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 (State or other jurisdiction of incorporation or organization)		91-1273737 (I.R.S. Employer 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 o

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 $1.92 was approximately $31,807,035 as of December 31, 2009.

As of August 25, 2010, 19,238,988 shares of the registrant’s Common Stock, no par value, were outstanding, including 1,540,203 shares of restricted stock with voting rights.

 

 

Table of Contents

PART I			1
Item 1. Business			1
Item 1A. Risk Factors			6
Item 1B. Unresolved Staff Comments			10
Item 2. Properties			10
Item 3. Legal Proceedings			11
Item 4. Submission of Matters to a Vote of Security Holders			11
PART II			11
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			11
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			46
Item 9A. Controls and Procedures			47
Item 9B. Other Information			47
PART III			48
Item 10. Directors, Executive Officers and Corporate Governance			48
Item 11. Executive Compensation			53
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			66
Item 13. Certain Relationships and Related Transactions, and Director Independence			68
Item 14. Principal Accounting Fees and Services			68
PART IV			70
Item 15. Exhibits, Financial Statement Schedules			70
SIGNATURES			80
Exhibit 10.55
Exhibit 10.56
Exhibit 10.57
Exhibit 10.58
Exhibit 10.59
Exhibit 10.60
Exhibit 10.61
Exhibit 10.63
Exhibit 23.1
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;
•		Whether we will fully realize the economic benefits under our NASA and other customer contracts;
•		Continued availability and use of the U.S. Space Shuttle and the International Space Station;
•		Technological difficulties and potential legal claims arising from any technological difficulties;
•		Product demand and market acceptance risks, including our ability to develop and sell products and services to be used by the manned and unmanned space programs that replace the Space Shuttle Program;
•		Uncertainty in government funding and support for key space programs;
•		The impact of competition on our ability to win new contracts;
•		Uncertainty in securing reliable and consistent access to space;
•		Delays in the timing of performance of other contracts; and
•		Risks described in the “Risk Factors” section of 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”) 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 satellite and spacecraft customers with our pre-launch services from our Astrotech Space Operations (“ASO”) subsidiary and incubates space technology businesses 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 to develop novel therapeutic products.

Astrotech was formed in 1984 to leverage the environment of space for commercial purposes. For the last 26 years, the Company has remained a crucial player in space commerce activities. We have supported the launch of 23 shuttle missions and more than 280 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.
	•		Commercialization of space-based technologies into real-world applications.
	•		Expertise in qualifying hardware for spaceflight and the habitability and occupational challenges of space.

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 facilities are among the elite in the industry, with over 150,000 square feet of clean rooms 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 280 spacecraft.

ASO accounted for 100% of our consolidated revenues for the year ended June 30, 2010 (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 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 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 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 Spacetech business unit is an incubator intended to develop space-industry technologies into commercial applications to be sold to consumers and industry. Spacetech has developed three business initiatives to date: 1^st Detect Corporation, Astrogenetix and AirWard Corporation (“AirWard”). 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 mass spectrometry, that we believe will fill 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 over 1,500 scientific payloads in space, Astrogenetix is in the process of developing products from microgravity discoveries. AirWard designed and manufactured shipping containers to transport oxygen bottles and oxygen generators for commercial aircraft. Further investment in AirWard was suspended in February 2010, as the initiative has not yielded the anticipated return for shareholders.

Noncontrolling Interest

In January 2010, restricted shares of Astrotech subsidiaries 1^st Detect and Astrogenetix were granted to certain employees, directors and officers, resulting in Astrotech owning less than 100% of these subsidiaries. The Company applied non-controlling interest accounting for the period ended June 30, 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: 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.

Beginning balance at July 1, 2009		$	—
Net loss attributable to noncontrolling interest			(588	)
Issuance of restricted stock and warrants			1,826
State of Texas Funding			900
Stock based compensation			116
Ending balance at June 30, 2010		$	2,254

As of June 30, 2010, the Company’s share of income and losses is 86% for 1^st Detect and 79% for Astrogenetix.

Business Strategy

Astrotech Space Operations

As the leading commercial satellite processing provider, ASO is continuously working to secure additional government and commercial customers that require our services.

Spacetech

1^st Detect has developed a revolutionary chemical detector based on ion trap mass spectrometry, which allows for the device’s portability, versatility, sensitivity, durability, high speed and low cost. 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 submitting an Initial New Drug application with the Food and Drug Administration (“FDA”) for a Salmonella vaccine as part of the ongoing commercialization strategy. Concurrently, we are using the final two scheduled Space Shuttle flights to complete the on-orbit processing of our next vaccine biomarker discovery, methicilin-resistant Staphylococcus aureus (“MRSA”).

Products and Services

Astrotech Space Operations

From our state of the art facilities in Titusville, Florida and Vandenberg Air Force Base (“VAFB”) in California we have provided support for pre-launch ground based operations for 26 years for both commercial and government satellites, and we are the leader in this service sector.

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, efficiency and low cost.

