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...............March 31, 1999



                                       OR


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


                         Commission file number 0-27206


                             SPACEHAB, Incorporated
                                300 D Street, SW
                                    Suite 814
                             Washington, D.C. 20024
                                 (202) 488-3500



     Incorporated in the State of Washington                    I.R.S. Employer
                                                                Identification
                                                                No. 91-1273737


The number of shares of Common Stock  outstanding as of the close of business on
April 30, 1999:


          Class                          Number of Shares Outstanding
          Common Stock                                  11,205,310


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
                                                       ------    -----


<PAGE>



                     SPACEHAB, INCORPORATED AND SUBSIDIARIES
                  MARCH 31, 1999 QUARTERLY REPORT ON FORM 10-Q
                                TABLE OF CONTENTS




PART 1       FINANCIAL INFORMATION                                          Page
                                                                            ----
  Item 1.    Unaudited Condensed Consolidated Financial Statements

             Condensed Consolidated Balance Sheets as of March 31, 1999 
             and June 30, 1998                                                 3

             Condensed Consolidated Statements of Operations for the Three 
             and Nine Months ended March 31, 1999 and 1998                     4

             Condensed Consolidated Statements of Cash Flows for the
             Nine Months ended March 31, 1999 and 1998                         5

             Notes to Unaudited Condensed Consolidated Financial Statements    6


  Item 2.    Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                        10


PART II -    OTHER INFORMATION


  Item 6.    Exhibits and Reports on Form 8-K                                 18

                                       2

<PAGE>



PART 1:  FINANCIAL INFORMATION
Item 1.  UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                     SPACEHAB, INCORPORATED AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheets

<TABLE>
<CAPTION>

(In thousands, except share data)                                             March 31,                 June 30,
                                                                                1999                      1998
                                                                             (unaudited)               (audited)
                                                                         --------------------      -------------------
                              ASSETS
<S>                                                                             <C>                       <C>        
Cash and cash equivalents                                                       $     32,726              $     2,327
Receivables, net                                                                      13,553                    5,979
Prepaid expenses and other current assets                                              2,060                      550
                                                                         --------------------      -------------------
     Total current assets                                                             48,339                   98,856
Property, plant and equipment, net of
 Accumulated depreciation and amortization
 Of $47,745 and $43,338                                                              124,642                  112,588
Goodwill, net of accumulated amortization of $1,090 and $230                          26,262                    3,224
Other assets, net                                                                      6,689                    5,936
                                                                         --------------------      -------------------
     Total assets                                                               $    205,932              $   220,604
                                                                         ====================      ===================


                 LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Loan payable, current portion                                              $      2,824              $     2,824
     Loan payable under credit agreement, current portion                                333                      500
     Accounts payable and accrued expenses                                            11,299                    6,204
     Accrued subcontracting services                                                   7,145                   13,177
     Deferred revenue                                                                  7,880                   13,491
                                                                         --------------------      -------------------
          Total current liabilities                                                   29,481                   36,196

Accrued contract costs                                                                   928                        -
Notes payable to shareholder                                                           7,860                   11,895
Loan payable under credit agreement, net of current portion                              667                    1,000
Loan payable, net of current portion                                                   7,059                    9,177
Convertible notes payable                                                             63,250                   63,250
Deferred income taxes                                                                  2,094                    2,678
                                                                         --------------------      -------------------
          Total liabilities                                                          111,339                  124,196

Stockholders' equity:
    Common stock, no par value, authorized
       30,000,000 shares, issued and outstanding
       11,204,762 and 11,168,161 shares, respectively                                 81,403                   81,239
     Additional paid-in capital                                                           16                       16
     Retained earnings                                                                13,174                   15,153
                                                                         --------------------      -------------------
          Total stockholders' equity                                                  94,593                   96,408
                                                                         --------------------      -------------------
          Total liabilities and stockholders' equity                            $    205,932              $   220,604
                                                                         ====================      ===================


See accompanying notes to unaudited condensed consolidated financial statements.

</TABLE>

                                       3
<PAGE>



                     SPACEHAB, INCORPORATED AND SUBSIDIARIES
            Unaudited Condensed Consolidated Statements of Operations

<TABLE>
<CAPTION>

                                                                   Three Months                         Nine Months
(In thousands, except share data)                                Ended March 31,                      Ended March 31,
                                                         --------------------------------     ---------------------------------
                                                             1999               1998                1999              1998
                                                         --------------    --------------     ---------------   ---------------
<S>                                                       <C>              <C>                 <C>               <C>           
Revenue                                                   $      26,693    $       18,997      $       78,600    $       39,290
Costs of revenue:
   Integration and operations                                    17,539             7,132              50,776            17,079
   Depreciation                                                   1,309             1,232               3,827             3,678
   Insurance and other direct costs                                 658               697               3,439             1,464
   Indirect costs                                                 2,450               386               6,617               950
                                                         --------------   ---------------     ---------------   ---------------
      Total costs of revenue                                     21,956             9,447              64,659            23,171
Gross profit                                                      4,737             9,550              13,941            16,119
Operating expenses:
   Marketing, general and administrative                          3,691             3,018              10,781             7,794
   Research and development                                         708             1,318               2,678             3,070
                                                         --------------   ---------------      --------------   ---------------
      Total operating expenses                                    4,399             4,336              13,459            10,864
                                                         --------------   ---------------     ---------------   ---------------
      Income from operations                                        338             5,214                 482             5,255
Interest expense, net of capitalized amounts                      1,252             1,253               3,910             2,632
Interest and other income                                          (422)             (930)             (1,859)           (2,341)
Other expense                                                        46                 -                 596                 -
                                                         --------------   ---------------     ---------------   ---------------
      Income (loss) before income taxes                            (538)            4,891              (2,165)            4,964
Income tax expense (benefit)                                          3                 -                (186)                -
                                                         --------------   ---------------     ---------------   ---------------
      Net income (loss)                                   $        (541)   $        4,891      $       (1,979)   $        4,964
                                                         ==============   ===============     ===============   ===============

Basic earnings per share:
Net income (loss) per share- basic                        $       (0.05)   $         0.44      $        (0.18)   $         0.45
                                                         ==============   ===============     ===============   ===============
Shares used in computing net income (loss)
   per share- basic                                          11,189,242        11,156,274          11,178,004        11,152,312
                                                         ==============   ===============     ===============   ===============
Diluted earnings per share:
Net income (loss) per share - diluted                     $       (0.05)   $         0.37      $        (0.18)   $         0.44
                                                         ==============   ===============     ===============   ===============
Shares used in computing net income (loss)
   per share - assuming dilution                             11,189,242        16,062,335          11,178,004        11,407,595
                                                         ==============   ===============     ===============   ===============





See accompanying notes to unaudited condensed consolidated financial statements.

