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, 1998


                                       OR


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


                         Commission file number 0-27206


                             SPACEHAB, Incorporated
                             1595 Spring Hill Road
                                   Suite 360
                             Vienna, Virginia 22182
                                 (703) 821-3000



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


       The number of shares of Common Stockoutstanding as of the close of
                            business on May 1, 1998:


               Class              Number of Shares
                                  Outstanding
               Common Stock       11,163,954


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 SUBSIDIARY
                   MARCH 31, 1998 QUARTERLY REPORT ON FORM 10-Q
                                 TABLE OF CONTENTS


PART 1   FINANCIAL INFORMATION                                    Page

  Item 1.   Unaudited Consolidated Financial Statements

         Condensed Consolidated Balance Sheets as of
         June 30, 1997 and March 31, 1998                            3

         Condensed Consolidated Statements of Operations for
         the Three and Nine months ended March 31, 1997 and 1998     4

         Condensed Consolidated Statements of Cash Flows for the
         Nine months ended March 31, 1997 and 1998                   5

         Notes to Condensed Consolidated Financial Statements        6


  Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                       9


PART II - OTHER INFORMATION

  Item 6. Exhibits and Reports on Form 8-K                         13



<PAGE>


PART 1:  FINANCIAL INFORMATION
Item 1.  CONSOLIDATED FINANCIAL STATEMENTS

                     SPACEHAB, INCORPORATED AND SUBSIDIARY
                     Condensed Consolidated Balance Sheets



<TABLE>
<CAPTION>

                                                      June 30,     March 31,
                                                       1997          1998
                                                    (audited)     (unaudited)
                                                   ------------   ------------
                              ASSETS
<S> ............................................            <C>            <C>
Cash and cash equivalents ......................   $ 12,886,731   $ 84,962,330
Receivables ....................................      5,176,255     12,972,376
Prepaid and other current assets ...............        199,247      1,766,573
                                                   ------------   ------------
    Total current assets .......................     18,262,233     99,701,279
Property, plant and equipment, net of
 accumulated depreciation and amortization
 of $38,115,620 and $41,996,592 ................     90,961,873    100,890,281
Goodwill, net of accumulated amortization of ...      3,394,773      3,267,444
$55,947 and $187,105
Deferred mission costs .........................      1,438,910      1,918,090
Other assets, net ..............................        392,587      5,774,449
                                                   ------------   ------------
     Total assets ..............................   $114,450,376   $211,551,543
                                                   ============   ============
      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Note payable, current portion .............   $       --     $  3,160,000
     Loan payable under credit agreement,
     current portion ...........................        500,000        500,000
     Accounts payable and accrued expenses .....      2,408,111      4,655,624
     Accrued consulting and subcontracting
     services ..................................      9,052,308      6,870,578
     Advanced billings .........................        846,855        377,212
          Total current liabilities ............     12,807,274     15,563,414
                                                   ------------   ------------
Notes payable to shareholder ...................     11,225,246     11,895,001
Loan payable under credit agreement, net of
current portion ................................      1,500,000      1,000,000
Note payable, net of current portion ...........           --        9,547,123
Convertible notes payable ......................           --       63,250,000
Deferred flight revenue ........................      2,295,898     18,569,648
                                                   ------------   ------------
          Total liabilities ....................     27,828,418    119,825,186
Commitments and contingencies
Stockholders' equity:
     Common stock, no par value, authorized
       30,000,000 shares, issued and outstanding
       11,146,237 and 11,163,954 shares,
       respectively ............................     81,057,164     81,197,574
     Additional paid-in capital ................         16,299         16,299
     Accumulated earnings ......................      5,548,495     10,512,484
                                                   ------------   ------------
          Total stockholders' equity ...........     86,621,958     91,726,357
                                                   ------------   ------------
         Total liabilities and stockholders'
            equity .............................    114,450,376    211,551,543
                                                   ============   ============
</TABLE>

                  See accompanying notes to unaudited condensed
                       consolidated financial statements.