Astrogenetix has discovered a Salmonella vaccine candidate, which validates the use of microgravity in identifying commercially viable biomarkers. Astrogenetix’s capabilities include preparing microgravity payloads that can be flown on a variety of launch systems, including the Space Shuttle, the Russian Soyuz, Progress and Photon, the European Automated Transfer Vehicle, the Japanese H-II Transfer Vehicle, and the SpaceX Dragon (still under development). The Astrogenetix Microgravity Processing Platform has been developed to grow microbes in space that can result in significant advantages over traditional earthbound vaccine discovery processes, thus reducing the development time and cost significantly.

Customers, Sales and Marketing

Astrotech Space Operations

ASO services a variety of domestic and international government and commercial customers sending satellites to low-earth-orbit or geosynchronous orbit. ASO has long-term contracts in place with NASA, other U.S. Governmental agencies, United Launch Alliance, and Sea Launch, LLC. During fiscal year 2010, ASO accounted for 100% 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.

While there have been no sales to date, likely customers for Astrogenetix will be large international pharmaceutical companies and smaller biotechnology companies. Astrogenetix is currently focused on starting the FDA process with the Salmonella vaccine candidate and is continuing drug development work for other vaccine targets, including MRSA.

Most recently, Astrogenetix testing samples were included in the latest shuttle Discovery launch, STS-132. The 1^st Detect Miniature Chemical Detector debuted at the American Society of Mass Spectrometry Conference in June 2008, during which several companies demonstrated significant interest in the product. Currently, several operational units have been manufactured including a boxed unit and a bench-top development unit. In tandem, we are working on the development of an additional technical capability, which will increase accuracy, increase auto-tuning capability, and reduce size and cost.

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.

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 construction of the ISS nearing completion, and with the recent delivery of both the European Space Agency and the Japanese Space Agency nodes on the ISS, competition from foreign governments, academia and commercial companies is anticipated.

Research and Development

We incurred $2.8 million and $2.3 million in research and development expense during fiscal years 2010 and 2009, respectively. Research and development in fiscal year 2010 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 processing its FDA application for its Salmonella vaccine candidate while also researching other potential vaccines, including MRSA.

Backlog

The Company’s 18-month rolling backlog at June 30, 2010, which includes contractual backlog and scheduled but uncommitted missions, is $24.9 million. The majority of the backlog 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.

(In thousands)		18-Month Rolling
Contract		Backlog
ASO Missions		$	20,659
Facility Programs			4,203
Total Backlog		$	24,862

The 18-month rolling backlog consists of fixed-price satellite missions from various government and commercial entities requiring pre-launch processing services at our Titusville, Florida and VAFB locations.

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 Rocket Space Corporation, 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 operations are subject to the hazards associated with operating assets in the severe environment of space. These hazards include the risk of loss or damage to the assets during storage, preparation for launch, in transit to the launch site, and during the space mission itself. We maintain insurance coverage against these hazards with reputable insurance underwriters.

Employees Update

As of June 30, 2010, we employed 71 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 is not expected to be filled until the next annual meeting. The position of Chief Executive Officer, Astrotech Space Operations, will remain open pending a review of internal and external candidates.

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. The Company has no immediate plans to fill the vacancy created by Mr. Royston’s termination.

In July 2009, the Board of Directors appointed John Porter as Astrotech’s Chief Financial Officer. Mr. Porter, a Senior Vice President of the Company, had been serving as interim CFO since the resignation of Brian K. Harrington on June 4, 2009.

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. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impact our business operations.

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 49% of our revenue in fiscal year 2010 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, 2010, which includes contractual backlog and scheduled but uncommitted missions, is $24.9 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 some of our government contracts are contingent upon congressional appropriations and can be terminated “for convenience,” 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, including NASA, 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 no 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 no 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 launch processing facilities at VAFB and the facilities we operate at the Port of Long Beach 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. 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 2010, 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.

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, 2010, with an option period of an additional five years.

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. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of stockholders during the fourth quarter of the year ended June 30, 2010.

PART II

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

Market Information

The following table sets forth the quarterly high and low intra-day bid prices for the periods indicated:

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

Fiscal 2009		High				Low
First Quarter		$	0.60			$	0.26
Second Quarter		$	0.46			$	0.20
Third Quarter		$	0.50			$	0.20
Fourth Quarter		$	1.73			$	0.40

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 August 25, 2010 we had 19,238,988 shares of Common Stock outstanding, including 1,540,203 shares of restricted stock with voting rights.

Effective May 4, 2009, the Company changed its stock trading symbol to “ASTC” from “SPAB” on the NASDAQ Capital Markets stock exchange.

Astrotech Equity 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

warrants, and rights

rights

for future issuance

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders

806,541

$

1.65

379,389

Equity compensation plans not approved by security holders

—

—

—

Total

806,541

$

1.65

379,389

1^st Detect Equity 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

warrants, and rights

Rights

for future issuance

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders

1,820

$

212.00

172,000

Equity compensation plans not approved by security holders

—

—

—

Total

1,820

$

212.00

172,000

Astrogenetix Equity 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

warrants, and rights

rights

for future issuance

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders

2,050

$

167.00

190,400

Equity compensation plans not approved by security holders

—

—

—

Total

2,050

$

167.00

190,400

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, 2005 in Astrotech Corporation, S&P, and NASDAQ, and the reinvestment of all dividends.

