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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended June 30, 2004

For the transition period from              to             

Commission File No. 0-27206

SPACEHAB, Incorporated

(Exact name of registrant as specified in this charter)

12130 Highway 3, Building 1

Webster, Texas 77598-1504

(713) 558-5000

Securities Registered pursuant to Section 12(b) of the Act: None

Securities Registered pursuant to Section 12(g) of the Act:

Number of shares of Common Stock (no par value) outstanding as of January 5, 2004, 12,435,827. Aggregate market value of Common Stock (no par value) held by non-affiliates of the registrant on January 5, 2004, based upon the closing price of the Common Stock on the NASDAQ National Market of $1.92 was approximately $23,876,788.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     YES  x    NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act).     YES  ¨    NO  x

DOCUMENTS INCORPORATED BY REFERENCE:

PART I

DEFINITIONS

As used in this Form 10-K, the abbreviations and acronyms contained herein have the meanings set forth below. Additionally, the terms “SPACEHAB”, “the Company”, “we”, “us” and “our” refer to SPACEHAB, Incorporated and its subsidiaries, unless the context clearly indicates otherwise.

Item 1. Business.

THE COMPANY

Incorporated in 1984, SPACEHAB was the first company to commercially develop, own and operate pressurized space habitat modules. Serving the international community, SPACEHAB has experience supporting both manned and unmanned missions to space. We offer:

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Through our SPACEHAB Flight Services (“SFS”) business unit, our habitat modules and unpressurized cargo carriers provide space-based research facilities and cargo services for use aboard the U.S. space shuttle system. A SPACEHAB single module, when installed in the payload bay of a space shuttle, more than doubles the space available to astronauts for research, habitation, and storage. We offer our modules in single and double configurations, outfitted for research, logistics, or a combination of research and logistics depending on customer needs. We also offer an unpressurized cargo carrier system, the Integrated Cargo Carrier (“ICC”), which is used to ferry equipment, supplies, and tools to the International Space Station (“ISS”).

The Company sells research and logistics services to NASA and commercial customers who want to use the modules and carriers in space. In addition to our flight assets, we offer a full range of ground-based pre- and post-flight experiment and payload processing services and in-flight operations support. As of June 30, 2004, SPACEHAB modules and ICCs have flown on 18 missions on the space shuttle, including 12 logistics missions (five to the ISS and seven to the Russian space station Mir).

On February 12, 1997, SPACEHAB acquired the operating assets and business of Astrotech Space Operations, Inc. (“Astrotech” or “ASO”) from Northrop Grumman Corporation. Offering customers an alternative to using government-owned facilities, our ASO subsidiary serves payload customers launching on a wide range of expendable launch vehicles including Atlas, Delta, Pegasus, Sea Launch, and Taurus, as well as secondary payloads flown on the space shuttle. Astrotech is a commercial provider of satellite processing services in the United States, supplying the facilities and services used in the launch preparation of these spacecraft. In fiscal year 2002, Astrotech completed construction of a state-of-the-art processing facility in Titusville, Florida to process larger five-meter class satellites and payload fairings for the Evolved Expendable Launch Vehicle (“EELV”) programs. With more than 200 satellites processed, ASO diversifies SPACEHAB’s customer base and broadens our core competencies.

We further expanded our capability to support human space flight activities by acquiring Johnson Engineering Corporation (“JE”) on July 1, 1998. In March 2003 we changed the business unit’s name to SPACEHAB Government Services (“SGS”). SGS includes specialized engineering support services for the U.S. Government and various commercial industries. As a NASA contractor for over 30 years, this unit offers a wide array of products and services in the engineering, program integration and control, and product development disciplines. Specifically, SGS manages projects in need of comprehensive engineering solutions and provides unique capabilities such as specialty engineering, hardware design and development, and configuration and data management.

On April 11, 2000, SPACEHAB announced the formation of Space Media, Inc. (“SMI”), a majority-owned subsidiary intended to create proprietary space-themed content for education and commerce. SMI provides the space enthusiast with a variety of services. These services range from outfitting a comprehensive space exhibit to providing astronaut appearances and product endorsements. In 2001, we acquired an online retailing outlet, TheSpaceStore.com. This website and retail store, adjacent to NASA’s Johnson Space Center in Houston, offers more than 500 products, providing distinctive and personalized gifts, clothing, mission patches, and more. Through the STARS Program, SMI also provides educational and outreach services to schools around the globe.

The current business of the Company is in three areas: (1) SFS services required to support the space shuttle’s return-to-flight, assembly and utilization of the ISS, and evolution of NASA’s exploration initiation; (2) Expansion of the ASO revenue base through new markets and new services, and (3) SGS support for the ISS Program Office under cost-type government contracts. We are continuing to identify new business and business opportunities within our core competencies.

Documents and Information Available on Website

The Internet address of the Company’s website is www.spacehab.com. We make available, free of charge through our website, all of our filings with the Securities and Exchange Commission (“SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC.

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On the Corporate Governance page of the Investor Info section of our company website, the documents listed below are also available or can be mailed in printed format to any stockholder upon request to the Vice President – Investor Relations, SPACEHAB, Inc. 12130 Highway 3, Building 1, Webster, Texas 77598.

SPACEHAB will make prompt disclosure of any amendment to or waiver of any provision of its business ethics guidelines that applies to any director or executive officer or to its chief executive officer, chief financial officer, chief accounting officer or controller, or persons performing similar functions. We will make any such disclosure that may be necessary by posting the disclosure on our website on the Corporate Governance page.

BUSINESS AND PROPERTY

SPACEHAB’s business segments provide a range of products and services to the aerospace market. Our four business units; SPACEHAB Flight Services, SPACEHAB Government Services, Astrotech Space Operations, and Space Media, provide a wide range of product and service support to the aerospace industry including research and logistics expertise and hardware; engineering and analysis services; payload processing and delivery; and space education and retail goods.

SPACEHAB Flight Services

NASA and other users of the space shuttle and ISS must follow a complex set of procedures to prepare payloads for launch, operate them in space, and process them upon return. The SFS Carrier Development and Operations Group offer these users turn-key, fixed-price payload services using Company-controlled assets. These services include payload scheduling, mission planning, safety analysis and certification, physical integration with a carrier (such as a SPACEHAB module or ICC), integration of carriers with the space shuttle, flight operations, data gathering and synthesis, and launch and landing site activities.

