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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000928385-01-000451.txt : 20010223
<SEC-HEADER>0000928385-01-000451.hdr.sgml : 20010223
ACCESSION NUMBER:		0000928385-01-000451
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20001231
FILED AS OF DATE:		20010214

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SPACEHAB INC \WA\
		CENTRAL INDEX KEY:			0001001907
		STANDARD INDUSTRIAL CLASSIFICATION:	GUIDED MISSILES & SPACE VEHICLES & PARTS [3760]
		IRS NUMBER:				911273737
		STATE OF INCORPORATION:			WA
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		
		SEC FILE NUMBER:	000-27206
		FILM NUMBER:		1544249

	BUSINESS ADDRESS:	
		STREET 1:		300 D STREET S W
		STREET 2:		STE 814
		CITY:			WASHINGTON
		STATE:			DC
		ZIP:			20024
		BUSINESS PHONE:		7038213000

	MAIL ADDRESS:	
		STREET 1:		1595 SPRING HILL ROAD
		STREET 2:		SUITE 360
		CITY:			VIENNA
		STATE:			VA
		ZIP:			22182
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-Q
<TEXT>

<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549


                                   FORM 10-Q


(X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934
         For the quarterly period ended...............December 31, 2000


                                       OR


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


                         Commission file number 0-27206


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



Incorporated in the State of Washington              IRS Employer Identification
                                                     Number 91-1273737


The number of shares of Common Stock outstanding as of the close of business on
                                   January 31, 2001:



                Class                         Number of Shares Outstanding
                -----                         ----------------------------
                Common Stock                           11,419,226


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, 2000 QUARTERLY REPORT ON FORM 10-Q
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>


PART 1 -  FINANCIAL INFORMATION                                            Page
                                                                           ----
<S>       <C>                                                              <C>

 Item 1.  Unaudited Condensed Consolidated Financial Statements

          Unaudited Condensed Consolidated Balance Sheets as of
            December 31, 2000 and June 30, 2000                             3

          Unaudited Condensed Consolidated Statements of
            Operations for the three and six months ended
            December 31, 2000 and 1999                                      4

          Unaudited Condensed Consolidated Statements of Cash
            Flows for the six months ended December 31, 2000 and 1999       5

          Notes to Unaudited Condensed Consolidated Financial Statements    6


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

 Item 3.  Quantitative and Qualitative Disclosure about Market Risk        16

PART II - OTHER INFORMATION

 Item 4.  Submission of matters to a vote of security holders              17

 Item 6.  Exhibits and Reports on Form 8-K                                 17

</TABLE>

                                       2
<PAGE>

PART 1:  FINANCIAL INFORMATION
Item 1.  UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    SPACEHAB, INCORPORATED AND SUBSIDIARIES
                     Condensed Consolidated Balance Sheets


<TABLE>
<CAPTION>

(In thousands, except share data)                                               December 31,                       June 30,
                                                                                   2000                            2000
                                                                                (unaudited)
                                                                       ---------------------------         -----------------------
<S>                                                                      <C>                               <C>
                        ASSETS
Cash and cash equivalents                                                        $           8,410                $          6,949
Accounts receivable, net                                                                    18,331                          25,798
Prepaid expenses and other current assets                                                    1,768                           2,328
                                                                                 -----------------                ----------------
     Total current assets                                                                   28,509                          35,075
Property, plant, and equipment, net of
  Accumulated depreciation and amortization
  of $60,023 and $56,380, respectively                                                     173,586                         158,684
Goodwill, net of accumulated amortization of $2,970
  and $2,428, respectively                                                                  22,758                          23,301
Investment in Guigne, net                                                                    1,800                           1,800
Other assets, net                                                                            7,228                           6,249
                                                                                 -----------------                ----------------
     Total assets                                                                $         233,881                $        225,109
                                                                                 =================                ================
                LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Loans payable under credit agreement, current portion                          $             333                $            333
  Loans payable, current portion                                                             3,126                           3,126
  Revolving loan payable                                                                     8,150                           4,500
  Accounts payable and accrued expenses                                                     20,062                          20,332
  Deposit on asset sale                                                                      5,000                               -
  Convertible notes payable to shareholder                                                   7,860                               -
  Deferred revenue                                                                          17,106                           8,385
                                                                                 -----------------                ----------------
          Total current liabilities                                                         61,637                          36,676
Loans payable under credit agreement, net of current portion                                     -                             333
Loans payable, net of current portion                                                        2,764                           4,458
Convertible notes payable to shareholder                                                         -                           7,860
Accrued contract costs                                                                         647                             880
Deferred revenue                                                                             6,870                           6,870
Deferred income taxes                                                                            -                           2,080
Convertible subordinated notes payable                                                      63,250                          63,250
                                                                                 -----------------                ----------------
          Total liabilities                                                                135,168                         122,407
Commitments and contingencies
Stockholders' equity:
  Series B Senior Convertible Preferred Stock (authorized 2,500,000
    shares, issued and outstanding 1,333,334,
    liquidation preference of $12,000)                                                      11,892                          11,892
  Common stock, no par value, authorized
    30,000,000 shares, issued and outstanding
    11,419,226 and 11,345,032 shares, respectively                                          82,303                          82,074
  Additional paid-in capital                                                                    16                              16
  Retained earnings                                                                          4,502                           8,720
                                                                                 -----------------                ----------------
          Total stockholders' equity                                                        98,713                         102,702
                                                                                 -----------------                ----------------
     Total liabilities and stockholders' equity                                  $         233,881                $        225,109
                                                                                 =================                ================
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

                                       3
<PAGE>

                    SPACEHAB, INCORPORATED AND SUBSIDIARIES
           Unaudited Condensed Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                    (Unaudited)                             (Unaudited)
(In thousands, except share data)                                   Three Months                             Six Months
                                                                 Ended December 31,                       Ended December 31,
                                                    ------------------------------------------     ---------------------------------
                                                           2000                   1999                    2000               1999
                                                    -----------------       ------------------     ---------------      ------------
<S>                                                   <C>                   <C>                     <C>                 <C>
Revenue                                               $    23,975           $    26,011              $    50,941        $    51,989
Costs of revenue                                           20,836                22,771                   43,360             46,606
                                                      -----------           -----------              -----------        -----------
Gross profit                                                3,139                 3,240                    7,581              5,383
                                                      -----------           -----------              -----------        -----------
Operating expenses:
     Selling, general and administrative                    6,124                 3,893                   12,054              7,633
     Research and development                                  81                   586                      195              1,077
                                                      -----------           -----------              -----------        -----------
          Total operating expenses                          6,205                 4,479                   12,249              8,710
                                                      -----------           -----------              -----------        -----------
          Loss from operations                             (3,066)               (1,239)                  (4,668)            (3,327)
Interest expense, net of capitalized interest                 807                   733                    1,619              1,896
Interest and other income, net                                 (1)                  (68)                    (163)              (303)
                                                      -----------           -----------              -----------        -----------
    Loss before income taxes                               (3,872)               (1,904)                  (6,124)            (4,920)
Income tax benefit                                         (1,134)                 (632)                  (1,906)            (1,689)
                                                      -----------           -----------              -----------        -----------
     Net loss                                         $    (2,738)          $    (1,272)             $    (4,218)       $    (3,231)
                                                      ===========           ===========              ===========        ===========
Basic loss per share:
Net loss per share - basic                            $     (0.24)          $     (0.11)             $     (0.37)       $     (0.29)
                                                      ===========           ===========              ===========        ===========
Shares used in computing net loss per share - basic    11,374,563            11,258,801               11,359,956         11,244,380
                                                      ===========           ===========              ===========        ===========
Diluted loss per share:
Net loss per share - diluted                          $     (0.24)          $     (0.11)             $     (0.37)       $     (0.29)
                                                      ===========           ===========              ===========        ===========
Shares used in computing net loss per share -
 diluted                                               11,374,563            11,258,801               11,359,956         11,244,380
                                                      ===========           ===========              ===========        ===========
</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements.

                                       4
<PAGE>

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

<TABLE>
<CAPTION>

                                                                                        (Unaudited)
(In thousands)                                                                  Six Months Ended December 31,
                                                                               2000                   1999
                                                                           -------------         -------------
<S>                                                                        <C>                   <C>
Operating activities:
  Net loss                                                                     $(4,218)              $(3,231)
  Adjustments to reconcile net loss to
    net cash provided by (used for) operating activities:
    Depreciation and amortization                                                 4,468                4,208
    Changes in assets and liabilities:
      Decrease (increase) in accounts receivable                                  7,467                 (317)
      Decrease (increase) in prepaid expenses and other current assets              560                 (688)
      Increase in other assets                                                   (1,261)              (1,589)
      Increase (decrease) in deferred flight revenue                              8,721               (2,894)
      Decrease in accounts payable and
          accrued expenses                                                       (3,516)              (1,732)

      Decrease in deferred taxes                                                 (2,080)                (102)
                                                                            -----------          -----------
          Net cash provided by (used for) operating activities                   10,141               (6,345)
                                                                            -----------          -----------
Investing activities:
  Payments for flight assets under construction                                 (10,430)              (8,420)
  Payments for building under construction                                       (4,108)              (2,333)
  Purchases of property, equipment and leasehold improvements                      (994)              (2,630)
  Deposit on asset sale                                                           5,000                    -
  Purchase of Johnson Engineering, net of cash acquired                               -                  600
  Investment in joint venture                                                         -                 (600)
                                                                            -----------          -----------
          Net cash used for investing activities                                (10,532)             (13,383)
                                                                            -----------          -----------
Financing activities:
  Payment of loan payable                                                        (1,694)              (1,545)
  Payment of note payable under credit agreement                                   (333)                (333)
  Proceeds from issuance of common stock                                            229                  233
  Proceeds from revolving line of credit                                          3,650                    -
  Proceeds from issuance of preferred stock, net of expenses                          -               11,892
                                                                            -----------          -----------
          Net cash provided by financing activities                               1,852               10,247
                                                                            -----------          -----------
          Net increase (decrease) in cash and cash equivalents                    1,461               (9,481)
Cash and cash equivalents at beginning of period                                  6,949               21,346
                                                                            -----------          -----------
Cash and cash equivalents at end of period                                  $     8,410          $    11,865
                                                                            ===========          ===========
</TABLE>


See accompanying notes to unaudited condensed consolidated financial statements.