		6/05				6/06				6/07				6/08				6/09				6/10
Astrotech Corporation			100.00				65.92				36.31				3.19				6.42				6.93
NASDAQ Composite			100.00				107.08				130.99				114.02				90.79				105.54
S&P Aerospace & Defense			100.00				119.11				147.92				130.62				99.41				122.37

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.

(d)

Maximum number

(c)

(or approximate

Total number of

dollar value) of

(a)

shares (or units)

shares (or units) that

Total number of

(b)

purchased as part of

may yet be

shares (or units)

Average price paid

publicly announced

purchased under the

Period

purchased

per share (or unit)

plans or programs

plans or programs

04/01/10 – 04/30/10

—

—

—

—

05/01/10 – 05/31/10

—

—

—

—

06/01/10 – 06/30/10

—

—

—

—

Total

—

—

—

—

Item 6. Selected Financial Data.

The following table sets forth our selected consolidated financial data as of and for the years ended June 30, 2006, 2007, 2008, 2009, and 2010. Such data has been derived from our consolidated financial statements audited by Grant Thornton LLP for the fiscal year ended June 30, 2006, and by PMB Helin Donovan, LLP for the fiscal years ended June 30, 2007, 2008, 2009 and 2010. 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,
		2010				2009				2008				2007				2006
		(In thousands)
Statement of Operations Data:
Revenue		$	27,979			$	31,985			$	25,544			$	52,762			$	50,746
Costs of revenue			12,858				15,723				19,540				51,029				46,855
Gross profit			15,121				16,262				6,004				1,733				3,891
Selling, general and administrative expenses			12,170				9,760				9,361				13,762				10,672
Research and development expenses			2,798				2,330				1,375				801				410
Income (loss) from operation			153				4,172				(4,732	)			(12,830	)			(7,191	)
Gain on bond exchange			—				665				—				—				—
Debt conversion expense			—				—				(30,194	)			—				—
Interest and other expense, net			(459	)			(622	)			(427	)			(3,531	)			(5,174	)
Income tax benefit (expense)			(22	)			510				(675	)			69				(32	)
Net income (loss)			(328	)			4,725				(36,028	)			(16,292	)			(12,397	)
Less: net loss attributable to noncontrolling interest			(588	)			—				—				—				—
Net income (loss) attributable to Astrotech Corporation			260				4,725				(36,028	)			(16,292	)			(12,397	)
Net income (loss) per common share — basic		$	0.02			$	0.29			$	(4.26	)		$	(12.61	)		$	(9.73	)
Shares used in computing net income (loss) per common share — basic			16,567				16,365				9,254				1,292				1,274
Net income (loss) per common share — diluted		$	0.01			$	0.28			$	(4.26	)		$	(12.61	)		$	(9.73	)
Shares used in computing net income (loss) per common share — diluted			18,283				16,904				9,254				1,292				1,274
Balance Sheet Data (End of Period):
Cash and Cash Equivalents		$	8,085			$	4,730			$	2,640			$	9,724			$	6,317
Total assets			54,903				58,919				58,211				72,475				85,450
Current debt			8,467				267				267				—				—
Long-term debt, excluding current portion			—				8,435				10,387				52,944				63,250
Stockholders’ equity			42,212				40,548				34,936				(13,131	)			2,809
Working capital (deficit) surplus		$	2,623			$	8,418			$	522			$	(6,105	)		$	2,753
Other Data:
Net cash provided by operating activities		$	4,437			$	4,972			$	(8,598	)		$	6,028			$	3,984
Net cash used in investing activities			(1,829	)			(1,427	)			(158	)			(1,077	)			(1,141	)
Net cash used in financing activities			747				(1,455	)			1,672				(1,544	)			(3,853	)

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 26 years, the Company has remained a crucial player in space commerce activities. We have supported the launch of 23 shuttle missions and more than 280 spacecraft, building space hardware and processing facilities, and preparing and processing 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.
•		Commercialization of space-based technologies into real-world applications.
•		Expertise in qualifying hardware for spaceflight and the habitability and occupational challenges of space.

Our Business Units

Astrotech Space Operations

ASO 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 offers engineering services capabilities that encompass the entire life cycle of a satellite. ASO accounted for 100% of our consolidated revenues for the year ended June 30, 2010. 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 intended to be utilized for a variety of applications. 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 award from the U.S. Army’s Chemical and Biological Defense (“CBD”) Small Business Innovation Research (“SBIR”) Program. Additionally, 1^st Detect received a $1.8 million award from the Texas Emerging Technology Fund. Astrogenetix is performing drug discovery in microgravity and NASA has designated this work as the National Lab Pathfinder Missions. Astrogenetix has identified a vaccine candidate for Salmonella and is currently conducting microgravity research on MRSA.