</TABLE>


                                       4
<PAGE>



                     SPACEHAB, INCORPORATED AND SUBSIDIARIES
            Unaudited Condensed Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>

(In thousands)                                                         Nine Months Ended March 31,
                                                                       1999                    1998
                                                               ---------------------   ---------------------
Cash flows provided by (used for) operating activities:
<S>                                                               <C>                     <C>              
  Net income (loss)                                               $          (1,979)      $           4,964
  Adjustments to reconcile net income (loss) to net
   cash provided by (used for) operating activities:
   Depreciation and amortization                                              5,661                   4,456
   Changes in assets and liabilities:
     (Increase) decrease in accounts receivable                                 792                  (7,796)
     Increase in prepaid and other
       Current assets                                                        (1,204)                 (1,567)
     Increase in deferred mission costs                                           -                    (479)
     Increase in other assets                                                  (204)                 (1,775)
     Increase (decrease) in deferred  revenue                                (4,044)                 16,274
                                                                                      
     Increase (decrease) in accounts payable
       and accrued expenses                                                  (2,374)                  2,248
     Decrease in advanced billings                                           (1,567)                   (470)
     Increase (decrease) in accrued consulting
       and subcontracting services                                           (6,032)                  1,736
                                                               ---------------------   ---------------------
         Net cash provided by (used for) operating activities               (10,951)                 17,591
                                                               ---------------------   ---------------------
Cash flows used for investing activities:
  Payments for flight assets under construction                             (12,893)                (13,360)
  Payments for building under construction                                   (1,020)                 (3,205)
  Investment in joint venture                                                  (800)                      -
  Purchase of property and equipment and other assets                        (2,104)                   (505)
  Purchase of Johnson Engineering, net of cash acquired                     (25,344)                      -
                                                               ---------------------   ---------------------
         Net cash used for investing activities                             (42,161)                (17,070)
                                                               ---------------------   ---------------------
Cash flows provided by (used for) financing activities:
  Payment of note payable to Insurers                                          (500)                   (500)
  Payment of  debt placement fees                                                 -                  (4,043)
  Proceeds from issuance of convertible notes payable                             -                  63,250
  Payment of note payable to shareholder                                     (4,035)                      -
  Proceeds from note payable                                                      -                  14,119
  Payment of loan payable                                                    (2,118)                 (1,412)
  Proceeds from issuance of common stock                                        164                     140
                                                               ---------------------   ---------------------
         Net cash provided by (used for) financing activities                (6,489)                 71,554
                                                               ---------------------   ---------------------
         Net increase (decrease) in cash
           and cash equivalents                                             (59,601)                 72,075
Cash and cash equivalents at beginning of period                             92,327                  12,887
                                                               ---------------------   ---------------------
Cash and cash equivalents at end of period                        $          32,726       $          84,962
                                                               =====================   =====================





See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>


                                       5
<PAGE>



                     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 March 31, 1999,  and the results of their  operations  for the
three and nine month  periods ended March 31, 1999 and 1998 and their cash flows
for the nine months  ended March 31, 1999 and 1998.  However,  the  consolidated
financial  statements  are  unaudited,  and do not include all related  footnote
disclosures.  Certain items in cost of revenues, S,G&A and R&D for the three and
nine months  ending  March 31, 1998 have been  reclassified  to conform with the
1999 consolidated  financial  statement  presentation (see accompanying  table).
Management believes that the reclassifications of costs provides better matching
of the  specific  activities  to the costs  incurred  in  conjunction  with such
activities.

The consolidated results of operations for the three and nine months ended March
31, 1999 and 1998 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  (see note 4).  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 Form 10-K for the year ended June 30, 1998.

<TABLE>
<CAPTION>
                                               Three Months Ended          Nine Months Ended           Six  Months Ended

(In thousands)                                  March     31, 1998         March     31, 1998       December     31, 1998
                                                
                                                        Reclassified                Reclassified                Reclassified
                                               As       Statement of        As      Statement of       As       Statement of
                                            Reported     Operations      Reported    Operations     Reported     Operations
------------------------------------------ ----------- --------------  ----------- -------------- ------------ ---------------
                                                                    
<S>                                           <C>            <C>           <C>            <C>          <C>            <C>     
Revenue                                       $18,997        $ 18,997      $39,290        $39,290      $51,907        $ 51,907
Costs of revenue:
  Integration & Operations                      7,563           7,132       18,380         17,079       33,237          33,237
  Depreciation                                    979           1,232        3,936          3,678        2,517           2,517
  Insurance & other direct costs                  520             697          915          1,464        6,142           2,781
  Indirect costs                                    0             386            0            950            0           4,167
                                           ----------- --------------  ----------- -------------- ------------ ---------------
 Total costs of revenue                         9,062           9,447       22,221         23,171       41,896          42,702
 Gross profit                                   9,935           9,550       17,069         16,119       10,011           9,205

Operating expenses:
  Marketing, general & administrative           3,980           3,018       10,021          7,794        8,857           7,090
  Research and development                        741           1,318        1,793          3,070        1,010           1,971
                                           ----------- --------------  ----------- -------------- ------------ ---------------
  Total operating expenses                      4,721           4,336       11,814         10,864        9,867           9,061
Income (loss) from operations                 $ 5,214        $  5,214      $ 5,255        $ 5,255      $   144        $    144
                                           ----------- --------------  ----------- -------------- ------------ ---------------
</TABLE>


2.  Earnings per Share:

The following are  reconciliations  of the  numerators and  denominators  of the
basic and diluted  earnings per share  computations for the three and nine-month
periods ended March 31, 1999 and 1998, respectively:

 
                                      6
<PAGE>

<TABLE>
<CAPTION>

(In thousands except                        Three months ended March 31, 1999       Three months ended March 31, 1998
share data)                                  Income         Shares      Per Share     Income        Shares      Per Share
                                           (Numerator)  (Denominator)    Amount    (Numerator)  (Denominator)     Amount
                                         ----------------------------------------------------------------------------------
<S>                                          <C>        <C>            <C>           <C>       <C>               <C>  
           Basic EPS:                 
           Income available to                                         
           common stockholders               $(541)     11,189,242     $(0.05)       $4,891    11,156,274        $0.44
                                      
           Effect of dilutive         
           securities:                
           Convertible notes payable             -               -          -        $  991     4,642,202            -
           Options and warrants                  -               -          -             -       263,859            -
                                         ----------------------------------------------------------------------------------
                                      
