-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qvw8KZ2FHK26r4GCvKINuRn9nQmZoJEhzOTzzYfS6fIicamD011dpzXdM+kiDjqp I2Y/RWsjtyeBbpO7bL57AA== 0000928385-03-000251.txt : 20030212 0000928385-03-000251.hdr.sgml : 20030212 20030212165228 ACCESSION NUMBER: 0000928385-03-000251 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPACEHAB INC \WA\ CENTRAL INDEX KEY: 0001001907 STANDARD INDUSTRIAL CLASSIFICATION: GUIDED MISSILES & SPACE VEHICLES & PARTS [3760] IRS NUMBER: 911273737 STATE OF INCORPORATION: WA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27206 FILM NUMBER: 03555178 BUSINESS ADDRESS: STREET 1: 300 D STREET S W STREET 2: STE 814 CITY: WASHINGTON STATE: DC ZIP: 20024 BUSINESS PHONE: 7038213000 MAIL ADDRESS: STREET 1: 1595 SPRING HILL ROAD STREET 2: SUITE 360 CITY: VIENNA STATE: VA ZIP: 22182 10-Q 1 d10q.txt FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended..........December 31, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission file number 0-27206 SPACEHAB, Incorporated 601 13/th/ Street, NW Suite 900 South Washington, DC 20005 (202) 488-3500 Incorporated in the State of Washington IRS Employer Identification Number 91-1273737 The number of shares of Common Stock outstanding as of the close of business on January 2, 2003: Class Number of Shares Outstanding ----- ---------------------------- Common Stock 12,304,781 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 X No ----- _____ Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange act).. Yes No X _____ ----- SPACEHAB, INCORPORATED AND SUBSIDIARIES DECEMBER 31, 2002 QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION Page ---- Item 1. Unaudited Condensed Consolidated Financial Statements Unaudited Condensed Consolidated Balance Sheets as of December 31, 2002 and June 30, 2002 2 Unaudited Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2002 and 2001 3 Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2002 and 2001 4 Notes to Unaudited Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosure about Market Risk 16 Item 4. Controls and Procedures 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 18
1 PART 1: FINANCIAL INFORMATION Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SPACEHAB, INCORPORATED AND SUBSIDIARIES Condensed Consolidated Balance Sheets
(In thousands, except share data) December 31, June 30, 2002 2002 (unaudited) --------------- -------------- ASSETS Cash and cash equivalents $ 1,792 $ 2,145 Restricted cash - 549 Accounts receivable, net 14,364 13,802 Prepaid expenses and other current assets 721 464 --------------- -------------- Total current assets 16,877 16,960 Property, plant, and equipment, net of Accumulated depreciation and amortization of $83,631 and $77,651, respectively 170,875 175,851 Goodwill, net of accumulated amortization of $4,553 20,294 20,294 Investment in Guigne, net 1,800 1,800 Other assets, net 5,752 5,921 --------------- -------------- Total assets $ 215,598 $ 220,826 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Loans payable, current portion $ 133 $ 169 Revolving loan payable 975 2,150 Accounts payable & accrued expenses 11,532 14,349 Accrued subcontracting services 7,359 3,043 Convertible notes payable to stockholder 2,628 1,827 Mortgage loan payable 2,127 2,039 Deferred revenue 10,908 15,405 --------------- -------------- Total current liabilities 35,662 38,982 Loans payable, net of current portion - 49 Accrued expenses 643 438 Convertible notes payable to stockholder - 2,039 Deferred revenue 9,448 9,560 Convertible subordinated notes payable 63,250 63,250 Mortgage loan payable 15,992 17,078 Other long term liability 1,840 1,010 --------------- -------------- Total liabilities 126,835 132,406 Commitments and contingencies Minority interest in consolidated subsidiary 750 750 Stockholders' equity Preferred Stock, authorized 2,500,000 shares, issued and outstanding 1,333,334 shares 11,892 11,892 Common stock, no par value, authorized 30,000,000 shares, issued and outstanding 12,304,781 and 11,832,096 shares, respectively 83,297 83,204 Additional paid-in capital 16 16 Accumulated other comprehensive loss (1,840) (1,010) Accumulated deficit (5,352) (6,432) --------------- -------------- Total stockholders' equity 88,013 87,670 --------------- -------------- Total liabilities and stockholders' equity $ 215,598 $ 220,826 =============== ==============
See accompanying notes to unaudited condensed consolidated financial statements 2 SPACEHAB, INCORPORATED AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Operations
(Unaudited) (Unaudited) (In thousands, except share data) Three Months Six Months Ended December 31, Ended December 31, --------------------------- -------------------------- 2002 2001 2002 2001 ------------- ------------ ------------ ------------ Revenue $ 28,050 $ 27,727 $ 54,862 $ 50,019 Costs of revenue 22,758 20,471 44,393 40,337 ------------- ------------ ------------ ------------ Gross profit 5,292 7,256 10,469 9,682 ------------- ------------ ------------ ------------ Operating expenses Selling, general and administrative 2,667 5,121 6,083 10,057 Research and development 73 125 85 143 ------------- ------------ ------------ ------------ Total operating expenses 2,740 5,246 6,168 10,200 ------------- ------------ ------------ ------------ Income (loss) from operations 2,552 2,010 4,301 (518) Interest expense, net of capitalized interest (1,839) (1,308) (3,699) (2,743) Interest and other income (loss), net (41) (17) (30) 1,124 ------------- ------------ ------------ ------------ Income (loss) before income taxes 672 685 572 (2,137) Income tax benefit (expense) 503 (27) 509 (55) ------------- ------------ ------------ ------------ Net income (loss) $ 1,175 $ 658 $ 1,081 $ (2,192) ============= ============ ============ ============ Income (loss) per share Net income (loss) per share - basic 0.10 $ 0.06 0.09 $ (0.19) ============= ============ ============ ============ Shares used in computing net income (loss) per share - basic 12,234,266 11,833,602 12,194,775 11,740,655 ============= ============ ============ ============ Net income (loss) per share - diluted $ 0.09 $ 0.05 $ 0.08 $ (0.19) ============= ============ ============ ============ Shares used in computing net income (loss) per share - diluted 13,606,199 13,166,936 13,558,802 11,740,655 ============= ============ ============ ============
See accompanying notes to unaudited condensed consolidated financial statements. 3 SPACEHAB, INCORPORATED AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands) Six Months Ended December 31, 2002 2001 ------------------- ------------------- Operating activities Net income (loss) $ 1,081 $ (2,192) Adjustments to reconcile net loss to net cash provided by operating activities Gain on sale of property and equipment - (1,096) Depreciation and amortization 5,985 7,527 Changes in assets and liabilities (Increase) decrease in accounts receivable (560) 6,959 (Increase) decrease in prepaid expenses and other current assets (258) 496 (Increase) in other assets (214) (164) (Decrease)in deferred flight revenue (4,609) (3,027) (Decrease)in accounts payable and accrued expenses (2,737) (6,329) Increase in accrued subcontracting services 4,315 1,059 ------------------- ------------------- Net cash provided by operating activities 3,003 3,233 ------------------- ------------------- Investing activities Payments for flight assets under construction (129) (1,715) Payments for building under construction - (11,139) Purchases of property, equipment and leasehold improvements (497) (151) Proceeds received from sale of property and equipment 125 783 Decrease in restricted cash 549 - ------------------- ------------------- Net cash provided by (used for) investing activities 48 (12,222) ------------------- ------------------- Financing activities Payment of loan payable (85) (3,936) Payment of note payable under credit agreement - (333) Proceeds from issuance of common stock 92 545 Repayment of revolving loan payable, net (1,175) (2,530) Proceeds from mortgage loan - 20,000 Repayment of mortgage loan (998) - Payment of convertible note payable to stockholder (1,238) (2,804) Proceeds from sale of minority interest in consolidated subsidiary - 750 ------------------- ------------------- Net cash (used for) provided by financing activities (3,404) 11,692 ------------------- ------------------- Net change in cash and cash equivalents (353) 2,703 Cash and cash equivalents at beginning of period 2,145 34 ------------------- ------------------- Cash and cash equivalents at end of period $ 1,792 $ 2,737 =================== ===================