SFS is responsible for sustaining engineering, physical integration, and operation of the Company’s modules, ICCs, and supporting equipment, all which are housed at our SPACEHAB Payload Processing Facility in Cape Canaveral, Florida. A single module is an aluminum cylinder, measuring 10 feet in length by 13.5 feet in diameter, which incorporates a patented design that includes a truncated top and flat end caps. These fully-instrumented modules provide resources such as power, data management, thermal control, and vacuum venting. Single modules, which have a payload capacity of 5,400 pounds, are employed primarily for research and logistics missions. When doubled, the capacity increases to 10,000 pounds and optimizes the resupply capability for NASA by carrying vital supplies to cosmonauts and astronauts aboard the ISS.

In fiscal year 1997, the Company began full-scale development of the Research Double Module (“RDM”) (payload capacity 9,000 lb.), outfitted to serve as a microgravity laboratory. The RDM was completed in fiscal year 2001 and made its first flight on NASA shuttle mission STS-107. The RDM was destroyed in the STS-107 Columbia accident. The Company has no plans to replace the RDM at this time.

SPACEHAB developed the ICC system of unpressurized payload carriers to transport cargo that does not require a pressurized environment. Cargo suitable for transport on the ICC includes ISS assembly components and spares, astronaut tools, and unpressurized experiments. Based on a patented pallet technology, the ICC flies in what is ordinarily unused volume in the front or rear of the space shuttle’s cargo bay. It can be used alone or in combination with SPACEHAB single or double modules to provide the optimum mix of pressurized and unpressurized cargo capacity on a single mission to the ISS. By expanding the capabilities of the space shuttle and offering flexibility in the mix of pressurized and unpressurized cargo carried on each mission, the ICC is a cost-effective option for ISS logistics.

SPACEHAB completed construction of its fleet of three ICCs in fiscal year 1999. Our ICCs initially flew on NASA’s first supply mission to the ISS, space shuttle flight STS-96 in May 1999, and have flown on four subsequent missions with more flights scheduled on the NASA manifest. In fiscal year 2001, we sold our ICCs to EADS Space Transportation and entered into an agreement with them to lease back these assets for a period of four

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years with two additional four-year options. To meet particular NASA requirements for unpressurized cargo transport, SPACEHAB developed a Vertical Cargo Carrier (“VCC”), designed and built for us by RSC Energia. In fiscal year 2002, we completed construction of the VCC and also sold this asset to EADS for inclusion in the lease back arrangements cited above. The ICC system, including the VCC and other derivatives, is a highly-capable, flexible, and adaptable payload transport option.

The Space Shuttle Program is currently implementing modifications recommended in the Columbia Accident Investigation Board report issued after the Columbia accident and is scheduled for a return to flight no earlier than March 2005. Pending the return to flight, the SFS business unit is continuing operations, supporting four of the next six planned space shuttle missions. In April 2004, we successfully completed the transition of the Company’s module systems integration and operations from our subcontractor The Boeing Company (“Boeing”) to an in-house capability. Our personnel now perform mission integration, hardware development, and sustaining engineering required to support the flight of our modules. EADS provides ICC mission integration services under subcontract to SPACEHAB. Additionally, during the space shuttle stand-down period, SFS is providing cargo shipment coordination services to NASA for all U.S. cargo shipped to the ISS via the Russian Progress space vehicle. All module and ICC mission integration services as well as all cargo shipping services are currently provided to NASA under contract to Lockheed Martin Corporation (“Lockheed Martin”) who leads NASA’s Cargo Mission Contract (“CMC”) efforts.

We are also providing research access to space and on the ISS to the Japan Aerospace Exploration Agency (“JAXA”) through RSC Energia, the major Russian aerospace enterprise. SPACEHAB contracted through V.J.F. Russian Consulting with RSC Energia for construction of certain space research equipment, launch vehicle, and research space aboard the Russian Progress carrier when the originally-scheduled services on the space shuttle were suspended due to the Columbia tragedy.

Subsequent to year end, the SFS Space Commerce Development group was awarded a six-month NASA study contract valued at approximately $1.0 million to support the space agency’s new exploration initiatives. As one of a just a handful of the proposals selected from the multitude submitted, SPACEHAB will define concepts for accomplishing human lunar exploration with a focus on innovative solutions and commercial approaches that could be extensible to Mars and beyond. In addition to this six-month contract effort, the Company may be awarded a contract option that includes an additional six-month effort also valued at nearly $1.0 million.

Astrotech Space Operations

SPACEHAB’s Astrotech subsidiary provides satellite processing facilities and support services for satellite manufacturing and launch services industries, including commercial, NASA, and Department of Defense customers. Astrotech maintains company-owned facilities for the processing of payloads and payload elements launched from Florida’s NASA Kennedy Space Center/Cape Canaveral Air Force Station, and Vandenberg Air Force Base (“VAFB”) in California. Astrotech also provides payload processing and facilities maintenance support to the Sea Launch program at the Home Port facilities in Long Beach, California under contract to Sea Launch Company LLC. The ASO facilities are specifically sized and outfitted to accommodate a wide range of customer payloads as well as the payload fairings and payload adapter assemblies of the launch service providers. This approach allows for maximum flexibility in the processing of parallel missions and accommodating schedule changes. Astrotech’s goal is to make its facilities and operations a seamless extension of the customer’s factory environment.

Specific ASO satellite processing services include support for spacecraft final mechanical assembly, electrical checkout, liquid propellant loading, solid rocket motor/ordnance installation, payload fairing encapsulation, and remote payload command and control during the launch countdown. Satellite payload processing requires specialized facilities located near the launch site, with such features as advanced environmental control, clean high bay work areas, hazard-proof electrical systems, and overhead bridge cranes.

In support of the new Lockheed Martin and Boeing five-meter class launch vehicles, Astrotech began design and construction of a major facility expansion at its Florida site in August 1998 at a cost of approximately $31 million, building a new Spacecraft Processing Facility (“SPF”) and associated infrastructure upgrades to support projected higher launch rates and larger-sized payloads associated with these new launch vehicle systems. Dedicated in October 2001, the SPF supports all planned configurations of the Boeing Delta IV and Lockheed Martin Atlas V launch vehicle systems.

On October 1, 2003, Astrotech was notified by Boeing that it was exercising its termination rights with regards to its financial guarantees under the contractual agreement with Astrotech for payload processing support services for the Delta launch vehicle program. Boeing indicated that the decision to terminate its guarantees for future Astrotech

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services was based on the downturn of the commercial expendable launch market rather than performance-related considerations. Astrotech was in full compliance with the contract terms at the time of the termination. Under the contract provision related to termination of its financial guarantees, Boeing paid Astrotech $17.5 million representing consideration for future contract payments guaranteed under the contract.