           Diluted EPS:               
           Income available to                                         
           common stockholders               $(541)     11,189,242     $(0.05)       $5,882    16,062,335        $0.37
                                      
<CAPTION>                             
                                      
                                              Nine months ended March 31, 1999        Nine months ended March 31, 1998
                                             Income         Shares      Per Share     Income        Shares      Per Share
                                           (Numerator)  (Denominator)    Amount    (Numerator)  (Denominator)     Amount
                                         ----------------------------------------------------------------------------------
<S>                                        <C>          <C>            <C>           <C>       <C>               <C>  
           Basic EPS:                 
           Income available to                                                                   
           common stockholders             $ (1,979)    11,178,004     $(0.18)       $4,964    11,151,312        $0.45
                                      
           Effect of dilutive         
           securities:                
           Convertible notes payable              -              -          -             -             -            -
           Options and warrants                   -              -          -             -       256,283            -
                                         ----------------------------------------------------------------------------------
                                      
           Diluted EPS:               
            Income available to                                        
           common stockholders :            $(1,979)    11,178,004     $(0.18)       $4,964    11,407,595        $0.44
                                            
</TABLE>                              
                                      
                                      
                                      
Convertible  notes payable  outstanding as of March 31, 1999,  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 nine months
ended March 31, 1999 or the nine months ended March 31, 1998 as the inclusion of
the converted notes would be anti-dilutive for these periods.

Options and warrants to purchase  1,468,508 shares of common stock for the three
month period ended March 31, 1999,  at prices  ranging from $8.875 to $24.00 per
share,  were  outstanding  as of March  31,  1999 but were not  included  in the
computation  of diluted EPS because the  options'  exercise  prices were greater
than the average market price of the common shares during the three months ended
March 31, 1999. These options expire between June 24, 1999 and August 3, 2007.

Options and warrants to purchase  1,352,943  shares of common stock for the nine
months ended March 31, 1999, at prices  ranging from $9.875 to $24.00 per share,
were outstanding but were not included in the computation of diluted EPS because
the options'  exercise  prices were greater than the average market price of the
common shares during the nine months ended March 31, 1999.  These options expire
between June 24, 1999 and August 3, 2007.

Options and warrants to purchase 1,818,597 and 1,811,021 shares of common stock,
respectively,   at  prices  ranging  from  $11.00  to  $14.00  per  share,  were
outstanding  for the three and nine month  periods ended March 31, 1998 but were
not  included  in the  computation  of diluted  EPS  because  the  options'  and
warrants'  exercise  prices were  greater  than the average  market price of the
common  shares  during the three and nine month  periods  ended March 31,  1998.
These options and warrants expire between June 21, 1998 and October 21, 2004.


                                       7
<PAGE>


3.  Acquisition of Johnson Engineering:

On July 1, 1998, the Company  acquired all of the outstanding  shares of capital
stock  of  Johnson  Engineering  Corporation  ("Johnson  Engineering").  Johnson
Engineering  performs several  critical  services for NASA including flight crew
support  services,  operations,  training and  fabrication  of mockups at NASA's
Neutral  Buoyancy  Laboratory and at NASA's Mockup and  Integration  Laboratory,
where  astronauts train for both Space Shuttle and  International  Space Station
missions.  Johnson Engineering also designs and fabricates flight hardware, such
as flight crew  equipment and crew quarters  habitability  outfitting as well as
providing stowage integration services.  Johnson Engineering is also responsible
for configuration management of the International Space Station (ISS).

The Company paid approximately  $25.3 million,  including  transaction costs, to
acquire  all  of  the  capital  stock  of  Johnson  Engineering.   The  business
combination is being  accounted for using the purchase  method under  Accounting
Principles  Board Opinion No. 16, Business  Combinations,  (APB Opinion 16). The
purchase price has been allocated to the assets and  liabilities  acquired based
on preliminary  estimates of fair value as of the date of acquisition.  Based on
the allocation of the net assets acquired, goodwill of approximately $24 million
was recorded.  Such goodwill is being amortized on a straight-line basis over 25
years. The purchase price has been allocated as follows (in thousands):


                  Cash                                                 $
                                                                       2
                  Prepaid and other current assets                   306
                  Accounts receivable, net                         8,366
                  Inventory                                            5
                  Property, plant and equipment, net                 446
                  Other assets                                       622
                  Goodwill                                        23,962
                  Current liabilities                            (7,470)
                  Accrued contract costs                           (928)
                                                                --------
                  Total purchase price                          $ 25,311
                                                                ========


APB Opinion 16 requires, for purchase business computations, the presentation of
pro forma combined  results of operations for the current year and the preceding
year  as if the  combination  had  occurred  at  the  beginning  of the  periods
presented.  The following unaudited pro forma consolidated results of operations
are not necessarily indicative of actual or future results of operations.
<TABLE>
<CAPTION>

  (in thousands except per share data)                    Three Months                        Nine Months
                                                         Ended March 31,                    Ended March 31,
                                                     1999              1998              1999             1998
                                               ----------------- ------------------ ---------------- ----------------
<S>                                                <C>                <C>              <C>               <C>      
  Revenue                                          $   26,693         $   30,811       $   78,600        $  76,278
  Gross profit                                          4,737             10,823           13,941           17,729
  Net income (loss)                                $     (541)        $    4,881       $   (1,979)       $   4,940
                                                   ===========        ==========       ==========        =========

  Net income (loss) per share - diluted            $    (0.05)        $     0.37       $    (0.18)       $    0.43
                                                   ===========        ==========       ==========        =========
</TABLE>


4.  Revenue Recognition:

Under the Mir contract,  revenue was recognized  upon  completion of each module
flight,  and total  contract  revenue was  allocated to each flight based on the
amount of services the Company provided on the flight relative to total

                                       8
<PAGE>


services provided for all flights under contract.  Obligations associated with a
specific  mission,  e.g.,  integration  services,   were  also  recognized  upon
completion  of the  mission.  For the REALMS  (Research  and  Logistics  Mission
Support)  contract  and for new  contract  awards  for which the  capability  to
successfully  complete the contract can be  reasonably  assured and the costs at
completion  can  be  reliably  estimated  at  contract  inception,   revenue  is
recognized     under     the      percentage-of-completion      method.     This
percentage-of-completion  method  allows the Company to report  revenue based on
costs  incurred  on a per  mission  basis over the period of that  mission.  The
percentage of completion  method results in the  recognition of revenue over the
period of  contract  performance,  thereby  decreasing  significant  quarter  by
quarter  fluctuations  in reported  revenue.  Revenue  provided by the Astrotech
payload processing facilities is recognized ratably over the occupancy period of
the  satellites  at  the  Astrotech  facilities.  Revenue  provided  by  Johnson
Engineering is primarily based on cost-plus award fee contracts, whereby revenue
is  recognized  to the  extent of costs  incurred  plus  estimates  of award fee
revenues using the  percentage-of-completion  method.  Award fees, which provide
earnings  based on the  Company's  contract  performance  as  determined by NASA
evaluations,  are recorded when the amounts can be reasonably estimated,  or are
awarded. Changes in estimated costs to complete and estimated amounts recognized
as award fees are recognized in the period they become known.