See accompanying notes to unaudited condensed consolidated financial statements 4 SPACEHAB, INCORPORATED AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements 1. Basis of Presentation In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring accruals, necessary for a fair presentation of the consolidated financial position of SPACEHAB, Incorporated and subsidiaries ("SPACEHAB" or the "Company") as of December 31, 2002, and the results of its operations and cash flows for the three and six months periods ended December 31, 2002 and 2001. However, the consolidated financial statements are unaudited, and do not include all related footnote disclosures. Certain amounts presented for prior periods have been reclassified to conform with the fiscal year 2003 presentation. The consolidated results of operations for the three and six month periods ended December 31, 2002 are not necessarily indicative of the results that may be expected for the full year. The Company's results of operations have fluctuated significantly from quarter to quarter. The interim unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements appearing in the Company's Annual Report on Form 10-K for the year ended June 30, 2002. 2. Earnings per Share The following are reconciliations of the numerators and denominators of the basic and diluted earnings per share ("EPS") computations for the three and six month periods ended December 31, 2002 and 2001: (in thousands except per share data)
Three months ended Three months ended December 31, 2002 December 31, 2001 ----------------------------------------- ----------------------------------------- Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------------------------------------- ----------------------------------------- Basic EPS: Income available to common stockholders $ 1,175 12,234,266 $ 0.10 $ 658 11,833,602 $ 0.06 Effect of dilutive securities: Convertible notes payable - - - - - - Options and warrants,using - - - - - - the treasury stock method - 38,599 - - - - ----------------------------------------- ----------------------------------------- Convertible preferred shares - 1,333,334 - - 1,333,334 - ----------------------------------------- ----------------------------------------- Diluted EPS: Income available to common stockholders $ 1,175 13,606,199 $ 0.09 $ 658 13,166,936 $ 0.05 ========================================= =========================================
5
Six months ended Six months ended December 31, 2002 December 31, 2001 ----------------------------------------- ----------------------------------------- Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------------------------------------- ----------------------------------------- Basic EPS: Income (loss) available to common stockholders $ 1,081 12,194,775 $ 0.09 $ (2,192) 11,740,655 $ (0.19) Effect of dilutive securities: Convertible notes payable - - - - - - Options and warrants,using - - - - - - the treasury stock method - 30,693 - - - - ----------------------------------------- ----------------------------------------- Convertible preferred shares - 1,333,334 - - - - ----------------------------------------- ----------------------------------------- Diluted EPS: Income (loss) available to common stockholders $ 1,081 13,558,802 $ 0.08 $ (2,192) 11,740,655 $ (0.19) ========================================= =========================================
Convertible notes payable outstanding as of December 31, 2002, convertible into 4,642,202 shares of common stock at $13.625 per share and due October 2007, were not included in the computation of diluted EPS for the three and six months ended December 31, 2002 and 2001, as the inclusion of the converted notes would be anti-dilutive for these periods. Options to purchase 1,974,594 shares of common stock, at prices ranging from $0.93 to $14.00 per share, were outstanding at December 31, 2002 but were not included in diluted EPS as the option prices were greater than the average market price of the common shares during the three months ended December 31, 2002. The options expire between March 11, 2003 and July 23, 2011. Options to purchase 1,944,594 shares of common stock, at prices ranging from $1.15 to $14.00 per share, were outstanding at December 31, 2002 but were not included in diluted EPS as the option prices were greater than the average market price of the common shares during the six months ended December 31, 2002. The options expire between March 11, 2003 and July 23, 2011. Options and warrants to purchase 3,065,464 shares of common stock at prices ranging from $2.31 to $24.00 per share were outstanding for the three and six months ended December 31, 2001 but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average price of the common shares during the three and six months ended December 31, 2001. 3. Revenue Recognition SPACEHAB's Space Flight Services business unit's revenue is derived primarily from long-term fixed-price contracts with the U.S. Government and commercial customers. Revenue under these contracts is recognized using the percentage of completion method of accounting. Such revenues are recorded based on the percentage of costs incurred in the applicable reporting period as compared to the most recent estimates of costs to complete each mission. Estimating future costs and, therefore, revenues and profits, is a process requiring a high degree of management judgment. Management bases its estimates on historical experience and various assumptions that are believed to be reasonable under the circumstances. Costs to complete include, when appropriate, material, labor, subcontracting costs, lease costs, commissions, insurance and depreciation. Reviews of the status of contracts are performed by business segment personnel through periodic contract status and performance reviews. In the event of a change in total estimated contract cost or profit, the cumulative effect of such change is recorded in the period in which the change in estimate occurs. 6 With respect to its cost-plus award and incentive fee contract, SPACEHAB's subsidiary, Johnson Engineering Corporation ("JE"), recognizes revenue based on costs incurred plus a proportionate amount of estimated fee earned. Award fees, which provide earnings based on the Company's contract performance as determined by the National Aeronautics and Space Administration ("NASA") evaluations, are recorded when the amounts can be reasonably estimated, or when awarded. Changes in estimated costs to complete and estimated amounts recognized as award fees are recognized in the period they become known. Revenue generated from SPACEHAB's subsidiary Astrotech Space Operations ("Astrotech") payload processing facilities is billed and recognized on a quarterly basis under the terms of its existing long term contracts for costs incurred. 