<PAGE>


                      SPACEHAB, INCORPORATED AND SUBSIDIARY
           Unaudited Condensed Consolidated Statements of Operations


<TABLE>
<CAPTION>


                                                  Three Months                    Nine Months
                                                 Ended March 31,                Ended March 31,
                                        -----------------------------    ----------------------------
                                             1997            1998             1997           1998
                                        -------------    ------------    ------------    ------------
<S> ..................................            <C>             <C>             <C>             <C>
Revenue ..............................   $ 15,031,345    $ 18,997,057    $ 38,136,763    $ 39,290,001
Costs of revenue:
   Integration and operations ........      5,804,721       7,563,134      14,777,180      18,370,066
   Depreciation ......................      2,376,139         978,460       7,128,416       2,935,381
   Insurance other direct costs ......        136,801         520,116         243,051         915,116
                                         ------------    ------------    ------------    ------------
      Total costs of revenue .........      8,317,661       9,061,710      22,148,647      22,220,563
                                         ------------    ------------    ------------    ------------
Gross profit .........................      6,713,684       9,935,347      15,988,116      17,069,438
Operating expenses:
   Marketing, general and
     administrative ..................      2,663,375       3,979,981       6,543,551      10,021,402
   Research and development ..........        136,776         741,796         451,340       1,793,373
                                         ------------    ------------    ------------    ------------
      Total operating expenses .......      2,800,151       4,721,777       6,994,891      11,814,775
                                         ------------    ------------    ------------    ------------
      Income from operations .........      3,913,533       5,213,570       8,993,225       5,254,663
Interest expense, net of capitalized
  amounts ............................       (187,201)     (1,253,367)       (865,518)     (2,631,701)
Interest and other income ............        375,501         931,151       1,190,075       2,341,030
                                         ------------    ------------    ------------    ------------
      Income before income taxes .....      4,101,833       4,891,354       9,317,782       4,963,992
Income tax expense ...................        894,659            --         2,124,659            --
                                         ------------    ------------    ------------    ------------
      Income before extraordinary item      3,207,174       4,891,354       7,193,123       4,963,992
Extraordinary item - gain on early
  retirement of debt, net of taxes ...           --              --         3,274,029            --
                                         ------------    ------------    ------------    ------------
      Net income .....................   $  3,207,174    $  4,891,354    $ 10,467,152    $  4,963,992
                                         ============    ============    ============    ============
Basic earnings per share:
  Income before extraordinary item ...   $       0.29    $       0.44    $       0.65    $       0.45
  Extraordinary item .................           --              --              0.29            --
                                         ------------    ------------    ------------    ------------
Net income per share - basic .........   $       0.29    $       0.44    $       0.94    $       0.45
                                         ============    ============    ============    ============
Shares used in computing net income
   per share - basic .................     11,146,236      11,156,274      11,109,721      11,152,312
                                         ============    ============    ============    ============
Diluted earnings per share:
  Income before extraordinary item ...   $       0.29    $       0.37    $       0.65    $       0.44
  Extraordinary item .................           --              --              0.29            --
                                         ------------    ------------    ------------    ------------
Net income per share - diluted .......   $       0.29    $       0.37    $       0.94    $       0.44
                                         ============    ============    ============    ============
Shares used in computing net income
   per share - assuming dilution .....     11,153,855      16,062,335      11,149,679      11,407,595
                                         ============    ============    ============    ============

</TABLE>








                  See accompanying notes to unaudited condensed
                       consolidated financial statements.