5.  Statements of Cash Flows - Supplemental Information:

(a) Cash paid for interest  costs was $4.0 million and $1.5 million for the nine
months  ended March 31,  1999 and 1998,  respectively.  The Company  capitalized
interest of  approximately  $1.8 million and $1.4 million during the nine months
ended March 31, 1999 and 1998, respectively.

(b) The Company  paid $0.4  million and $1.3 million for income taxes during the
nine months ended March 31, 1999 and 1998, respectively.


6.  Credit Facilities:

On June 16,  1997,  the  Company  entered  into a $10.0  million  line of credit
agreement  with a  financial  institution.  Outstanding  balances on the line of
credit accrue interest at either the lender's prime rate or a LIBOR-based  rate,
and are  collateralized  by  certain  assets  of the  Company.  The  term of the
agreement is through  October  1999.  As of March 31, 1999,  the Company had not
drawn against the line of credit.

On July 14, 1997, the Company's wholly owned subsidiary, Astrotech, entered into
a five-year  credit  facility  with a financial  institution  for loans of up to
$15.0  million.  This loan is  collateralized  by the  assets of  Astrotech  and
certain other assets of the Company, and is guaranteed by the Company.  Interest
accrues at LIBOR plus three percent. As of March 31, 1999, the Company had drawn
$14.1 million  against this loan. As of March 31, 1999 and 1998, the outstanding
balance on this loan was $9.9 million and $12.7 million, respectively.

In October 1997, the Company  completed a private  placement  offering for $63.3
million of aggregate  principal  of its 8%  Convertible  Subordinated  Notes due
2007.  Interest is payable  semi-annually.  The notes are  convertible  into the
common  stock of the  Company at a rate of  $13.625  per  share.  This  offering
provided the Company with net proceeds of approximately $59.9 million to be used
for capital  expenditures  associated with the  development and  construction of
space related assets, the purchase of Johnson  Engineering and for other general
corporate purposes.

In December 1998, the Company amended its agreement with Alenia Spazio S.p.A., a
shareholder,   relative  to  subordinated  notes  payable  with  an  outstanding
principal  balance of $11.9  million due in August 2001. In exchange for payment
of $4.0 million of principal on or before  December  31,1998,  Alenia  agreed to
waive the interest  payment due for the quarter  ended  December 31, 1998 and to
reduce the annual interest rate on the subordinated notes from 12% to 10% on the
outstanding  balance as of January 1, 1999. The interest expense  benefit,  $0.4
million for the payment  waived,  is being  amortized over the remaining term of
the loan which is due August 2001.  Beginning January 1, 1999, the same interest
rate will be  applied  to the  senior  debt  (the  Insurers'  note)  that has an
outstanding balance of $1.0 million as of December 31, 1998.


                                       9
<PAGE>

For the period ended March 31,  1999,  the Company was in breach of certain loan
covenants of the term loan and line of credit  facility.  The covenants had been
negotiated  prior to the acquisition of Johnson  Engineering.  While the Company
had not drawn against the line of credit,  covenant  waivers were  requested and
received,  for the quarter ended March 31, 1999, from both lending institutions.
The Company is in the process or renegotiating the loan covenants.


7. Shareholder Rights Plan:

         On March 26, 1999 the Board of Directors  adopted a Stockholder  Rights
Plan  designed  to deter  coercive  takeover  tactics and to prevent a potential
acquirer from gaining  control of the Company  without  offering a fair price to
all of the Company's stockholders. Each Right under the Plan entitles the holder
to buy one  one-thousandth  of a share of a new  series of junior  participating
preferred stock for $35. If any person or group becomes the beneficial  owner of
15% or more of SPACEHAB's common stock (with certain limited  exceptions),  then
each Right (not owned by the 15%  stockholder)  will then  entitle its holder to
purchase,  at the Right's then current  exercise  price,  common shares having a
market value of twice the exercise price.  In addition,  if after any person has
become a 15% stockholder, and SPACEHAB is involved in a merger or other business
combination  transaction with another person, each Right will entitle its holder
(other  than the 15%  stockholder)  to  purchase,  at the Right's  then  current
exercise price,  common shares of the acquiring  company having a value of twice
the  Right's  then  current  exercise  price.  The rights  were  granted to each
shareholder of record on April 9, 1999.  SPACEHAB  generally will be entitled to
redeem  the  Rights at a  redemption  price of $.01 per Right  until a person or
group acquires a 15% position. The Rights will expire on April 9, 2009.



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
such statements.

       SPACEHAB was  incorporated in 1984 to commercially  develop space habitat
modules to operate in the cargo bay of the Space  Shuttles.  SPACEHAB  currently
provides space within and on the modules for both NASA and commercial customers.
Astrotech was  established in 1984 to provide payload  processing  facilities to
serve the  satellite  manufacturing  and  launch  services  industry.  Astrotech
currently  provides launch site preparation of flight-ready  satellites to major
U.S. space launch companies and satellite manufacturers. Johnson Engineering was
incorporated  in the  state of  Colorado  in 1973 and is  primarily  engaged  in
providing engineering services and products to the federal government.

       The Company currently operates under two significant contracts with NASA:
the REALMS Contract,  a $92.6 million contract for two research  missions aboard
the Space Shuttle and two logistics missions to resupply the International Space
Station; and, the Flight Crew Systems Development Contract (the "FCSD Contract")
currently a $324.9 million multitask cost-plus-award and incentive-fee contract,
that  commenced  in May 1993 and will  conclude in April 2001.  The value of the
NASA portion of the REALMS  contract is $67.5 million for four firm missions and
the commercial  value is currently $25.1 million.  The Company has the potential
to increase the total  REALMS  Contract  value by an  additional  $12.2  million
through  module  usage sales to  commercial  customers  for  microgravity  space
research such as the European Space Agency (ESA), the National Space Development
Agency of Japan (NASDA) and the Canadian  Space Agency (CSA).  The first mission
under the REALMS  Contract,  STS-95 which  carried  Senator John Glenn back into
space, was completed in October 1998. The three remaining  flights are currently
scheduled  for launch in May 1999,  December 1999 and December  2000.  Under the
FCSD Contract, 


                                       10
<PAGE>

Johnson  Engineering  provides a variety of critical crew training,  support and
manufacturing functions on a cost plus award fee and incentive fee basis.