4. Statements of Cash Flows - Supplemental Information (a) Cash paid for interest costs was $3.4 million and $3.9 million for the six months ended December 31, 2002 and 2001, respectively. The Company capitalized no interest costs during the six months ended December 31, 2002 and capitalized $0.9 million during the six months ended December 31, 2001. (b) The Company paid no income taxes during the six months ended December 31, 2002 and December 31, 2001. 5. Credit Facilities The Company issued subordinated notes for a portion of the amount due to Alenia Spazio S.p.A. ("Alenia"), a shareholder, under a previously completed construction contract for the Company's flight modules. Alenia may elect to convert, in whole or part, the remaining principal amount into equity of Astrotech Space Operations, Inc., on terms and conditions to be agreed with the Company. On November 15, 2001 the Company entered into an agreement with Alenia to restructure the terms of this debt to provide for a $3.0 million payment of principal and interest on December 31, 2001 and quarterly amortization of the remaining principal beginning March 2002 through December 2003. In addition, the interest rate was reduced from 10% to 8% beginning January 1, 2002. The obligation is collateralized by one of the Company's flight assets. The outstanding balance of this note is $2.6 million at December 31, 2002. In August 2002, the Company entered into a $5.0 million line of credit with a new financial institution. This credit facility replaced a previous credit facility which was repaid and expired on July 31, 2002. The term of this new credit facility is through August 28, 2005. Covenants under this credit facility include, but are not limited to, tangible net worth, debt to worth and debt service coverage. As of December 31, 2002, $1.0 million was outstanding under this credit facility. On August 30, 2001, SPACEHAB's Astrotech subsidiary completed a $20.0 million financing of its satellite processing facility expansion project in Titusville, Florida with a financial institution. The proceeds of this financing were used to complete the construction of the payload processing facility and supporting infrastructure. The loan is collateralized primarily by Astrotech's multi-year payload processing contracts with The Boeing Company and Lockheed Martin Corporation. Interest accrues on the outstanding principal balance at a LIBOR-based rate, adjustable quarterly. The loan matures on January 15, 2011. The loan was converted from a construction loan to a term loan on December 31, 2001. Amortization of loan principal began on January 15, 2002 and continues on a quarterly basis through the loan maturity date. Interest is payable quarterly on the outstanding principal balance at the rate of 5.62% plus 225 basis points. During the six months ended December 31, 2002, $1.0 million of principal was repaid. In conjunction with this financing, a swap agreement was required to be entered into to provide for a fixed rate of interest under the loan commitment beginning January 2002. The objective of the hedge was to eliminate the variability of cash flows in the interest payments for the total amount of the variable rate debt, the sole source of which is due to changes in the USD-LIBOR-BBA interest rate. Changes in the cash flows of the interest rate swap are expected to exactly offset the changes in cash flows attributable to fluctuations in the USD-LIBOR-BBA interest rates on the total variable rate debt. The value of the swap, approximately $1.8 million, is recorded in other 7 comprehensive income (loss) on the balance sheet and other long-term liability. It is the only item included in other comprehensive loss which for the three and six months ended December 31, 2002 was a loss of $0.0 million and $0.8 million. The comprehensive income for the three and six months ended December 31, 2002 is $1.2 million and $0.2 million, respectively. Comprehensive income is the sum of net income and other comprehensive income (loss). 6. Asset Sales On November 30, 2000, Astrium, N.V., a related party, entered into an agreement with the Company to purchase the Company's Integrated Cargo Carrier ("ICC") and Vertical Cargo Carrier ("VCC") flight assets. The total purchase price of $15.4 million is comprised of both cash and services payments. The transaction occurred in two phases. The first phase was for the purchase of the ICC assets and the second phase was for the purchase of the VCC assets. Phase one of the transactions was completed in the quarter ended March 31, 2001. Phase two was completed in the quarter ended June 30, 2002. The Company recognized a minimal loss on the sale. SPACEHAB has entered into an agreement with Astrium, a related party, to lease these assets for a period of four years with two additional four-year options. 7. Segment Information Based on its organization, the Company currently operates in five major business segments: Space Flight Services, JE, Astrotech, Space Media, Inc. ("SMI") and All Other. Space Flight Services was founded to commercially develop space habitat modules and carriers that operate in the cargo bay of the Space Shuttles. Space Flight Services provides a turnkey service that includes access to the modules and carriers and provides integration and operations support services for both NASA and commercial customers. JE is primarily engaged in providing engineering services and products to the Federal Government and NASA, primarily under the Flight Crew System Development ("FCSD") Contract. Astrotech provides payload processing facilities to serve the satellite manufacturing and launch services industry. Astrotech currently provides launch site preparation facilities for flight ready satellites of major U.S. space launch companies and satellite manufacturers. SMI was established in April 2000 to develop space themed commercial business activities. The All Other segment, established in fiscal year 2002, includes start up business units, which are expected to provide services to the Federal Government and NASA. The Company's chief operating decision maker utilizes both revenue and income before taxes, including allocated interest based on the investment in the segment, in assessing performance and making overall operating decisions and resource allocations. As such, other income or expense items including taxes and corporate overhead have not been allocated to the various segments. (in thousands) Three Months Ended December 31, 2002
Pre-Tax Net Depreciation Income Fixed And Revenue (Loss) Assets Amortization ---------------------------------------------------------- Space Flight Services $ 14,072 $ (1,090) $ 120,374 $ 2,085 Johnson Engineering 9,879 863 956 216 Astrotech 3,804 1,189 49,483 485 SMI 212 (109) 62 65 All Other 83 (181) - - ---------------------------------------------------------- $ 28,050 $ 672 $ 170,875 $ 2,851 ==========================================================
8 Three Months Ended December 31, 2001
Pre-Tax Net Depreciation Income Fixed And Revenue (Loss) Assets Amortization -------------------------------------------------------- Space Flight Services $ 15,416 $ 1,251 $ 131,226 $ 2,991 Johnson Engineering 9,952 834 1,847 420 Astrotech 1,988 (59) 47,036 250 SMI 239 (450) 78 65 All Other 132 (891) 12 - -------------------------------------------------------- $ 27,727 $ 685 $ 180,199 $ 3,726 ======================================================== (in thousands) Six Months Ended December 31, 2002 Pre-Tax Net Depreciation Income Fixed And Revenue (Loss) Assets Amortization -------------------------------------------------------- Space Flight Services $ 26,440 $ (2,095) $ 120,374 $ 4,235 Johnson Engineering 21,153 1,562 956 487 Astrotech 6,650 1,507 49,483 1,010 SMI 336 (192) 62 130 All Other 283 (210) - - -------------------------------------------------------- $ 54,862 $ 572 $ 170,875 $ 5,862 ======================================================== Six Months Ended December 31, 2001 Pre-Tax Net Depreciation Income Fixed And Revenue (Loss) Assets Amortization -------------------------------------------------------- Space Flight Services $ 25,018 $ (2,286) $ 131,226 $ 5,655 Johnson Engineering 20,127 1,236 1,847 811 Astrotech 4,235 1,578 47,036 474 SMI 363 (1,046) 78 148 All Other 276 (1,619) 12 - -------------------------------------------------------- $ 50,019 $ (2,137) $ 180,199 $ 7,088 ========================================================