<PAGE>


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

<TABLE>
<CAPTION>

                                                 Nine Months Ended March 31,
                                                  1997               1998
                                               -------------    --------------
    Cash flows provided by (used for) operating activities:
<S> .........................................            <C>             <C>
     Net income .............................   $ 10,467,152    $  4,963,992
      Adjustments to reconcile net income
      to net cash provided by operating
      activities:
       Depreciation and amortization ........      7,420,550       4,115,536
       Gain on early retirement of debt,
         net of taxes, before legal expenses      (3,383,891)           --
       Amortization of financing fees .......           --           340,939
       Changes in assets and liabilities:
         Decrease (increase) in accounts
          receivable ........................      1,915,136      (7,796,121)
         Increase in prepaid and other
           current assets ...................       (681,184)     (1,567,326)
         Decrease (increase) in deferred
           mission costs ....................        611,744        (479,180)
         Increase in other assets ...........       (145,656)     (1,774,900)
         Increase (decrease) in deferred
          flight revenue ....................    (14,309,595)     16,273,750
         Increase (decrease) in accounts
           payable and accrued expenses .....     (1,493,235)      2,247,513
         Decrease in advanced billings ......           --          (469,643)
         Increase in accrued consulting
           and subcontracting services ......      2,892,632       1,736,128
                                                ------------    ------------
             Net cash provided by operating
                 activities .................      3,293,653      17,590,688
                                                ------------    ------------
    Cash flows used for investing activities:
      Payments for modules under
          construction ......................     (3,679,552)    (13,360,122)
      Purchase of Astrotech, net of cash
          acquired ..........................    (19,960,021)           --
      Payments for building under
          construction ......................           --        (3,205,236)
      Purchase of property and equipment ....     (2,878,931)       (504,547)
                                                ------------    ------------
             Net cash used for investing
               activities ...................    (26,518,504)    (17,069,905)
                                                ------------    ------------
    Cash flows provided by (used for) financing activities:
      Payment of note payable to Insurers ...     (3,185,060)       (500,000)
      Payment of  debt placement fees .......           --        (4,042,714)
      Proceeds from issuance of convertible
          notes payable .....................           --        63,250,000
      Payment of legal fees on early
          retirement of debt ................       (109,986)           --
      Proceeds from note payable ............           --        14,119,025
      Payment of note payable ...............     (1,411,902)
      Proceeds from issuance of common stock          24,000         140,407
                                                ------------    ------------
             Net cash provided by (used for)
               financing activities .........     (3,271,046)     71,554,816
                                                ------------    ------------
             Net increase (decrease) in cash
               and cash equivalents .........    (26,495,897)     72,075,599
    Cash and cash equivalents at beginning
     of period ..............................     50,795,548      12,886,731
                                                ------------    ------------
    Cash and cash equivalents at end of
         period .............................   $ 24,299,651    $ 84,962,330
                                                ============    ============

</TABLE>




                  See accompanying notes to unaudited condensed
                       consolidated financial statements.
<PAGE>
                     SPACEHAB, INCORPORATED AND SUBSIDIARY

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 subsidiary  ("SPACEHAB" or the
"Company")  as of March 31, 1998,  and the results of their  operations  for the
three and nine month  periods ended March 31, 1997 and 1998 and their cash flows
for the nine months  ended March 31, 1997 and 1998.  However,  the  consolidated
financial  statements  are  unaudited,  and do not include all related  footnote
disclosures. The results of operations for the three and nine months ended March
31, 1998 are not necessarily  indicative of the results that may be expected for
the full year. The Company's results of operations fluctuate  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  Form 10-K for the year ended
June 30, 1997.

2.  Earnings per Share:

     In December  1997,  the Company  adopted the  provisions  of  Statement  of
Financial  Accounting  Standards  (SFAS) No.  128,  Earnings  Per  Share,  which
establishes new guidelines for the calculations of earnings per share.  Earnings
per share for all prior periods have been restated to reflect the
provisions of this Statement.

     The following are reconciliations of the numerators and denominators of the
basic  and  diluted   earnings  per  share   computations   for  "income  before
extraordinary  item" and  "extraordinary  item"  for the  three  and nine  month
periods ended March 31, 1998 and 1997, respectively:

<TABLE>
<CAPTION>

                               Three months ended March               Three months ended March
                                      31, 1998                                31, 1997
                          Income       Shares      Per Share     Income        Shares      Per Share
                       (Numerator)  (Denominator)    Amount    (Numerator)  (Denominator)    Amount
                       -----------  -------------  ---------  ------------  -------------  ----------
  Basic EPS:
  Income available to
<S> ..................          <C>          <C>    <C>            <C>          <C>            <C>
  common stockholders    $4,891,354   11,156,274    $ 0.44     $3,207,174     11,146,236   $ 0.29

