ratably over the occupancy period of the satellite while in the Astrotech facilities. The percentage-of-completion method is used for all contracts where incurred costs can be reasonably estimated and successful completion can be reasonably assured at inception. Changes in estimated costs to complete and provisions for contract losses are recognized in the period they become known. Revenue for the sale of commercial products is recognized at shipment.

A Summary of Revenue Recognition Methods

Services/Products Provided		Contract Type		Method of Revenue Recognition
Payload Processing Facilities		Firm Fixed Price — Mission Specific		Ratably, over the occupancy period of a spacecraft within the facility from arrival through launch
		Firm Fixed Price — Guaranteed Number of Missions		For multi-year contract, payments recognized ratably over the contract period
Integration & Operations Support Services and Construction Contracts		Firm Fixed Price		Percentage-of-completion based on costs incurred
Configuration Management, Engineering Services		Cost Reimbursable Award/Fixed Fee		Reimbursable costs incurred plus award/fixed fee
Commercial Products		Specific Purchase Order Based		At shipment
Grant		Cost Reimbursable Award		As costs are incurred for related research and development expenses

Under certain contracts, we make expenditures for specific enhancements and/or additions to our facilities where the customer agrees to pay a fixed fee to deliver the enhancement or addition. We account for such agreements as a reduction in the cost of such investments and recognize any excess of amounts collected above the expenditure as revenue. Revenue for ASO recognized under a building modification contract with a government agency was accounted for under the percentage-of-completion method based on costs incurred over the period of the agreement.

Deferred Revenue

Deferred revenue represents amounts collected from customers for projects, products, or services expected to be provided at a future date. Deferred revenue is shown on the balance sheet as either a short-term or long-term liability, depending on when the service or product is expected to be provided.

Research and Development

Research and development costs are expensed as incurred.

Net Income (loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share includes all common stock options and other common stock equivalents that potentially may be issued as a result of conversion privileges, including the convertible subordinated notes payable and convertible preferred stock (see Note 11).

Cash and Cash Equivalents

The Company considers short-term investments with original maturities of three months or less to be cash equivalents. Cash equivalents are comprised primarily of operating cash accounts, money market investments and certificates of deposits.

Accounts Receivable

The carrying value of the Company’s accounts receivable, net of the allowance for doubtful accounts, represents their estimated net realizable value. We estimate the allowance for doubtful accounts based on type of customer, age of outstanding receivable, historical collection trends, and existing economic conditions. If events or changes in circumstances indicate that a specific receivable balance may be unrealizable, further consideration is given to the collectability of those balances, and the allowance is adjusted accordingly. Receivable balances deemed uncollectible are written off against the allowance.

Property and Equipment

Property and equipment are stated at cost. All furniture, fixtures, and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets, which is generally five years. Our payload processing facilities are depreciated using the straight-line method over their estimated useful lives ranging from 16 to 40 years. Leasehold improvements are amortized over the shorter of the useful life of the improvement or the term of the lease. Repairs and maintenance are expensed when incurred.

As required by our customers, we purchase equipment or enhance our facilities to meet specific customer requirements. These enhancements or equipment purchases are compensated through our contract with the customer. The difference between the amount reimbursed and the cost of the enhancements is recognized as revenue.

Deferred Financing Costs

Deferred financing costs represent loan origination fees paid to the lender and related professional fees. These costs are amortized on a straight-line basis over the term of the respective loan agreements.

Impairment of Long-Lived Assets

We review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

The carrying value of the Company’s notes receivable, net of the allowance for doubtful accounts, represents their estimated net realizable value. We estimate the allowance for doubtful accounts based on type of customer, age of outstanding notes receivable, historical collection trends, and existing economic conditions. If events or changes in circumstances indicate that a specific receivable balance may be unrealizable, further consideration is given to the collectability of those balances, and the allowance is adjusted accordingly. Notes receivable balances deemed uncollectible are written off against the allowance.

Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, notes payable and accrued liabilities. The carrying amounts of these assets and liabilities, in the opinion of Company’s management, approximate their fair value.

Share Based Compensation

The Company accounts for share-based awards to employees based on the fair value of the award on the grant date. The fair value of the stock options is estimated using expected dividend yields of the Company’s stock, the expected volatility of the stock, the expected length of time the options remain outstanding and risk-free interest rates. Changes in one or more of these factors may significantly affect the estimated fair value of the stock options. The Company estimates forfeitures using historical forfeiture rates for previous grants of equity instruments. The fair value of awards that are expected to vest is recorded as an expense over the vesting period.

Noncontrolling Interest

Noncontrolling interest accounting is applied for any entities where the Company maintains more than 50% and less than 100% ownership. The Company clearly identifies the noncontrolling interest in the balance sheets and income statements. We also disclose three measures of net income: net income, net income attributable to noncontrolling interest, and net income attributable to Astrotech Corporation. Our operating cash flows in our consolidated statements of cash flows reflect net income, while our basic and diluted earnings per share calculations reflect net income attributable to Astrotech Corporation.

State of Texas Funding

The Company accounts for the State of Texas funding in its majority owned subsidiary 1^st Detect as a contribution of capital and has reflected the disbursement in the equity section of the consolidated balance sheet. While the award agreement includes both a common stock purchase right and a note payable to the State of Texas, the economic substance of the transaction is that the State of Texas has purchased shares of 1^st Detect in exchange for the granted award.

The common stock purchase right gives the State of Texas the ability to purchase common stock in 1^st Detect, at par value per share, at the earlier of: (1) the first Qualifying Financing Event or (2) eighteen months (See Note 14). As of June 30, 2011, no Qualifying Financing Event has occurred.

There are no cash payments due under the note unless there is an event of default, and the terms that allow for the note to be cancelled after the passage of a set amount of time. The purpose of the note is to provide recourse for the State of Texas if 1^st Detect fails to fulfill the purpose of the grant, which is primarily to provide for economic development within the State of Texas. If an event of default should occur, the principal and accrued interest would be reclassified from equity to notes payable in the consolidated financial statements as amounts due to the State of Texas. Management considers the likelihood of an event of default to be remote. As of June 30, 2011, no default events have occurred.

Income Taxes

The Company accounts for income taxes under the liability method, whereby deferred tax asset or liability account balances are determined based on the difference between the financial statement and the tax bases of assets and liabilities using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

(3) Noncontrolling Interest

In January 2010, restricted shares of Astrotech subsidiaries 1^st Detect and Astrogenetix were granted to certain employees, directors and officers (see Note 9), resulting in Astrotech owning less than 100% of these subsidiaries. The Company applied non-controlling interest accounting for the periods ended June 30, 2011 and 2010, which requires us to clearly identify the non-controlling interest in the consolidated balance sheets and consolidated income statements. We disclose three measures of net income (loss): net income (loss), net income (loss) attributable to noncontrolling interest, and net income (loss) attributable to Astrotech Corporation. Our operating cash flows in our consolidated statements of cash flows reflect net income (loss), while our basic and diluted earnings per share calculations reflect net income (loss) attributable to Astrotech Corporation.

Beginning balance at July 1, 2010		$	2,254
Net loss attributable to noncontrolling interest			(998	)
Capital Contribution			601
Stocked based compensation			64
Ending balance at June 30, 2011		$	1,921