Critical Accounting Policies

Revenue Recognition. Revenue is derived primarily from contracts to deliver payload processing support and facilities to the U.S. Government and to commercial customers. Revenues under these contracts are recognized using the methods described below. Given the changing launch schedules of our customers, and the changing requirements of the customers in construction contracts, estimating future costs and revenues is a process requiring a high degree of judgment by our management. (See Risk Factors—Risks Related to Our Business—Our financial results could be adversely affected if the estimates that we use in accounting for contracts are incorrect and need to be changed.) For our satellite payload processing, we base our estimate on historical experience and on assumptions that are believed to be reasonable under the circumstances, including the negotiation of equitable adjustments to our fixed-price contracts due to launch delays. For construction contracts, costs to complete include, when appropriate, material, labor, subcontracting costs, lease costs, commissions, insurance, and depreciation. In the event of a change in total estimated contract cost or profit, the cumulative effect of such change is recorded in the period that the change in estimate occurs.

A Summary of Revenue Recognition Methods Follows:

Services/Products Provided		Contract Type		Method of Revenue Recognition
Satellite Payload Processing Support & 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
Facility Construction contracts		Firm Fixed Price		Percentage-of-completion based on costs incurred
Engineering Services		Cost Reimbursable Award/Fixed Fee		Reimbursable costs incurred plus award/fixed fee
Commercial Products		Specific Purchase Order Based		At shipment

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 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 granted award.

CONSOLIDATED RESULTS OF OPERATIONS

Results of Operations for the Years Ended June 30, 2010 and 2009

The following table sets forth the significant components in the Consolidated Statements of Operations for the year ended June 30, 2010, compared with 2009. The financial information and the discussion below should be read in conjunction with the Consolidated Financial Statements and Notes.

		Year Ended June 30,
(In thousands)		2010				2009				Variance
Revenue		$	27,979			$	31,985			$	(4,006	)
Gross profit			15,121				16,262				(1,141	)
Gross margin			54	%			51	%			3	%
Selling, general and administrative			12,170				9,760				2,410
Research and development			2,798				2,330				468
Total operating expenses			14,968				12,090				2,878
Income from operations			153				4,172				(4,019	)
Gain on bond exchange			—				665				(665	)
Interest and other expense, net			(459	)			(622	)			163
Income (loss) before income taxes			(306	)			4,215				(4,521	)
Income tax (expense) benefit			(22	)			510				(532	)
Net income (loss)			(328	)			4,725				(5,053	)
Less: net loss attributable to noncontrolling interest			(588	)			—				(588	)
Net income attributable to Astrotech Corporation		$	260			$	4,725			$	(4,465	)

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, 2010, compared with 2009:

		Year Ended June 30,
		2010				2009
Revenue			100	%			100	%
Cost of revenue			46	%			49	%
Gross profit			54	%			51	%
Operating expenses
Selling, general and administrative			44	%			31	%
Research and development			10	%			7	%
Total operating expenses			54	%			38	%
Income (loss) from operations			1	%			13	%
Gain on bond exchange			—	%			2	%
Interest and other expense, net			(2	)%			(2	)%
Income (loss) before income taxes			(1	)%			13	%
Income tax (expense) benefit			*				2	%
Net income (loss)			(1	)%			15	%
Less: net loss attributable to noncontrolling interest			(2	)%			—	%
Net income  attributable to Astrotech Corporation			1	%			15	%

Revenue. Total revenue decreased to $28.0 million for the year ended June 30, 2010, as compared to $32.0 million at June 30, 2009, due to the completion of construction on the new 5-meter satellite facility and associated building improvement projects at VAFB during the first quarter of 2010, offset partially by processing RSC-Energia’s MRM1 in our Cape Canaveral facility.

A breakdown of revenue for the years ended June 30, 2010 and 2009 is as follows:

		Year Ended June 30,
(In thousands)		2010				2009
ASO		$	27,979			$	31,856
Spacetech			—				129
		$	27,979			$	31,985

Gross Profit. Gross profit decreased to $15.1 million for the year ended June 30, 2010, as compared to $16.3 million for the year ended June 30, 2009. The decrease in gross profit was attributable to the decline in revenue, partially offset by a customer contract which was processed at a higher margin.

Selling, General and Administrative Expense. Selling, general and administrative expense increased to $12.2 million for the year ended June 30, 2010, as compared to $9.8 million for the year ended June 30, 2009. The increase was primarily attributable to additional employee incentive compensation expense, an increase in business development personnel and an increase in outside consulting fees. As a percentage of revenue, selling, general and administrative expenses increased to 44% for the year ended June 30, 2010, on lower revenue, as compared to 31% for the year ended June 30, 2009.

Research and Development Expense. Research and development expense increased to $2.8 million for the year ended June 30, 2010, as compared to $2.3 million for the year ended June 30, 2009. As a percentage of revenue, research and development increased to 10% for the year ended June 30, 2010, as compared with 7% for the year ended June 30, 2009. The increase in expense was the result of our investments in the development of the 1^st Detect Miniature Chemical Detector and the Astrogenetix Microgravity Processing Platform.