  Effect of dilutive
   securities:
  Convertible notes
   payable ...........   $  990,803    4,642,202     --              --            --        --
  Options and warrants         --        263,859     --              --            7,619     --
                         ----------   ----------    -----      ----------    ----------    ------
  Diluted EPS:
  Income available to
  common stockholders    $5,882,157   16,062,335   $ 0.37      $3,207,174     11,153,855   $ 0.29
                         ==========   ==========   ======      ==========     ==========   ======
</TABLE>



<PAGE>


<TABLE>
<CAPTION>
                               Nine months ended March               Nine months ended March
                                      31, 1998                                31, 1997
                          Income       Shares      Per Share     Income        Shares      Per Share
                       (Numerator)  (Denominator)    Amount    (Numerator)  (Denominator)    Amount
                       -----------  -------------  ---------  ------------  -------------  ----------
 Basic EPS:
 Income before
<S>                    <C>            <C>            <C>       <C>            <C>              <C>  
  extraordinary item   $4,963,992     11,151,312     $0.45     $7,193,123     11,109,721       $0.65
 Extraordinary              --             --          --      $3,274,029     11,109,721       $0.29
 Effect of dilutive
  securities:
 Convertible notes
  payable                   --             --          --          --             36,406         --
 Options and warrants       --           256,283       --          --              3,552         --
                        ----------   -----------    ------     -----------   -----------       -----
 Diluted EPS:
 Income available to
 common stockholders:
 Income before
  extraordinary item   $4,963,992     11,407,595     $0.44     $7,193,123     11,149,679       $0.65
 Extraordinary item        --              --          --      $3,274,029     11,149,679       $0.29
</TABLE>

Convertible  notes payable  outstanding as of March 31, 1998,  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 nine month period ended
March 31, 1998 as the inclusion of the converted notes would be anti-dilutive.

Options and warrants to purchase  1,525,351  shares of common  stock,  at prices
ranging  from $8.63 to $14.88 per share,  were  outstanding  for the nine months
ended March 31, 1997,  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 nine months ended March 31, 1997.
Similarly,  additional  options to purchase  50,000  shares of common stock at a
price of $7.00 per share were also not  included in the diluted EPS  calculation
for the three month period ended March 31, 1997. The options expire between June
24, 1997 and August 1, 2005 and warrants  expire  between June 30, 1997 and June
21, 1998.

Options and warrants to purchase 1,818,597 and 1,811,021 shares of common stock,
at prices  ranging  from $11.00 to $14.00 per share,  were  outstanding  for the
three and nine month periods ended March 31, 1998, respectively.  These 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. The options expire
between June 24, 1998 and October 21, 2004 and warrants expire June 21, 1998.


3.  Depreciation of Flight Modules:

Effective July 1, 1997, the Company  extended the estimated  useful lives of its
space  modules  through  2012.  This  change in  accounting  estimate is treated
prospectively and is based on current available information from NASA, which has
estimated the life of the Space Shuttle program through at least 2012.


4.  Revenue Recognition:

Revenue is  recognized  upon  completion  of each  module  flight  under the Mir
contract. Total contract revenue is allocated to each flight based on the amount
of services  the  Company  provides  on the flight  relative  to total  services
provided for all flights under contract.  Obligations associated with a specific
mission,  e.g., integration services, are also recognized upon completion of the
mission.  For new  contract  awards  for which the  capability  to  successfully
complete the contract can be reasonably  assured and costs at completion  can be
reliably  estimated  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 contract.  The percentage of completion
method will  result in the  recognition  of revenue  over the period of contract
performance,  thereby  decreasing  quarter by quarter  fluctuations  of reported
revenue.  Revenue  provided by the Astrotech  payload  processing  facilities is
recognized  ratably over the occupancy period of the satellites at the Astrotech
facilities.