                                       5
<PAGE>

SPACEHAB, INCORPORATED AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

1.  Basis of Presentation:

In the opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the consolidated
financial position of SPACEHAB, Incorporated and subsidiaries ("SPACEHAB" or the
"Company") as of December 31, 2000, and the results of their operations and cash
flows for the three and six month periods ended December 31, 2000 and 1999.
However, the consolidated financial statements are unaudited, and do not include
all related footnote disclosures.   Certain amounts presented for prior periods
have been reclassified to conform with the fiscal year 2001 presentation.

The consolidated results of operations for the three and six months ended
December 31, 2000 are not necessarily indicative of the results that may be
expected for the full year. The Company's results of operations have fluctuated
significantly from quarter to quarter (see note 3).  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, 2000.

2.  Earnings per Share:

       The following are reconciliation's of the numerators and denominators of
the basic and diluted earnings per share computations for the three and six
month periods ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>

(in thousands except per share data)

                                              Three months ended                                      Three months ended
                                              December 31,  2000                                       December 31, 1999
                           -----------------------------------------------------     ----------------------------------------------
                               Income            Shares           Per Share             Income            Shares          Per Share
                            (Numerator)       (Denominator)        Amount             (Numerator)      (Denominator)       Amount
                           -------------    ----------------    ----------------     ------------     --------------    -----------
<S>                          <C>               <C>                <C>                  <C>              <C>               <C>
Basic EPS:
 Loss available to
    common stockholders      $  (2,738)        11,374,563       $    (0.24)          $    (1,272)        11,258,801     $    (0.11)
Effect of dilutive
 securities:
  Convertible notes payable          -                  -                -                     -                  -              -
  Options and warrants               -                  -                -                     -                  -              -
                             ---------      -------------       ----------           -----------      -------------     ----------

Diluted EPS:
  Loss available to
     common stockholders     $  (2,738)        11,374,563       $    (0.24)          $    (1,272)        11,258,801     $    (0.11)
                             =========      =============       ==========           ===========      =============     ==========

</TABLE>

                                       6
<PAGE>

<TABLE>
<CAPTION>

                                              Six months ended                                         Six months ended
                                              December 31, 2000                                       December 31, 1999
                           -----------------------------------------------------     -----------------------------------------------
                               Income             Shares          Per Share              Income            Shares         Per Share
                             (Numerator)      (Denominator)         Amount            (Numerator)      (Denominator)        Amount
                           -----------------------------------------------------     -----------------------------------------------
<S>                          <C>               <C>                <C>                  <C>              <C>               <C>
Basic EPS:
  Loss available to
     common stockholders     $ (4,218)        11,359,956         $   (0.37)            $ (3,231)        11,244,380        $ (0.29)
Effect of dilutive
 securities:
  Convertible notes payable         -                  -                 -                    -                  -              -
  Options and warrants              -                  -                 -                    -                  -              -
                             --------        -----------         ---------             --------        -----------        -------

Diluted EPS:
  Loss available to
     common stockholders     $ (4,218)        11,359,956         $   (0.37)            $ (3,231)        11,244,380        $ (0.29)
                             ========        ===========         =========             ========        ===========        =======
</TABLE>


Convertible notes payable outstanding as of December 31, 2000, convertible into
4,642,202 shares of common stock at $13.625 per share and due October 2007, were
not included in the computation of diluted EPS for the three and six months
ended December 31, 2000 and 1999, as the inclusion of the converted notes would
be anti-dilutive for these periods.

Options to purchase 35,000 shares of common stock at $4.125 per share were
outstanding as of the three and six months ended December 31, 2000, but were not
included in the computation of diluted EPS as the inclusion of these options
would be anti-dilutive.  These options expire October 14, 2009.

Options and warrants to purchase 3,526,301 shares of common stock, at prices
ranging from $4.00 to $24.00 per share, were outstanding as of the three and six
months ended December 31, 2000 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 and six months ended December
31, 2000.  The options expire between February 22, 2001 and October 12, 2010.

Options to purchase 837,326 shares of common stock at prices ranging from $4.125
to $5.125 per share were outstanding as of the three and six months ended
December 31, 1999, but were not included in the computation of diluted EPS as
the inclusion of these options would be anti-dilutive.  These options expire
between July 1, 2004 and December 20, 2008.

Options and warrants to purchase 2,522,089 shares of common stock, at prices
ranging from $5.75 to $24.00 per share, were outstanding as of the three and six
months ended December 31, 1999 but were not included in the computation of
diluted EPS because the options' exercise prices were greater than the average
market price of the common shares during the three and six months ended December
31, 1999.  The options expire between August 10, 2000 and July 1, 2008.


3.  Revenue Recognition:

Under the Research and Logistics Mission Support ("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 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. Revenue provided by the
Astrotech Space Operations, Inc. ("Astrotech") payload processing facilities is
recognized ratably over the occupancy period of the satellites at the Astrotech
facilities. Revenue provided by Johnson Engineering Corporation ("JE"), formerly
designated Engineering Services or "ES" for company management reporting, 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

                                       7
<PAGE>

reasonably estimated, or are awarded. Changes in estimated costs to complete and
estimated amounts recognized as award fees are recognized in the period they
become known.

4. Statements of Cash Flows - Supplemental Information:

(a)  Cash paid for interest costs was $3.4 million and $3.6 million for the six
month periods ended December 31, 2000 and 1999, respectively.  The Company
capitalized interest of approximately $2.2 million and $1.7 million during the
six months ended December 31, 2000 and 1999, respectively.

(b)  The Company paid no income taxes during the six month periods ended
December 31, 2000 and 1999.

(c)  During the three months ended December 31, 1999, the Company received a
$0.6 million refund of purchase price paid for the JE acquisition in 1998.  In
accordance with the acquisition agreement, the refund resulted from JE's
failure to attain certain minimum award fee scores on its FCSD contract for the
period from April 1, 1999 to September 30, 1999.  The refund has been recorded
as a reduction of goodwill from the JE acquisition.


5.  Credit Facilities:

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 August 8,
2000, $4.5 million was drawn on the line of credit which was replaced on August
9, 2000.  On August 9, 2000, the Company entered into a $15 million revolving
credit facility with a different financial institution, which provides a working
capital line of credit with a letter of credit sub-limit of $10.0 million (the
"New Credit Facility").  This New Credit Facility replaced the $10 million
Revolving Line of Credit. Certain assets of the Company collateralize the new
credit facility.  The term of the new agreement is through August 2003. As of
December 31, 2000, $8.2 million was drawn on the New Credit Facility and $2.0
million was subsequently repaid.

In July 1997, Astrotech obtained a five-year term loan (the "Term Loan
Agreement"), which is guaranteed by SPACEHAB, and provides for loans of up to
$15.0 million for general corporate purposes. As of December 31, 2000, the
Company had loans payable of $5.9 million.  In December 1998, the Company
amended its agreement with Alenia Spazio S.P.A. ("Alenia") relative to the
subordinated convertible notes payable to shareholder with an outstanding
balance of  $11.9 million.  In consideration for a payment of $4.0 million,
Alenia agreed to reduce the annual interest rate from 12 percent to 10 percent
on the outstanding balance as of January 1, 1999, and the interest payment due
for the quarter ended December 31, 1998, was waived resulting in an effective
interest rate of 8.75 percent.  As of December 31, 2000, the Company had loans
payable of $7.9 million which are due August 1, 2001.  An amended agreement with
the senior debt holders requires that an interest rate of 8.25 percent be
applied to the senior debt with an outstanding balance of $0.3 million as of
December 31, 2000.

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


6. Preferred Stock:

On August 2, 1999, Astrium GmbH ("Astrium"), a shareholder, purchased an
additional $12.0 million equity stake in SPACEHAB representing 1,333,334 shares
of Series B Senior Convertible Preferred Stock.  Under the agreement, Astrium
purchased all of SPACEHAB's 975,000 authorized and unissued shares of preferred
stock.  At the annual stockholders meeting held on October 14, 1999, the
shareholders approved the proposal to increase the number of authorized shares
of preferred stock to 2,500,000, in order to complete the transaction with
Astrium, allowing them to purchase the additional 358,334 preferred shares. The
preferred stock purchase increased Astrium's investment voting interest in
SPACEHAB to approximately 11.5 percent.  The Series B Senior Convertible
Preferred Stock is convertible at the holders' option on the basis of one share
of preferred stock for one share of common stock, entitled to vote on an "as

                                       8
<PAGE>

converted" basis the equivalent number of shares of common stock and has
preference in liquidation, dissolution or winding up of $9.00 per preferred
share.  No dividends are payable on the convertible preferred shares.


7. Asset Sale:

On November 30, 2000, Astrium entered into an agreement with the Company to
purchase the Company's Integrated Cargo Carrier ("ICC") and Vertical Cargo
Carrier ("VCC") assets.  The total purchase price is $15.4 million comprised of
both cash and services payments.  The transaction will occur in two phases.  The
first phase is for the purchase of the ICC assets and the second phase is for
the purchase of the VCC assets. Phase one of the transaction is anticipated to
be completed in the third quarter upon completion of appropriate license
transfers.