Revenue

       SPACEHAB generates revenue by: (i) providing lockers and/or volume within
and on the SPACEHAB  Modules;  (ii) integration and operations  support services
provided to scientists and researchers  responsible for the experiments;  and/or
(iii) from NASA or International Agencies to carry logistics supplies for Module
missions  aboard  the  Shuttle  system.  Under  the Mir  Contract,  the  Company
recognized  revenue  only  at the  completion  of  each  Space  Shuttle  mission
utilizing  Company  assets.  Accordingly,  the Company's  quarterly  revenue and
profits had  fluctuated  dramatically  based on NASA's launch  schedule and will
continue to do so under any contract for which revenue is  recognized  only upon
completion of a mission.  For the REALMS contract and for future contract awards
for  which  the  capability  to  successfully   complete  the  contract  can  be
demonstrated   at   contract   inception,    revenue   recognition   under   the
percentage-of-completion  method is being  reported based on costs incurred on a
per mission basis over the period of the mission.  The  percentage-of-completion
method  results  in the  recognition  of  revenue  over the  period of  contract
performance,    thereby   significantly    decreasing   the   quarter-by-quarter
fluctuations in reported revenue.

       Astrotech  revenue  is  derived  from  various   multi-year  fixed  price
contracts  with  satellite and launch  vehicle  manufacturers.  The services and
facilities  Astrotech  provides to its  customers  support  the final  assembly,
checkout and  countdown  functions  associated  with  preparing a satellite  for
launch.  This  preparation  includes:  the final  assembly  and  checkout of the
satellite,  installation  of the solid  rocket  motors,  loading  of the  liquid
propellant, encapsulation of the satellite in the launch vehicle, transportation
to the launch pad and  command and control of the  satellite  during  pre-launch
countdown.  Revenue provided by the Astrotech payload  processing  facilities is
recognized  ratably over the occupancy period of the satellites in the Astrotech
facilities.  In addition,  Astrotech expects to generate additional revenue from
an exclusive  multi-year agreement to process all Sea Launch program payloads at
the Boeing facility in Long Beach, California.  The first Sea Launch payload was
processed by Astrotech and successfully launched during March 1999.

       Johnson Engineering  generates revenue primarily from its multi-year cost
plus award and incentive-fee  contract with NASA. Johnson  Engineering's  flight
crew support services include operations, training and fabrication of mockups at
NASA's  Neutral  Buoyancy  Laboratory,  and at  NASA's  Mockup  and  Integration
Laboratory,  where  astronauts  train for both Space  Shuttle and  International
Space Station missions.  Johnson  Engineering also designs and fabricates flight
hardware  including  flight  crew  equipment  and  crew  quarters   habitability
outfitting  and  provides  stowage   integration   services.   Johnson  is  also
responsible for configuration management of the ISS. Revenue provided by Johnson
Engineering  is recognized to the extent of costs  incurred plus award fee using
the percentage of completion  method,  measured on costs  incurred.  Award fees,
which provide  earnings based on contract  performance as determined by periodic
NASA evaluations,  are recorded when the amounts can be reasonably  estimated or
are awarded.

Costs of Revenue

       Costs of revenue for SPACEHAB missions include integration and operations
expenses  associated  with the  performance  of  three  types  of  efforts:  (i)
sustaining engineering in support of all missions under a contract, (ii) mission
specific  support  and  (iii)  other  costs of  revenue  including  depreciation
expense,  related  insurance,  costs  associated with the both the Astrotech and
Spacehab  payload  processing  facilities  and  Johnson  Engineering  direct and
indirect costs under the FCSD Contract.



                                       11
<PAGE>



RESULTS OF OPERATIONS

For the three  months ended March 31, 1999 as compared to the three months ended
March 31, 1998.


       Revenue.  Revenue  increased  by 41% to  approximately  $26.7  million as
compared to $19.0  million for the three  months  ended March 31, 1999 and 1998,
respectively.  Revenue of $9.0 million was recognized  from the REALMS  Contract
with NASA and with  related  commercial  customers,  $15.5  million from Johnson
Engineering  under  the  FCSD  Contract  and $2.2  million  from  Astrotech.  In
contrast,  for the quarter  ended March 31, 1998,  revenue of $13.6  million was
recognized for the sixth Mir mission upon the return of the module, $2.8 million
was recognized  under the REALMS  Contract for both NASA and related  commercial
customers and revenue of $2.6 million was generated by Astrotech.

       Costs of Revenue.  Costs of revenue for the quarter  ended March 31, 1999
increased  by 132% to $22.0  million,  as compared to $9.4 million for the prior
year's quarter.  This  significant  increase was due to the inclusion of Johnson
Engineering's costs of $13.9 million, primarily for costs incurred in support of
the FCSD  contract.  For the  quarter  ended  March 31,  1999,  integration  and
operations costs for the REALMS and related  commercial  customer contracts were
$5.6 million,  $1.2 million for Astrotech payload processing and $1.3 million of
depreciation  expense.  For the three months ended March 1998, the components of
costs of revenue include integration and operations costs under the Mir contract
of $5.7 million,  $1.3 million under the REALMS and related commercial  customer
contracts,  $1.2 million for  Astrotech  payload  processing,  and  depreciation
expense of $1.2 million.

       Operating  Expenses.  Operating  expenses  increased  approximately 1% to
approximately $4.4 million for the three months ended March 31, 1999 as compared
to  approximately  $4.3  million  for the three  months  ended  March 31,  1998.
Marketing,  general and  administrative  expenses increased 22% to approximately
$3.7  million  for the three  months  ended  March  31,1998 as  compared to $3.0
million  for the  quarter  ended  March 31,  1998.  The  increase  is due to the
inclusion  of $0.7  million  of Johnson  Engineering's  expenses.  Research  and
development costs decreased by approximately 46% to $0.7 million for the quarter
ended March 31, 1999 as compared to $1.3 million for the quarter ended March 31,
1998.  R&D costs  decreased by $1.2 million  during the quarter  ended March 31,
1999 due primarily to the reduction of R&D efforts, particularly for the ICC and
SHUCS  systems,  for use  aboard  Space  Shuttle  missions.  This  decrease  was
partially  offset  by  $0.5  million  of  R&D  expenses  at  Astrotech  for  the
development of a new product line, sounding rockets.

