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...............September 30, 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 Identification
          Washington                       No. 91-1273737




The number of shares of Common Stock  outstanding as of the close of business on
November 2, 1998:


            Class             Number of Shares Outstanding
            Common Stock      11,176,636     



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
           SEPTEMBER 30, 1998 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 September 30,
          1998 and June 30, 1998                                         3

        Condensed Consolidated Statements of Operations for the
          three months ended September 30, 1998 and 1997                 4

        Condensed Consolidated Statements of Cash Flows for the
          three months ended September 30, 1998 and 1997                 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                              13



<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)                     September 30,     June 30,
                                                           1998           1998
                                                        (unaudited)    (audited)
                                                      -------------  -----------
                              ASSETS
<S> ................................................           <C>           <C>
Cash and cash equivalents ..........................      $ 58,330      $ 92,327
Receivables ........................................        10,837         5,979
Prepaid expenses and other current assets ..........         1,510           550
                                                          --------      --------
     Total current assets ..........................        70,677        98,856
Property, plant and equipment, net of
 accumulated depreciation and amortization
 of $44,761 and $43,338 ............................       113,682       112,588
Goodwill, net of accumulated amortization ..........        26,895         3,224
of $521 and $230
Other assets, net ..................................         6,537         5,936
                                                          --------      --------
     Total assets ..................................      $217,791      $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 .........        11,374         6,204
     Accrued subcontracting services ...............        12,674        13,177
     Deferred revenue ..............................         6,374        13,491
                                                          --------      --------
          Total current liabilities ................        33,579        36,196
Accrued contract costs .............................           951          --
Notes payable to shareholder .......................        11,895        11,895
Loan payable under credit agreement, net
  of current portion ...............................           667         1,000
Loan payable, net of current portion ...............         8,471         9,177
Convertible notes payable ..........................        63,250        63,250
Deferred income taxes ..............................         2,094         2,678
                                                          --------      --------
          Total liabilities ........................       120,907       124,196
Commitments and contingencies
Stockholders' equity:
     Common stock, no par value,authorized
       30,000,000 shares, issued and
       outstanding 11,176,636 and
       11,168,161 shares, respectively .............        81,302        81,239
     Additional paid-in capital ....................            16            16
     Retained earnings .............................        15,566        15,153
                                                          --------      --------
          Total stockholders' equity ...............        96,884        96,408
                                                          --------      --------
          Total liabilities and
           stockholders' equity ....................      $217,791      $220,604
                                                          ========      ========

</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.




<PAGE>


               SPACEHAB, INCORPORATED AND SUBSIDIARIES
     Unaudited Condensed Consolidated Statements of Operations



<TABLE>
<CAPTION>

(In thousands, except share data)                         Three Months
                                                      Ended September 30,
                                                 -----------------------------
                                                      1998            1997
                                                 ------------     ------------

<S> ........................................              <C>               <C>
Revenue ....................................     $     28,273      $      2,537
Costs of revenue:
   Integration and operations ..............           18,690             3,856
   Depreciation ............................            1,258             1,224
   Insurance and other direct costs ........            1,792               115
                                                 ------------      ------------
        Total costs of revenue .............           21,740             5,195
                                                 ------------      ------------
Gross profit (loss) ........................            6,533            (2,658)
Operating expenses:
   Marketing, general and ..................            4,135             2,735
     administrative
   Research and development ................              247               292
                                                 ------------      ------------
      Total operating expenses .............            4,382             3,027
                                                 ------------      ------------
      Income (loss) from operations ........            2,151            (5,685)
Interest expense, net of
 capitalized amounts .......................            1,431               201
Interest and other income ..................             (519)             (232)
Other expense ..............................              550              --
                                                 ------------      ------------
     Income (loss) before income
      taxes ................................              689            (5,654)
Income tax expense .........................              276              --
                                                 ------------      ------------
      Net income (loss) ....................     $        413      $     (5,654)
                                                 ============      ============

Basic earnings per share:
Net income (loss) per share -
basic ......................................     $       0.04      $      (0.51)
                                                 ============      ============
Shares used in computing net
income per share - basic ...................       11,168,161        11,146,660
                                                 ============      ============
Diluted earnings per share:
Net income (loss) per share -      
diluted ....................................     $       0.04      $      (0.51)
                                                 ============      ============
Shares used in computing net
income per share - diluted .................       11,352,693        11,146,660
                                                 ============      ============
</TABLE>




See accompanying notes to unaudited condensed consolidated financial statements.