8. Segment Information:

Based on its organization, the Company operates in four business segments:
Astrotech, JE, Space Media, Inc. ("SMI") and SPACEHAB, now designated Flight
Services for Company management reporting.  Astrotech, acquired in February
1997, provides payload processing facilities to serve the satellite
manufacturing and launch services industry.  Astrotech currently provides launch
site preparation of flight ready satellites to major U.S. space launch companies
and satellite manufacturers.  JE is primarily engaged in providing engineering
services and products to the Federal Government and NASA, primarily under the
Flight Crew System Development  ("FCSD") Contract.  SMI was established in April
2000, to provide proprietary content from the International Space Station
("ISS") for broadcast and Internet distribution.   Flight Services was founded
to commercially develop space habitat modules to operate in the cargo bay of the
Space Shuttles.  Flight Services provides a turnkey service that includes access
to the modules and provides integration and operations support services for both
NASA and commercial customers.

The Company's chief operating decision maker utilizes both revenue and income
before taxes, including allocated interest based on the investment in the
segment, in assessing performance and making overall operating decisions and
resource allocations.   As such, other income or expense items including taxes
and corporate overhead have not been allocated to the various segments.

<TABLE>
<CAPTION>

(in thousands)
          Three Months Ended December 31, 2000

                                                                         Pre-Tax          Net         Depreciation
                                                                          Income         Fixed             and
                                                      Revenue             (loss)        Assets        Amortization
                                               ------------------------------------------------------------------------
<S>                                                 <C>                 <C>               <C>              <C>
          Flight Services                             $ 9,352          $  (510)         $139,316           $1,399
          SMI                                             118           (1,602)              578                8
          Astrotech                                     1,103             (861)           30,845              234
          Johnson Engineering                          13,402             (899)            2,847              395
                                                      -------          -------          --------           ------
                                                      $23,975          $(3,872)         $173,586           $2,036
                                                      =======          =======          ========           ======

<CAPTION>
          Three Months Ended December 31, 1999
                                                                         Pre-Tax           Net         Depreciation
                                                                         Income           Fixed             and
                                                      Revenue            (loss)          Assets        Amortization
                                               ------------------------------------------------------------------------
<S>                                                 <C>                 <C>               <C>              <C>
          Flight Services                             $10,798          $  (276)         $120,010           $1,393
          SMI                                               -                -                 -                -
          Astrotech                                     1,274           (1,109)           21,616              249
          Johnson Engineering                          13,939             (519)            3,079              381
                                                      -------          -------          --------           ------
                                                      $26,011          $(1,904)         $144,705           $2,023
                                                      =======          =======          ========           ======

</TABLE>

                                       9
<PAGE>

<TABLE>
<CAPTION>

          Six Months Ended December 31, 2000

                                                                        Pre-Tax            Net          Depreciation
                                                                        Income            Fixed             and
                                                      Revenue           (loss)            Assets        Amortization
                                               ------------------------------------------------------------------------
<S>                                                 <C>                 <C>               <C>              <C>
          Flight Services                             $20,533          $(1,472)         $139,316           $2,861
          SMI                                             163           (2,920)              578               16
          Astrotech                                     2,214           (1,882)           30,845              480
          Johnson Engineering                          28,031              150             2,847              828
                                                      -------          -------          --------           ------
                                                      $50,941          $(6,124)         $173,586           $4,185
                                                      =======          =======          ========           ======

<CAPTION>
          Six Months Ended December 31, 1999
                                                                         Pre-Tax             Net         Depreciation
                                                                         Income             Fixed             and
                                                      Revenue            (loss)            Assets        Amortization
                                               ------------------------------------------------------------------------
<S>                                                 <C>                 <C>               <C>              <C>
          Flight Services                             $16,408          $(3,920)         $120,010           $2,728
          SMI                                               -                -                 -                -
          Astrotech                                     4,075             (971)           21,616              498
          Johnson Engineering                          31,506              (29)            3,079              723
                                                      -------          -------          --------           ------
                                                      $51,989          $(4,920)         $144,705           $3,949
                                                      =======          =======          ========           ======
</TABLE>



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

General

   This document may contain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including (without limitation) the "General" and
"Liquidity and Capital Resources" sections of this Item 2.  Such statements are
subject to certain risks and uncertainties, including those discussed herein,
which could cause actual results to differ materially from those projected in
the statements. In addition to those risks and uncertainties discussed herein,
such risks and uncertainties include, but are not limited to, whether the
Company will fully realize the economic benefits under its U.S. National
Aeronautics and Space Administration ("NASA") and other customer contracts, the
successful development and commercialization of the Research Double Module and
related new commercial space assets, deployment of the ISS, technological
difficulties, product demand and market acceptance risks, the effect of economic
conditions, uncertainty in government funding and the impact of competition.

   SPACEHAB was incorporated in 1984 to commercially develop space habitat
modules to operate in the cargo bay of the Space Shuttles.  SPACEHAB, along with
the Astrotech Space Operations, Inc. ("Astrotech"), Johnson Engineering
Corporation ("JE"), formerly designated Engineering Services ("ES") for company
management reporting,  and Space Media, Inc. ("SMI") subsidiaries define the
Company.

     SPACEHAB's Flight Services business segment provides a turnkey service that
includes access to the modules and provides integration and operations support
services to NASA and commercial customers.  Astrotech currently provides launch
site preparation of flight-ready satellites to major U.S. space launch companies
and satellite manufacturers.  JE, formerly designated Engineering Services or
"ES" for Company management reporting, was incorporated in the state of Colorado
in 1973 and is primarily engaged in providing engineering services and products
to the federal government, primarily NASA, under both prime contracts and
subcontracts. JE also provides engineering

                                       10
<PAGE>

fabrication services to commercial customers. These services include designing
and fabrication of space flight hardware, mockups and museum exhibits. On April
11, 2000, the Company announced the formation of Space Media, Inc. ("SMI"), a
majority-owned subsidiary and media corporation, to develop space-themed
commercial business activities. SMI is also managing the Company's S*T*A*R*S tm
(Space Technology and Research Students) global space education program. On June
28, 2000, SMI acquired all of the capital stock of The Space Store. The Space
Store, an online retail operation, is a wholly owned subsidiary of SMI. The
Space Store offers an assortment of space-related products.

  The Company currently operates under two significant contracts with NASA: (1)
the REALMS Contract, currently a $133.6 million firm fixed price contract for
Space Shuttle system and International Space Station ("ISS") research and
logistics services that commenced in December 1997 with a period of performance
through July 2000; and (2) the Flight Crew Systems Development Contract ("FCSD
Contract") currently a $322.4 million multitask cost-plus-award and incentive-
fee contract, that commenced in May 1993 and was scheduled to conclude in April
2001.  NASA has notified the Company that it plans to exercise its option to
extend certain tasks for an additional year through April 2002.

  The original REALMS contract provided for two research missions and two
logistics missions.  In October 1999, NASA executed a modification to the REALMS
contract to provide for an extension of the period of performance through
December 2003 and to facilitate NASA's ability  to add additional research and
logistics missions to the existing contract during this extended time as pre-
priced option missions.  To date, NASA has exercised three option missions
including two ISS logistics missions and one Space Shuttle research mission.

  The REALMS contract also provides SPACEHAB with an opportunity to
significantly increase its revenue through commercial sales of a portion of the
payload capacity on each research or logistics mission. The current commercial
value of this commercial capacity is approximately $38.0 million with an
additional $5.6 million of potential commercial value being marketed to
SPACEHAB's commercial customer base including the European Space Agency ("ESA"),
the National Space Development Agency of Japan ("NASDA") and the Canadian Space
Agency ("CSA").

  The first mission under the REALMS contract, STS-95, which carried Senator
John Glenn back into space, was completed in October 1998.  The second, third
and fourth missions, which were logistics missions to the ISS were flown in May
1999 (STS-96), May 2000 (STS-101) and October 2000 (STS-106).  The remaining
missions currently under the REALMS contract, STS-105 (ICC mission), STS-107
(research module mission) and STS-112 (research module mission) are currently
scheduled to fly in March 2001, August 2001 and April 2002, respectively.

  SPACEHAB also has a $6.6 million contract directly with The Boeing Company,
NASA's prime contractor for ISS development and assembly, for an ISS logistics
mission, STS-102 which is scheduled to fly in March 2001.

     In November 1999, Astrotech received a six-year contract extension from
Lockheed Martin for Atlas V payload processing (with options through 2010) and a
ten-year contract from Boeing for Delta IV payload processing.  The minimum
revenue commitments under these contracts combined is $82 million over 10 years.


Revenue
- -------

     Flight Services generates revenue by: (i) providing lockers and/or volume
within and on the 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 Space Shuttle system.  For the REALMS contract and for
contract awards for which the capability to successfully complete the contract
can be demonstrated at contract inception, revenue recognition is being reported
under the percentage-of-completion method 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.

     Astrotech revenue is derived from various multi-year fixed price contracts
with satellite and launch vehicle manufacturers. The services and facilities
Astrotech provides to its customers support the final assembly, checkout and
countdown functions associated with preparing a satellite for launch.  This
preparation includes: the final assembly and checkout of the satellite,
installation of the solid rocket motors, loading of the liquid propellant,
encapsulation of the satellite in the launch vehicle, transportation to the
launch pad and command and control of the satellite during pre-launch

                                       11
<PAGE>

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 generates revenue from an exclusive multi-
year agreement to process all Sea Launch program payloads at the Sea Launch
facility in Long Beach, California.

     JE generates revenue primarily from its multi-year cost plus award and
incentive-fee contract with NASA. JE's flight crew support services include
operations, training and fabrication of mockups at NASA's Neutral Buoyancy
Laboratory, and at NASA's Space Vehicle Mockup Facility ("SVMF"), where
astronauts train for both Space Shuttle and International Space Station
missions. JE also designs and fabricates flight hardware, provides crew
operations and stowage integration support, human systems engineering support
and is also responsible for configuration management support to the ISS Program
Office.  Revenue provided by JE is recognized to the extent of costs incurred
plus award fee using the percentage of completion method, measured on costs
incurred. Award fees, which provide earnings based on contract performance as
determined by periodic NASA evaluations, are recorded when the amounts can be
reasonably estimated or are awarded.  JE has also began generating new
commercial revenue under both fixed price and time and material contracts.