5. Statements of Cash Flows - Supplemental Information:

(a) Cash paid for  interest  costs was $1.49  million and $0.87  million for the
nine months ended March 31, 1998 and 1997, respectively. The Company capitalized
interest of approximately $1.35 million and $0.11 million during the nine months
ended March 31, 1998 and 1997, respectively.  (b) The Company paid $1.34 million
and $2.10  million for income  taxes during the nine months ended March 31, 1998
and 1997, respectively.


6.  New 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, 1998,  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, 1998, the Company had drawn
$14.12 million against this loan. As of March 31, 1998, the outstanding  balance
on this loan was $12.71 million.

In October 1997, the Company completed a private  placement  offering for $63.25
million of aggregate  principal of 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 $59.91 million to be used for capital
expenditures  associated with the development and  construction of space related
assets and for general corporate purposes.

<PAGE>

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.

      The Company  currently  operates  under two contracts  with NASA,  the Mir
Contract,  with a total  contract  value of $90.2  million and the  Research and
Logistics Module Services  Contract,  (the "REALMS  Contract"),  a $61.8 million
contract  for two research  missions on board the Space  Shuttle and a logistics
mission to resupply the  International  Space Station.  To date, the Company has
recognized $79.4 million of the Mir contract value,  representing the completion
of the first six missions.  The remaining $10.8 million represents the final Mir
option  mission  scheduled to be flown during the fourth quarter of fiscal 1998.
The value of the newly awarded  REALMS  contract is $42.8 million for three firm
missions for NASA.  The  additional  $19.0 million will be derived from three of
NASA's major  International  Space Station  partners;  the European Space Agency
(ESA), the National Space  Development  Agency of Japan (NASDA) and the Canadian
Space Agency (CSA).  The Company has the potential to increase the total current
REALMS  contract value of $61.8 million by  approximately  $22.0 million through
module usage sales to commercial  customers  for  microgravity  space  research.
Additionally, the REALMS contract has an option for a fourth mission valued at a
minimum of $15.8 million.  The first two missions under the REALMS  Contract are
scheduled  for  flights in the second and fourth  quarters of fiscal  1999;  the
third is currently projected for launch in May 2000.

      SPACEHAB  generates  revenue by providing lockers and/or volume within the
SPACEHAB Modules, and by integration and operations support services provided to
scientists and researchers  responsible  for the  experiments  and/or by NASA or
International  Agencies to carry  logistics  supplies for Module missions aboard
the Shuttle system. Under the Mir Contract,  the Company recognizes revenue only
at the  completion  of each Space  Shuttle  mission  utilizing  Company  assets.
Accordingly,  the  Company's  quarterly  revenue  and  profits  have  fluctuated
dramatically  based on NASA's  launch  schedule and will continue to do so under
the Mir Contract and any other  contract for which  revenue is  recognized  only
upon  completion of a mission.  For the REALMS  contract and for future  contact
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 contract. The  percentage-of-completion
method  results  in the  recognition  of  revenue  over the  period of  contract
performance,  thereby decreasing the quarter-by-quarter fluctuations of reported
revenue.

      Astrotech  revenue is derived from various multiyear 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  will  generate  additional  revenue  from an exclusive
multiyear  agreement  to process all Sea Launch  program  payloads at the Boeing
facility in Long Beach, California.

      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.
Expenses  associated  with  sustaining  engineering  are  expensed as  incurred.
Mission  specific  expenses  relating to the Mir Contract are recorded as assets
and not  expensed  until the  specific  Space  Shuttle  mission is flown and the
related  revenue is  recognized.  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 expensed as incurred.  Marketing,  general and administrative,  research and
development and interest and other expenses are recognized when incurred.


RESULTS OF OPERATIONS

For the three  months ended March 31, 1998 as compared to the three months ended
March 31, 1997.