<PAGE>


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

<TABLE>
<CAPTION>

  (In thousands)                           Three Months Ended
                                             September 30,
                                           1998          1997
                                       -------------  ------------
  Cash flows provided by (used for) operating activities:
<S> ....................................................        <C>         <C>
    Net income (loss) ..................................   $    413    $ (5,654)
    Adjustments to reconcile net
     income (loss) to net cash provided
     by operating activities:
     Depreciation and amortization .....................      1,840       1,350
     Changes in assets and liabilities:
       Decrease in accounts receivable .................      3,508         612
       Increase in prepaid and other
         current assets ................................       (654)     (1,102)
       Increase in deferred mission costs ..............       --        (2,892)
       Increase in other assets ........................       (683)     (1,913)
       Increase (decrease) in
         deferred flight revenue .......................     (7,118)      8,732
       Decrease in accounts payable
         and accrued expenses ..........................     (2,299)       (452)
       Increase (decrease) in accrued
         subcontracting services .......................       (480)        117
                                                           --------    --------
           Net cash used for
             operating activities ......................     (5,473)     (1,202)
                                                           --------    --------
  Cash flows used for investing activities:
    Payments for modules under construction (1,586) ....     (6,043)
    Purchase of Johnson Engineering,
      net of cash acquired .............................    (25,308)       --
    Payments for building under
      construction .....................................        (28)       (710)
    Purchase of property and equipment .................       (459)       (105)
                                                           --------    --------
           Net cash used for
           investing activities ........................    (27,381)     (6,858)
                                                           --------    --------
  Cash flows provided by (used for)
  financing activities:
    Proceeds from loan payable .........................       --        14,119
    Payment of loan payable ............................       (706)       --
    Payment of loan payable under
     credit agreement ..................................       (500)       (500)
    Proceeds from issuance of common
     stock .............................................         63        --
    Proceeds from exercise of common
     stock options .....................................       --            23
                                                           --------    --------
           Net cash provided by (used
            for) financing activities ..................     (1,143)     13,642
                                                           --------    --------
           Net increase (decrease)in cash
             and cash equivalents ......................    (33,997)      5,582
  Cash and cash equivalents at
    beginning of period ................................     92,327      12,887
                                                           --------    --------
  Cash and cash equivalents at end of
    period .............................................   $ 58,330    $ 18,469
                                                           ========    ========

</TABLE>




     See accompanying  notes to unaudited  condensed  consolidated
      financial statements.

<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 September  30, 1998,  and the results of their  operations  and
cash flows for the three months ended September 30, 1998 and 1997. However,  the
consolidated  financial  statements are unaudited and do not include all related
footnote  disclosures.  The  consolidated  results of  operations  for the three
months ended  September 30, 1998 are not  necessarily  indicative of the results
that may be expected for the full year.  The Company's  consolidated  results of
operations  fluctuate  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.

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 the three months ended
September 30, 1998 and 1997, respectively:


<TABLE>
(in thousands except per share data)      Basic                Diluted

September 30, 1998

<S> ....................................                <C>                 <C>
Net income .............................       $        413        $        413
                                               ------------        ------------
Weighted average outstanding
  common shares ........................         11,168,161          11,168,161
Outstanding stock options and
  warrants, using the treasury
  stock method .........................               --               184,532
                                               ------------        ------------
Adjusted shares ........................         11,168,161          11,352,693

September 30, 1997

Net income (loss) ......................       $     (5,654)       $     (5,654)

Weighted average outstanding
     common shares .....................         11,146,660          11,146,660
</TABLE>


Convertible notes payable outstanding as of September 30, 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 three  months  ended
September  30,  1998  as  the   inclusion  of  the  converted   notes  would  be
anti-dilutive.

     Options to purchase  1,256,015  shares of common stock,  at prices  ranging
from $9.875 to $24.00 per share,  were outstanding as of September 30, 1998, 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  September  30, 1998.  The options
expire  between  October  21, 1998 and August 3, 2007.

      Options and warrants to purchase 783,753 shares of common stock, at prices
ranging from $12.00 to $24.00 per share,  were  outstanding  as of September 30,
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 three months ended September 30, 1997. The
options  expire between  November 1, 1997 and July 13, 2004 and warrants  expire
between December 31, 1997 and June 21, 1998.

3.    Acquisition of Johnson Engineering:

On July 1, 1998, the Company agreed to acquire 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
provides stowage integration services.

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) to
record  the  purchase  of all the  capital  stock of  Johnson  Engineering.  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):


<TABLE>


          <S>                                                <C>
           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
                                                          ========
</TABLE>




<PAGE>


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 indications of actual or future results of operations.