  Space Media, Inc. generated a nominal amount of revenue for the period ended
December 31, 2000 through its wholly owned subsidiary, The Space Store, an
online retail business, by the sale of space-related products.


Costs of Revenue
- ----------------

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


RESULTS OF OPERATIONS

For the three months ended December 31, 2000 as compared to the three months
ended December 31, 1999.

     Revenue.  Revenue decreased by 8% to approximately $24.0 million as
     -------
compared to $26.0 million for the three months ended December 31, 2000 and 1999,
respectively. For the three months ended December 31, 2000, revenue of $9.4
million was recognized from the REALMS Contract with NASA and with related
commercial customers, $13.4 million from JE under the FCSD Contract, $1.1
million from Astrotech and $0.1 million from SMI operations. In contrast, for
the period ended December 31, 1999, revenue of $10.8 million was recognized from
the REALMS Contract with NASA and with related commercial customers, $13.9
million from JE under the FCSD Contract and $1.3 million from Astrotech. The
decrease in revenue under the REALMS contract is due to the mix of missions
under contract and the slippage of STS-107 which has increased the estimate of
cost to complete the mission.  Revenue at JE decreased due to the deletion of
flight hardware products when the FCSD contract was modified in structure
partially offset by the receipt of their award fee score which was higher than
had been accrued. Astrotech's revenue declined due to a reduction in the number
of satellites processed for launch during the three months ended December 31,
2000 as customer delays moved satellite processing jobs into future quarters.

     Costs of Revenue.  Costs of revenue for the quarter ended December 31, 2000
     ----------------
decreased by 9% to $20.8 million, as compared to $22.8 million for the prior
year's quarter.  For the quarter ended December 31, 2000, integration and
operations costs for the REALMS and related commercial customer contracts were
$6.6 million, $11.7 million for JE, $1.0 million for Astrotech payload
processing, $0.2 million for SMI, and $1.3 million of depreciation expense.  For
the three months ended December 31, 1999, integration and operations costs for
the REALMS and related commercial customer contracts were $7.3 million, $0.9
million for Astrotech payload processing, $13.3 million for JE, and $1.3 million
of depreciation expense.  The decrease in cost of revenue is primarily due to
the deletion of flight hardware products from the FCSD contract at JE and the
mix of missions under contract for the REALMS contract.

     Operating Expenses.  Operating expenses increased 39% to approximately $6.2
     ------------------
million for the three months ended December 31, 2000 as compared to
approximately $4.5 million for the three months ended December 31, 1999.

                                       12
<PAGE>

The increase is primarily due to the inclusion of SMI this fiscal year resulting
in $1.5 million of SG&A expenses and the increase resulting from increased
personnel costs and increased marketing expenses at JE to diversify into
commercial markets. SMI had no operations in the comparable period last year.

     Research and Development ("R&D") expenses decreased for the three months
ended December 31, 2000 as compared to the comparable period in the prior year
due to the Company's emphasis on completing existing assets in progress and
limited new projects.

     Interest Expense, Net of Capitalized Interest.  Interest expense was
     ---------------------------------------------
approximately $0.8 million for the three months ended December 31, 2000 and
approximately $0.7 million for the three months ended December 31, 1999.  There
was also approximately $1.1 million and $0.9 million of interest capitalized for
the three months ended December 31, 2000 and 1999, respectively. Interest is
capitalized based on the construction of the Company's modules and additional
facilities being constructed by Astrotech.

     Interest and Other Income, Net.  Interest and other income was
     ------------------------------
approximately $0.1 million for the three months ended December 31, 1999.  There
was no interest and other income for the three months ended December 31, 2000.
The decrease in interest and other income for the period ended December 31, 2000
is due primarily to the recognition of the loss on the sale of assets to Astrium
of $0.1 million before tax.

     Income Taxes.  Based on the Company's projected taxable earnings for fiscal
     ------------
year 2001, the Company recorded a tax benefit of $1.1 million for the quarter
ended December 31, 2000, as compared to a $0.6 million tax benefit recorded for
the quarter ended December 31, 1999.  The Company's estimates of the
recoverability of its deferred tax assets are based, in part, on projections of
future profitability.  In the event such projections are not accurate, an
additional valuation allowance on deferred tax assets may be necessary, thereby
resulting in reduced income tax benefits.

     Net Loss.  The net loss for the quarter ended December 31, 2000 was
     --------
approximately $2.7 million or $0.24 per share (basic and diluted EPS) on
11,374,563 shares as compared to net loss of  $1.3 million or $0.11 per share
(basic and diluted EPS) on 11,258,801 shares for the quarter ended December 31,
1999.


For the six months ended December 31, 2000 as compared to the six months ended
December 31, 1999.

     Revenue.  Revenue decreased 2% to approximately $50.9 million as compared
     -------
to $52.0 million for the six months ended December 31, 2000 and 1999,
respectively.  Revenue of $20.5 million was recognized from the REALMS Contract
with NASA and with related commercial customers, $28.0 million from JE under the
FCSD Contract, $2.2 million from Astrotech, and $0.2 million for SMI.  In
contrast, for the six months ended December 30, 1999, revenue of  $16.4 million
was recognized from the REALMS contract with NASA and with related commercial
customers, $31.5 million from JE and $4.1 million from Astrotech.  The increase
in revenue under the REALMS contract is due primarily to the addition of the
STS-106 mission which was added to the contract in March of 2000 and flew in
September 2000.  The decrease in revenue at JE is due primarily to the
modification of the FCSD contract whereby flight hardware products were deleted
from the contract partially offset by the receipt of their award fee score which
was higher than had been accrued. Astrotech's revenue declined due to a
reduction in the number of satellites processed for launch during the six months
ended December 31, 2000 as customer delays moved satellite processing jobs into
future quarters.  SMI had no operations in the period ended December 31, 1999.

     Costs of Revenue.  Costs of revenue for the six months ended December 31,
     ----------------
2000 decreased by 7% to $43.4 million, as compared to $46.6 million for the
comparable period last year.  For the six months ended December 31, 2000,
integration and operations costs for the REALMS and related commercial customer
contracts were $13.5 million, $24.9 million for JE, $2.0 million for Astrotech
payload processing, $0.2 million for SMI, and $2.8 million of depreciation
expense.  For the six months ended December 31, 1999, integration and operations
costs for the REALMS and related commercial customer contracts were $12.7
million, $29.2 million for JE, $2.1 million for Astrotech payload processing,
and $2.6 million of depreciation expense.  The decrease in costs of revenue
under the REALMS contract is primarily due to the mix of missions in process.
The decrease at JE is primarily due to the deletion of the flight hardware
products from the FCSD contract.

                                       13
<PAGE>

     Operating Expenses.  Operating expenses increased approximately 41% to
     ------------------
approximately $12.2 million for the six months ended December 31, 2000 as
compared to approximately $8.7 million for the six months ended December 31,
1999.  SG&A expenses for the period ended December 31, 2000 include six months
of SMI expenses of  $2.9 million.  SMI was not operating for the comparable
period last year.  The remainder of the increase was primarily due to increased
personnel costs and increased marketing expenses at JE to diversify into
commercial markets.

     R&D expenses decreased for the period ended December 31, 2000 as compared
to the comparable period last year due to the Company's emphasis on completing
existing assets in progress and limited new projects.

     Interest Expense, Net of Capitalized Interest.  Interest expense was
     ---------------------------------------------
approximately $1.6 million for the six months ended December 31, 2000 and
approximately $1.9 million for the six months ended December 31, 1999.  There
was also approximately $2.2 million and $1.7 million of interest capitalized for
the six months ended December 31, 2000 and 1999, respectively. Interest is
capitalized based on the construction of the Company's modules and additional
facilities being constructed by Astrotech.  Total interest expense increased for
the period ended December 31, 2000 primarily due to the borrowings under the
revolving line of credit.

     Interest and Other Income, Net.  Interest and other income was
     ------------------------------
approximately $0.2 million and $0.3 million for the six months ended December
31, 2000 and 1999, respectively.  The decrease in interest income for the period
ended December 31, 2000 is due to the reduction of cash which was used for
operations and capital expenditures and the recognition of the loss on the sale
of assets to Astrium of $0.1 million before tax.  Interest is earned on the
Company's short-term investments of the proceeds received from the Company's
debt financings and preferred stock purchase by DaimlerChrysler.

     Income Taxes.  Based on the Company's projected taxable earnings for fiscal
     ------------
year 2001, the Company recorded a tax benefit of $1.9 million for the six months
ended December 31, 2000, as compared to $1.7 million tax benefit recorded for
the six months ended December 31, 1999.  The Company's estimates of the
recoverability of its deferred tax assets are based, in part, on projections of
future profitability.  In the event such projections are not accurate, an
additional valuation allowance on deferred tax assets may be necessary, thereby
resulting in reduced income tax benefits.

     Net Loss.  The net loss for the six months ended December 31, 2000 was
     --------
approximately $4.2 million or $0.37 per share (basic and diluted EPS) on
11,359,956 shares as compared to net loss of  $3.2 million or $0.29 per share
(basic and diluted EPS) on 11,244,380 shares for the six months ended December
31, 1999.


LIQUIDITY AND CAPITAL RESOURCES

     During December 1995, SPACEHAB completed an initial public offering of
Common Stock (the "Offering"), which provided the Company with net proceeds of
approximately $43.5 million.