Although Boeing recently terminated its financial guarantees, they continue to use Astrotech’s processing support services. Subsequent to the termination announcement, Boeing funded three new task orders to Astrotech for payload processing support at their Florida facilities for work performed during fiscal year 2004 and 2005.

During fiscal 2004, Astrotech began direct contract support to NASA for satellite support services in Florida. Astrotech has two NASA missions under contract, MESSENGER which successfully launched after the fiscal year, and Deep Impact scheduled for launch in fiscal 2005. Astrotech is also working with NASA on an Indefinite Delivery/Indefinite Quantity (IDIQ) contract format for future mission support.

SPACEHAB Government Services

Our SGS business unit expands SPACEHAB’s core business of supporting people living and working in space. SGS supports the Government in the areas of large-scale configuration and data management programs such as the ISS; specialized design, development, and fabrication of space hardware; low- to high-fidelity mockup design and construction; and safety and quality support services. This SPACEHAB business unit offers a wide array of products and services in these varied fields and brings advanced ideas and solid execution of these innovations to our customers. SGS is currently under contract to provide configuration management services within the Program Integration & Control (“PI&C”) contract of which ARES Corporation is the prime contractor. Prior to this time, from May 1993 to April 2003, SGS primarily operated under the Flight Crew Systems Development contract, a $399.1 million multi-task cost-plus award and incentive-fee contract, which concluded in April 2003.

Space Media

On April 11, 2000, we announced the formation of SMI, a majority-owned subsidiary intended to create proprietary space-themed content for education and commerce. Through a highly-developed networking system and expertise in the space industry, Space Media is able to provide the space enthusiast with a variety of services and products. We have teamed with some of the nation’s leading space and media experts including space memorabilia appraisers, Hollywood prop and effects specialists, and publicity and astronaut appearance professionals. SMI’s services range from outfitting a comprehensive space exhibit, to providing astronaut product endorsements.

In fiscal year 2000, SMI acquired The Space Store, an online retail operation, anticipating that e-commerce could become an integral part of its Internet business. The Space Store currently offers space-related products through its website, www.thespacestore.com, and has a retail facility in Houston, Texas, near NASA’s Johnson Space Center. SMI also directs the STARS Program, a commercial educational initiative designed to stimulate students’ imagination and encourage interest in science topics related to space research. STARS has flown three successful missions involving thousands of students from around the world.

Other Operations

Our strategic programs business initiative is intended to build on our core expertise, expand existing markets, and develop new innovative, affordable “no-box” solutions to complex problems developed within the space exploration industry. In fiscal year 2000, SPACEHAB began design and construction of a commercial space station habitat module in partnership with RSC Energia of Korolev, Russia. Named Enterprise^™, this multipurpose module is intended to be attached to the ISS and could provide space station users habitation space, stowage space, communications, power and other utilities, and laboratory facilities for long-duration research. The module would provide NASA with the ability to support a full six-person crew on board the ISS. The Company also provided NASA with an alternate proposal, utilizing the core Enterprise asset base/technology in constructing a cargo module. In evaluating our investment in Enterprise in June 2003, the Company identified significant uncertainties in new human space flight programs. While we believe the service offered is a valuable service and we are actively marketing this service to NASA, we ceased funding development and were unable to determine if or when this investment would be recovered. Therefore, the Company wrote down its full investment of $8.2 million in Enterprise as of June 30, 2003.

SPACEHAB initiated development of the Docking Double Module (“DDM”) during the second half of fiscal year 1999. The DDM was conceived for the purpose of enabling Columbia, the oldest and heaviest orbiter in NASA’s shuttle fleet, to support ISS resupply operations. The DDM eliminates the need for the orbiter docking module and ancillary attachment hardware by allowing orbiters to dock directly to the roof of the SPACEHAB module. The

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DDM could increase orbiter payload capacity and the orbiters’ capability to “reboost” or restore the desired orbit of the ISS. The DDM utilizes the design of the existing SPACEHAB modules, but provides for a reinforced “roof” to allow direct docking to the ISS. In June 2003, we wrote down a portion of its investment in the DDM due to uncertainties in human space flight programs and the Columbia accident. The remaining costs, consisting of module materials, were reclassified to flight assets and will be depreciated over their remaining useful lives.

The Company decided to discontinue marketing and funding the development of the SPACEHAB Universal Communications System (“SHUCS”) and wrote down its investment in SHUCS in June 2003.

In 1998 we entered into a joint venture agreement with Guignè Technologies Ltd. of Canada to build Space-DRUMS – Dynamically Responding Ultrasonic Matrix Systems – a space-based facility using acoustic energy to position samples for containerless processing. Our interest in the joint venture was converted to an equity interest in Guignè Inc., the parent Company of Guignè Technologies Ltd., effective January 1, 2000. The Space-DRUMS facility is complete and scheduled for launch to the ISS on space shuttle mission STS-114 which has been delayed pending the return to flight of the space shuttle. SPACEHAB has less than 20% ownership of Guignè and has no significant influence over the activities of the investment. During the three months ended December 31, 2003, Guignè experienced an adverse financial event that, in the opinion of management, impairs the value of SPACEHAB’s investment. An impairment of $1.8 million was recognized in that period.

Industry Overview

SPACEHAB’s business is in the aerospace industry and focuses primarily on two aspects: the international human and robotic space exploration market and the commercial spacecraft processing industry. One general measure of the overall industry in which we operate, has seen a decline in total sales over the past three years from a high of $153 billion in 2001, to $148 billion in 2002, and $138 billion in 2003. This trend is more reflective of the glut of commercial aircraft in the world, complicated by the severe financial pressure on the commercial airline industry, than on the segments in which we operate. Comparable statistics for the global space industry reflect strong government spending and consumer demand for satellite services, producing growing revenues of $73.7 billion for 2000, $78.6 billion for 2001, and $86.8 billion for 2002.

NASA and the International Space Exploration Market: NASA is responsible for the United States’ civilian space program. The agency’s space shuttle system and the ISS are the core components of the U. S. Space Program. Human space flight programs accounted for almost half of the space agency’s fiscal year 2002 budget, the last full year of space shuttle operations. SPACEHAB plays a key role in the space shuttle and ISS programs, providing its fleet of modules and carriers along with expertise in payload integration, facility operations, and space station configuration management to NASA, other U. S. and foreign government space agencies, universities, and businesses.