<TABLE>
<CAPTION>

 (in thousands except per share data)                         Three Months
                                                            Ended September 30,
                                                             1998        1997
                                                          ----------------------                  
<S> ...............................................       <C>               <C>
 Revenue ..........................................       $28,273       $ 16,316
 Gross profit (loss) ..............................         6,533        (1,706)
 Net income (loss) ................................       $   413        (4,858)
                                                          =======        =======



 Net income (loss) per share - basic and diluted...       $  0.04       $ (0.44)
                                                          =======        =======
 
</TABLE>


4.  Revenue Recognition:

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


5. Statements of Cash Flows - Supplemental Information:

(a) Cash paid for  interest  costs was $0.6  million and $0 for the three months
ended  September  30,  1998 and  1997,  respectively.  The  Company  capitalized
interest of approximately  $0.6 million and $0.3 million during the three months
ended  September  30, 1998 and 1997,  respectively.  (b) The  Company  paid $0.4
million  and $1.3  million  for  income  taxes  during  the three  months  ended
September 30, 1998 and 1997, respectively.


<PAGE>


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 September 30, 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 September 30, 1998, the Company had
drawn $14.1 million  against this loan.  As of September 30, 1998 and 1997,  the
outstanding balance on this loan was $11.3 million and $14.1 million, 
respectively.

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  $59.9 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.


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 Research
and Logistics Module Services Contract, (the "REALMS Contract"), a $61.8 million
contract  for two  research  missions  aboard the Space  Shuttle and a logistics
mission 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 $42.8 million for three firm missions.  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 by an additional $22.0 million 
through module usage sales to commercial  customers  for  microgravity  space 
research.  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
scheduled for launch in September 2000. Additionally, the REALMS contract has an
option for a fourth mission for $17.8 million.  In October 1998, NASA confirmed 
its intention to exercise this option and has manifested the Company's 
Integrated Cargo Carrier (ICC) on this  mission at a price to be  negotiated.   
Under the FCSD Contract, Johnson Engineering provides a variety of critical crew
training,  support and  manufacturing  functions on a cost plus award and 
incentive fee basis.

Revenue

      SPACEHAB  generates revenue by: (i) providing lockers and/or volume within
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 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.

      Johnson  Engineering   generates  revenue  primarily  from  its  multiyear
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.  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 the Company's  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  and (ii)
mission specific support.  Expenses  associated with sustaining  engineering are
expensed as  incurred.  Other  costs of revenue  include  depreciation  expense,
related  insurance, costs  associated with the Astrotech  payload  processing
facilities and Johnson Engineering costs under the FCSD Contract.


RESULTS OF OPERATIONS

For the three  months ended  September  30, 1998 as compared to the three months
ended September 30, 1997.

      Revenue.  The Company recorded revenue of approximately  $28.3 million and
$2.5  million  for  the  three  months  ended   September  30,  1998  and  1997,
respectively.  Revenue of $11.4 million was generated  from the REALMS  contract
with NASA and with  related  commercial  customers,  $14.4  million from Johnson
Engineering  and $2.5  million  from  Astrotech.  In  contrast,  $2.5 million of
revenue for the period  ending  September  30, 1997 was  primarily  generated by
Astrotech because under the Mir contract, SPACEHAB's revenue was recorded at the
completion  of a mission when the SPACEHAB  modules were returned to the Company
and there were no completed missions during the quarter.

      Costs of Revenue.  Cost of revenue for the quarter  ending  September  30,
1998 increased by 318.4% to $21.7  million,  as compared to $5.2 million for the
prior  year's  quarter.  This  significant  increase is due to the  inclusion of
Johnson  Engineering's  costs of $13.2 million  primarily for costs  incurred in
support  of the FCSD  contract.  For the  quarter  ending  September  30,  1998,
integration and operations costs for the REALMS and related commercial  customer
contracts were $5.9 million,  and costs of revenue also include $0.9 million for
Astrotech payload processing and $1.3 million of depreciation  expense.  For the
three months ended  September  1997, the  components of cost of revenue  include
integration  and  operations  costs under the Mir contract of $2.9 million,  the
NASDA/ESA  contract  of  $0.1  million,   $0.9  million  for  Astrotech  payload
procession and depreciation expense of $1.2 million.

      Operating Expenses.  Operating expenses increased  approximately 44.78% to
approximately  $4.4  million for the three months  ended  September  30, 1998 as
compared to approximately  $3.0 million for the three months ended September 30,
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  $0.7 million  incurred for
operating the Johnson Engineering  subsidiary,  which was acquired in July 1998.
Research and development  costs  decreased  slightly to $0.25 million from $0.29
million.

      Interest  and Other  Expense.  Interest  expense  was  approximately  $1.4
million  for  the  three  months  ended   September  30,  1998  as  compared  to
approximately  $0.2 million for the three months ended September 30, 1997. There
was also  approximately  $0.6 million and $0.3  million of interest  capitalized
amounts  for the  quarter  ended  September  30,  1998 and  1997,  respectively.
Interest was capitalized  based on the  construction  of the Company's  research
module with double module hardware, the ICC and an additional payload processing
facility being constructed by Astrotech.  Additionally,  during the three months
ended  September 30, 1998, the Company  recognized $0.6 million in other expense
related to costs  associated  with a debt offering that the Company  canceled in
July.