   Revenue.  The Company recorded  revenue of  approximately  $19.00 million and
$15.03 million for the three months ended March 31, 1998 and 1997, respectively.
In  accordance  with  the  Company's  revenue  recognition  policy  for  the Mir
Contract,  revenue is recorded at the  completion of a mission when the SPACEHAB
modules are returned to the Company.  Revenue was  recognized  for the sixth Mir
Contract  mission  ($13.60  million)  during the quarter ended March 31, 1998 in
addition to revenue  generated from the REALMS Contract ($2.83 million) and from
Astrotech ($2.53 million). In contrast,  revenue for the quarter ended March 31,
1997 was primarily derived from the Mir Contract ($13.81 million).

   Costs of  Revenue.  Costs of revenue  for the  quarter  ended  March 31, 1998
increased 8.94% to $9.06 million, as compared to $8.32 million for quarter ended
March 31, 1997. The primary components of costs of revenue for the quarter ended
March 31, 1998 include  integration  and operation  costs under the Mir Contract
($5.33 million), the REALMS Contract ($1.04 million), and the NASDA/ESA Contract
($0.15 million);  Astrotech operations ($1.47 million); and, depreciation ($0.98
million). The primary components of costs of revenue for the quarter ended March
31, 1997 included integration and operations costs under the Mir Contract ($5.30
million),  the NASDA/ESA  Contract ($0.19  million);  and,  depreciation  ($2.38
million).  The  decrease  in  depreciation  expense  during  1998  is  primarily
attributable  to the  impact of  extending  the  estimated  useful  lives of the
Company's modules.  This change in accounting estimate is treated  prospectively
and is based on current  available  information  from NASA,  which  extends  the
estimated useful life of the space shuttle program to at least 2012.

   Operating  Expenses.  Operating  expenses increased  approximately  68.62% to
approximately  $4.72  million  for the three  months  ended  March  31,  1998 as
compared to  approximately  $2.80  million for the three  months ended March 31,
1997. This increase is due primarily to the Company's efforts to increase staff,
adding strength in engineering, design and research and development capabilities
and reflects the additional  costs of  approximately  $0.21 million incurred for
operating  the  Astrotech  subsidiary,  which was  acquired  in  February  1997.
Research and  Development  costs  increased  442.4% to $0.74  million from $0.14
million.  This increase was due to the Company's  continuous  efforts to develop
space- related assets.

   Interest Expense.  Interest expense was  approximately  $1.25 million for the
three months ended March 31, 1998 as compared to approximately $0.19 million for
the three  months  ended  March 31,  1997.  There was also  approximately  $1.35
million and $0.10 million of interest  capitalized amounts for the quarter ended
March 31, 1998 and 1997, respectively.  The capitalized is interest was based on
the  construction of the Company's  science module with double module  hardware,
which will be placed in service beginning in late 1999.  Additional amounts were
capitalized   during  the  quarter  ended  March  31,  1998,   relating  to  the
construction  of an  expanded  facility  for  Astrotech  which was  acquired  in
February 1997.

   Interest and Other Income.  Interest and other income was approximately $0.93
million and $0.38  million for the three  months  ended March 31, 1998 and 1997,
respectively.  This increase is due to interest earned on short-term  investment
vehicles  by the  Company  for the  investment  of  proceeds  received  from the
Company's debt financings completed during July and October 1997.

    Net Income. Net income was approximately  $4.89 million,  or $0.44 per share
(basic EPS),  for the quarter  ended March 31, 1998, on  11,156,274  shares,  as
compared to $3.21 million, or $0.29 per share (basic EPS), for the quarter ended
March 31, 1997,  on  11,146,236  shares.  There is no income tax expense for the
three  months  ended  March  31,  1998  primarily  due  to  depreciation  timing
differences between book and tax on the Company's flight modules.

   For the nine months ended March 31, 1998 as compared to the nine months ended
March 31, 1997.