8. Minority Investment in Consolidated Subsidiary Pursuant to a stock purchase agreement entered into as of September 27, 2001, escottVentures II, LLC ("ESV"), of Melbourne, Florida, purchased 5,914,826 newly issued shares of SMI's Series A redeemable, convertible preferred stock for $750,000. On June 21, 2002, ESV filed Case Number 1:02CV01236 in the U.S. District Court for the District of Columbia against Space Media, Inc., SPACEHAB, Inc., Shelley A. Harrison and Julia A. Pulzone (collectively, "Defendants"). This suit, relating to ESV's investment in Space Media, Inc., sought rescission of the stock purchase agreement and return of its $750,000 investment, plus unspecified expenses, consequential damages, 9 exemplary and punitive damages, prejudgment interest, and costs and disbursements, including attorney and expert fees. Subsequent to the period ended December 31, 2002, the Defendants and ESV settled the suit through mediation. A stipulation and order of dismissal was filed with the Court by the parties on January 22, 2003, following the payment of cash and issuance of restricted shares of Spacehab common stock to ESV. 9. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Accounting for Goodwill and Other Intangible Assets". The statement eliminates the requirement to amortize costs in excess of net assets acquired (goodwill) under the purchase method of accounting, and sets forth a new methodology for periodically assessing and, if warranted, recording impairment of goodwill. The Company adopted the new rules effective July 1, 2002. The elimination of amortization of goodwill is expected to increase earnings by approximately $1.0 million for the fiscal year. The Company will continue to analyze and assess the impairment provisions of the new statement on an ongoing basis. As of the period ended December 31, 2002, the Company did not record an impairment write down. The financial statements for the six months ended December 31, 2001 included amortization of goodwill. The unaudited condensed Consolidated Statements of Operations for that period reported a loss before income taxes of $2.1 million. If goodwill had not been amortized to conform with the current accounting pronouncement, the loss before income taxes would have been $1.5 million. 10. Subsequent Events The Company is under contract with NASA to support the STS-107 mission on its Columbia orbiter. The mission utilized the Company's Research Double Module ("RDM") flight asset. On February 1, 2003 the RDM was lost in the tragic STS-107 accident. The loss of the RDM was partially covered by NASA and commercial sources. The company's commercial insurance on the module was $17.7 million. The Company expects to incur a material loss in connection with the write down of this asset which had a net book value of $67.2 million at December 31, 2002. However, the amount of loss expected to be recognized by the Company is subject to significant uncertainty as the Company works with NASA and other parties to resolve the contingencies surrounding the accident. The Company has not yet begun negotiating the value of the NASA coverage. Other options for recovering the value of the RDM are also being evaluated. The Company has two additional modules within its asset base that will be used to support the Company's current NASA contract and can be used to support future contracts. JE performs services under a cost-plus award and incentive-fee contract for government services that are requested and directed by NASA. JE primarily operates under the FCSD Contract. The tasks under the contract were segmented and a recompete for a portion of these tasks was begun in July 2002. On February 7, 2003, the Company was notified that its bid for this contract under recompete was not accepted and the contract has been awarded to another company. As a result of this event, the Company will be evaluating the impact of this contract loss on its financial position and results of operations. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General This document may contain "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, including (without limitation) the "General" and "Liquidity and Capital Resources" sections of this Item 2. Such statements are subject to certain risks and uncertainties, including those discussed herein, which could cause actual results to differ materially from those projected in the statements. In addition to those risks and uncertainties discussed herein, such risks and uncertainties include, but are not limited to, whether the Company will fully realize the economic benefits under its U.S. National Aeronautics and Space Administration ("NASA") and other customer contracts, the utilization of new commercial space assets, continued deployment of the International Space Station ("ISS"), technological difficulties, product demand and market acceptance risks, the effect of economic conditions, uncertainty in government funding, the 10 impact of competition and delays and uncertainties in future space shuttle and ISS programs arising from or as a result of the loss of the Columbia orbiter and its crew during the STS-107 mission. SPACEHAB was incorporated in 1984 to commercially develop space habitat modules to operate in the cargo bay of NASA's Space Shuttles. SPACEHAB's subsidiaries include, Johnson Engineering Corporation ("JE"), Astrotech Space Operations, Inc. ("Astrotech") and Space Media, Inc. ("SMI"). The Company is under contract with NASA to support the STS-107 mission on its Columbia orbiter. The mission utilized the Company's Research Double Module ("RDM") flight asset. On February 1, 2003 the RDM was lost in the tragic STS-107 accident. The loss of the RDM was partially covered by NASA and commercial sources. The company's commercial insurance on the module was $17.7 million. The Company expects to incur a material loss in connection with the write down of this asset which had a net book value of $67.2 million at December 31, 2002. However, the amount of loss expected to be recognized by the Company is subject to significant uncertainty as the Company works with NASA and other parties to resolve the contingencies surrounding the accident. The Company has not yet begun negotiating the value of the NASA coverage. Other options for recovering the value of the RDM are also being evaluated. The Company has two additional modules within its asset base that will be used to support the Company's current NASA contract and can be used to support future contracts. At this time, the Company does not plan to replace the RDM. SPACEHAB's Space Flight Services business unit has two additional modules and other flight assets available to support the Company's current NASA contract. These modules and assets can be used to support future NASA contracts. SPACEHAB's Space Flight Services business unit is continuing its operations, finalizing preparations for the STS-114 mission. SPACEHAB is providing a cargo carrier, known as the External Stowage Platform 2, or ESP2, that will be deployed and permanently mounted to the orbiting International Space Station (ISS). The Company continues to support two additional ISS resupply missions, STS-116 and STS-118. Revenue SPACEHAB's Space Flight Services business unit generates revenue by providing a turnkey service that includes access to the modules and unpressurized cargo carriers and integration and operations support to scientists and