NASA is operating under a fiscal year 2004 budget of $15.4 billion, a budget that has seen only inflationary adjustment annually over the past several fiscal years. Currently, the space shuttle fleet is temporarily grounded pending completion of the return-to-flight initiatives identified in the Columbia Accident Investigation Board (“CAIB”) analysis of the Columbia disaster. In January of 2004, President Bush announced a new vision for the U.S. space exploration program that proposed an immediate budget increase for NASA of $1.0 billion and an emphasis on the return to flight of the space shuttle and completion of the ISS program. The U.S. space program is focused on space exploration, advancing scientific research, establishing a permanent human presence in space, developing new technologies that contribute to economic growth and security, and fostering improved international relations through peaceful cooperation in space.

SPACEHAB is focused on two markets within the NASA space program: 1) space support services including space station logistics and re-supply, microgravity and space life sciences research, and exploration requirements and infrastructure definition, and 2) ground operations and payload processing. The microgravity environment of space provides a unique opportunity to study physical, chemical, and biological processes without the influence of gravity. Demand for access to a microgravity environment can be divided into two broad categories: scientific research and commercial applications. SPACEHAB customers for space-based research and development support aboard the space shuttle and the ISS include NASA, other government agencies, academic institutions, and private companies.

The ISS is the largest international engineering project ever undertaken. More than a dozen nations, including the United States, Canada, Japan, Russia, and members of the European Union are committed to building and operating this orbiting research platform. Technical constraints, the Columbia disaster, and NASA funding limitations have delayed completion of the ISS and the Agency and its international partners have not yet achieved the final configuration of the space station. Currently a station crew of only two is sustaining the ISS awaiting the shuttle’s

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return to flight and there is precious little crew time for research. Members of Congress, the science community, and other constituencies are encouraging NASA to commit to a “core complete” configuration accommodating a crew of six, within the constraints of the CAIB recommendations and to safely return the shuttle to flight to provide the means to achieve this goal. NASA is reviewing ISS planning and spending in order to determine how to proceed toward completion of the project while at the same time looking ahead to the post-shuttle era of ISS utilization and exploration.

Pending the return to flight of the space shuttle, NASA and the international space community are relying on the Russian space program’s Soyuz and Progress space vehicles to ferry astronauts and supplies to and from the ISS. We provide cargo transport and logistics services to NASA and foreign space agencies, scheduling and arranging payloads to the ISS on these Russian flights. Although these vehicles offer limited capacity when compared to the space shuttle, and interface between the United States and Russian space authorities sometimes encounters conflicting priorities, it is apparent that cargo access to the ISS by sources other than the U.S. space shuttle will be necessary even when it does return to flight.

We maintain cooperative relationships with both EADS Space Sciences Corporation (a consortium of Germany, France, Spain and Italy) and RSC Energia of Russia who offer large-scale aerospace technology and manufacturing capability. The ICC operated by SPACEHAB was designed with the technology support of EADS and manufactured by Energia. SPACEHAB and Energia are also working to co-design an expendable cargo carrier vehicle that offers a low-cost alternative to re-supply to the ISS.

The Commercial Satellite Industry: Global space industry revenues have continued to increase, growing at a rate of 15% annually over the six years from 1996 to 2002, even though some markets, such as the commercial satellite sector that SPACEHAB serves through our Astrotech business unit, have experienced a significant decline in recent years. Satellite services and ground equipment manufacturing have shown the greatest growth, while satellite manufacturing and the launch industry have shown the greatest declines. Government spending and strong consumer demands for satellite video services were responsible for almost all of this growth. Although industry revenues have been positive, other indicators – such as prices, profit margins, stock prices, and new orders – have experienced negative trends and reflect significant financial stress in the industry.

Future growth of Astrotech’s business base is linked to the prospects for new commercial satellite manufacturing orders and an increased market share in the government satellite processing sector. Activity in the commercial market fell sharply in 2000 as telecom and Internet-related investment plunged, reflecting the overbuilt market resulting from the technology boom of the late 1990’s. The world’s existing commercial satellites continue to age, however, as the market continues to expand for satellite-based broadband services pointing to a near-term recovery of this market. Experts identify nearly 100 of today’s satellites that are expected to reach the ends of their service lives in the next five years. Additionally, the Department of Defense is spending nearly $18 billion annually to develop, acquire, and operate satellites and other space-related systems. Space assets are ubiquitous and diversified in military operations. With each major conflict over the last two decades, the visibility, criticality, and importance of the space sector has increased.

The National Vision for the Future of Space Exploration: On January 14, 2004, President Bush made a major policy statement outlining a new focus and direction for the nation’s space exploration program. SPACEHAB views the President’s commitment to space exploration, the human space flight program, and the plan for missions to the Moon, Mars, and beyond as positive indicators that will reinvigorate the space program, likely yielding benefits to the aerospace and space commerce industries. The new vision provides NASA with a clear focus, stabilizes the NASA Program, and proposed increased funding for the new pursuits.

The impacts of this vision will materialize over time, and we will continue to align our business direction to remain a constructive force in the human space flight program. In the long term, we believe that our core competencies offer opportunities to continue to provide high-value services as well as design, build, and operate assets that could support initiatives beyond low earth orbit. SPACEHAB plans to pursue these new opportunities aggressively. In the near term, our primary objective is to continue providing unique services to NASA and the space community in support of the space shuttle and ISS programs. Even with the renewed vision, the space shuttle and ISS will remain an integral part of the human space flight program through at least 2010. We are currently supporting four of the next six space shuttle flights and we are pursuing additional missions that will be important for completing the final assembly and on-going operation of the ISS.

In addition to providing services and flight assets that enhance working and living in space, SPACEHAB has continued to develop innovative concepts and initiatives that support the nation’s new space vision, some of them

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leveraging our unique international partnerships. These activities include the development of an affordable cargo delivery service that could augment ISS logistics requirements as the space shuttle is phased out; the expansion of our satellite payload processing services and facilities to support the ground processing of the new crew exploration vehicle; and the provision of flight hardware alternatives that allow the ISS to be completed more expediently and in a less costly manner. We believe that these innovative concepts will be valuable to NASA in fulfilling their new space vision.

In June 2004, the President’s Commission on Implementation of United States Space Exploration Policy issued its final report of conclusions and recommendations gathered from public testimony of 96 individuals and over 6,000 written inputs. The Commission’s objective was to “examine and make recommendations on implementing” the new national vision. The Commission found overwhelming support (public comments supporting the vision compared to those against the program by 7 to 1) for this new National Vision for Space Exploration.