   Revenue.  The Company recorded  revenue of  approximately  $39.29 million and
$38.14 million for the nine months ended March 31, 1998 and 1997,  respectively.
Revenue  recognized during the nine months ended March 31, 1998 was from the Mir
Contract ($27.20 million),  REALMS Contract ($4.55 million),  NASDA/ESA Contract
($0.03 million) and Astrotech ($7.51 million).  Conversely,  for the nine months
ended March 31, 1997 the Company's  revenue was attributable to the Mir Contract
($27.83  million),  the CMAM Contract ($7.96 million),  the NASDA/ESA  Contracts
($1.13 million) and Astrotech ($1.22 million).

   Costs of Revenue.  Costs of revenue for the nine months  ended March 31, 1998
increased  0.03% to $22.22  million,  as compared to $22.15 million for the nine
months ended March 31, 1997. The primary  components of costs of revenue for the
nine months ended March 31, 1998 include  integration  and operation costs under
the Mir Contract  ($12.84  million),  REALMS Contract ($1.97  million),  and the
NASDA/ESA Contract ($0.35 million);  Astrotech operations ($3.93 million);  and,
depreciation  ($2.94 million).  In contrast,  the primary components of costs of
revenue  for the nine  months  ended March 31,  1997  included  integration  and
operations costs under the Mir Contract ($12.35 million), the NASDA/ESA Contract
($1.04 million) and the CMAM Contract ($1.07 million);  and, depreciation ($7.13
million).  The decrease in depreciation expense is attributable to the impact of
extending the estimated  useful lives of the Company's  modules.  This change in
accounting  estimate is treated  prospectively and is based on current available
information  from NASA,  which  extends the  estimated  useful life of the Space
Shuttle program to at least 2012.

   Operating Expenses.  Operating expenses increased by approximately  68.90% to
approximately  $11.81  million  for the nine  months  ended  March  31,  1998 as
compared to  approximately  $6.99  million  for the nine months  ended March 31,
1997. This increase is due primarily to the Company's efforts to increase staff,
adding strength in engineering, design and research and development capabilities
and reflects the additional costs of  approximately  $0.88 million for operating
the  Astrotech  subsidiary,  which was acquired in February  1997.  Research and
development  costs increased  297.34% to $1.79 million from $0.45 million.  This
increase  is due to the  Company's  efforts  to  develop  space  related  assets
including the Integrated Cargo Carrier and the SPACEHAB Universal Communications
System to be used in future space flights.

   Interest Expense.  Interest expense was  approximately  $2.63 million for the
nine months ended March 31, 1998 as compared to approximately  $0.87 million for
the nine months ended March 31, 1997. There was also approximately $1.35 million
and $0.10 million of interest capitalized during the nine months ended March 31,
1998 and 1997,  respectively.  Interest is capitalized based on the construction
of the Company's science module with double module hardware.  Additional amounts
were  capitalized  during the nine  months  ended  March 31, 1998 based on costs
incurred on the construction of an expanded facility for Astrotech.

   Interest and Other Income.  Interest and other income was approximately $2.34
million and $1.19  million  for the nine  months  ended March 31, 1998 and 1997,
respectively.  This  increase  is due to  interest  earned  by  the  Company  on
short-term investment of proceeds received from the Company's credit facilities.

    Net Income. Net income was approximately  $4.96 million,  or $0.45 per share
(basic and diluted EPS), on 11,152,312  shares (basic EPS) as compared to $10.47
million,  or $0.94 per share  (basic  EPS),  for the nine months ended March 31,
1997, on 11,109,721  shares.  There is no income tax expense for the nine months
ended March 31, 1998 primarily due to depreciation  timing  differences  between
book and tax on the Company's flight modules.
   .


LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Resources

   The Company has historically financed its capital expenditures,  research and
development and working capital  requirements  with progress  payments under its
contracts,  including  the  CMAM  Contract,  the  Mir  Contract,  the  NASDA/ESA
Contracts and  Astrotech's  operations,  as well as with proceeds  received from
private 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
$43.48  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,  1998,  no amounts  were  drawn on this line of credit.  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, 1998, the Company had drawn $14.12
million  on this  loan and had an  outstanding  balance  on that  date of $12.71
million.  Further, 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  $59.91  million to be
used for capital  expenditures  associated with the development and construction
of space related assets and for general corporate purposes.