researchers responsible for the experiments and/or logistics supplies for module missions aboard the Space Shuttle System and under the Flight Crew Systems Development ("FCSD") Contract. Revenue generated under the Research and Logistics Mission Support ("REALMS") Contract, currently a $239.2 million contract, and for new contract awards for which the capability to successfully complete the contract can be demonstrated at contract inception, is recognized under the percentage-of-completion method and is being reported based on costs incurred over the period of the contract. JE performs services under a cost-plus award and incentive-fee contract for government services that are requested and directed by NASA. JE primarily operates under the FCSD Contract which is currently a $405.5 million multitask cost-plus award and incentive-fee contract. Revenue is recognized on this contract based on costs incurred plus a proportionate amount of estimated fee earned. The contract commenced in May 1993 and was scheduled to conclude in September 2002. The tasks under the contract were segmented and a recompete for a portion of these tasks was begun in July 2002. In August 2002, NASA exercised its option to extend the contract through December 2002 during the recompete period. In December 2002, NASA further extended the contract through June 2003, with six one-month extensions. To date, two of the one-month extensions have been exercised. On February 7, 2003, the Company was notified that its bid for this contract under recompete was not accepted and the contract has been awarded to another company. Astrotech revenue is generated from various multi-year fixed-price contracts with satellite and launch service vehicle providers. The services and facilities Astrotech provides to its customers support the final assembly, checkout and countdown functions associated with preparing a satellite for launch including transportation of the satellite and launch vehicle payload fairing to the launch pad. Astrotech's facilities are also used by its customers to encapsulate the satellite in the launch vehicle, and includes a new facility to accommodate the evolved expendable launch 11 vehicles ("EELV"), the newest class of launch vehicle. Revenue provided by the Astrotech payload processing facilities is recognized ratably over the occupancy period of the satellites in the Astrotech facilities. Under the multi-year contracts for payload processing services with commercial launch vehicle providers, revenue is billed and recognized on a quarterly basis as costs are incurred. On April 11, 2000, SPACEHAB announced the formation of SMI, a majority-owned subsidiary intended to create proprietary space-themed content for education and commerce. In fiscal year 2000, SMI acquired The Space Store, an online retail operation, anticipating that e-commerce could become an integral part of its Internet business. The Space Store currently offers space-related products through its website, www.spacestore.com, and a retail facility in Houston, Texas, near NASA's Johnson Space Center. In fiscal year 2001, SMI's focus was to develop content for STARS Academy(TM) and to pursue corporate promotion and advertising opportunities. STARS Academy is a global education program offering students opportunities to learn about and even participate in research aboard NASA's Shuttle and the ISS. As part of Space Media, the STARS Program supported six student-designed experiments for schools in Australia, China, Israel, Japan, Liechtenstein and the United States for launch on Space Shuttle mission STS-107, which launched on January 16, 2003. In fiscal year 2002, due to limited funding opportunities in the education industry and a struggling Internet content market, SMI reduced staffing and ended its marketing program for the STARS Program. SMI's revenue is now generated primarily from internet sales of The Space Store. Cost of Revenue Costs of revenue include integration and operations expenses associated with the performance of two types of efforts: (i) sustaining engineering in support of all missions under a contract and (ii) mission specific support. Costs associated with the performance of the contracts using the percentage-of-completion method of revenue recognition are expensed as incurred. Costs associated with the cost-plus award and incentive-fee contracts are expensed as incurred by JE. Other costs of revenue include depreciation expense and costs associated with the Astrotech payload processing facilities. Flight related insurance covering transportation of the SPACEHAB modules from SPACEHAB's payload processing facility to the Space Shuttle, in-flight insurance and third-party liability insurance are also included in costs of revenue and are recorded as incurred. Selling, general and administrative and interest and other expenses are recognized when incurred. RESULTS OF OPERATIONS For the three months ended December 31, 2002 as compared to the three months ended December 31, 2001. Revenue. Revenue increased slightly to approximately $28.1 million as compared to $27.7 million for the three months ended December 31, 2002 and 2001, respectively. For the three months ended December 31, 2002 revenue of $14.1 million was recognized from Space Flight Services primarily under the REALMS Contract with NASA and commercial customers, $9.9 million from JE primarily under the FCSD Contract, $3.8 million from Astrotech, $0.2 million from SMI, primarily from the Space Store and $0.1 million of other service revenue. In comparison, for the three months ended December 31, 2001 revenue of $15.4 million was recognized from Space Flight Services primarily under the REALMS Contract with NASA and commercial customers, $10.0 million from JE primarily under the FCSD Contract, $2.0 million from Astrotech, $0.2 million from SMI, primarily from the Space Store and $0.1 million of other service revenue. Revenue from the REALMS contract with NASA and commercial customers decreased by $1.6 million due to the types of missions under contract. Revenue for STS-107 decreased as compared to the same period last year and was partially offset by the addition of revenue for missions STS-114, STS-116, and STS-118. Revenue at Astrotech increased by $1.8 million due primarily to the increase in the number of missions completed and processed in the quarter ended December 31, 2002 as compared to the same period last year and additional payments under its long term contracts. Costs of Revenue. Costs of revenue for the three months ended December 31, 2002 increased by 11% to approximately $22.8 million, as compared to $20.5 million for the prior year's quarter. For the three months ended December 31, 2002, integration and operations costs of Space Flight Services for the REALMS Contract with NASA and commercial customers were $10.1 million, $8.7 million for JE, $1.5 million for Astrotech payload processing, $0.1 million for SMI and $0.1 million related to other service revenue. Costs of revenue also includes $2.3 million 12 of depreciation expense. In comparison, for the three months ended December 31, 2001, integration and operations costs of Space Flight Services for the REALMS Contract with NASA and commercial customers were $7.7 million, $8.7 million for JE, $1.0 million for Astrotech payload processing, and $0.2 million for SMI. Costs of revenue also include $2.9 million of depreciation expense. The change in costs of revenue of Space Flight Services for the REALMS Contract with NASA and commercial customers is due to increased costs of leased flight assets and increased integration and operations activities for STS-114, which is scheduled to launch in March 2003. Astrotech's increase in costs of revenue is due to the costs of the additional missions in the quarter ended December 31, 2002 as compared to