       Interest  and Other  Expense.  Interest  expense was  approximately  $1.3
million for the three  months  ended March 31, 1999 and the three  months  ended
March 31, 1998.  There was also  approximately  $0.6 million and $1.4 million of
interest   capitalized   for  the  quarters  ended  March  31,  1999  and  1998,
respectively.  Interest  was  capitalized  based  on  the  construction  of  the
Company's research module with double module hardware and additional  facilities
being constructed by Astrotech.

       Interest and Other  Income.  Interest and other income was  approximately
$0.4  million  and $0.9  million for the three  months  ended March 31, 1999 and
1998,  respectively.  Interest is earned on the Company's short-term investments
of the proceeds  received from the Company's debt  financings  completed  during
July and October 1997.

       Income  Taxes.  Based on the  Company's  projected  taxable  earnings for
fiscal  year 1999,  the Company  did not record  significant  income tax expense
(benefit) for the quarter ended March 31, 1999.

       Net Income (Loss).  The net loss for the quarter ended March 31, 1999 was
approximately  ($0.5)  million or ($.05) per share  (basic and  diluted  EPS) on
11,189,242  shares as compared to net income of $4.9  million or $0.44 per share
(basic EPS) on 11,156,274 shares or $0.37 (diluted EPS) on 16,062,335 shares.


                                       12
<PAGE>


For the nine months  ended  March 31, 1999 as compared to the nine months  ended
March 31, 1998.


       Revenue.  Revenue increased by 100% to $78.6 million as compared to $39.3
million for the nine months ended March 31, 1999 and 1998, respectively. Revenue
recognized  during the nine months  ended  March 31,  1999 was from:  REALMS and
commercial  customer  contracts of $29.8 million;  Astrotech  operations of $6.9
million and Johnson Engineering operations of $41.9 million, primarily under the
FCSD  contract.  Conversely,  for the  nine  months  ended  March  31,  1998 the
Company's revenue was attributable to the Mir Contract of $27.2 million,  REALMS
and commercial  customer  contracts of $4.6 million and Astrotech  operations of
$7.5 million.  Johnson Engineering's revenue was reduced during the period ended
December 31, 1998 by $0.7  million as the result of their award  score,  for the
award period  April-September 1998, which was lower than accrued and resulted in
no fee earned for the period. The fee reduction addressed performance at Johnson
Engineering  prior to its  acquisition by SPACEHAB.  Corrective  action has been
taken.  For the current award period,  Johnson  Engineering has been recognizing
revenue based on an anticipated award score of 75%, which management believes is
reasonable based on its  understanding of the reasons for the previous low score
and the  corrective  actions taken by the Company in response to the  customer's
concerns.  There can be no assurance that Johnson  Engineering will achieve that
score.

       Costs of Revenue.  Costs of revenue  for the nine months  ended March 31,
1999  increased  179% to $64.7  million,  as compared to $23.2  million for nine
months ended March 31, 1998. The primary  components of costs of revenue for the
nine months ended March 31, 1999 include  integration  and operation costs under
the  REALMS  and  commercial  customer  contracts  of $18.7  million,  Astrotech
operations  of  $3.5  million  and  Johnson   Engineering   of  $38.7   million.
Depreciation  expense for the period was $3.8 million. In contrast,  the primary
components of costs of revenue for the nine months ended March 31, 1998 included
integration and operations costs under the Mir contract of $13.9 million, REALMS
and commercial  customers contracts of $2.4 million, and Astrotech operations of
$3.2 million. Depreciation expense for the period was $3.7 million.

       Operating Expenses.  Operating expenses increased by approximately 24% to
approximately $13.5 million for the nine months ended March 31, 1999 as compared
to  approximately  $10.9  million  for the nine  months  ended  March 31,  1998.
Marketing, general and administrative expenses increased by 38% to $10.8 million
as compared to $7.8  million  primarily  as the result of Johnson  Engineering's
expenses  of $2.0  million,  staff  added in the  administrative  and  marketing
functions  and  depreciation  for  additional  assets used in the  marketing and
general and administrative functions.
       Research  and  development  costs  decreased  13% to $2.7 million for the
period  ended March 31, 1999 as  compared to $3.1  million for the period  ended
March 31,  1998.  R&D costs  decreased  by $0.9  million  dollars for the period
ending March 31, 1999 due  primarily to the  completion of the R&D effort of the
SPACHAB SHUCS system. This reduction was partially offset by $0.5 million of R&D
expense  incurred  at  Astrotech  for the  development  of a new  product  line,
sounding rockets.

       Interest  and Other  Expense.  Interest  expense was  approximately  $3.9
million  for the nine months  ended March 31, 1999 as compared to  approximately
$2.6 million for the nine months ended March 31, 1998.  There was  approximately
$1.8 million and $1.4 million of capitalized  interest for the nine months ended
March 31, 1999 and 1998,  respectively.  Interest for the current fiscal year is
capitalized  primarily on the construction of the Company's  science module with
adapter hardware and an additional payload processing facility being constructed
by Astrotech.  The increase in interest  expense  between the two periods is due
primarily to the interest  accrued on the convertible  notes that were issued on
October 21, 1997.  Additionally during the nine months ended March 31, 1999, the
Company  recognized  $0.6 million in other expense  related to costs  associated
with a debt offering that the Company canceled in July 1998.

       Interest and Other  Income.  Interest and other income was  approximately
$1.9  million  for the nine  months  ended  March 31,  1999 as  compared to $2.3
million  for  the  period  ended  March  31,  1998.  Interest  income  is due to
short-term  interest  earned by the Company for the  investment  of the proceeds
received from the Company's credit facilities  completed during July and October
1997.

                                       13
<PAGE>


       Income  Taxes.  Based on the  Company's  projected  taxable  earnings for
fiscal year 1999, the Company recorded a $0.2 million income tax benefit for the
nine months ended March 31, 1999.

       Net Income  (Loss).  The net loss for the period ended March 31, 1999 was
approximately  ($2.0) million,  or ($0.18) per share (basic and diluted EPS), on
11,178,004 shares as compared to net income of $5.0 million,  or $0.45 per share
(basic  EPS),  and $0.44  per  share  (diluted  EPS) for the nine  months  ended
December 31, 1997, on 11,152,312 shares and 11,407,595 shares, respectively.