      Interest and Other  Income.  Interest  and other income was  approximately
$0.5 million and $0.2 million for the three months ended  September 30, 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 (Loss). Net income (loss) was approximately $0.4 million and 
($5.7) million for the quarter ended September 30, 1998 and 1997, respectively.
Basic earnings per share for the quarter ended September 30, 1998 and 1997 was
$0.04 per share on 11,168,161 shares and ($0.51) per share on 11,146,660 shares,
respectively.  Diluted earnings per share for the quarter  ended  September 30,
1998 and 1997 was $0.04 per share on 11,352,693 shares and ($0.51) per share on 
11,168,161 shares, respectively.


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 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 $43.48 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 September 30, 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 September 30, 1998, the Company had drawn $14.12 million on this
loan and had an outstanding  balance on that date of $11.3  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  $59.91  million to be used for capital  expenditures
associated with the development  and  construction of space related assets,  the
purchase of Johnson Engineering, and for general corporate purposes.

      Cash Flows used for  Operating  Activities.  Cash flows used for operating
activities  for the three months ended  September  30, 1998 and 1997,  were $5.5
million and $1.2 million,  respectively.  This change is caused by the timing of
progress payments received by the Company under the REALMS Contract, whereby
payments are received and deferred before expenses are incurred.  These payments
are reduced as expenses are incurred and revenue is recognized.  

      Cash Flows  used for  Investing  Activities.  For the three  months  ended
September 30, 1998 and 1997, cash flows used for investing  activities consisted
of approximately $27.4 million and $6.9 million, respectively. The current three
month  period's  activity  consisted   primarily  of  $25.3  million,   for  the
acquisition of Johnson  Engineering.  Additional  activity included $1.6 million
for the  continued  construction  of the Company's  research  module with double
module hardware, which is to be completed in early 1999 and $0.5 million for the
purchase of additional property and equipment.

      Cash  Flows  provided  by (used  for)  Financing  Activities.  Cash  flows
provided by (used for) financing  activities were  approximately  ($1.1) million
and $13.6  million  for the three  months  ended  September  30,  1998 and 1997,
respectively. During the three months ended September 30, 1998, the Company made
payments on outstanding debt of $1.2 million. In addition,  the Company received
proceeds of  approximately  $0.1  million  from the  issuance of stock under the
Employee  Stock  Purchase  Plan.  In  contrast,  during the three  months  ended
September  30, 1997,  the Company  received  proceeds of $14.1 million under the
Term Loan Agreement.

      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

Segment Reporting

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise and Related  Information"  (Statement  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 Considerations

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 causing disruptions of operations,  including,  among other things, the
temporary inability to process transactions,  send invoices or engage in similar
normal business activities.

Based  on an  ongoing  assessment,  the  Company  has  determined  that the vast
majority  of  the   computers   and   software   utilized  in  the  general  and
administrative  functions of the Company are year 2000 compliant.  The few older
computers, which are not Y2K compliant, will be replaced over the next year. All
accounting software is Y2K compliant.  Additionally, because the majority of the
hardware  and  software in use by the Company is  commercial  off the shelf with
minimal  customization,  the Company expects its efforts and costs to bring 100%
of the hardware and software into compliance to be minimal.

In addition,  computers  and  software  utilized in the  Company's  research and
development  and payload  processing  functions are currently  being reviewed to
determine whether they are Y2K compliant.  The preliminary assessment is
that  those  hardware  and  software  products  are  compliant,   including  the
electrical ground support equipment of Company's modules. The Company expects to
know the  results  of that  determination  by the end of the  second  quarter of
fiscal 1999.

The Company is in the process of contacting its vendors and customers, i.e. NASA
and the Space Shuttle in particular, to determine whether they are Y2K 
compliant.

If  necessary,  a  contingency  plan will be devised based on the results of the
data  gathered in the vendor  survey and  research and  development  and payload
processing survey.

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.

           Report  on Form 8-K was  dated on July 1,  1998 and filed on July 13,
           1998   announcing  the   Registrant's   acquisition  of  all  of  the
           outstanding   shares  of  capital   stock  of   Johnson   Engineering
           Corporation.


      Exhibit No.              Description of Exhibits


      11.       Statement regarding Computation of Earnings Per Common Share.

      21.       Subsidiaries of the Registrant

      27        Financial Data Schedule




<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: November  6, 1998    /s/ Shelley A. Harrison                      
                                 -----------------------------
                                 Shelley A. Harrison
                                 Chairman and Chief
                                 Executive Officer