Throughout the report, the Commission found and emphasized the need for a greater role of commercial enterprise in the space exploration program. As a pioneer in providing commercial assets and services to the space program, SPACEHAB is strongly encouraged with the opportunities ahead as the new national vision becomes reality and, subsequent to year end, secured its first study contract in support of this vision.

Competition

SPACEHAB’s competition varies amongst our business units. Generally, barriers to entry for new competitors remain high. The modules, facilities, and other assets that we own represent a capital investment that rivals would have difficulty matching. For SFS, we estimate that it would take another organization three to five years to get a similar module service established to the point where NASA could consider it for the space shuttle or ISS, and we are not aware of any company that is currently making such an effort. For our logistics modules and carriers there are similar assets currently owned and periodically used by NASA (i.e. the Italian Space Agency-built Multi Purpose Logistics Module, the Multi Purpose Experiment Support Structure carrier, and the Spacelab pallet). However, SPACEHAB’s assets provide more utility in supporting powered experiments and are able to carry more weight and volume. In April 1998, NASA terminated the government-owned and operated Spacelab program, which provided laboratory modules for shuttle missions.

Over the past twenty years, we have cultivated a global customer base and aligned ourselves with leading international partners within the space industry. Our primary strategic alliances include experienced and distinguished companies such as German-based EADS, Russia’s RSC Energia, and Mitsubishi Corporation of Japan. These partnerships have afforded us the opportunity to define and grow new capabilities that have benefited the space program across global boundaries. Additionally, SPACEHAB routinely collaborates with Boeing, Lockheed Martin, and United Space Alliance (“USA”) on shuttle and ISS support activities.

Our Astrotech company-owned satellite and payload processing facilities are located in Florida and California. At present, Astrotech’s U.S. competition is limited to the California launch site at VAFB where Spaceport Systems International (“SSI”) is located. SSI acquired surplus United States Air Force (“USAF”) facilities through a lease agreement with USAF at VAFB before Astrotech established its facilities there. SSI does not have payload processing facilities in Florida, where the majority of U.S. commercial satellite launches occur. Astrotech completed the expansion of its $31 million, 62-acre Florida space technology campus in 2002 with the SPF dedicated to spacecraft processing and payload storage. The SPF was designed and built specifically to accommodate EELV payloads, both 4-meter- and 5-meter-class satellites, with weights in excess of 25,000 pounds and payload fairings up to 75 feet long. The SPF is the only satellite processing facility at Florida’s Kennedy Space Center/Cape Canaveral Air Force Station launch complex with the capability to accommodate satellites and 5 meter payload fairings for Lockheed Martin Atlas V and Boeing Delta IV EELV missions.

SGS competes with companies that provide operations support, configuration management, and engineering and fabrication services to NASA. These competitors include aerospace contractors such as Boeing, Lockheed Martin, USA, Barrios Technologies Inc., Hernandez Engineering Inc., Cimarron, and Oceaneering Space Systems. However, for its primary source of revenue, SGS is currently operating under a subcontract to ARES Corporation through at least 2008.

SMI competes with various suppliers of space education and retail goods. This includes internet sites and retailers with space-related toys, food, games, clothing, and patches; builders of space museum exhibits, mockups, and displays; and some providers of space-based education curriculum.

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Dependence on a Single Customer

Approximately $41.9 million or 54% of SPACEHAB’s revenue in fiscal year 2004 was generated by seven NASA contracts or subcontracts – SFS’s Research and Logistics Mission Support (“ReALMS”) contract, CMC subcontract, and NASA Russian shipments contracts; Astrotech’s MESSENGER and AURA payload processing contracts; and SGS’s ISS Configuration Management contract, PI&C subcontract, and Stowage Engineering and Decal contract.

While the SFS, Astrotech, and SGS contracts with commercial customers provide revenue from varying sources, we anticipate that contracts with NASA will continue to account for a significant amount of the Company’s revenue in the near future. Although there are no assurances that NASA will require our services in the future, we are under firm contracts with NASA to support a variety of activities for the Agency for several years. We continue to work on diversifying our customer base to include foreign space agencies, aerospace partners, and private companies.

Similar to contracts with other agencies of the U.S. Government, our contracts with NASA contain provisions pursuant to which NASA may terminate the contract “for convenience.” Our contracts with NASA depend upon the Agency’s receipt of adequate annual appropriations from the U.S. Congress, and failure to receive adequate funds could prompt NASA to terminate its contracts with SPACEHAB “for convenience.” NASA’s fiscal year 2004 operating plan totals $15.4 billion, including $1.5 billion for the ISS. There is no assurance that future funding will be adequate for NASA to complete all of its initiatives including those relating to contracts with SPACEHAB. In calendar year 2002, issues facing NASA included 1) an ISS funding shortfall that prompted the agency to defer commitment for completion of the ISS beyond a “core complete” state, and 2) delays in space shuttle flights due to the discovery of flaws in engine parts. In February 2003, the loss of the Columbia orbiter and the subsequent investigation of the accident have temporarily delayed launches of the entire NASA shuttle fleet. We anticipate that a portion of future revenue will be derived from contracts with entities other than agencies of the U.S. Government that will not be subject to federal contract regulations such as termination “for convenience” or government funding restrictions.

We believe that NASA, as well as future space shuttle and ISS programs, will continue to be funded and supported by the U.S. Government. Furthermore, we believe that it is highly unlikely that any decision to discontinue these programs would be made during the next twelve months.

Astrotech serves the satellite launch industry, which is dominated domestically by Lockheed Martin and Boeing. The Company has a long-term contract in place with Lockheed Martin to support payload processing for the Atlas launch vehicle program which guarantees a minimum of four launches annually through December 2006. Astrotech has other current contracts in place with NASA, Boeing, and Orbital for support of spacecraft processing activities in both Florida and California. Astrotech manages the Sea Launch facility under a long-term contract with Sea Launch which extends through 2011.

Backlog

As of June 30, 2004, and June 30, 2003, the Company’s contract backlog was approximately $100.8 million and $169.6 million, respectively, of which $86.5 million and $100.3 million, respectively, represented U.S. Government backlog and $14.3 million and $69.3 million, respectively, represented non-U.S. Government contracts.

Contract History

SPACEHAB’s initial business strategy focused on anticipating customer requirements, investing capital to develop space flight assets, contracting with established aerospace companies for engineering and asset production, and retaining ownership of these assets. This approach still holds true today.