Gain on bond exchange. In October 2008, the Company repurchased and retired $1.8 million principal amount of its outstanding 5.5% Senior Convertible notes, acquired at an established market price on the day of trade. The Company recognized a gain of $0.7 million on the transaction in the year ended June 30, 2009.

Interest and Other expense, net. Interest and other expense, net, decreased to $0.5 million for the year ended June 30, 2010, as compared to $0.6 million for the year ended June 30, 2009. Interest expense relates to interest on the Senior Convertible Notes and the term loan, offset by interest income primarily from our money market accounts due to the larger cash balance available for investment. Also included in other expense for the years ended June 30, 2010 and 2009 is the write-off of $0.2 million and $0.1 million, respectively, of aerospace metals.

SEGMENT RESULTS OF OPERATIONS

Selected financial data for the years ended June 30, 2010, and 2009 of our ASO business unit is as follows:

		Year Ended June 30,
(In thousands)		2010				2009				Variance
Revenue		$	27,979			$	31,856			$	(3,877	)
Gross profit			15,125				16,338				(1,213	)
Gross margin percentage			54	%			51	%			3	%
Selling, general and administrative			8,563				8,739				(176	)
Operating expenses			8,563				8,739				(176	)
Interest and other expense, net			(230	)			(254	)			24
Income tax expense			—				—				—
Net income			6,332				7,345				(1,013	)
Less: net loss attributable to noncontrolling interest			—				—				—
Net income attributable to ASO		$	6,332			$	7,345			$	(1,013	)

Revenue. Total revenue decreased to $28.0 million for the year ended June 30, 2010, as compared to $31.9 million at June 30, 2009, due to the completion of construction on the new 5-meter satellite facility and associated building improvement projects at VAFB during the first quarter of 2010, offset partially by processing RSC-Energia’s MRM1 in our Cape Canaveral facility.

Gross Profit. Gross profit decreased to $15.1 million for the year ended June 30, 2010, as compared to $16.3 million for the year ended June 30, 2009. The decrease in gross profit was attributable to the decline in revenue, partially offset by a customer contract which was processed at a higher margin.

Selling, General and Administrative Expense. Selling, general and administrative expense decreased to $8.6 million for the year ended June 30, 2010, as compared to $8.7 million for the year ended June 30, 2009. This decrease is primarily a result of lower administrative fees.

Interest and other expense, net. Interest and other expense, net, decreased to $0.2 million in the year ended June 30, 2010, as compared to $0.3 million in the year ended June 30, 2009. This relatively consistent expense relates to interest on the term loan, offset by interest earned primarily from our money market accounts. Also included in other expense for the year ended June 30, 2010 and 2009 is the write-off of $0.2 million and $0.1 million, respectively, of aerospace metals.

Selected financial data for the years ended June 30, 2010, and 2009 of our Spacetech business unit is as follows:

		Year Ended June 30,
(In thousands)		2010				2009				Variance
Revenue		$	—			$	129			$	(129	)
Gross loss			(4	)			(76	)		$	72
Gross margin percentage			—	%			(59	)%			59	%
Selling, general and administrative			3,607				1,021				2,586
Research and development			2,798				2,330				468
Operating expenses			6,405				3,351				3,054
Gain on notes repurchased			—				665				(665	)
Interest and other expense, net			(229	)			(368	)			139
Income tax expense			(22	)			510				(532	)
Net loss			(6,660	)			(2,620	)			(4,040	)
Less: net loss attributable to noncontrolling interest			(588	)			—				(588	)
Net loss attributable to Spacetech		$	(6,072	)		$	(2,620	)		$	(3,452	)

Revenue. Total revenue decreased $0.1 million for the year ended June 30, 2010, from the year ended June 30, 2009. The revenue in fiscal year 2009 was derived from AirWard, which designed and manufactured shipping containers to transport oxygen bottles and oxygen generators for commercial aircraft. In February 2010, further investment in AirWard was suspended as the initiative has not yielded the anticipated return for shareholders.

Gross loss. The gross loss decreased for AirWard in the year ended June 30, 2010, as the initiative has not yielded the anticipated return for shareholders.

Selling, General and Administrative Expense. Selling, general and administrative expense increased to $3.6 million for the year ended June 30, 2010, as compared to $1.0 million for the year ended June 30, 2009. The increase was primarily attributable to increased employee incentive compensation expense and an increase in outside consulting fees.

Research and Development Expense. Research and development expense increased to $2.8 million for the year ended June 30, 2010, as compared to $2.3 million for the year ended June 30, 2009. The increase in expense was the result of our investments in the development of the 1^st Detect Miniature Chemical Detector and the Astrogenetix Microgravity Processing Platform.

Interest and other expense, net. Interest and other expense, net, decreased to $0.2 million in the year ended June 30, 2010, as compared to $0.4 million for the year ended June 30, 2009. Interest expense relates to interest on the Senior Convertible Notes, offset by interest earned from our money market accounts.