LIQUIDITY AND CAPITAL RESOURCES

The Company has  historically  financed its capital  expenditures,  research and
development and working capital  requirements  with progress  payments under its
various  contracts,  as well as with  proceeds  received  from  private debt and
equity offerings and borrowings under credit  facilities.  During December 1995,
SPACEHAB  completed an initial public offering of common stock (the "Offering"),
which provided the Company with net proceeds of approximately  $43.5 million. In
June 1997, the Company signed an agreement with a financial institution securing
a $10.0 million  revolving line of credit (the  "Revolving Line of Credit") that
the Company may use for  working  capital  purposes.  As of March 31,  1999,  no
amounts were drawn on this line of credit which expires in October 1999. In July
1997,  Astrotech  obtained a  five-year  term loan (the "Term Loan  Agreement"),
which is guaranteed  by SPACEHAB,  and provides for draws of up to $15.0 million
for general  corporate  purposes.  As of March 31,  1999,  the Company had drawn
$14.1  million on this loan,  which had an  outstanding  balance on that date of
$9.9 million.  On October 21, 1997,  the Company  completed a private  placement
offering  of  convertible  subordinated  notes  (the  "Notes  Offering"),  which
provided the Company with net proceeds of approximately  $59.9 million which has
been used, in part, for capital expenditures associated with the development and
construction of space related assets, the purchase of Johnson  Engineering,  and
for general  corporate  purposes.  In  December  1998,  the Company  amended its
agreement with Alenia Spazio S.p.A.  relative to subordinated notes payable with
an outstanding balance of $11.9 million. In exchange for payment of $4.0 million
of principal,  Alenia agreed to reduce the annual  interest rate from 12% to 10%
on the  outstanding  balance as of January 1, 1999 and the interest  payment due
for the quarter ended December 31, 1998 was waived. An agreement with the senior
debt holders  under the  Insurers'  note requires that the same interest rate be
applied to the senior  debt with an  outstanding  balance of $1.0  million as of
December 31, 1998.

For the period ended March 31,  1999,  the Company was in breach of certain loan
covenants of the term loan and line of credit  facility.  The covenants had been
negotiated  prior to the acquisition of Johnson  Engineering.  While the Company
had not drawn against the line of credit,  covenant  waivers were  requested and
received,  for the quarter ended March 31, 1999, from both lending institutions.
The Company is in the process of renegotiating the loan covenants.

       Cash Flows from Operating  Activities.  Cash flows provided by (used for)
operating activities for the nine months ended March 31, 1999 and March 31, 1998
were  ($11.0)  million  and  $17.6,  million   respectively.   The  major  items
contributing  to the use of funds for the period  ended  March 31, 1999 were the
decrease in deferred  flight revenue of ($4.0) million  dollars and the decrease
in accrued consulting and subcontractor services of ($6.0) million. The decrease
in deferred  flight  revenue was  primarily due to  recognition  of all deferred
revenue on STS-95  which flew in October 1998  partially  offset by increases in
deferred revenue for STS-101 and STS-107. The decrease in accrued consulting and
subcontractor  services was due to the payment of subcontractor  costs under the
MIR  contract  and the payment of accrued  subcontractor  costs for the research
module with adapter  hardware.  The increase in cash flows provided by operating
activities  for the  period  ended  March  31,  1998 were due  primarily  to the
increase in billings for the option missions under the MIR contract,  the REALMS
contract and the NASDA/ESA contracts.

       Cash Flows from Investing Activities. For the nine months ended March 31,
1999, cash flows used for investing  activities  consisted  primarily of capital
expenditures  related to the acquisition of Johnson Engineering in July 1998 for
$25.3  million.   Additional  investing  included  approximately  $12.9  million
attributable to the  construction  of the ICC system and the Company's  research
module with adapter hardware.  $1.0 million was invested in the expansion of the
Astrotech  facilities,  $2.1 million for the purchase of additional property and
equipment and $0.8 million in a 

                                       14
<PAGE>


joint venture with Guigne Technologies  Limited.  For the period ended March 31,
1998 the Company's investing  activities primarily consisted of the expansion of
the  Astrotech  facility,  $3.2  million,  $8.7 million of capital  expenditures
relating to building the research module with adapter  hardware and $0.5 million
relating to the increase in machinery and equipment.

       Cash Flows from Financing  Activities.  Cash flows provided by (used for)
financing activities were approximately ($6.5) million and $71.6 million for the
nine months ended March 31, 1999 and 1998, respectively. During the period ended
March 31, 1999, the Company made an early payment of $4.0 million of Alenia debt
in exchange for a lower  interest rate and a waiver of interest  expense due and
payable for the quarter ended December 31, 1998.  Additional  payments were made
on  outstanding  debt of $2.6  million.  During the nine months  ended March 31,
1998, the Company received net proceeds of approximately $14.1 million under the
Term Loan Agreement.  In August 1997, the Company also made the first payment of
$0.5 million under the Credit  Agreement.  In October 1997, the Company received
net proceeds of  approximately  $59.9 million by completing an offering of $55.0
million of its 8% Convertible Subordinated Notes due 2007 as well as exercise of
the underwriters' over-allotment for an additional $8.3 million.

The  Company  believes  that cash flows from the Notes  Offering,  the Term Loan
Agreement,  the Revolving Line of Credit and other current financing  activities
will be sufficient to meet any cash flow  requirements from operations and other
funding requirements for capital asset construction and development for at least
the next twelve months.


Recent Accounting Pronouncements

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise  and  Related  Information"  (SFAS  131).  SFAS 131  establishes  new
procedures and requirements for the (i)  determination of business  segments and
(ii) presentation and disclosure of segment information. The Company is required
to adopt the provisions of SFAS 131 for the year ended June 30, 1999.


Year 2000 Readiness Disclosure Statement

The Year 2000 ("Y2K") issue is the result of computer programs that were written
using two digits rather than four to define the  applicable  year.  Any computer
program that has  date-sensitive  software may  recognize the date using "00" as
the year 1900  rather  than the year 2000.  This error  could  result in systems
failures and computational errors causing disruptions of operations,  including,
among other  things,  the  temporary  inability  to process  transactions,  send
invoices or engage in similar normal business activities.

SPACEHAB has  established  a Y2K program to address both  information-technology
("IT") and non-IT problems that may exist within the SPACEHAB system,  including
its vendors and  customers,  e.g.- NASA and the Space  Shuttle.  SPACEHAB's  Y2K
program  is divided  into five  major  phases-  Awareness  and Risk  Assessment,
Inventory and Risk Assessment, Repair, Replacement and Renovation,  Verification
and Validation, and Implementation and Monitoring.