     In June 1997, the Company signed an agreement with a financial institution
securing a $10.0 million revolving line of credit (the "Revolving Line of
Credit") that the Company may use for working capital purposes.  As of August 8,
2000, $4.5 million was drawn on the line of credit, which was replaced on August
9, 2000. On August 9, 2000, the Company entered into a $15 million revolving
credit facility with a different financial institution, which provides a working
capital line of credit with a letter of credit sub-limit of $10.0 million (the
"New Credit Facility").  This New Credit Facility replaced the current $10
million Revolving Line of Credit. Certain assets of the Company collateralize
the New Credit Facility.  The term of the new agreement is through August 2003.
As of December 31, 2000, $8.2 million was drawn on the New Credit Facility and
$2.0 million was subsequently repaid.

     In July 1997, Astrotech obtained a five-year term loan (the "Term Loan
Agreement"), which is guaranteed by SPACEHAB, and provides for loans of up to
$15.0 million for general corporate purposes. As of December 31, 2000, the
Company had loans payable of $5.9 million. On October 21, 1997, the Company
completed a private placement offering of convertible subordinated notes payable
(the "Notes Offering"), which provided the Company with net proceeds of
approximately $59.9 million which has been used, in part, for capital
expenditures associated with the development and construction of space related
assets, the purchase of JE on July 1, 1998, and for general corporate purposes.
In December 1998, the Company amended its agreement with Alenia Spazio S.P.A
("Alenia") relative to the subordinated convertible notes payable to shareholder
with an outstanding balance of  $11.9 million.  In consideration for a payment
of $4.0

                                       14
<PAGE>

million, Alenia agreed to reduce the annual interest rate from 12 percent to 10
percent on the outstanding balance as of January 1, 1999, and the interest
payment due for the quarter ended December 31, 1998, was waived resulting in an
effective interest rate of 8.75 percent. As of December 31, 2000, the Company
had loans payable of $7.9 million. An amended agreement with the senior debt
holders requires that an interest rate of 8.25 percent be applied to the senior
debt with an outstanding balance of $0.3 million as of December 31, 2000.

     On August 2, 1999, Astrium GmbH ("Astrium"), a shareholder, purchased an
additional $12.0 million equity stake in SPACEHAB representing 1,333,334 shares
of Series B Senior Convertible Preferred Stock.  Under the agreement, Astrium
purchased all of SPACEHAB's 975,000 authorized and unissued shares of preferred
stock.  At the annual stockholders meeting held on October 14, 1999, the
shareholders approved the proposal to increase the number of authorized shares
of preferred stock to 2,500,000, in order to complete the transaction with
Astrium, allowing them to purchase the additional 358,334 preferred shares. The
preferred stock purchase increased Astrium's investment voting interest in
SPACEHAB to approximately 11.5 percent.  The Series B Senior Convertible
Preferred Stock is convertible at the holders' option on the basis of one share
of preferred stock for one share of common stock, entitled to vote on an "as
converted" basis the equivalent number of shares of common stock and has
preference in liquidation, dissolution or winding up of $9.00 per preferred
share.  No dividends are payable on the convertible preferred shares.

     On November 30, 2000, Astrium entered into an agreement with the Company to
purchase the Company's Integrated Cargo Carrier ("ICC") and Vertical Cargo
Carrier ("VCC") assets.  The total purchase price is $15.4 million comprised of
both cash and services payments.  The transaction will occur in two phases.  The
first phase is for the purchase of the ICC assets and the second phase is for
the purchase of the VCC assets.  Phase one of the transaction is anticipated to
be completed in the third quarter upon completion of appropriate license
transfers.

     Cash Flows from Operating Activities.  Cash flows provided by (used for)
operating activities for the six months ended December 31, 2000 and December 31,
1999 were $10.1 million and ($6.3) million, respectively.  The significant
changes during the current period were the increase in deferred flight revenue
of $8.7 million due to receipt of advance payments for current missions and the
reduction of accounts receivable of $7.5 million due primarily to the collection
of billings for STS-106 which flew in September 2000.  Accounts payable and
accrued expenses decreased by $3.5 million due to payments made to various
vendors.

     Cash Flows from Investing Activities. For the six months ended December 31,
2000 and 1999, cash flows used for investing activities consisted of
approximately $10.5 million and $13.3 million, respectively. The significant
difference between the two periods was the receipt of $5.0 million from Astrium
for the phase I sale of the ICC assets. $4.1 million was spent during the period
ended December 31, 2000 for the construction of payload processing facilities at
Astrotech relative to the contract extensions with Boeing and Lockheed Martin.
The facility is expected to be complete during the fall of 2001. For the six
months ended December 31, 2000, $10.4 million was spent for the construction of
flight assets, primarily the Research Double Module ("RDM") which is essentially
complete, the EnterpriseTM module, the Spacehab Universal Communications System
("SHUCS") and the ICC ("ICC") assets sold to Astrium.

     Cash Flows from Financing Activities.  Cash flows provided by financing
activities were approximately $1.9 million and $10.2 million for the six months
ended December 31, 2000 and 1999, respectively. The significant change between
the two periods was due to the receipt of $11.9 million, net of expenses, in the
period ended December 31, 1999, from Astium, a shareholder in exchange for
1,333,334 authorized and unissued shares Series B Senior Convertible Preferred
Stock.  During the period ended December 31, 2000, $3.7 million was drawn on the
revolving line of credit and $2.0 million was subsequently repaid.

     As described above, the Company has several on-going asset construction
efforts underway, all of which will require substantial amounts of additional
capital.  The Company's current available cash and cash equivalents, and amounts
available under the New Credit Facility are not adequate to fully meet these
financing requirements through the completion of construction of these assets.
Astrotech is in the process of obtaining financing for the payload processing
facility expansion from a financial institution and anticipates completion of
the financing in the fourth quarter of the year ended June 30, 2001.  The
Company anticipates financing the Enterprise module from working capital and
third party financing during the year ended June 30, 2001.  The Company
anticipates financing SMI from working capital, third party financing and
strategic investors during the year ended June 30, 2001.  However, the Company
has no commitments from any third party financing or strategic investor sources
for the Enterprise module or SMI operations.

                                       15
<PAGE>

     There can be no assurance that the Company will be successful in obtaining
the financings as described above.  In the event that the Company is not
successful in obtaining such financings, the Company would be forced to delay,
suspend or abandon certain of the asset construction plans described above and
may be forced to reduce its operating expenditures.  The Company believes that
the cash flows from operations, borrowings under the New Credit Facility and
spending reductions related to discretionary capital expenditures and other
expenses would be sufficient to enable the Company to meet its cash requirements
for the next twelve months.


Recent Accounting Pronouncements

     In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving stock
Compensation ("FIN 44").  FIN 44 further defines accounting consequences of
various modifications to the terms of a previously fixed stock option or award
under APB Opinion No. 25, Accounting for Stock Issued to Employees.  FIN 44
becomes effective on July 1, 2000, but certain conclusions in FIN 44 cover
specific events that occur after either December 15, 1998 or January 12, 2000.
The Company is currently evaluating the effect of FIN 44 on the Company's
financial results, but the Company does not anticipate any material effects from
implementing FIN 44.


ITEM 3. Quantitative and Qualitative Disclosure about Market Risk.

     SPACEHAB's primary exposure to market risk relates to interest rates.
SPACEHAB's financial instruments which are subject to interest risk principally
include the New Credit Facility, the Term Loan Agreement and fixed rate long
term debt.  SPACEHAB's long-term debt obligations are generally not callable
until maturity.  SPACEHAB does not use interest rate swaps or derivative
financial instruments to manage its exposure to fluctuations in interest rates.


PART II - OTHER INFORMATION

          NONE

ITEM 1.   LEGAL PROCEEDINGS

          NONE

ITEM 2.   CHANGES IN SECURITIES

          NONE

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          NONE

                                       16
<PAGE>

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

        The Annual Meeting of  Shareholders was held on October  12, 2000.  A
quorum of at least one-third of the issued and outstanding common stock and
Series B Senior Convertible Preferred Stock of the Company, voting together, was
present and voting.

        (a)  At the Annual Meeting of Shareholders, candidates for the Board of
             Directors stood for and were duly elected, with each nominee
             receiving a vote of at least 8,423,903 votes:

             The directors elected by the holders of the common stock are:

             Hironori Aihara
             Melvin D. Booth
             Dr. Edward E. David, Jr.
             Richard Fairbanks
             Dr. Shelley A. Harrison
             Gordon S. Macklin
             David A. Rossi
             Yury P. Semenov
             James R. Thompson

             The director elected by the holder of the Series B Senior
             Convertible Preferred Stock is:

             Josef Kind

        The following matter was brought to a vote of the shareholders at
        the meeting:

        (b)  The ratification of the appointment of Ernst & Young LLP as the
             Company's independent auditors for fiscal year 2001.

               For 8,903,109    Against  9,992      Abstain  8,099

ITEM 5.  OTHER INFORMATION

        On December 22, 2000, Michael E. Kearney was named President of
SPACEHAB, following the resignation of David A. Rossi as President and Director
of SPACEHAB. Prior to being named President, Mr. Kearney served as SPACEHAB's
Senior Vice President of Business Development.

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.

               A report on Form 8-K was filed September 13, 2000 announcing the
               dismissal of KPMG LLP as the independent public accountants of
               the Company and the appointment of Ernst & Young LLP as its new
               independent accountants for the fiscal year ended June 30, 2001,
               subject to stockholder ratification. Stockholder ratification was
               obtained at the Annual Meeting of Stockholders on October 12,
               2000.