the quarter ended December 31, 2001 and additional costs of the EELV facility which was placed in service in March 2002. The reduction in depreciation expense is primarily related to the change in the useful life of the Company's flight assets from 2012 to 2016 partially offset by the increased depreciation for the EELV facility at Astrotech. Operating Expenses. Operating expenses decreased 48% to approximately $2.7 million for the three months ended December 31, 2002 as compared to approximately $5.2 million for the three months ended December 31, 2001. The decrease in operating expenses is attributable to the completion of bid and proposal efforts for the microgravity contract of $0.7 million, refocusing the efforts of SMI of $0.5 million and elimination of $0.3 million of goodwill expenses as the result of the change in accounting standards. The company's ongoing cost reductions initiated during the fiscal year ended June 30, 2002 have resulted in savings of approximately $1.0 million. Legal and insurance costs decreased $0.4 million, facilities related costs decreased $0.2 million, depreciation expense decreased $0.2 million and compensation, benefits and travel decreased $0.2 million. Research and development expenses decreased slightly for the three months ended December 31, 2002 as compared to the comparable period last year as the Company continued to emphasize its core operations and limited new investments in research and development. Interest and Other Expense. Interest expense was approximately $1.8 million for the three months ended December 31, 2002 and approximately $1.3 million for the three months ended December 31, 2001 due primarily to interest on the mortgage loan payable on the Astrotech facility. In addition, no interest was capitalized during the three months ended December 31, 2002. For the three months ended December 31, 2001, $0.6 million interest was capitalized in conjunction with the new facility constructed by Astrotech. Interest and Other Income. Interest and other income was immaterial for the three months ended December 31, 2002 and December 31, 2001. Interest income is earned on the Company's short-term investments. Income Taxes. The Company recorded a tax refund of $0.5 million during December 2002. Based on the Company's projected taxable status for fiscal year 2003, the Company recorded no tax expense for the three months ended December 31, 2002, as compared to $27,000 tax expense for the three months ended December 31, 2001. Net Income/Loss. The net income for the three months ended December 31, 2002 was approximately $1.2 million or $.10 per share basic and 0.9 per share diluted EPS on 12,234,266 shares and 13,606,199 shares respectively as compared to a net income of $0.7 million or $.06 per share basic .05 per share diluted EPS on 11,833,602 shares and 13,581,438 shares, respectively, for the three months ended December 31, 2001. For the six months ended December 31, 2002 as compared to the six months ended December 31, 2001. Revenue. Revenue increased 10% to approximately $54.8 million as compared to $50.0 million for the six months ended December 31, 2002 and 2001, respectively. For the six months ended December 31, 2002, revenue of $26.4 million was recognized from Space Flight Services primarily under the REALMS Contract with NASA and commercial customers, $21.2 million for JE primarily under the FCSD Contract, $6.6 million from Astrotech, $0.3 million from SMI and $0.3 million of other service revenue. In comparison, for the six months ended December 30, 2001, revenue of $25 million was recognized from Space Flight Services primarily under the REALMS Contract with NASA and commercial customers, $20.1 million from JE under the FCSD Contract, $4.2 million from Astrotech, $0.4 million for SMI and $0.3 million of other service revenue. The increase in revenue under the REALMS Contract with NASA and commercial customers is attributable to the types of missions under contract 13 including STS-116 being added to the contract in the third quarter of fiscal year 2002 and increased mass requested to be flown on STS-116 and STS-118 by NASA in the period ended December 31, 2002. The increase in revenue at Astrotech is due primarily to an increase in the number of missions completed and processed in the six months ended December 31, 2002 as compared to the same period last year and additional payments under its long term contracts. Revenue at JE increased due to increased project work on both the FCSD and CM contracts and reimbursement of facilities costs. Costs of Revenue. Costs of revenue for the six months ended December 31, 2002 increased by 10% to approximately $44.4 million, as compared to $40.3 million for the comparable period last year. For the six months ended December 31, 2002, integration and operations costs of Space Flight Services for the REALMS Contract with NASA and commercial customers were $17.9 million, $18.6 million for JE, $2.9 million for Astrotech payload processing, $0.2 million for SMI, and $4.7 million of depreciation expense. For the six months ended December 31, 2001, integration and operations costs of Space Flight Services for the REALMS Contract with NASA and commercial customers were $14.6 million, $18.0 million for JE, $1.9 million for Astrotech payload processing $0.4 million for SMI and $5.4 million of depreciation expense. Costs of revenue under the REALMS Contract with NASA and commercial customers increased due primarily to increased costs of leased flight assets and increased integrations and operations work for STS-114 which is scheduled to fly in March 2003. Astrotech's costs increased due to the increased costs of the missions added over the guaranteed contract missions and the costs of the EELV facility which was placed in service in March 2002. The decrease in depreciation expense is related to the change in the useful life of the Company's flight assets from 2012 to 2016 partially offset by depreciation expense for the EELV facility at Astrotech. Operating Expenses. Operating expenses decreased 40% to approximately $6.2 million for the six months ended December 31, 2002 as compared to approximately $10.2 million for the six months ended December 21, 2001. The decrease in operating expenses is primarily the result of the completion of bid and proposal efforts for the microgravity contract of $1.4 million, refocusing of SMI efforts of $0.8 million, and the elimination of $0.6 million of goodwill expense as a result of new accounting standards. The company's ongoing cost reductions initiated during the fiscal year ended June 30, 2002 have resulted in savings of approximately $1.2 million. Legal and insurance costs decreased $0.3 million, facilities related costs decreased $0.4 million, depreciation expense decreased $0.3 million and compensation, benefits and travel decreased $0.2 million. Research and development expenses decreased slightly for the six months ended December 31, 2002 as compared to the comparable period last year due as the Company continued to emphasize its core operations and limited new investments in research and development. Interest and Other Expense. Interest expense was approximately $3.7 million for the six months ended December 31, 2002 and approximately $2.7 million for the six months ending December 31, 2002 due primarily to interest on the mortgage loan payable on the Astrotech facility. There was no interest capitalized for the six months ended December 31, 2002 and $0.9 million of interest was capitalized for the six months ended December 31, 2001. Interest was capitalized in conjunction with the construction of the Company's modules and the new facility constructed by Astrotech. Interest and Other Income. Interest and other income was immaterial for the six months ended December 31, 2002 and was approximately $1.2 million for the six months ended December 31, 2001. The Company recorded a gain of approximately $1.1 million on the sale of the Oriole Sounding Rocket assets during the six months ended December 31, 2001. Interest income is earned on the Company's short-term investments. Income Taxes. The Company recorded a tax refund of $0.5 million in December 2002. Based on the Company's projected taxable status for fiscal year 2003, the Company recorded no tax expense for the six months ended December 31, 2002, as compared to 55,000 tax benefit recorded for the six months ended December 31, 2001. Net Income (Loss). The net income for the six months ended December 31, 2002 was approximately $1.1 million or $0.09 per share basic and 0.08 per share diluted EPS on 12,194,775 and 13,558,882 shares, respectively, as 14 compared to net loss of $2.2 million or $0.19 per share (basic and diluted EPS) on 11,740,655 shares for the six months ended December 31, 2001. Liquidity and Capital Resources Historically the Company obtained operating and capital investment funds from the proceeds of its initial public offering of Common Stock and an offering of Series B Senior Convertible Preferred Stock. The Company also completed a private placement offering of convertible subordinated notes to support capital investments required for development and construction of space flight assets. The Company's primary source of liquidity is cash flow from operations. The principal uses of cash flow that affect the Company's liquidity position include both operational expenditures and debt service payments. Management is focused on increasing the Company's cash flow and on managing cash effectively through limiting cash investments in long-term assets. The Company currently maintains a working capital line of credit facility totaling $5.0 million in order to ensure appropriate levels of liquidity. As of December 31, 2002, amounts unused and available under this credit facility were $4.0 million. Cash Flows From Operating Activities. Cash provided by operations for the six months ended December 31, 2002 and 2001 was $3.0 million and $3.2 million, respectively. For the six months ended December 31, 2002, the significant items affecting cash provided by operating activities were primarily the result of depreciation and amortization of $6.0 million and a decrease in deferred revenue of $4.6 million due primarily to STS-107 which launched on January 16, 2003 and the impending launch of STS-114 which is scheduled to launch in March 2003. Accrued subcontracting costs increased $4.3 million due primarily for integration and operation costs for STS-114 partially offset by a decrease in accounts payable of $2.7 million. For the six months ended December 31, 2001, the significant items affecting cash provided by operating activities include depreciation and amortization of $7.5 million, a decrease of $3.0 million in deferred revenue due primarily to completion of various tasks under the REALMS and commercial customer contracts and the decrease of $6.3 million in accounts payable and accrued expenses due to payments to vendors. Accounts receivable decreased due to collections primarily under the REALMS and FCSD contracts. In addition, the Company recorded a $1.1 million gain on the sale of property and equipment relating to the Astrotech sounding rocket sale and the sale of equipment to Clear Lake Industries. Cash Flows Used in Investing Activities. For the six months ended December 31, 2002 and 2001, cash flows used in investing activities were $0.0 million and $12.2 million, respectively. For the six months ended December 31, 2002 excess machinery and equipment was sold for $0.1 million which was offset by minor expenditures in flight assets and property and equipment of $0.6 million. In addition, cash that was restricted at June 30, 2002 has been released and used for its intended purpose. The Company does not expect to incur any major capital expenditures this fiscal year. For the six months ended December 31, 2001, $11.1 million was spent on the completion of the payload processing facilities at Astrotech relative to the contract extensions with Boeing and Lockheed Martin. In addition, $1.7 million was spent on various flight assets primarily the VCC. The Company received $0.8 million in cash proceeds from the sale of the Oriole sounding rocket assets and the sale of equipment to Clear Lake Industries. Cash Flows From Financing Activities. For the six months ended December 31, 2002 and 2001, cash flows provided by (used for) financing activities were ($3.4) million and $11.7 million, respectively. For the six months ended December 31, 2002 the Company paid $3.5 million of obligations under various credit agreements. The Company paid $9.6 million of debt during the six months ended December 31, 2001 and $3.1 million of the loan payments was in conjunction with the Astrotech financing. The Company received $20.0 million relative to the Astrotech financing. The Company received $750,000 in the form of external equity investment in SMI. The Company's liquidity has been constrained over the previous two fiscal years. A significant portion of this constraint arose from funding of new operations and assets to support future Company growth, funding a portion of the construction cost of the Astrotech Florida facility and funding of required debt repayments. In addition, the Company was committed to capital investments to complete certain flight assets. 15 Beginning in the third quarter of the fiscal year 2001, management began an aggressive multi-faceted plan to improve the Company's financial position and liquidity. This plan included restructuring and repayment of certain debt obligations. Under this plan, the Company undertook extensive efforts to reduce cash required for both operations and capital investments. Additionally, the Company completed planned divesting of non-core assets. Development and construction of new assets is currently limited to those assets required to fulfill existing commitments under contracts. The Company has no further on-going commitments to fund development or construction of any asset. The Company completed the planned restructuring of certain debt obligations and continues to focus on reducing its outstanding debt. As discussed above, management completed the implementation of the plan in the fourth quarter of fiscal year 2002. Management continues to focus its efforts on improving the overall liquidity of the Company through reducing operating expenses and limiting cash commitments for future capital investments and new asset development. Contractual Obligations ($ in thousands)
Remaining In Fiscal Fiscal Fiscal Fiscal At Year Year Year Year Contractual Obligations December 31, 2002 2003 2004 2005 2006 Thereafter - -------------------------------------------------------------------------------------------------------------------------- Long-term Debt $ 66,986 2,197 1,382 - - $ 63,250 Mortgage Loan Payable 18,119 1,041 2,218 2,412 2,614 9,836 Capital Leases 351 72 212 67 - - Operating Leases, Net 13,997 2,805 4,269 3,403 183 3,338 ----------------------------------------------------------------------------------- Total Contractual Cash Obligations $ 99,453 $ 6,115 $ 8,081 $ 5,882 $ 2,797 $ 76,424 =================================================================================== (excluding interest payments)
Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, "Accounting for Goodwill and Other Intangible Assets". The statement eliminates the requirement to amortize costs in excess of net assets acquired (goodwill) under the purchase method of accounting, and sets forth a new methodology for periodically assessing and, if warranted, recording impairment of goodwill. The Company adopted the new rules effective July 1, 2002. The elimination of amortization of goodwill is expected to increase earnings by approximately $1.0 million for the fiscal year. The Company will continue to analyze and assess the impairment provisions of the new statement on an ongoing basis. As of the period ended December 31, 2002, the Company did not record an impairment write down. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. The Company has no material changes to the disclosure made on this matter in the Company's Annual Report on Form 10-K for the year ended June 30, 2002. 16 ITEM 4. Controls and Procedures Under the supervision and with the participation of the Company's management, including its principal executive officer and principal financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures within 90 days of the filing date of this quarterly report, and, based on its evaluation, the Company's principal executive officer and principal financial officer have concluded that these controls and procedures are effective. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Disclosure controls and procedures are the Company's controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that we file under the Exchange Act is accumulated and communicated to its management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On June 21, 2002, escottVentures II, LLC ("ESV") filed Case Number 1:02CV01236 in the U.S. District Court for the District of Columbia against Space Media, Inc., SPACEHAB, Inc., Shelley A. Harrison and Julia A. Pulzone (collectively, "Defendants"). This suit related to ESVs investment in Space Media, Inc., and asserted claims for federal securities fraud, fraud in the inducement, common law fraud, negligent misrepresentation, breach of contract, breach of duty of good faith and fair dealing, tortuous interference with contractual relations and conspiracy to commit fraud. ESV sought rescission of the agreement pursuant to which the investment was made in SMI and return of its $750,000 investment, plus unspecified expenses, consequential damages, exemplary and punitive damages, prejudgment interest, and costs and disbursements, including attorney and expert fees. Defendants answered the complaint on July 17, 2002, asserting a number of affirmative defenses. Subsequent to the period ended December 31, 2002, the Defendants and ESV settled the suit through mediation. A stipulation and order of dismissal was filed with the Court by the parties on January 22, 2003, following the payment of cash and issuance of restricted shares of Spacehab common stock to ESV. ITEM 2. CHANGES IN SECURITIES NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders was held on November 12, 2002. A quorum of at least one-third of the issued and outstanding common stock and Series B Senior Convertible Preferred Stock of the Company, voting together, was present and voting. (a) At the Annual Meeting of Shareholders, candidates for the Board of Directors stood for and were duly elected, with each nominee receiving a vote of at least 7,550,795 votes: 17 The directors elected by the holders of the Common Stock are: Hironori Aihara Melvin D. Booth Dr. Edward E. David, Jr. Richard Fairbanks Dr. Shelley A. Harrison Michael E. Kearney Gordon S. Macklin James R. Thompson The director elected by the holder of the Series B Senior Convertible Preferred Stock is: Josef Kind The following matter was brought to a vote of the shareholders at the meeting: (b) The ratification of the appointment of Ernst & Young LLP as the Company's independent auditors for fiscal year 2003. For 10,196,851 Against 18,443 Abstain 11,030 ITEM 5. OTHER INFORMATION NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley+- Act of 2002. 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.3 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. b) Reports on Form 8-K. NONE 18 Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Company is under contract with NASA to support the STS-107 mission on its Columbia orbiter. The mission utilized the Company's Research Double Module ("RDM") flight asset. On February 1, 2003 the RDM was lost in the tragic STS-107 accident. The RDM was partially insured through commercial sources and NASA. The Company's commercial insurance on the module was $17.7 million. The Company is yet to identify the value of the NASA insurance and is currently evaluating other options for recovering the value of the RDM. SPACEHAB, INCORPORATED Date: February 12, 2003 /s/ Dr. Shelley A. Harrison --------------------------------------- Dr. Shelley A. Harrison Chairman of the Board and Chief Executive Officer /s/ Julia A. Pulzone --------------------------------------- Julia A. Pulzone Senior Vice President, Finance and Chief Financial Officer /s/ Michael E. Kearney --------------------------------------- Michael E. Kearney President and Chief Operating Officer 19 CERTIFICATIONS I, Dr. Shelley A. Harrison, certify that: 1. I have reviewed this annual report on Form 10-Q of SPACEHAB, Incorporated; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report the financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 12, 2003 /s/ Dr. Shelley A. Harrison -------------------------------- Dr. Shelley A. Harrison Chairman of the Board and Chief Executive Officer 20 CERTIFICATIONS I, Julia A. Pulzone, certify that: 1. I have reviewed this annual report on Form 10-Q of SPACEHAB, Incorporated; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report the financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 12, 2003 /s/ Julia A. Pulzone ------------------------------ Julia A. Pulzone Senior Vice President, Finance and Chief Financial Officer 21 CERTIFICATIONS I, Michael E. Kearney, certify that: 1. I have reviewed this annual report on Form 10-Q of SPACEHAB, Incorporated; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): d. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report the financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and e. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 12, 2003 /s/ Michael E. Kearney ------------------------------------- Michael E. Kearney President and Chief Operating Officer 22 EX-99.1 3 dex991.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATIONS Each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, in his capacity as an officer of SPACEHAB, Incorporated ("SPACEHAB"), that, to the best of his knowledge, the Quarterly Report of SPACEHAB on Form 10-Q for the period ended December 31, 2002, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operation of SPACEHAB. Date: February 12, 2003 /s/ Dr. Shelley A. Harrison --------------------------------------- Dr. Shelley A. Harrison Chairman of the Board and Chief Executive Officer EX-99.2 4 dex992.txt EXHIBIT 99.2 EXHIBIT 99.2 CERTIFICATIONS Each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, in her capacity as an officer of SPACEHAB, Incorporated ("SPACEHAB"), that, to the best of her knowledge, the Quarterly Report of SPACEHAB on Form 10-Q for the period ended December 31, 2002, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operation of SPACEHAB. Date: February 12, 2003 /s/ Julia A. Pulzone ------------------------------------------- Julia A. Pulzone Senior Vice President, Finance and Chief Financial Officer EX-99.3 5 dex993.txt EXHIBIT 99.3 EXHIBIT 99.3 CERTIFICATIONS Each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, in his capacity as an officer of SPACEHAB, Incorporated ("SPACEHAB"), that, to the best of his knowledge, the Quarterly Report of SPACEHAB on Form 10-Q for the period ended December 31, 2002, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operation of SPACEHAB. Date: February 12, 2003 /s/ Michael E. Kearney -------------------------------------- Michael E. Kearney President and Chief Operating Officer -----END PRIVACY-ENHANCED MESSAGE-----