FINANCIAL CONDITION, CAPITAL RESOURCES, AND LIQUIDITY

Balance Sheet

Total assets for the year ended June 30, 2010, were $54.9 million compared to total assets of $58.9 million as of the end of fiscal year 2009. The following table sets forth the significant components of the balance sheet as of June 30, 2010, compared with 2009 (in thousands):

		Year Ended June 30,
		2010				2009				Variance
Assets:
Current assets		$	14,964			$	17,600			$	(2,636	)
Property and equipment, net			39,920				40,226				(306	)
Other assets, net			19				1,093				(1,074	)
Total		$	54,903			$	58,919			$	(4,016	)
Liabilities and stockholders’ equity:
Current debt		$	8,467			$	267			$	8,200
Other current liabilities			3,874				8,915				(5,041	)
Long-term debt			—				8,435				(8,435	)
Other long-term liabilities			350				754				(404	)
Stockholders’ equity			42,212				40,548				1,664
Total		$	54,903			$	58,919			$	(4,016	)

Current assets. Current assets decreased $2.6 million for the year ended June 30, 2010, as compared to June 30, 2009. The overall decrease relates to collection of accounts receivable, including the collection of final invoicing on the facility construction at VAFB which were outstanding at June 30, 2009, and the timing of a note receivable which is now classified as due within one year.

Property and equipment, net. Depreciation and amortization expense of $2.1 million exceeded capital expenditures of $1.8 million.

Other assets, net. Other assets, net, decreased $1.1 million for the year ended June 30, 2010, as compared to June 30, 2009. A note receivable of $0.7 million is due now within the next fiscal year and classified as a current asset. The Company also had a partial write off of $0.2 million and a recorded sale of $0.1 million on remaining aerospace metals.

Current and long-term debt. The $5.1 million of Senior Convertible Notes and the $3.4 million term loan are due within the next fiscal year, and therefore, the classification has changed from long-term debt to current debt. The Company made principal payments on the term loan of $0.3 million for the year ended June 30, 2010. Interest is paid bi-annually on the Senior Convertible Notes.

Other current liabilities. Other current liabilities decreased by $5.0 million for the year ended June 30, 2010, as compared to June 30, 2009. The decrease in accounts payable of $2.1 million is due to payments made to vendors related to the facility construction at VAFB, which were outstanding at June 30, 2009, as well as timing of other payments. The decrease in short term deferred revenue of $2.7 million is a result of a timing difference between cash collections on payload processing customer contracts and amounts earned as revenue.

Other long-term liabilities. Other long-term liabilities decreased $0.4 million for the year ended June 30, 2010, as compared to June 30, 2009. This was primarily due to a decrease in non-current deferred revenue of $0.3 million.

Liquidity and Capital Resources

As of June 30, 2010, we had cash and cash equivalents of $8.1 million and our working capital was approximately $2.6 million, including $0.5 million of cash in 1^st Detect available only to fund development of the Miniature Chemical Detector (see Note 13). As of June 30, 2009 we had cash and cash equivalents of $4.7 million and our working capital was approximately $8.4 million. The following is a summary of the change in our cash and cash equivalents:

		June 30,
		2010				2009
Net cash provided by operating activities		$	4,437			$	4,972
Net cash used in investing activities			(1,829	)			(1,427	)
Net cash used in financing activities			747				(1,455	)
Net increase in cash and cash equivalents		$	3,355			$	2,090

Operating Activities

Cash provided by operations for the year ended June 30, 2010, was $4.4 million as compared with $5.0 million for the year ended June 30, 2009. Significant items affecting operating cash flows at June 30, 2010 were our net loss of $0.3 million and depreciation and amortization of $2.1 million. At June 30, 2009, operating cash flow included net income of $4.7 million and depreciation and amortization of $2.2 million.

Changes in assets and liabilities affecting our operating cash flows for fiscal year 2010 are as follows:

Assets. The decrease in accounts receivable of $6.6 million is primarily attributable to the timing of payments received by the Company, including the collection of amounts due from the U.S. Government on the facility construction at VAFB which were outstanding as of June 30, 2009. The increase in cash and cash equivalents of $3.4 million is primarily due to the collection of amounts in our accounts receivable.

Liabilities. The decrease in accounts payable of $2.1 million is due to payments made to vendors related to the facility construction at VAFB, which were outstanding at June 30, 2009, as well as timing of other payments. The decrease in short term deferred revenue of $2.7 million is a result of a timing difference between cash collections on payload processing customer contracts and amounts earned as revenue.

Investing Activities

Cash used in investing activities for the year ended June 30, 2010, was $1.8 million as compared with $1.4 million for the year ended June 30, 2009. In fiscal year 2010, capital expenditures for payload processing facilities related to ASO were $1.8 million, which included construction of an administrative customer support building at VAFB.