       Exhibit No.      Description of Exhibits
       -----------      -----------------------

       10.113           Employment and Non-Interference Agreement, dated January
                        1, 2001 between the Company and Michael E. Kearney

       27.              Financial Data Schedule

                                       17
<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: February 14, 2001                     /s/ Julia A. Pulzone
                                            ----------------------------------
                                              Julia A. Pulzone
                                              Senior Vice President, Finance
                                              and Chief Financial Officer


                                            /s/ Michael E. Kearney
                                            ----------------------------------
                                              Michael E. Kearney
                                              President and Chief Operating
                                              Officer

                                       18
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.113
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>EXHIBIT 10.113
<TEXT>

<PAGE>

                                                                  Exhibit 10.113

                   EMPLOYMENT AND NON-INTERFERENCE AGREEMENT
                   -----------------------------------------

          This Employment and Non-Interference Agreement (this "Agreement"), is
                                                                ---------
dated as of January 1, 2001 by and between Michael Kearney (the "Executive") and
                                                                 ---------
Spacehab, Incorporated, a Washington corporation (the "Company").
                                                       -------

          WHEREAS, the Company wishes to retain the future services of Executive
for the Company;

          WHEREAS, Executive is willing, upon the terms and conditions set forth
in this Agreement, to provide services hereunder; and

          WHEREAS, the Company wishes to secure Executive's non-interference,
upon the terms and conditions set forth in this Agreement.

          NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:

          1.  Nature of Employment
              --------------------

          Subject to Sections 3 and 4, the Company hereby employs Executive, and
                     ----------------
Executive agrees to accept such employment, during the Term of Employment (as
defined in Section 3) as President and Chief Operating Officer and to undertake
           ---------
such duties and responsibilities as may be reasonably assigned to Executive from
time to time by the Chief Executive Officer and the Board of Directors of the
Company.

          2.  Extent of Employment
              --------------------
          (a) During the Term of Employment, Executive shall perform his
obligations hereunder faithfully and to the best of his ability under the
direction of the Chief Executive Officer and Board of Directors of the Company
and shall abide by the rules, customs and usages from time to time established
by the Company.

          (b) During the Term of Employment, Executive shall devote all of his
business time, energy and skill as may be reasonably necessary for the
performance of his duties, responsibilities and obligations under this Agreement
(except for vacation periods and reasonable periods of illness or other
incapacity), consistent with past practices and norms with respect to similar
positions.

          (c) Nothing contained herein shall require Executive to follow any
directive or to perform any act which would violate any laws, ordinances,
regulations or rules of any governmental, regulatory or administrative body,
agent or authority, any court or judicial authority, or any public, private or
industry regulatory authority. Executive shall act in accordance with the laws,
ordinances, regulations or rules of any governmental, regulatory or
administrative body, agent or authority, any court or judicial authority, or any
public, private or industry regulatory authority.
<PAGE>

          3.  Term of Employment
              ------------------

          The "Term of Employment" shall commence on January 1, 2001 and shall
               ------------------
continue through December 31, 2003 (the "Initial Term"), subject to automatic
                                         ------------
annual renewal for one-year terms thereafter (the "Additional Term"), unless
                                                   ---------------
either the Company or Executive notifies the other party of its intent not to
renew at least sixty (60) days prior to the end of the Initial Term or
Additional Term as the case may be.  Should Executive's employment by the
Company be earlier terminated pursuant to Section 4, the Term of Employment
                                          ---------
shall end on the date of such earlier termination.

          4.   Termination
               -----------
          (a)  Death. The Executive's employment with the Company will be
               -----
terminated upon the death of Executive.

          (b)  Disability. The Executive's employment with the Company will be
               ----------
terminated in the event that because of physical or mental disability, Executive
is unable to perform and does not perform his duties hereunder, for a continuous
period of 90 days, and an experienced, recognized physician specializing in such
disabilities certifies as to the foregoing in writing (a "Disability").

          (c)  By the Company. The Company may terminate the Executive's
               --------------
employment with the Company:

             (i)  for Cause (as defined in Section 12); or
                                           ----------
            (ii)  for any other reason not referred to in clause (i), or for no
     reason, such that this Agreement shall be construed as terminable at will
     by the Company, subject to the consequences of such termination as set
     forth in this Agreement.

          (d)  By the Executive. The Executive may terminate the Executive's
               ----------------
employment with the Company:

             (i)  on account of Good Reason (as defined in Section 12); or
                                                           -----------
            (ii)  voluntarily or for any reason not referred to in clause (i),
     or for no reason, in each case after 60 days' prior written notice to the
     Company and its Board of Directors.

          (e) Executive acknowledges that no representations or promises have
been made concerning the grounds for termination or the future operation of the
Company's business, and that nothing contained herein or otherwise stated by or
on behalf of the Company modifies or amends the right of the Company to
terminate Executive at any time, with or without Cause. Termination shall become
effective upon the delivery by the Company to Executive of notice specifying
such termination and the reasons therefor, subject to the requirements for
advance notice and an opportunity to cure provided in this Agreement, if and to
the extent applicable.

                                       2
<PAGE>

          (f) Termination of the Term of Employment will not terminate Sections
                                                                       --------
5, and 9 through 23.
- -      -         --

          5.  Compensation of Termination of Employment.
              ------------------------------------------

          (a)  In the event Executive's employment is terminated for reason of
death, Disability, by the Company other than for Cause or by Executive for Good
Reason, the Company will: (A) pay to Executive (or his estate or representative)
the full amounts to which the Executive would be entitled to under Sections 6
                                                                   ----------
(a) and (b) for the period from effectiveness of termination through the sixth
- ---     ---
month anniversary of termination; and (B) provide to Executive (or his estate or
representative) the benefits described in Section 8 through the sixth month
                                          ---------
anniversary of termination.

Notwithstanding the foregoing, the benefits described in Section 8 will be
                                                         ---------
provided to Executive only to the extent the continuation of such benefits is
permitted by the term of any plan and applicable law. Payment of the foregoing
amounts and provision of the benefits will be made in accordance with the
timetable and schedule for such payments contemplated therefor as if such
termination did not occur. If the Company makes the payments required by this
Section 5(a), such payments will constitute severance and liquidated damages,
- ------------
and the Company will not be obligated to pay any further amounts to Executive
under this Agreement or otherwise be liable to Executive in connection with any
termination.

          (b)  In the event Executive's employment is terminated by the Company
for Cause or by Executive other than for Good Reason the Company will not be
obligated to pay any further amounts to Executive under this Agreement.

          (c)  In the event the Term of Employment is terminated and the
Company is obligated to make payments to Executive pursuant to Section 5(a),
                                                               -------------
Executive shall have a duty to seek to obtain alternative employment; and if
Executive thereafter obtains alternative employment, the Company's payment
obligations under Section 5(a), including its obligation to provide
                  ------------
insurance coverage, if any, will be mitigated and reduced by and to the
extent of Executive's compensation under such alternative employment during
the period for which payments are owed by the Company pursuant to Section 5(a).
                                                                  -------------
Moreover, in the event that Executive is employed by or engaged in a Competitive
Business as contemplated by Section 10(a)(i), then the Company
                            ----------------
will thereupon no longer be obligated to make payments under Section 5(a).
                                                             ------------
          (d)  In the event the Term of Employment is terminated and the
Company is obligated to make payments pursuant to Section 5(a), Executive
                                                  ------------
hereby waives any and all claims against the Company and its respective
officers, directors, employees, agents, or representatives, stockholders and
affiliates relating to his employment during the term hereof and this Agreement
and Executive hereby agrees to enter into a waiver and release of claims in a
form acceptable to the Company.

          6.  Compensation
              ------------
          During the Term of Employment, the Company shall pay to Executive:

                                       3
<PAGE>

          (a)  As base compensation for his services hereunder, in semi-monthly
installments, a base salary at a rate of not less than $250,000 per annum. Such
amounts may be increased (but not decreased) annually at the discretion of the
Board of Directors or its Compensation Committee based upon an annual review by
the Board of Directors or its Compensation Committee of Executive's performance.

          (b)  An annual incentive bonus, if any, based on Executive's and/or
Company's performance as determined and approved by the Board of Directors or
its Compensation Committee.

          (c)  An annual stock option grant, if any, based on Executive's,
Company's and/or Company Stock performance as determined and approved by the
Board of Directors or its Compensation Committee.

          7.  Reimbursement of Expenses
              -------------------------

          During the Term of Employment, the Company shall pay all expenses,
including without limitation, transportation, lodging and food for Executive to
attend conventions, conferences and meetings that the Company determines are
necessary or in the best interest of the Company, and for any ordinary and
reasonable expenses incurred by Executive in the conduct of the Business of the
Company.  Travel outside the United States shall be subject to the prior
approval of the Chairman and Chief Executive Officer of the Company.

          8.  Benefits
              --------

          During the Term of Employment, Executive shall be entitled to benefits
(including health, disability, pension and life insurance benefits consistent
with Company policy, or as increased from time to time), in each case, in
accordance with guidelines or established from time to time, by the Board of
Directors for senior executives of the Company.

          9.  Confidential Information
              ------------------------

          (a) Executive acknowledges that his employment hereunder gives him
access to Confidential Information relating to the Companies and the Business
and its customers which must remain confidential. Executive acknowledges that
this information is valuable, special, and unique asset of the Companies and/or
Business, and that it has been and will be developed by the Companies at
considerable effort and expense, and if it were to be known and used by others
engaged in a Competitive Business, it would be harmful and detrimental to the
interests of the Companies. In consideration of the foregoing, Executive hereby
agrees and covenants that, during and after the Term of Employment, Executive
will not, directly or indirectly in one or a series of transactions, disclose to
any person, or use or otherwise exploit for Executive's own benefit or for the
benefit of anyone other than the Companies, Confidential Information (as defined
in Section 12), whether prepared by Executive or not; provided, however, that
   ----------                                         --------  -------
any Confidential Information may be disclosed to officers, representatives,
employees and agents of the Companies who need to know such Confidential
Information in order to

                                       4
<PAGE>

perform the services or conduct the operations required or expected of them
in the Business (as defined in Section 12). Executive shall use his best
                               ----------
efforts to prevent the removal of any Confidential Information from the premises
of the Companies, except as required in the normal course of his employment by
the Company. Executive shall use his best efforts to cause all persons or
entities to whom any Confidential Information shall be disclosed by him
hereunder to observe the terms and conditions set forth herein as though each
such person or entity was bound hereby. Executive shall have no obligation
hereunder to keep confidential any Confidential Information if and to the extent
disclosure thereof is specifically required by law; provided, however, that in
                                                    --------  -------
the event disclosure is required by applicable law, Executive shall provide the
Company with prompt notice of such requirement, prior to making any disclosure,
so that the Company may seek an appropriate protective order. At the request of
the Company, Executive agrees to deliver to the Company, at any time during the
Term of Employment, or thereafter, all Confidential Information which he may
possess or control. Executive agrees that all Confidential Information of the
Companies (whether now or hereafter existing) conceived, discovered or made by
him during the Term of Employment exclusively belongs to the Companies (and not
to Executive). Executive will promptly disclose such Confidential Information to
the Company and perform all actions reasonably requested by the Company to
establish and confirm such exclusive ownership.