Phases

AWARENESS   AND  RISK   ASSESSMENT-   This  phase  is  intended  to  ensure  the
establishment  of the Y2K  program  and the  awareness  of  potential  risks and
issues.  This phase  involves  communicating  the status and progress of the Y2K
program  within  SPACEHAB and to third parties.  It is an on-going  activity and
will continue as SPACEHAB proceeds through the other phases.

INVENTORY  AND RISK  ASSESSMENT-  This phase  involves  taking an  inventory  of
SPACEHAB  hardware,  software and  infrastructure to identify those systems that
are and are not Y2K  compatible.  The  emphasis  is on those  items,  which  are
believed  by  SPACEHAB  to have a  significant  impact  on the  business  from a
financial, legal or 

                                       15
<PAGE>



service perspective. While this process is ongoing, SPACEHAB estimates that this
phase is  substantially  complete  for  Company  owned  hardware  and  software.
SPACEHAB is in the process of surveying  third party vendors to determine  their
state of readiness.

REPAIR,  REPLACEMENT AND RENOVATION- This phase, also known as "conversion",  is
intended to ensure that the appropriate  items identified in the preceding phase
are upgraded to meet the Y2K compliance criteria. Material repairs, replacements
and  renovations  will be  substantially  complete  by the end of the  Company's
current  fiscal year for systems that are under direct  control of SPACEHAB.  No
assessment  of  completion  dates are  available  for which  third  parties  are
responsible  until the  completion  of that  portion of the  Inventory  and Risk
Assessment phase.

VERIFICATION AND VALIDATION- This phase ensures that critical processes, systems
and  infrastructure  are verified and tested to ensure Y2K issues will not cause
major  disruptions  in the  on-going  operations  and  business of the  Company.
Verification  and testing of systems under  SPACEHAB's  direct control are being
performed by SPACEHAB personnel and personnel of Spacehab's major subcontractor,
Boeing.  SPACEHAB  expects that all testing of these systems will be complete by
the end of the Company's current fiscal year.

IMPLEMENTATION  AND  MONITORING-  Y2K upgrades  are and will be  installed  into
SPACEHAB's operating systems as necessary. Monitoring will be employed to ensure
that unforeseen Y2K critical items are appropriately prioritized for correction.
SPACEHAB's implementation and monitoring activities are ongoing.


State of Readiness

While there is uncertainty  inherent in the Y2K problem  resulting in large part
from the  uncertainty  of the  readiness  of  third  party  vendors,  SPACEHAB's
progress  towards  completing  risk  assessment  within the SPACEHAB  systems is
expected to be completed before the end of 1999.

A) Based on an ongoing  assessment,  the  Company has  determined  that the vast
majority of the hardware and software used in its  administrative  functions are
Y2K  compliant.  The computers that are not compliant are being replaced and the
replacement will be completed during 1999.

B) Some  computer  hardware  used in the  operations  function of SPACEHAB  will
require  upgrading.  The computers at  SPACEHAB's  Payload  Process  Facility in
Florida  used for  ground  support  electrical  testing  (GSE)  are  antiquated,
inefficient and are not Y2K compatible. A proposal has been submitted to upgrade
those systems during 1999 and work is progressing on the upgrade.

C) Surveys  and/or  questionnaires  are being sent to those third  parties  that
might  have an  impact  on  SPACEHAB's  business  to  determine  their  state of
readiness.  Those third parties include;  NASA, Boeing,  Lockheed-Martin and the
various utility service companies serving our locations.

Costs

The costs associated with required modifications to become Y2K compliant are not
expected  to  be  material  to  SPACEHAB's  financial  position  or  results  of
operations.   The  current   estimate  to  become  Y2K   compliant  is  minimal,
approximately  $0.2 million,  for the  replacement of all hardware and software.
This  estimate  excludes  system  enhancements,  modifications  and  upgrades to
replace the inefficient and antiquated GSE equipment,  which costs are estimated
to be $0.8  million.  The costs of the Year 2000  program are being  expensed as
incurred.  Replacement  of the GSE equipment will be  capitalized.  There was no
specific budget in fiscal year 1999 for Y2K costs.


                                       16
<PAGE>


Risks

In a likely worse case  scenario,  the failure to correct a material Y2K problem
could result in an  interruption  in, or a failure of, certain  normal  business
activities  or  operations,  including  operations  that  are  essential  to the
provision of SPACEHAB's services. Due to the general uncertainty inherent in the
Y2K  problem,  resulting  in major  part  from the state of  readiness  of third
parties,  SPACEHAB is unable to determine at this time whether the  consequences
of Y2K failures will have a material impact on SPACEHAB's results of operations,
liquidity or financial  condition.  The potential Y2K impacts from third parties
include;  the failure of the utility  companies  and power  grids,  NASA and the
Space  Shuttle in  particular  and from the customer  owned IT systems which are
located at Astrotech's payload processing facilities.

Contingency Plans

After gathering information from SPACEHAB's Y2K readiness program and to prepare
for the possibility that certain  information  systems or third parties will not
be Y2K compliant, SPACEHAB intends to develop appropriate contingency plans. The
GSE at  SPACEHAB's  payload  processing  facility  in  Florida,  while  not  Y2K
compliant,  is still usable.  The only functionality of the GSE that is expected
to be  impaired  is the  printing  of the  correct  date on  computer  generated
reports.

Readers are cautioned that the discussion of SPACEHAB's efforts and expectations
related  to Year  2000 are  forward  looking  statements  and  should be read in
conjunction  with  SPACEHAB's  disclosure  under  "Management's  Discussion  and
Analysis of  Financial  Condition  and Results of  Operations-  Forward  Looking
Statements."


PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

         NONE


ITEM 2.  CHANGES IN SECURITIES

         NONE


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         NONE


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         NONE

ITEM 5.  OTHER INFORMATION

         NONE


                                       17
<PAGE>



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

       (a)    Exhibits.  The separate Index to Exhibits accompanying this filing
              is incorporated herein by reference.

       (b)    Reports on Form 8-K.

              None

       Exhibit No.                    Description of Exhibits
       -----------                    -----------------------     
         11.         Statement  regarding  Computation  of  Earnings  Per Common
                     Share.

         27          Financial Data Schedule






                                       18

<PAGE>



                                    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.


                                       SPACEHAB, INCORPORATED




           Date: May 13, 1999          /S/Mark A. Kissman
                                       -----------------------------------------
                                       Mark A. Kissman
                                       Vice President, Finance
                                       Chief Financial Officer


                                       /S/David A. Rossi
                                       -----------------------------------------
                                       David A. Rossi
                                       President and Chief Operating Officer



                                       19