Financing Activities

Cash provided by financing activities for the year ended June 30, 2010, was $0.7 million as compared with cash used in financing activities of $1.5 million for the year ended June 30, 2009. In fiscal year 2010, the Company received $0.1 million in proceeds from issuance of common stock and 1^st Detect received $0.9 million from the Texas Emerging Technology Fund (See Note 13). This was offset by the $0.3 million in principal payments the Company made on the term loan. In fiscal year 2009, the Company purchased $1.8 million of the principal amount of its outstanding Senior Convertible Notes offset by a gain of $0.7 million.

Debt Facilities. In February 2008, we entered into a financing facility providing a $4.0 million term loan terminating February 2011 and a $2.0 million revolving credit facility terminating in February 2009. The term loan requires monthly payments of principal, plus interest at the rate of prime plus 1.75% and the revolving credit facility incurs interest at the rate of prime plus 1.75%. Effective February 2010, we renewed the $2.0 million revolving credit facility for an additional one-year period expiring February 2011. The renewal changed the interest rate to the bank’s prime rate plus 0.75%. The bank financing facilities are secured by the assets of our ASO Florida facilities and other bank covenants. The balance of the $4.0 million term loan as of June 30, 2010 was $3.4 million. As of June 30, 2010, there was no balance outstanding on the $2.0 million revolving credit facility.

As of June 30, 20 Astrotech had $5.1 million of Senior Convertible Notes outstanding which mature on October 15, 2010, and pay interest on April 15 and October 15 annually. The $5.1 million of Senior Convertible Notes and the $3.4 million term loan are due within the next fiscal year, and therefore, the classification has changed from long-term debt to current debt.

Contractual Obligations

Leases

The Company is obligated under non-cancelable operating leases for equipment, office space, the land for a payload processing facility and certain flight assets. Future minimum payments under these 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
Long-Term Debt Obligations			—				—				—				—				—
Capital Lease Obligations			—				—				—				—				—
Operating Lease Obligations		$	885			$	616			$	269				—				—
Purchase Obligations			—				—				—				—				—
Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under GAAP			—				—				—				—				—
Total		$	885			$	616			$	269				—				—

Rent expense for the years ended June 30, 2010, and 2009 was approximately $0.9 million and $0.9 million, respectively. For fiscal year 2010, the Company received sublease payments of $0.3 million.

Construction Contract Contingency

In August 2007, we entered into a $14.0 million modification to our existing VAFB construction contract. The modification required us to complete the construction on the redesigned facility by September 30, 2009. The modification contained penalties of up to $3.0 million if we did not meet the contracted completion date. The construction was complete in September 2009 and no penalties were incurred (See Note 12).

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 13). As of June 30, 2010, 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.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2010.

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 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 2009, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years 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 2009, 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,
		2010				2009
Assets
Current assets
Cash and cash equivalents		$	8,085			$	4,730
Accounts receivable, net			5,676				12,279
Prepaid expenses and other current assets			528				591
Short term note receivable			675				—
Total current assets			14,964				17,600
Property and equipment, net			39,920				40,226
Long term note receivable			—				691
Other assets, net			19				402
Total assets		$	54,903			$	58,919
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable			859				2,965
Accrued liabilities and other			2,083				2,356
Deferred revenue			854				3,594
Senior convertible subordinated notes payable — 5.5%			5,111				—
Term note payable			3,356				267
Other			78				—
Total current liabilities			12,341				9,182
Deferred revenue			350				649
Other liabilities			—				105
Senior convertible subordinated notes payable — 5.5%			—				5,111
Term note payable, net of current portion			—				3,324
Total liabilities			12,691				18,371
Commitments and contingencies (Note 12)			—				—
Stockholders’ equity
Preferred stock, no par value, convertible, 2,500,000 authorized shares, 0 issued and outstanding shares, at June 30, 2010 and 2009			—				—
Common stock, no par value, 75,000,000 and 75,000,000 shares authorized at June 30, 2010 and 2009 respectively, 17,081,543 and 16,754,378 shares issued at June 30, 2010 and 2009, respectively			183,515				183,341
Treasury stock, 311,660 shares at cost			(237	)			(237	)
Additional paid-in capital			639				1,663
Retained deficit			(143,959	)			(144,219	)
Noncontrolling interest			2,254				—
Total stockholders’ equity			42,212				40,548
Total liabilities and stockholders’ equity		$	54,903			$	58,919

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,
		2010				2009
Revenue		$	27,979			$	31,985
Costs of revenue			12,858				15,723
Gross profit			15,121				16,262
Operating expenses
Selling, general and administrative			12,170				9,760
Research and development			2,798				2,330
Total operating expenses			14,968				12,090
Income from operations			153				4,172
Gain on bond exchange			—				665
Interest and other expense, net			(459	)			(622	)
Income (loss) before income taxes			(306	)			4,215
Income tax benefit (expense)			(22	)			510
Net income (loss)			(328	)			4,725
Less: Net loss attributable to noncontrolling interest			(588	)			—
Net income attributable to Astrotech Corporation		$	260			$	4,725
Net income per share, basic		$	0.02			$	0.29
Weighted average common shares outstanding, basic			16,567				16,365
Net income per share, diluted		$	0.01			$	0.28
Weighted average common shares outstanding, diluted			18,283				16,904

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, 2008			14,954			$	183,306			$	(117	)		$	691			$	(148,944	)		$	—			$	34,936
Stock based compensation			—				—				—				972				—				—				972
Treasury stock purchase			(312	)			—				(120	)			—				—				—				(120	)
Exercise of stock options			38				35				—				—				—				—				35
Restricted stock issuance			1,763
Net income (loss)							—				—				—				4,725				—				4,725
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			44				—				—				—				—				—				—
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			16,770			$	183,515			$	(237	)		$	639			$	(143,959	)		$	2,254			$	42,212

See the accompanying notes to consolidated financial statements.