   Cash Flows  from  Operating  Activities.  Cash flows  provided  by  operating
activities  for the nine  months  ended  March 31,  1998 and 1997,  were  $17.59
million and $3.29 million  respectively.  The increase in cash flows provided by
operating  activities  is due  primarily to a  significant  increase in deferred
flight revenue,  which reflects  billings during the nine months ended March 31,
1998 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,
1998 and 1997,  cash flows used for  investing  activities  consisted of capital
expenditures of approximately $13.36 million and $3.68 million, respectively. Of
this  amount,  $8.71  million  of the  expenditures  in  the  current  year  are
attributable  to the  construction  of the Company's  science module with double
module  hardware,  which module is to be  completed  in early 1999.  The Company
anticipates  that it will spend between $35.0 million and $38.0 million in total
on the asset. As of March 31, 1998, the Company has spent  approximately  $21.72
million on this asset. In addition,  the Company has spent  approximately  $3.65
million for the construction of an expanded facility for Astrotech.

   Cash Flows from  Financing  Activities.  Cash  flows  provided  by (used for)
financing  activities were approximately  $71.55 million and ($3.27) million for
the nine months  ended March 31,  1998 and 1997,  respectively.  During the nine
months ended March 31, 1998, the Company  received net proceeds of approximately
$14.12 million and made payments of $1.41 million under the Term Loan Agreement.
In August  1997,  the  Company  also made a payment of $0.50  million  under the
Credit  Agreement.  In October  1997,  the  Company  received  net  proceeds  of
approximately  $59.91 million by completing an offering of $55.00 million of its
8%  Convertible  Subordinated  Notes  due  2007  as  well  as  exercise  of  the
underwriters' over-allotment for an additional $8.25 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.




<PAGE>


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

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. No Report on Form 8-K was filed  during the period
         ended March 31, 1998.

      Exhibit No.             Description of Exhibits


      10.1*       ESA Contract,  dated October 10, 1997,  between the Registrant
                  and INTOSPACE GmbH (the "ESA Contract").

      10.         2***  NAS  97-199,   dated  December  21,  1997,  between  the
                  Registrant and NASA (the "REALMS Contract").

      10.         3*** Letter Contract  Number SHB 1014,  dated August 13, 1997,
                  between    the     Registrant     and    McDonnell     Douglas
                  Aerospace-Huntsville, (as amended).

      10. 4***    Employment Agreement and Non-Interference Agreement dated
                  January 15,  1998,  between  the Company and Chester M. Lee.

      10. 5***    Employment Agreement and Non-Interference Agreement dated
                  January 15, 1998, between the Company and David A. Rossi.

      10. 6***    Amendment number 1 to Employment Agreement and
                  Non-Interference Agreement dated April 1, 1997, between the
                  Company and Shelley A. Harrison.

      10.         7*** Amendment  number 1 to Loan and Security  Agreement dated
                  December  31,  1997,  between  the  Company  and  First  Union
                  National Bank.

      11.         Statement regarding Computation of Earnings Per Common Share.

      21.**       Subsidiary of the Registrant

      27          Financial Data Schedule

      *   Incorporated  by  reference  to the  Registrant's  Form  10-Q  for the
          quarter  ended  September  30,  1997  filed  with the  Securities  and
          Exchange Commission on November 6, 1997.

      **  Incorporated  by reference to the  Registrant's  Annual Report on Form
          10-K for the year ended June 30,  1997 filed with the  Securities  and
          Exchange Commission on September 12, 1997.

      *** Incorporated  by  reference  to the  Registrant's  Form  10-Q  for the
          quarter ended December 31, 1997 filed with the Securities and Exchange
          Commission on February 6, 1998.


<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  07, 1998           /S/ MARGARET E. GRAYSON
                                      ----------------------------------
                                      Margaret E. Grayson
                                      Vice President of Finance (CFO)
                                      Treasurer, and Assistant
                                      Secretary
                                      (Principal Financial and
                                      Accounting
                                      Officer)