          (b)  In the event that Executive breaches his obligations in any
material respect under this Section 9, the Company, in addition to pursuing all
                            ---------
available remedies under this Agreement, at law or otherwise, and without
limiting its right to pursue the same shall cease all payments to Executive
under this Agreement.

          (c)  The terms of this Section 9 shall survive the termination of
                                 ---------
this Agreement regardless of who terminates this Agreement, or the reasons
therefor.

          10.  Non-Interference
               ----------------

          (a) Executive acknowledges that the services to be provided give him
the opportunity to have special knowledge of the Companies and the Confidential
Information and the capabilities of individuals employed by or affiliated with
the Companies, and that interference in these relationships would cause
irreparable injury to the Companies. In consideration of this Agreement,
Executive covenants and agrees that:

             (i) During the Restricted Period (which shall not include any
     period of violation of this Agreement by the Executive), Executive will
     not, without the express written approval of the Board of Directors of the
     Company, anywhere in the Market, directly or indirectly, in one or a series
     of transactions, own, manage, operate, control, invest or acquire an
     interest in, or otherwise engage or participate in, whether as a
     proprietor, partner, stockholder, lender, director, officer, employee,
     joint venturer, investor, lessor, supplier, customer, agent, representative
     or other participant, in any Competitive Business without regard to (A)
     whether the Competitive Business has its office, manufacturing or other
     business facilities within or without the Market, (B) whether any of the
     activities of Executive referred

                                       5
<PAGE>

     to above occur or are performed within or without the Market or (C) whether
     Executive resides, or reports to an office, within or without the Market;
     provided, however, that (x) Executive may, anywhere in the Market, directly
     --------  -------
     or indirectly, in one or a series of transactions, own, invest or acquire
     an interest in up to five percent (5%) of the capital stock of a
     corporation whose capital stock is traded publicly, or that (y) Executive
     may accept employment with a successor company to the Company.

             (ii) During the Restricted Period (which shall not include any
     period of violation of this Agreement by Executive), Executive will not
     without the express prior written approval of the Board of Directors of the
     Company (A) directly or indirectly, in one or a series of transactions,
     recruit, solicit or otherwise induce or influence any proprietor, partner,
     stockholder, lender, director, officer, employee, sales agent, joint
     venturer, investor, lessor, supplier, customer, agent, representative or
     any other person which has a business relationship with the Company or had
     a business relationship with the Company within the twenty-four month
     period preceding the date of the incident in question, to discontinue,
     reduce or modify such employment, agency or business relationship with the
     Companies, or (B) employ or seek to employ or cause any Competitive
     Business to employ or seek to employ any person or agent who is then (or
     was at any time within six months prior to the date Executive or the
     Competitive Business employs or seeks to employ such person) employed or
     retained by the Companies. Notwithstanding the foregoing, nothing herein
     shall prevent Executive from providing a letter of recommendation to an
     employee with respect to a future employment opportunity.

             (iii)  The scope and term of this Section 10 are reasonable and
                                               ----------
     valid in geographical and temporal scope and in all other respects, are
     necessary in order to secure for the Company the benefits for which it has
     contracted hereunder and would not preclude the Executive from earning a
     living with an entity that is not a Competitive Business.

          (b)  The terms of this Section 10 shall survive termination of this
                                 ----------
Agreement regardless of who terminates this Agreement, or the reasons therefor.

          11.  Inventions
               ----------
          (a) Each invention, improvement or discovery made or conceived by
Executive, either individually or with others, during the term of his employment
with the Company, which invention, improvement or discovery is related to any of
the lines of business or work of the Companies, any projected or potential
activities which the Companies have investigated or hereinafter investigates, or
which result from or are suggested by any service performed by Executive for the
Company, whether patentable or not (the "Works"), is in each case a "work made
for hire", as that phrase is defined in the Copyright Revision Act of 1976, as
amended, and under the applicable laws of all non-

                                       6
<PAGE>

U.S. jurisdictions. The Company shall therefore be deemed to be the sole and
original author and owner of any and all right, title and interest in the Works.
To the extent that any such Works do not qualify for any reason as works made
for hire in any jurisdictions, the Executive hereby assigns to the Company any
and all rights, title and interests in such Works, as well as any applicable
patent or registration rights with respect thereto. Each of the Works shall at
all times be promptly and fully disclosed by the Executive to the Company.
Executive shall, during the term of his employment with the Company and
thereafter without charge to the Company, but at the request and expense of the
Company, assist the Company in obtaining or vesting in itself patents upon such
improvements and inventions. All such inventions, improvements or discoveries
shall at all times become and remain the exclusive property of the Company.
Executive represents that he does not claim ownership of any inventions,
improvements, formulae or discoveries which are excluded from this Agreement.

          (b) In the event that Executive breaches his obligations in any
material respect under Sections 9, 10 or this Section 11, notwithstanding
                       ----------  --         ----------
anything in this Agreement to the contrary, the Company, in addition to pursuing
all available remedies under this Agreement, at law or otherwise, and without
limiting its right to pursue the same shall cease all payments to Executive
under this Agreement.

          12.  Definitions
               -----------

          "Business" means (a) the creation, design, development and
           --------
commercialization of content related to the International Space Station, any
other aspect of programs operated or proposed to be operated by, or in
cooperation with, the National Aeronautic and Space Administration of United
States of America, or any similar program or activity, (b) those businesses and
activities as are described in the Annual Report on Form 10-K or Current Report
on Form 10-Q for SPACEHAB, Incorporated for the fiscal year, or (c) any similar,
incidental or related activity conducted or pursued by, or engaged in, or
proposed to be conducted or pursued by or engaged in, by the Companies prior to
the date hereof or at any time during the Term of Employment.

     "Cause" means the occurrence of any of the following:
      -----

     (i)  Executive's conviction of any crime or criminal offense involving the
unlawful theft or conversion of substantial monies or other property or any
other felony (other than a criminal offense arising solely under a statutory
provision imposing criminal liability on the Executive on a per se basis due to
                                                            --- --
the offices held by the Executive);

     (ii) Executive's conviction of fraud or embezzlement;

    (iii) Executive's breach of any of his fiduciary duties to the Company
or its stockholders or making of a willful misrepresentation or omission which
breach, misrepresentation or omission could reasonably be expected to materially
adversely affect the business, properties, assets, condition (financial or
other) or prospects of the Company;

                                       7
<PAGE>

     (iv) Executive's willful, continual and material neglect or failure to
discharge the duties, responsibilities or obligations prescribed by Sections 1
                                                                    ----------
and 2 (other than arising solely due to physical or mental disability);
    -

     (v) Executive's habitual drunkenness or substance abuse which materially
interferes with Executive's ability to discharge the duties, responsibilities or
obligations prescribed by Sections 1 and 2;
                          ----------     -

     (vi) Executive's willful, continual or material breach of any
noncompetition or confidentiality agreement with the Company, including without
limitation, Sections 9 and 10 of this Agreement;
            ----------     --

     (vii) Executive's gross neglect of his duties and responsibilities, as
determined by the Company's Board of Directors; and

     (viii) the continuous poor or unacceptable performance of Executive's
duties to the Company, as determined in the sole judgment of the Board of
Directors of the Company.

     For purposes of this Agreement, in no event shall "Cause" be deemed to have
occurred unless and until Executive receives written notice from the Company
notifying the Executive of the termination of employment for Cause.

     "Companies" means the Company and any of its direct or indirect
      ---------
Subsidiaries or any entity of which the Company is a Subsidiary, whether now or
hereafter existing.

     "Company" means the entity defined in the first paragraph of this
      -------
Agreement or any successor thereto.

     "Competitive Business" means any business which competes, directly or
      --------------------
indirectly, with the Business in the Market.

     "Confidential Information" means any trade secret, confidential study,
      ------------------------
data, calculation, software storage media or other compilation of information,
patent, patent application, copyright, trademark, trade name, service mark,
service name, application for the protection of any name or mark, "know-how",
technical information, customer list, detail of a client or consultant contract,
price information, pricing policy, sales technique, confidential information
relating to suppliers, information relating to the special and particular needs
of the Companies' customers operational methods, marketing plan or strategy,
financial information, cost-related information, supplier information, vendor
information, product information or formula, product development technique or
plan, other technique, system, invention, model, concept, current or future or
contemplated project, business or marketing plan, strategy or opportunity,
business acquisition plan or any portion or phase of any scientific or technical
information, specification, technique, idea, discovery, design, computer program
(including source or object code), process, procedure, research or technical
data, improvement or other proprietary or intellectual property of the
Companies, whether or not in written or

                                       8
<PAGE>

tangible form, and whether or not registered, and including all files, records,
manuals, books, catalogues, memoranda, notes, summaries, plans, drawings,
reports, records, documents and other evidence thereof. The term "Confidential
                                                                  ------------
Information" does not include, and there shall be no obligation hereunder with
- -----------
respect to, information that is or becomes generally available to the public
other than as a result of a disclosure by Executive not permissible hereunder.