For SFS, we have obtained four significant space flight services contracts with NASA to date that utilize our fleet of research and logistics modules and carriers. This includes the original $184.2 million Commercial Middeck Augmentation Module contract for four space shuttle research missions; a $91.5 million contract for four logistics missions and three option missions (all of which were exercised) to the Russian space station Mir; a $241.5 million ReALMS contract initially for four missions with pricing for six mission configurations in support of the ISS and microgravity science requirements; and the CMC subcontract in support of NASA’s ISS logistics requirements served through Lockheed Martin. The final value of the ReALMS contract is $214.3 million.

For the first half of fiscal 2004, the ReALMS contract was the vehicle used by NASA to obtain the use of our modules and carriers. Upon the restructuring of NASA’s various ISS contracts, Lockheed Martin became the CMC prime contractor, and SFS now provides our logistics services and assets as a subcontractor. The new contract also requires SPACEHAB to provide single and double modules as well as ICCs to support research payloads and outfitting of the ISS. We are currently supporting three missions under this contract, STS-121, STS-116, and STS-118.

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Additionally, SPACEHAB has a $19.9 million contract with Boeing for ICC services on the STS-114 mission. Currently, STS-114 is the return-to-flight mission scheduled to be flown no earlier than March 2005. SPACEHAB is paid an equitable adjustment for delays in launching this mission, and other missions under contract, due to the Columbia accident. The equitable adjustment is a cost-based contract price adjustment to cover the period until the space shuttle returns to flight.

Revenue recognized under the ReALMS, CMC, Boeing, and other various shipping and processing contracts for fiscal year 2004, 2003 and 2002 was $38.4 million, $46.8 million and $51.4 million, respectively.

Astrotech has successfully supported the processing of over 200 satellites since beginning operations in 1985 for commercial spacecraft processing. For fiscal years 2004, 2003, and 2002, Astrotech recognized revenues of $28.3 million, $12.4 million and $9.9 million, respectively.

In fiscal year 2000, our Astrotech subsidiary completed negotiations of long-term extensions to payload processing contracts with its two largest customers, Boeing and Lockheed Martin. The total revenue under these contracts was approximately $85 million. Additionally, Astrotech also has payload processing contracts in place with NASA, Sea Launch Company, LLC, and Orbital.

On October 1, 2003, Astrotech was notified by Boeing that it was exercising its termination rights with regards to its financial guarantees under the contract agreement with Astrotech for payload processing support services for the Delta launch vehicle program. Boeing indicated that the decision to terminate its guarantees for future Astrotech services was based on the downturn of the commercial expendable launch market rather than performance related considerations. Astrotech was in full compliance with the contract terms at the time of the termination. Under the contract provision related to termination of its financial guarantees, Boeing paid Astrotech $17.5 million representing consideration for future contract payments guaranteed under the contract.

In fiscal year 2004, SGS operated primarily under two contracts. For the first half of the year SGS was the prime contractor for ISS Configuration Management (“CM”), a contract that was completed. SGS is now supporting the ISS PI&C contract as a subcontractor to the ARES Corporation team, a NASA contract awarded at the completion of the original ISS CM contract.

Prior to fiscal year 2004, SGS led the Flight Crew Systems Development contract, a multi-task cost-plus award and incentive-fee contract. NASA exercised a series of extensions on the contract to extend the performance period of the contract to December 2002. The revised total value of the contract as of April 30, 2003 was $399.1 million. NASA opened elements of this contract for recompete for calendar year 2003. SGS competed to continue performing this work, but was notified in February 2003 that their recompete bid was not accepted. Contract work was transitioned to the successful bidder in April 2003. For fiscal years 2004, 2003 and 2002, SGS recognized revenue of $10.2 million, $34.7 million and $40.8 million, respectively.

Research and Development

SPACEHAB incurred $0.2 million, $0.1 million, and $0.4 million in research and development expenditures during fiscal years 2004, 2003, and 2002, respectively. We spent $0.2 million in 2004 and $0.1 million in 2003 on miscellaneous research and development projects, including the design of a new commercial payload service (“CPS”). Research and development in fiscal year 2004 has been directed towards development of commercial responses to the National Vision for Space Exploration.

Approximately $0.2 million of our research and development expenditures for fiscal year 2002 was spent on the development of the Enterprise module which is no longer under development, but much of the technological and structural design is being used to develop the new CPS system. The remainder of $0.2 million was spent on miscellaneous research and development projects in 2002.

Certain Regulatory Matters

The Company is subject to federal, state, and local laws and regulations designed to protect the environment and to regulate the discharge of materials into the environment. We believe that our policies, practices, and procedures are properly designed to prevent unreasonable risk of environmental damage and consequential financial liability to the Company. Compliance with environmental laws and regulations and technology export requirements has not had in the past, and, we believe, will not have in the future, material effects on the capital expenditures, earnings or competitive position of the Company.

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The operations of SPACEHAB are subject to various regulations under federal laws relative to the international transfer of technology as well as to various federal and state laws relative to business operations. In addition, the Company is subject to federal contracting procedures, audit, and oversight under Federal Acquisition Regulations.

Significant federal regulations impacting the Company’s operations encompass the following:

Federal Regulation of International Business: The Company is subject to various federal regulations relative to the export of certain goods, services, and technology. These regulations, which include the Export Administration Act of 1979 administered by the Commerce Department and the Arms Export Control Act administered by the State Department, impose substantial restrictions on the sharing or transfer of technology to foreign entities. Our activities in the development of space technology and in the processing of commercial satellites deal with technology of the type subject to these regulations. Operations of the Company are conducted pursuant to a comprehensive Export Compliance Policy that provides close review and documentation of activities subject to these laws and regulations.

Foreign Corrupt Practices Act: The Foreign Corrupt Practices Act establishes rules for U.S. companies doing business internationally. Compliance with these rules is achieved through established and enforced corporate policies and documented procedures in the Company’s internal procedures and financial controls.

Iran Nonproliferation Act of 2000: This act includes specific prohibitions on commercial activities with certain specified Russian entities engaged in providing goods or services to the ISS. Our activities with RSC Energia of Russia are not subject to this act.

Federal Acquisition Regulations: Goods and services provided by the Company to NASA and other U. S. Government agencies are subject to Federal Acquisition Regulations. These regulations provide rules and procedures for invoicing, documenting, and conducting business under contract with such entities. The Federal Acquisition Regulations also subject the Company to audit by federal auditors to confirm such compliance.

Truth in Negotiations Act (“TINA”): A public law enacted for the purpose of providing for full and fair disclosure by contractors in the conduct of negotiations with the Government. The most significant provision included in TINA is the requirement that contractors submit certified cost and pricing data for negotiated procurements above a defined threshold.