ASTROTECH CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

		Year Ended June 30,
		2010				2009
Cash flows from operating activities
Net income (loss)		$	(328	)		$	4,725
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation			978				338
Depreciation and amortization			2,135				2,209
Gain on note repurchase			—				(665	)
Other			—				171
Changes in assets and liabilities:
Restricted cash			—				8,386
Accounts receivable			6,603				(8,407	)
Deferred revenue			(3,039	)			2,009
Accounts payable			(2,106	)			365
Advances for construction contract			—				(4,863	)
Other assets and liabilities			194				704
Net cash provided by operating activities			4,437				4,972
Cash flows from investing activities
Purchases of property, equipment and leasehold improvements			(1,829	)			(1,427	)
Net cash used in investing activities			(1,829	)			(1,427	)
Cash flows from financing activities
State of Texas Funding			900				—
Proceeds from issuance of common stock			114				17
Senior convertible note repurchase			—				(1,085	)
Term loan payment			(267	)			(267	)
Purchase of treasury stock			—				(120	)
Net cash provided by (used in) financing activities			747				(1,455	)
Net change in cash and cash equivalents			3,355				2,090
Cash and cash equivalents at beginning of period			4,730				2,640
Cash and cash equivalents at end of period		$	8,085			$	4,730
Supplemental disclosures of cash flow information
Cash paid for interest		$	469			$	569
Cash paid for income taxes		$	—			$	—

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 government services, designs and manufactures space hardware, and develops space technologies for use on Earth.

Astrotech 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 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 facilities are among the elite in the industry, with more than 150,000 square feet of clean room space that can support the largest, five-meter class satellites. ASO has provided launch processing support for government and commercial customers for nearly a quarter century, successfully processing more than 280 spacecraft.

Spacetech — Our other business unit is an incubator intended to develop space-industry technologies into commercial applications to be sold to consumers and industry. Spacetech has developed three business initiatives to date: 1^st Detect Corporation (“1^st Detect”), Astrogenetix, Inc. (“Astrogenetix”) and AirWard Corporation (“Airward”). 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, a device based on mass spectrometry, that we believe will fill 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 develop novel therapeutic products. A natural extension of the many years of experience preparing, launching, and operating over 1,500 science payloads in space, Astrogenetix is in the process of developing products from microgravity discoveries. AirWard designed and manufactured shipping containers to transport oxygen bottles and oxygen generators for commercial aircraft. Further investment in Airward was suspended in February, 2010, as the initiative has not yielded the anticipated return for shareholders.

The Company’s significant legal entities include Astrotech Space Operations, Inc., 1^st Detect Corporation and Astrogenetix, Inc. Additional discussion on Astrotech’s business can be found in Items 1-7 and Exhibit 21 of this Form 10-K.

Liquidity

As of June 30, 2010, we had cash and cash equivalents of $8.1 million and our working capital was approximately $2.6 million, including $0.5 million of cash in 1^st Detect available only to fund development of the Miniature Chemical Detector (see Note 13). As of June 30, 2009, we had cash and cash equivalents of $4.7 million and our working capital was approximately $8.4 million.

In February 2008 (see Note 5), we consummated a financing facility with a commercial bank. This facility provides for a three year $4.0 million term loan, payable in monthly installments of principal and interest and a $2.0 million revolving credit facility. The term loan is secured by the assets of ASO and the revolving credit facility is secured by ASO’s accounts receivable. As of June 30, 2010, we have no outstanding balance under the revolving credit facility.

At June 30, 2010, Astrotech had $5.1 million of Senior Convertible Notes outstanding which mature on October 15, 2010, and pay interest on April 15 and October 15 annually (see Note 5). The $5.1 million of Senior Convertible Notes and the $3.4 million term loan are due within the next fiscal year and therefore the classification has changed from long-term debt to current debt. The Company made principal payments on the term loan of $0.3 million for the year ended June 30, 2010. Interest is paid bi-annually on the Senior Convertible Notes.

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

		Balance				Fiscal Year				Fiscal Year				Fiscal Year				Fiscal Year				Fiscal Year
		6/30/2010				2011				2012				2013				2014				2015
Term Note		$	3,356			$	3,356			$	—			$	—			$	—			$	—
Senior Convertible Notes Payable — 5.5%			5,111				5,111				—				—				—				—
		$	8,467			$	8,467			$	—			$	—			$	—			$	—