     "Executive" means the individual identified in the first paragraph of
      ---------
this Agreement, or his estate, if deceased.

     "Good Reason" shall mean the occurrence of any of the following:
      -----------

          (i)  the Company's material reduction in Executive's authority,
perquisites, position, title or responsibilities (other than such a reduction by
the Company because of a temporary illness or disability or such a reduction
which affects all of the Company's senior executives on a substantially equal or
proportionate basis as a result of financial results, conditions, prospects,
reorganization, workout or distressed condition of the Company), or

          (ii) the Company's willful, material violation of its obligations
under this Agreement.

          For purposes of this Agreement, in no event shall "Good Reason" be
deemed to have occurred unless and until 30 days' prior written notice is given
by Executive to the Company and its Board of Directors identifying in reasonable
detail the acts or omissions constituting such "Good Reason" and the Company's
failure thereafter to cure such acts or omissions within such 30 day period.

          "Market" means any state in the United States of America and each
           ------
similar jurisdiction in any other country in which the Business was conducted,
pursued or engaged in by the Companies prior to the date hereof or is conducted,
pursued or engaged in, or is proposed to be conducted, pursued or engaged in by
the Companies at any time during the Term of Employment.

          "Prior Employment Agreement" is defined in Section 14(a).
           --------------------------                -------------

          "Restricted Period" means the period commencing on the date of this
           -----------------
Agreement and continuing through the sixth month anniversary of the termination
of the Term of Employment.

          "Subsidiary" means any corporation, limited liability company, joint
           ----------
venture, limited and general partnership, joint stock company, association or
any other type of business entity of which the Company owns, directly or
indirectly through one or more intermediaries, more than fifty percent (50%) of
the voting securities at the time of determination.

          "Term of Employment" is defined in Section 3.
           ------------------                ---------

                                       9
<PAGE>

          13.  Notice
               ------

          Any notice, request, demand or other communication required or
permitted to be given under this Agreement shall be given in writing and if
delivered personally, or sent by certified or registered mail, return receipt
requested, as follows (or to such other addressee or address as shall be set
forth in a notice given in the same manner):

          If to Executive:


          If to Company:  Spacehab, Incorporated
                          300 D Street, S.W.
                          Washington, D.C.  20024

Any such notices shall be deemed to be given on the date personally delivered or
such return receipt is issued.

          14.  Previous Agreements; Executive's Representation
               -----------------------------------------------
          (a)  Attached hereto as Annex A are all previous employment or
                                  -------
severance agreements, if any, by and between Executive and the Company
(collectively, the "Prior Employment Agreements"). Executive and the
                    ---------------------------
Company hereby cancel, void and render without force and effect all Prior
Employment Agreements, and the Executive releases and discharges the Company
from any further obligations or liabilities thereunder. Notwithstanding the
foregoing, the terms and provisions in any Prior Employment Agreement relating
to any grants of stock options or other derivative securities for the purchase
of the Company's common stock (no par value per share) shall remain in full
force and effect and shall not be amended in any manner as a result of the
execution of this Agreement.

          (b) Executive hereby warrants and represents to the Company that
Executive has carefully reviewed this Agreement and has consulted with such
advisors as Executive considers appropriate in connection with this Agreement,
is not subject to any covenants, agreements or restrictions, including without
limitation any covenants, agreements or restrictions arising out of Executive's
prior employment, which would be breached or violated by Executive's execution
of this Agreement or by Executive's performance of his duties hereunder.

          15.  Other Matters
               -------------

          Executive agrees and acknowledges that the obligations owed to
Executive under this Agreement are solely the obligations of the Company, and
that none of the Companies' stockholders, directors, officers, affiliates,
representatives, agents or lenders will have any obligations or liabilities in
respect of this Agreement and the subject matter hereof.

                                       10
<PAGE>

          16.  Validity
               --------
          If, for any reason, any provision hereof shall be determined to be
invalid or unenforceable, the validity and effect of the other provisions hereof
shall not be affected thereby.

          17.  Severability
               ------------

          Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.  If any
court determines that any provision of Section 10 or any other provision hereof
                                       ----------
is unenforceable because of the scope or duration of such provision, the scope
or duration of such provision shall be reduced to the extent necessary to be
enforceable in the applicable jurisdiction.

          18.  Waiver of Breach; Specific Performance
               --------------------------------------

          The waiver by the Company or Executive of a breach of any provision of
this Agreement by the other party shall not operate or be construed as a waiver
of any other breach of such other party.  Each of the parties (and third party
beneficiaries) to this Agreement will be entitled to enforce its rights under
this breach of any provision of this Agreement and to exercise all other rights
existing in its favor.  The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of

Sections 9, 10 and 11 of this Agreement and that any party (and third party
- --------------     --
beneficiaries) may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief,
including temporary restraining orders, preliminary injunctions and permanent
injunctions in order to enforce or prevent any violations of the provisions of
this Agreement.  In the event either party takes legal action to enforce any of
the terms or provisions of this Agreement against the other party, the party
against whom judgment is rendered in such action shall pay the prevailing
party's costs and expenses, including but not limited to, attorneys' fees,
incurred in such action.

          19.  Assignment; Third Parties
               -------------------------

          Neither Executive nor the Company may assign, transfer, pledge,
hypothecate, encumber or otherwise dispose of this Agreement or any of his or
its respective rights or obligations hereunder, without the prior written
consent of the other. The parties agree and acknowledge that each of the
Companies and the stockholders and investors therein are intended to be third
party beneficiaries of, and have rights and interests in respect of, Executive's
covenants set forth in Sections 9, 10 and 11.
                       --------------     --

                                       11
<PAGE>

          20.  Amendment; Entire Agreement
               ---------------------------

          This Agreement may not be changed orally but only by an agreement in
writing agreed to by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.  This Agreement embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter of this Agreement, and supersedes and replaces all prior
Agreements, understandings and commitments with respect to such subject matter.

          21.  Litigation
               ----------

          This Agreement shall be governed by, construed, applied and enforced
in accordance with the laws of the District of Columbia, except that no doctrine
of choice of law shall be used to apply any law other than that of the District
of Columbia, and no defense, counterclaim or right of set-off given or allowed
by the laws of any other state or jurisdiction, or arising out of the enactment,
modification or repeal of any law, regulation, ordinance or decree of any
foreign jurisdiction, be interposed in any action hereon.  Subject to Section
                                                                      -------
22, Executive and the Company agree that any action or proceeding to enforce or
- --
arising out of this agreement may be commenced in the courts of the Washington,
D.C. or the United States District Courts in the District of Columbia.
Executive and the Company consent to such jurisdiction, agree that venue will be
proper in such courts and waive any objections based upon forum non conveniens.
                                                          --------------------
The choice of forum set forth in this Section 21 shall not be deemed to preclude
                                      ----------
the enforcement of any judgment obtained in such forum or the taking of any
action under this agreement to enforce same in any other jurisdiction.

          22.  Arbitration
               -----------

          Executive and the Company agree that any dispute between or among the
parties to this Agreement relating to or in respect of this Agreement, its
negotiation, execution, performance, subject matter, or any course of conduct or
dealing or actions under or in respect of this Agreement, shall be submitted to,
and resolved exclusively pursuant to arbitration in accordance with the
commercial arbitration rules of the American Arbitration Association.  Such
arbitration shall take place in Washington, D.C., and shall be subject to the
substantive law of the District of Columbia.  Decisions pursuant to such
arbitration shall be final, conclusive and binding on the parties.  Upon the
conclusion of arbitration, Executive or the Company may apply to any court of
the type described in Section 21 to enforce the decision pursuant to such
                      ----------
arbitration.  In connection with the foregoing, the parties hereby waive any
rights to a jury trial to resolve any disputes or claims relating to this
Agreement or its subject matter.

                                       12
<PAGE>

          23.  Further Action
               --------------
          Executive and the Company agree to perform any further acts and to
execute and deliver any documents which may be reasonable to carry out the
provisions hereof.

          24.  Counterparts
               ------------
          This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.




             [The remainder of this page intentionally left blank.]

                                       13
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first written above.


                              EXECUTIVE:


                              /s/  Michael Kearney
                              ------------------------------------------
                              Michael Kearney



                              SPACEHAB, INCORPORATED


                              /s/   Shelley A. Harrison, Ph.D.
                              ------------------------------------------
                              Shelley A. Harrison, Ph.D.
                              Chairman and Chief Executive Officer

                                       14
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>EXHIBIT  27
<TEXT>

<TABLE> <S> <C>

<PAGE>
<ARTICLE>               5
<MULTIPLIER>                               1,000

<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          JUN-30-2000
<PERIOD-START>                             JUL-01-2000
<PERIOD-END>                               DEC-31-2000
<CASH>                                           8,410
<SECURITIES>                                         0
<RECEIVABLES>                                   18,331
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                                28,509
<PP&E>                                         173,586
<DEPRECIATION>                                  60,023
<TOTAL-ASSETS>                                 233,881
<CURRENT-LIABILITIES>                           61,637
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                     11,892
<COMMON>                                        82,303
<OTHER-SE>                                          16
<TOTAL-LIABILITY-AND-EQUITY>                   233,881
<SALES>                                         50,941
<TOTAL-REVENUES>                                50,941
<CGS>                                           43,360
<TOTAL-COSTS>                                   43,360
<OTHER-EXPENSES>                                12,249
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                               1,619
<INCOME-PRETAX>                                 (6,124)
<INCOME-TAX>                                    (1,906)
<INCOME-CONTINUING>                             (4,218)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    (4,218)
<EPS-BASIC>                                      (0.37)
<EPS-DILUTED>                                    (0.37)


</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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