Regulatory Compliance and Risk Management

The Company maintains compliance with regulatory requirements and manages its risks through a proactive program of compliance, awareness, and insurance which includes the following:

Safety: SPACEHAB places a continual emphasis on safety throughout the organization. At the corporate level, safety programs and training are monitored by a corporate safety manager. A staff of senior safety professionals within the SFS business unit provide safety as a component of its space flight operations and augment the safety awareness and oversight available at the corporate level.

Export Control Compliance: We have a designated senior officer responsible for export control issues and the procedures detailed in our Export Control Policy. This officer and the designated Export Compliance Administrator monitor training and compliance with regulations relative to foreign business activities. Employees are provided comprehensive training in compliance with regulations relative to export and foreign activities through the Company’s interactive training program and are certified as proficient in such regulations as are relative to their job responsibilities.

Insurance: The Company’s operations are subject to the hazards associated with operating assets in the severe environment of space. These hazards include the risk of loss or damage to the assets during storage, preparation for launch, in transit to the launch site, and during the space mission itself. We maintain insurance coverage against these hazards with reputable insurance underwriters. By policy, we insure our flight assets at replacement value for risk of loss during space flight missions.

Employees

As of June 30, 2004, SPACEHAB and its wholly-owned subsidiaries employed 192 regular full-time employees. The breakdown by area is as follows: SPACEHAB corporate and executive management is 35; 64 are employed by SFS; SGS personnel total 60; 29 are employed by Astrotech; and SMI, specifically The Space Store, employs 4. Of these employees, approximately 16% hold advanced degrees. Additionally, a significant number of our employees have experience in both the space industry and/or governmental space agencies, with a special expertise in commercial space and human space flight. None of our employees are covered by collective bargaining agreements. Underlying all of SPACEHAB’s efforts has been the dedication and skill of its personnel. People are the source of our success.

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Item 1A. Executive Officers and Key Employees

Set forth below are the names and positions of our executive officers and key employees as of September 2, 2004, together with their ages and years of service with us.

The executive officers and key employees named above will serve in such capacities until the next annual meeting of our Board of Directors, or until their respective successors have been duly elected and have been qualified, or until their earlier death, resignation, disqualification, or removal from office.

Michael E. Kearney

Mr. Kearney, a member of the Board of Directors since 2001, was appointed SPACEHAB’s Chief Executive Officer in April 2003 and has served as the Company’s President since January 2001. Joining SPACEHAB in 1994, Mr. Kearney has served as Senior Vice President for Marketing and Sales and as Vice President of Business Development. Prior to joining the Company, Mr. Kearney held leadership positions at McDonnell Douglas. He served for 26 years as a U.S. Navy Aeronautical Engineering Officer, as a Weapon Systems Acquisition Specialist and Program Manager, and flew Navy fighter aircraft both in combat and in a production acceptance role.

Brian K. Harrington

Mr. Harrington joined SPACEHAB in January 2004 and serves at the Company’s Senior Vice President, Finance and Chief Financial Officer. Prior to joining the Company, he held similar positions at the publicly-traded Kirby Corporation and as a financial consultant and manager. His corporate and consulting experience includes acquisitions, bank financings, public and private placement debt, public equity transactions, divestures, and recapitalizations. A Certified Public Accountant, Mr. Harrington began his career in the U.S Army, First Armored Division, where he served as Deputy Division Finance Officer during the Viet Nam conflict.

Daniel A. Bland

Mr. Bland has served as Senior Vice President of the SPACEHAB Flight Services business unit since March 2000. In this capacity, he manages the Company’s flight services contract efforts with NASA and other commercial customers which utilize SPACEHAB’s modules and carriers. He also manages a variety of commercial space access and transportation initiatives involving U.S. and international launch vehicles in support of NASA’s Space Exploration vision. Beginning his career with NASA in 1966, Mr. Bland worked for 28 years at both the Kennedy and Johnson Space Centers. He held key positions in NASA’s astronaut training program supporting the Apollo and Apollo-Soyuz projects from 1966 to 1975. From 1975 to 1994, he managed projects with the Space Shuttle, International Space Station, and SPACEHAB programs.

John B. Satrom

Since April 2000, Mr. Satrom has served as the Senior Vice President and General Manager of Astrotech Space Operations, Inc., a subsidiary of SPACEHAB. He has been managing the payload processing operations for the Company since joining in April 1998. Prior to his employment at Astrotech, he was Manager of the Launch Integration and Operations Department for Space Systems/Loral in Palo Alto, California and worked on the Atlas program at Cape Canaveral for General Dynamics Space System Division. From 1983 to 1990, Mr. Satrom served as an Air Force officer both at Vandenberg Air Force Base in California and Cape Canaveral Air Force Station in Florida, working on the Peacekeeper missile flight test program and the Space Shuttle program.

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H. Jay Sauerwein

Mr. Sauerwein serves as Vice President of SPACEHAB’s Government Services business unit. He holds the position of Program Manager over the Configuration Management and Data Integration segments of NASA’s Program Integration and Control contract, manages much of SPACEHAB’s corporate office infrastructure team, and leads flight/ground hardware development initiatives for the NASA Space Shuttle and International Space Station program offices. Prior to SPACEHAB, Mr. Sauerwein worked as a McDonnell Douglas senior manager at the Kennedy Space Center. His experience also includes work with Lockheed Space Operations, beginning in 1982, on a shuttle processing contract, as well as a 25-year career in the U.S. Navy.

Nicholas G. Morgan

Mr. Morgan holds the title of Vice President, Accounting and was appointed Controller of SPACEHAB in March 2004. A Certified Public Accountant, he has served as Assistant Controller of the Company since April 2001 and as Assistant Controller of Johnson Engineering, Inc. from February 1996 until the acquisition by SPACEHAB in July 1998. Mr. Morgan began his career with Loral Aerospace Corporation in San Jose, California; he held several positions in the accounting and finance area from 1990 to 1992. He transferred to Loral Space Information Systems, Houston, Texas in 1992 as a Job Cost Analyst until he joined Johnson Engineering in 1996.

Item 2. Properties.

The Company and its four business units, SFS, Astrotech, SGS, and SMI, currently occupy five locations. The corporate headquarters which had been located at 300 D Street SW, Suite 814, Washington, D.C. 20024 was re-designated to 12130 State Highway 3, Webster, Texas 77598 in fiscal year 2002. The term of the present lease for the D Street space expires on December 16, 2007. As of June 30, 2002, we sublet the entire D Street space through the end of the term of the Company’s lease. Our other Washington, D.C. office location was closed as of December 31, 2003 and all executive and administrative functions were consolidated at our Webster, Texas office. The former office space at 601 13th Street N.W., Suite 900 South, Washington, D.C. 20005, consisting of 5,920 square feet, is under a lease which expires May 2006, has been sublet through the end of the term of the Company’s lease.

SPACEHAB executive management, marketing and communications, human resources, finance, and operations support personnel, along with approximately half of the SFS and a few SGS employees, are located at 12130 Highway 3, Building 1, Webster, Texas 77598. The facility consists of 90,867 square feet of office, warehouse, and fabrication space located near the Johnson Space Center. The lease expires on March 15, 2006.

Our SFS payload processing facility, housing an 18-person operations team, is located near the Kennedy Space Center in Cape Canaveral, Florida. The facility is contained in an approximately 58,000 square foot plant. We own the building that houses the payload processing facility but lease the land upon which it is constructed. The payload processing facility has a clean room work area of approximately 24,000 square feet. This work area is designed to accommodate the SPACEHAB single and double modules, as well as the ICCs and VCC. This area includes 11 secure experiment/payload integration and work areas ranging in size from 300 square feet to 1,000 square feet each. In addition, the facility provides office space, stock rooms, storage areas, a machine shop, an electrical shop, conference rooms, and other miscellaneous accommodations. We negotiated an agreement with the Canaveral Port Authority for the lease of the land for a forty-three year period which commenced on August 28, 1997. Upon expiration of the land lease, all improvements on the property revert at no cost to the lessor.

SFS previously occupied 23,000 square feet of office space located at 6000 Technology Drive in Huntsville, Alabama housing the Company’s subcontractor personnel. The subcontractor requirements were terminated in April 2004. The lease expires on September 30, 2004 and has been partially sublet through the end of the lease term.

Astrotech occupies two company-owned locations. Astrotech’s headquarters and Florida operations team, consisting of 20 personnel, are located in a nine-building complex located on a 62-acre space technology campus at 1515 Chaffee Drive, Titusville, Florida 32780. This campus encompasses 140,000 square feet of facility space supporting non-hazardous and hazardous flight hardware processing, payload storage, and customer offices. The construction of the new 50,000 square foot SPF was completed in March 2002. These buildings presently occupy one-third of the 62-acre property owned by Astrotech, with one-third available for expansion and the remaining one-third reserved for hazardous facility safety clearances.

Astrotech has a two-person technical staff located on VAFB in Santa Barbara County, California. Astrotech presently leases a 60-acre site on the base and owns four buildings comprising 18,800 square feet, dedicated to the same functions provided at the Florida facility. The term of the present land lease expires on July 13, 2013, with provisions to extend the lease at the request of the lessee and the concurrence of the lessor. Upon final expiration of the land lease, all improvements on the property revert, at the lessor’s option, to the lessor at no cost.

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Additionally, Astrotech has seven employees who are housed at the Sea Launch Home Port facility in Long Beach, California provided per the provisions of the Astrotech contract with Sea Launch Company, LLC.

During part of fiscal year 2004, SGS occupied two additional locations. One was located at 555 Forge River Road, Suite 150, Webster, Texas 77058. The office space housed 17 employees within a 31,114 square foot facility. This office lease expired on June 28, 2003 and was extended on a monthly basis through August 31, 2003 when the operations were consolidated into the facility at 12130 State Highway 3, Webster, Texas. SGS also occupied approximately 9,826 square feet of space at 18100 Upper Bay Road, Houston, Texas 77058 that housed a 26-person engineering and laboratory team. The lease expired on December 31, 2003.

SGS has 44 employees who are housed in two government facilities within the Houston area.

SMI, primarily The Space Store, has 4 employees and occupies approximately 2,450 square feet of space located at 1400 NASA Road One, Suite D, Houston, Texas 77058. The lease expires in March 2008.

The Company believes that its current facilities and equipment are generally well maintained and in good condition and are adequate for its present and foreseeable needs.

Item 3. Legal Proceedings.

SPACEHAB’s operations are subject to the operating hazards normally incidental to business activities as well as the special risks of operating assets in the environment of space. From time to time, we are involved in various legal proceedings and litigation arising in the ordinary course of business. There is no pending litigation and, to the knowledge of the Company, there is no threatened litigation, the unfavorable resolution of which would have a material adverse effect on our financial condition or results of operations except as detailed below. SPACEHAB maintains insurance policies with insurers in such amounts and with such coverage and deductibles as we believe are reasonable and prudent.

Claim for Indemnification of Loss on Space Shuttle Columbia Accident: The Company has submitted a formal claim for indemnification of losses totaling $87.7 million dollars resulting from the Space Shuttle Columbia accident in February 2003. The claim has been submitted to NASA and we are currently in negotiations with NASA with the goal of expedient resolution. Our contract with NASA providing for use of the Company’s space assets on the Space Shuttle Columbia provided for indemnification of $8.0 million by NASA. The negotiations underway relate to indemnification beyond this amount based upon our total loss of $87.7 million and NASA’s reconciliation of the losses allowable under the Federal Acquisition Regulations of approximately $47.4 million. In the event that an acceptable resolution cannot be reached, SPACEHAB has the right to file for administrative and/or judicial review of its claim for indemnification.

Proceeding Filed by Certain Underwriters at Lloyd’s of London in Washington State Court: Our insurer, Certain Underwriters at Lloyd’s of London (“Lloyd’s”), on the Space Shuttle Columbia accident paid the full proceeds of $17.7 million to the Company shortly after the accident. Subsequently, Lloyd’s has filed suit against SPACEHAB seeking recovery of the $17.7 million alleging that: (i) such proceeds were paid erroneously primarily due to the fact that NASA had not paid indemnification due to the Company prior to the payment of the insurance proceeds, (ii) the Company and our insurance broker misled Lloyd’s in issuing the policy, and (iii) the Company has not cooperated with Lloyd’s in protecting Lloyd’s right of subrogation. We believe that the Lloyd’s complaint is without merit and while cooperating with Lloyd’s in protecting their interests, have responded accordingly.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of stockholders during the fourth quarter of the year ended June 30, 2004.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Company’s common stock (the “Common Stock”) trades on the NASDAQ National Market System under the symbol “SPAB”. The Common Stock has been publicly traded since December 22, 1995, the date of the closing of our initial public offering. The quarterly high and low intra-day bid prices for fiscal years 2004 and 2003 are as follows: