FORM 10-QSB

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20429


(Mark  One)
[X]     QUARTERLY  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
        SECURITIES  EXCHANGE  ACT  OF  1934

                  For the quarterly period ended March 31, 2005

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

For  the  transition  period  from  ___________________________  to
______________________________
Commission  File  Number     000-28947.
                          -------------

                                 SPACEDEV, INC.
             (Exact name of registrant as specified in its charter)


                             Colorado                     84-1374613

                (State or other jurisdiction of          (IRS Employer
                 incorporation or organization)       Identification No.)


                   13855 Stowe Drive, Poway, California 92064

                    (Address of principal executive offices)

(Issuer's  telephone  number)   (858)  375-2030.
                               ----------------

-------------------------------------------------------------------------------

   (Former name, former address and former fiscal year, if changed since last
                                    report)

Checkmark  whether  the issuer (1) has filed all reports required to be filed by
Sections 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
                ----      ----

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:  21,454,699 shares of Issuer's voting
common  stock  were  outstanding  on  May  3,  2005.


                                      PAGE
                                 SPACEDEV, INC.
                                   FORM 10-QSB
                      FOR THE QUARTER ENDED MARCH 31, 2005


INDEX                                                                       PAGE
-----                                                                       ----

PART  I  --  FINANCIAL  INFORMATION                                            1
     ITEM  1.     FINANCIAL  STATEMENTS                                        1
       Consolidated  Balance  Sheets                                           1
       Consolidated  Balance  Sheets                                           2
       Consolidated  Statements  of  Operations                                3
       Consolidated  Statements  of  Cash  Flows                               4
       Notes  to  Consolidated  Financial  Statements                          6



     ITEM  2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS  OF  OPERATIONS                                 13
       Overview                                                               13
       Selection  of  Significant  Contracts                                  14
       Results  of  Operations                                                16
       Liquidity  and  Capital  Resources                                     19
       Critical  Accounting  Standards                                        21
       Cash  Position                                                         21
       Recent  Accounting  Pronouncements                                     24
       Forward-Looking  Statements  and  Risk  Analysis                       24

     ITEM  3.  CONTROLS  AND  PROCEDURES                                      25

PART  II  --  OTHER  INFORMATION                                              26
     ITEM  1.     LEGAL  PROCEEDINGS                                          26

     ITEM  2.     CHANGES  IN  SECURITIES                                     26

     ITEM  3.     DEFAULTS  UPON  SENIOR  SECURITIES                          26

     ITEM  4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS         26

     ITEM  5.     OTHER  INFORMATION                                          26

     ITEM  6.     EXHIBITS  AND  REPORTS  ON  FORM  8-K                       26

SIGNATURES                                                                    27

                                      PAGE

                         PART I -- FINANCIAL INFORMATION

ITEM  1.     FINANCIAL  STATEMENTS

                          SPACEDEV, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

<S>                        <C>         <C>
At March 31,. . . . . . .        2005        2004
-------------------------  ----------  ----------
 ASSETS

 CURRENT ASSETS
      Cash. . . . . . . .  $5,412,949  $  981,898
      Accounts receivable     620,048     296,980
      Inventory . . . . .           -       8,142
      Work in progress. .      11,306     135,988
-------------------------  ----------  ----------
 Total current assets . .   6,044,303   1,423,008
-------------------------  ----------  ----------
 FIXED ASSETS - NET . . .     293,590     129,598
-------------------------  ----------  ----------
 OTHER ASSETS . . . . . .     117,115      43,223
-------------------------  ----------  ----------
                           $6,455,008  $1,595,829
-------------------------  ----------  ----------
-------------------------  ----------  ----------

</TABLE>
The  accompanying  notes  are  an  integral part of these consolidated financial
statements.

                                        1
                                      PAGE

                          SPACEDEV, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>



<S>                                                                       <C>            <C>
 At March 31,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2005           2004
------------------------------------------------------------------------  -------------  -------------

 LIABILITIES AND STOCKHOLDERSEQUITY (DEFICIT)

 CURRENT LIABILITIES
      Current portion of notes payable  (Note 3(a)). . . . . . . . . . .  $     37,130   $     37,961
      Current portion of capitalized lease obligations . . . . . . . . .         3,957          7,012
      Note payable - related party (Note 3(b)) . . . . . . . . . . . . .             -         80,000
      Accounts payable and accrued expenses. . . . . . . . . . . . . . .       359,174        254,352
      Accrued payroll, vacation and related taxes. . . . . . . . . . . .       248,805        152,008
      Revolving line of credit  (Note 3(c)). . . . . . . . . . . . . . .             -      1,001,043
      Employee stock purchase plan . . . . . . . . . . . . . . . . . . .         7,875          1,905
      Other accrued liabilities. . . . . . . . . . . . . . . . . . . . .       260,630        188,071
------------------------------------------------------------------------  -------------  -------------

 TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . .       917,571      1,722,352

 NOTES PAYABLE, LESS CURRENT MATURITIES (NOTE 3(A)). . . . . . . . . . .             -         37,130

 CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES. . . . . . . . .           413          4,369

 NOTE PAYABLE - RELATED PARTY, LESS CURRENT MATURITIES  (NOTE 3(B)). . .             -        500,113

 DEFERRED GAIN - ASSETS HELD FOR SALE (NOTE 3(A)). . . . . . . . . . . .       918,631      1,035,903
------------------------------------------------------------------------  -------------  -------------

 TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,836,615      3,299,867

 COMMITMENTS AND CONTINGENCIES

 STOCKHOLDERSEQUITY (DEFICIT)
      Convertible preferred stock, $.001 par value, 10,000,000 shares
           authorized, and 250,000 shares issued or outstanding (Note 4)           250              -
      Common stock, $.0001 par value; 50,000,000 shares authorized, and
           21,373,980 and 17,023,704  shares issued and outstanding,
           respectively (Note 4) . . . . . . . . . . . . . . . . . . . .         2,137          1,702
      Additional paid-in capital (Note 4). . . . . . . . . . . . . . . .    18,962,806     10,054,585
      Additional paid-in capital - stock options . . . . . . . . . . . .       750,000        750,000
      Deferred compensation. . . . . . . . . . . . . . . . . . . . . . .      (250,000)      (250,000)
      Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . .   (14,846,800)   (12,260,325)
------------------------------------------------------------------------  -------------  -------------
 TOTAL STOCKHOLDERSEQUITY (DEFICIT). . . . . . . . . . . . . . . . . . .     4,618,393     (1,704,038)
------------------------------------------------------------------------  -------------  -------------
 TOTAL LIABILITIES AND STOCKHOLDERSEQUITY. . . . . . . . . . . . . . . .  $  6,455,008   $  1,595,829
------------------------------------------------------------------------  -------------  -------------
------------------------------------------------------------------------  -------------  -------------

</TABLE>

The  accompanying  notes  are  an  integral part of these consolidated financial
statements.

                                        2
                                      PAGE

                          SPACEDEV, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

<S>                                                     <C>           <C>          <C>          <C>
 Three-Months Ending March 31, . . . . . . . . . . . .         2005            %       2004         %
------------------------------------------------------  ------------  ----------  ------------  -----

 NET SALES . . . . . . . . . . . . . . . . . . . . . .  $ 1,806,889        100.0%  $1,014,751   100.0%

 TOTAL COST OF SALES . . . . . . . . . . . . . . . . .    1,396,835         77.3%     807,523    79.6%

 GROSS MARGIN. . . . . . . . . . . . . . . . . . . . .      410,054         22.7%     207,228    20.4%
------------------------------------------------------  ------------  -----------  -----------  ------

 OPERATING EXPENSES
    Marketing and sales . . . . . . . . . . . . . . .       145,017          8.0%      99,151     9.8%
    General and administrative . . . . . . . . . . . .      199,470         11.0%      96,156     9.5%
------------------------------------------------------  ------------  -----------  -----------  ------

 TOTAL OPERATING EXPENSES. . . . . . . . . . . . . . .      344,487         19.1%     195,307    19.2%
------------------------------------------------------  ------------  -----------  -----------  ------

 INCOME FROM OPERATIONS. . . . . . . . . . . . . . . .       65,567          3.6%      11,921     1.2%
------------------------------------------------------  ------------  -----------  -----------  ------

 NON-OPERATING (INCOME) EXPENSE
    Interest income. . . . . . . . . . . . . . . . . .       (7,960)        -0.4%           -     0.0%
    Interest expense . . . . . . . . . . . . . . . . .        1,222          0.1%      19,788     2.0%
    Gain on building sale (Note 3(a)). . . . . . . . .      (29,318)        -1.6%     (29,318)   -2.9%
    Non-Cash loan fee - equity conversions (Note 3(c))            -          0.0%     464,000    45.7%
------------------------------------------------------  ------------  -----------  -----------  ------

 TOTAL NON-OPERATING (INCOME) EXPENSE. . . . . . . . .      (36,056)        -2.0%     454,470    44.8%
------------------------------------------------------  ------------  -----------  -----------  ------

 INCOME (LOSS) BEFORE TAXES. . . . . . . . . . . . . .      101,623          5.6%    (442,549)  -43.6%

 INCOME TAX PROVISION. . . . . . . . . . . . . . . . .          400          0.0%           -     0.0%

 NET INCOME (LOSS) . . . . . . . . . . . . . . . . . .  $   101,223          5.6%  $ (442,549)  -43.6%
------------------------------------------------------  ------------  -----------  -----------  ------

 NET INCOME (LOSS) PER SHARE:
      Net income (loss). . . . . . . . . . . . . . . .  $      0.00                $    (0.03)
------------------------------------------------------  ------------               -----------

      Weighted-Average Shares Outstanding                21,291,972                 16,839,179

 FULLY  DILUTED  NET  INCOME  (LOSS)  PER  SHARE:
      Net income (loss)                                 $      0.00                $    (0.03)
------------------------------------------------------  ------------               -----------
      Fully Diluted Weighted-Average
         Shares Outstanding                               29,908,287                16,839,179
------------------------------------------------------  ------------               -----------
------------------------------------------------------  ------------               -----------

</TABLE>

The  accompanying  notes  are  an  integral part of these consolidated financial
statements.

                                        3
                                      PAGE

                          SPACEDEV, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>



<S>                                                         <C>          <C>
 Three-Months Ending March 31, . . . . . . . . . . . . . .        2005        2004
----------------------------------------------------------  -----------  ----------
<S>                                                         <C>          <C>
 CASH FLOWS FROM OPERATING ACTIVITIES
      Net income (loss). . . . . . . . . . . . . . . . . .  $  101,223   $(442,549)
      Adjustments to reconcile net loss to net cash
           used in operating activities:
           Depreciation and amortization . . . . . . . . .      29,061      15,954
           Gain on disposal of building sale . . . . . . .     (29,318)    (29,318)
           Non-cash loan fees. . . . . . . . . . . . . . .           -     464,000
           Change in operating assets and liabilities. . .     135,217    (168,910)
----------------------------------------------------------  -----------  ----------
 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES . . .     236,183    (160,823)
----------------------------------------------------------  -----------  ----------

CASH FLOWS FROM INVESTING ACTIVITIES
      Purchases of fixed assets. . . . . . . . . . . . . .     (43,269)     (8,020)
----------------------------------------------------------  -----------  ----------
NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . . . .     (43,269)     (8,020)
----------------------------------------------------------  -----------  ----------

 CASH FLOWS FROM FINANCING ACTIVITIES
      Principle payments on notes payable. . . . . . . . .      (8,997)    (12,500)
      Principal payments on capitalized lease obligations.        (883)     (4,204)
      Employee Stock Purchase Plan . . . . . . . . . . . .       9,846           -
      Payments on notes payable - related party. . . . . .           -     (20,000)
      Proceeds from issuance of common stock . . . . . . .     151,468      72,139
      Proceeds from revolving credit facility. . . . . . .           -     523,300
----------------------------------------------------------  -----------  ----------
 NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . .     151,434     558,735
----------------------------------------------------------  -----------  ----------
 Net increase in cash. . . . . . . . . . . . . . . . . . .     344,348     389,892
----------------------------------------------------------  -----------  ----------
 CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . .   5,068,601     592,006
----------------------------------------------------------  -----------  ----------
 CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . .  $5,412,949   $ 981,898
----------------------------------------------------------  -----------  ----------
----------------------------------------------------------  -----------  ----------

</TABLE>

The  accompanying  notes  are  an  integral part of these consolidated financial
statements.

                                        4
                                      PAGE

                          SPACEDEV, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D.
                                   (UNAUDITED)

<TABLE>
<CAPTION>



<S>                                                  <C>     <C>
 Three-Months Ending March 31,. . . . . . . . . . .    2005     2004
---------------------------------------------------  ------  -------

 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for:
           Interest . . . . . . . . . . . . . . . .  $1,222  $14,946
---------------------------------------------------  ------  -------
 NONCASH INVESTING AND FINANCING ACTIVITIES:
</TABLE>

During  the  three-months  ending  March 31, 2005 and 2004 the Company converted
     $11,303 and $6,400 of employee stock purchase plan contributions into 7,915
     and  7,076  shares  of  common  stock,  respectively.

During  the  three-months  ending  March 31, 2005 the Company declared dividends
     payable  of  $42,226  to  the  holder's  of  its  preferred  stock.

During  the  three-months  ending March 31, 2005 the Company converted dividends
     payable  of  $60,967  into 39,589 shares of common stock to the holder's of
     its  preferred  stock.

During the three-months ending March 31, 2004, the Company issued 500,000 shares
     of  its  common  stock to the Laurus Master Fund from conversions under its
     revolving  credit  facility, thereby realizing a corresponding reduction in
     current  liabilities  of  approximately  $275,000.  The  Company   recorded
     additional  non-cash  loan fees of approximately $464,000 and charged these
     fees  to  expense.
--------------------------------------------------------------------------------
The  accompanying  notes  are  an  integral part of these consolidated financial
statements.

                                        5
                                      PAGE

                   NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS

1.       BASIS  OF  PRESENTATION

The  accompanying  consolidated  financial  statements  of  SpaceDev, Inc. ("the
Company")  include  the  accounts  of  the  Company and its inactive subsidiary,
SpaceDev,  Inc.,  an  Oklahoma  corporation.  In  the opinion of management, the
consolidated  financial statements reflect all normal and recurring adjustments,
which are necessary for a fair presentation of the Company's financial position,
results  of  operations  and  cash  flows  as  of  the dates and for the periods
presented.   The  consolidated  financial   statements  have  been  prepared  in
accordance  with  generally accepted accounting principles for interim financial
information.  Consequently,  these  statements  do  not  include all disclosures
normally  required  by  generally  accepted  accounting principles of the United
States  of America for annual financial statements nor those normally made in an
Annual  Report  on  Form  10-KSB.  Accordingly,  reference should be made to the
Company's  Form  10-KSB  filed  on  March 28, 2005 and other reports the Company
filed  with  the  U.S.  Securities  and  Exchange  Commission   for   additional
disclosures,  including  a  summary  of  the  Company's   accounting   policies,
which  have not materially  changed.  The consolidated results of operations for
the  three-months  ending  March  31,  2005  are  not  necessarily indicative of
results  that  may  be expected  for the fiscal year ending December 31, 2005 or
any  future  period,  and  the  Company  makes  no  representations  related
thereto.

As  of  March  31,  2005,  management  continues  the opinion that the Company's
auditors,  PKF,  expressed  in their formal auditors' opinion dated February 10,
2005,  that in their opinion,  based  on their audit, the Company's consolidated
financial  statements  referred  to  herein  present  fairly,  in  all  material
respects,  the  consolidated financial position of SPACEDEV, INC. AND SUBSIDIARY
as  of  December  31,  2004,  and  the  consolidated  results  of  the Company's
operations  and  cash  flows  for  the  year  then  ended,  in  conformity  with
accounting  principles  generally accepted in the United States of America.  The
accompanying  consolidated  financial  statements as of March 31, 2005 have been
prepared  assuming  the  Company  will  continue  as  a  going  concern.

During the first three-months of 2005, the Company had a working capital balance
of  $5,126,732  and  incurred  a net profit of $101,223 as compared to a working
capital  deficit of $299,344 and a net loss of $442,549 for the same three-month
period  in  2004.  Also  during  the first three months of 2005, the Company had
non-operating  income  of  $36,056  as  compared  to  non-operating  expenses of
$454,470 for the same three-month  period  in  2004,  with the  majority  of the
difference  representing  non-cash  interest expenses in 2004 and an increase in
interest  income  in  2005.

On  March  31,  2004,  the  Company  was awarded a $43,362,271 contract from the
Missile  Defense  Agency.  The first Task Order was awarded on April 1, 2004 and
completed  on  September 30, 2004.  The second Task Order was awarded on October
20,  2004  (although  effective  October  1,  2004)  and  is  expected   to   be
completed  by  January  31,  2006.

Management  intends  to  obtain  new  government  contracts, seek new commercial
contracts, use its revolving credit facility only for specially funded programs,
if  at  all,  and  possibly  raise some additional equity capital in a public or
private  offering  or  fund-raising  effort  in 2005 or beyond.  There can be no
assurance that existing contracts will be completed  successfully  or  that  new
contracts  or  additional  debt  or  equity  financing  that  may  be needed  to
fund  operations  will  be  available  or, if available,  obtained in sufficient
amounts necessary to meet the Company's needs or  on terms that are favorable to
the  Company.  Management  does  believe  that,  if  current contracts remain on
schedule and are funded as expected, they will be sufficient to fund the Company
through  2005.

The preparation of financial statements in conformity with accounting principles
generally  accepted  in the United States of America requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities and the results of
operations  during the reporting period.  Actual results could differ materially
from  those  estimates.

                                        6
                                      PAGE

2.       REVENUE  RECOGNITION

The  Company's  revenues  for  the  three-months  ending  March  31,  2005  were
derived  primarily  from  United  States  government  cost plus fixed fee (CPFF)
contracts  compared  to  primarily  the same type of CPFF contracts for the same
three-month  period in  2004.  Revenues  from  the  CPFF  contracts  during  the
first three-months ending March 31, 2005 and 2004 were  recognized  as  expenses
were incurred.  Estimated contract profits are taken into earnings in proportion
to revenues recorded.  Time and material revenues are recognized as services are
performed  and  costs  incurred.  Actual  results  of  contracts may differ from
management's  estimates   and   such  differences  could  be  material  to   the
consolidated financial statements.  Professional fees are billed to customers on
a  time  and  materials  basis.  Time  and  material  revenues are recognized as
services  are  performed  and  costs  incurred.

3.     NOTES  PAYABLE

a)     Building  and  Settlement  Notes

In  December  2002, the Company entered an agreement to sell its interest in its
facility.  The  transaction  closed  in  January  2003.  The  escrow transaction
included  the  sale  of  the land and building. Net fixed assets were reduced by
approximately  $1.9 million and notes payable were reduced by approximately $2.4
million  while  a  deferred gain was recorded. In conjunction with the sale, the
Company  entered  into  a  lease  agreement  with  the  buyer  to  leaseback its
facilities.  The  Company's Chief Executive Officer provided a guarantee for the
leaseback.  The  gain  on the sale of the facility was deferred and amortized in
proportion  to the gross rental charged to expense over the lease term. Deferred
gain  of  $1,172,720 is being amortized at the rate of $117,272 per year for ten
(10)  years  ending in January 2013. As of March 31, 2005, the deferred gain was
$918,631.  This  amortization  will  be  included in the Company's non-operating
expense  as an occupancy and facility expense, which totaled $29,318 and $29,318
for  the  three-months  ending  March  31,  2005  and  2004,  respectively.

Deferred  Gain  consisted  of  the  following:

Three-Months  Ending  March  31,  2005

<TABLE>
<CAPTION>

<S>                     <C>
Original Deferred Gain  $1,172,720
Less Amortization 2003    (107,499)
Less Amortization 2004    (117,272)
Less Amortization 2005     (29,318)
----------------------  -----------
                        $  918,631
----------------------  -----------
----------------------  -----------
</TABLE>


In  2001, the Company entered into three settlement loan agreements with various
vendors.  The  total of $171,402 for all three loans called for payments between
24 and 50 months with interest that ranges from 0% to 8%.  At March 31, 2005 and
2004,  the  outstanding  balances  on  these  notes  were  $37,130  and $75,091,
respectively,  with  interest  expense  for  the  three-months  ending March 31,
2005  and 2004 of $539 and $977,  respectively.  (As of March 31, 2005, only one
note  remained  outstanding.)

                                        7
                                      PAGE

Future  minimum  principal  payments  on  settlement  notes  are  as  follows:

For  Twelve  Months  Ending  March  31,

<TABLE>
<CAPTION>

<S>                     <C>
2005 . . . . . . . . .  $37,130
2006 . . . . . . . . .  $     -
2007 . . . . . . . . .  $     -
----------------------  -------
Total Settlement Notes  $37,130
----------------------  -------
</TABLE>


b)     Related  Parties

The  Company  had  a  note  payable to its CEO.  At March 31, 2005 and 2004, the
balances  were  $0 and $580,113, respectively, with interest accrued at 10%.  As
part  of  the Company's preferred stock offering (see Note 5), the note was paid
in  full  during  the  third  quarter  of  2004.

Interest  expense  on  this  note  was $0 and $14,593 for the three-month period
ending  March  31,  2005  and  2004,  respectively.

c)     Revolving  Credit  Facility.

On  June  3,  2003,  the  Company  entered  into  a  Security Agreement, Secured
Convertible  Note,  Registration  Rights  Agreement  and  Common  Stock Purchase
Warrant,  with the Laurus Master Fund, Ltd. ("Laurus"), which were filed on Form
8-K  dated June 18, 2003.  Pursuant to the agreements, the Company received a $1
million  revolving  credit facility in the form of a three-year Convertible Note
secured  by  its  assets subject to the amount of eligible accounts receivables.
The net proceeds from the Convertible Note were used for general working capital
purposes.  Advances  on the Convertible Note are repaid at the Company's option,
in cash or through the issuance of the Company's shares of common stock provided
the  market  price  is  118%  of  the  fixed  conversion  price or greater.  The
Convertible  Note  carries  an  interest  rate of Wall Street Journal Prime plus
0.75% on any outstanding balance.  In addition, the Company is required to pay a
collateral  management  payment  of  0.55%  of the average aggregate outstanding
balance  during  the  month  plus  an  unused  line  payment of 0.20% per annum.
Approximately $19,500 in interest and approximately $5,000 in fees were expensed
under  the  revolving credit facility in 2004.  There was no outstanding balance
on  the  revolving  credit  facility  at  March  31,  2005.

The  Company  filed  a  Form  SB-2  registration  statement  on July 25, 2003 in
connection  with  this  transaction.  The  shares  were  registered  with    the
Securities  and  Exchange Commission ("SEC") for public resale effective  August
6,  2003.  Once  the  market  price exceeded 118% of the fixed conversion price,
which  occurred  on  or about July 21, 2003, the Company obtained the ability to
pay amounts outstanding under the revolving credit facility in cash or shares of
its  common  stock  at  the  fixed  conversion  price.

The  Convertible Note includes a right of conversion in favor of Laurus.  Laurus
has  exercised  its conversion rights from time to time on outstanding balances.
When  Laurus  chooses to exercise its conversion rights, the Convertible Note is
convertible  into  shares  of  the  Company's common stock at a fixed conversion
price,  subject  to adjustments for stock splits, combinations and dividends and
for  shares  of  common  stock  issued  for less than the fixed conversion price
(unless  exempted  pursuant  to  the agreements).  The Agreement was modified on
March  31,  2004  to  provide  for a six-month waiver of the accounts receivable
restrictions  and  a  fixed conversion price to Laurus of $0.85 per share on the
first  $500,000  after the first $1 million.  The agreement was further modified
on  August  25,  2004 to provide for a fixed conversion price to Laurus of $1.00
per  share  on the next $1 million.  Thereafter, the fixed conversion price will
be adjusted after conversion of a total of $2.5 million to 103% of the then fair
market  value  of  our  common  stock  ("Adjusted  Fixed  Conversion  Price").

                                        8
                                      PAGE

Laurus converted 500,000 shares to reduce the Company's debt by $275,000 for the
three-month  period  ending March 31, 2004 as compared to no conversions for the
same  period in 2005. Laurus converted a total of 3,406,417 shares to reduce the
debt  by  $2,500,000  since the inception of the revolving credit facility.  For
the  three-month period ending March 31, 2004, the Company expensed $464,000 for
the  non-cash  loan  fee based on the fair market value of the stock when Laurus
converted  and  $2,607,099 for the non-cash loan fee expense since the inception
of  the  revolving  credit  facility.  There have been no conversions during the
first  three months of 2005.  The fair market value used in 2003 was established
using a 20% discount to the closing price on the date of conversion based on the
restricted  and  thinly-traded  nature of the Company stock in 2003 and the fair
market value used in 2004 was established using the closing price on the date of
conversion  with  no discount taken due to the increased volume in the Company's
stock.

Availability  of  funds  under  the  revolving  credit  facility is based on the
Company's  accounts  receivable,  except  as waivers are provided by Laurus.  In
2003,  an  initial  three  (3)  month  waiver was offered by Laurus, under which
Laurus  permitted  a  credit  advance  up  to  $300,000, which amount would have
otherwise  exceeded  eligible  accounts  receivable  during  the period.  Laurus
subsequently extended the waiver for two additional six (6) month periods, under
which  Laurus  permitted  a  credit advance up to $1 million, which amount would
have  otherwise  exceeded  eligible  accounts receivable during the period.  The
revolving  credit  facility  is  secured  by  all  of the assets of the Company.

In  conjunction  with this transaction, Laurus was paid a fee of $20,000 for the
first  year,  which  was  expensed  as additional interest expense in 2003.  The
Company  is  required to pay a continuation fee of $10,000 each year thereafter.
In  addition,  Laurus  received  a  warrant  to  purchase  200,000 shares of the
Company's  common stock for the initial $1 million revolving credit facility, as
stated  herein.  The  warrant  exercise price was computed as follows: $0.63 per
share for the purchase of up to 125,000 shares; $0.69 per share for the purchase
of  an  additional  50,000  shares;  and  $0.80 per share for the purchase of an
additional  25,000  shares.  The  warrant exercise price may be paid in cash, in
shares  of the Company's common stock, or by a combination of both.  The warrant
expiration  date  is June 3, 2008.  The warrant exercise price and the number of
shares  underlying  the  warrant  are  subject  to adjustments for stock splits,
combinations  and  dividends.

In  addition  to  the  initial  warrant,  the  Company was obligated to issue an
additional  five-year warrant to Laurus to purchase one share of common stock at
an exercise price equal to 125% of the Adjusted Fixed Conversion Price for every
ten  dollars  ($10)  in  principal of the Convertible Note converted into common
stock  if  and  when  over  $1  million was converted under the revolving credit
facility.  The  value of the warrant was determined when issued, and was treated
as additional interest expense and is being amortized over the remaining term of
the  Convertible  Note, unless sooner terminated.  On June 18, 2004, the Company
issued  an  additional warrant to purchase 50,000 shares at an exercise price of
$1.0625  per  share  in  relation  to  the  $500,000  revolving  credit facility
expansion  convertible  at $0.85 per share.  (Note:  this additional warrant was
exercised  by  Laurus  on  April  19, 2005).  Since no more than an aggregate of
100,000  shares  of  the  Company's  common  stock were authorized as additional
warrants  under the Laurus Agreements, on August 25, 2004, the Company issued an
additional  warrant to purchase 50,000 shares at an exercise price of $1.925 per
share  in  relation  to  the  $1  million  revolving  credit  facility expansion
convertible  at  $1.00  per  share.

The  Company  may  terminate  its  agreements  with Laurus before the end of the
initial  three  year  term  and  Laurus will release its security interests upon
payment  to  Laurus  of all obligations, if the Company has: (i) provided Laurus
with  an  executed  release  of  all claims which the Company may have under the
agreements;  and, (ii) paid to Laurus an early payment fee in an amount equal to
(x) three percent (3%) of the Capital Availability Amount if such payment occurs
after  the  first  anniversary  (i.e.,  June  3,  2004)  and prior to the second
anniversary  of  the  Initial  Term;  and  (y)  two  percent (2%) of the Capital
Availability  Amount if such payment occurs after the second anniversary  (i.e.,
June  3, 2005)  and prior to the end of the Initial Term.  The early payment fee
is  also  due and payable by the Company to Laurus if the Company terminates its
Agreement  after  the  occurrence  of  an  Event  of  Default, as defined in the
agreements.

                                        9
                                      PAGE

As  stated above, in conjunction with the Company's Preferred Stock financing on
August  25, 2004, Laurus agreed to extend the revolving credit facility reported
on  Form  8-K  filed June 18, 2003 from $1.0 million to $1.5 million.  The first
$1.0 million converted under the revolving credit facility was converted in 2003
and  early 2004 at a rate of $0.55 per share.  On March 31, 2004, the conversion
price for the next $500,000 under the revolving credit facility was set at $0.85
per  share.  The  next  $1  million  under  the  revolving  credit  facility was
convertible  at a rate of $1.00 per share. The fixed conversion price for future
amounts  under  the  revolving  credit  facilty  will be set at 103% of the fair
market  value of our common stock.  There was no balance on the revolving credit
facility  for  the  period  ending  March 31, 2005, and, at this time, we do not
anticipate  further  draws  under  the  revolving  credit  facility.

4.     STOCKHOLDER'S  EQUITY  -  PREFERRED  STOCK,  COMMON  STOCK  AND  WARRANTS

PREFERRED  STOCK

On  August  25,  2004,  the Company entered into a Securities Purchase Agreement
with  the Laurus Master Fund, Ltd., whereby the Company issued 250,000 shares of
its  Series  C  Non-Redeemable Convertible Preferred Stock, par value $0.001 per
share  (the  "Preferred  Stock"),  to  Laurus for an aggregate purchase price of
$2,500,000  or  $10.00 per share (the "Stated Value").  The preferred shares are
convertible  into  shares  of  the Company's $0.0001 par value common stock at a
rate  of  $1.54  per  share  at  any  time  after  the date of issuance, and pay
quarterly, cumulative dividends at a rate of 6.85% with the first payment due on
January  1,  2005.  As of March 31, 2005, approximately $42,000 has been accrued
for  dividends  and  are  payable  in  cash or shares of our common stock at the
holder's  option with the exception that dividends must be paid in shares of our
common  stock  for  up to 25% of the aggregate dollar trading volume if the fair
market  value  of  the  Company's  common  stock  for  the 20-days preceding the
conversion  date  exceeds  120%  of  the  conversion rate.  On January 11, 2005,
$60,967  was  converted  into  39,589  shares of the Company's common stock from
previous  dividend accruals.  On May 5, 2005. $56,3001 was converted into 36,559
shares of the Company's common stock from dividends accrued from January 1, 2005
through  April  30, 2005.  The preferred shares are redeemable by the Company in
whole  or in part at any time after issuance for (a) 115% of the Stated Value if
the  average  closing  price  of  the  common  stock for the 22 days immediately
preceding  the date of conversion does not exceed the conversion rate or (b) the
Stated  Value  if  the average closing price of our common stock for the 22 days
immediately  preceding  the  date  of  conversion  exceeds the Stated Value. The
preferred  shares  have  a  liquidation right equal to the Stated Value upon the
Company's  dissolution, liquidation or winding-up.  The preferred shares have no
voting  rights.

In  conjunction with the Preferred Shares, the Company issued a five-year common
stock  purchase  warrant  to  Laurus  for  the purchase of 487,000 shares of the
Company's  common  stock  at  an  exercise price of $1.77 per share. The Company
registered all of the shares of its common stock underlying the Preferred Shares
and  the  warrant, as well as an estimated number of shares payable as dividends
on  the  Preferred  Shares,  for  resale.

COMMON  STOCK  AND  WARRANTS

The  Company has elected to account for its stock-based compensation plans under
APB  25.  However,  the Company has computed, for pro forma disclosure purposes,
the  value of all options granted during the three--months ending March 31, 2005
and 2004 using the minimum value method as prescribed by SFAS 123 and amended by
SFAS  148.  Under  this  method, the Company used the risk-free interest rate at
the  date of grant, the expected volatility, the expected dividend yield and the
expected life of the options to determine the fair value of options granted. The
risk-free interest rates ranged from 6.0% to 6.5%, expected volatility was 117%,
the  dividend yield was assumed to be zero, and the expected life of the options
was  assumed  to  be  three to five years based on the average vesting period of
options  granted.

If  the Company had accounted for these options in accordance with SFAS 123, the
total  value  of  options granted during the three-month period ending March 31,
2005 and 2004 would be amortized on a pro forma basis over the vesting period of
the  options.  Thus,  the  Company's  consolidated  net income (loss) would have
been  as  follows:

                                       10
                                      PAGE

<TABLE>
<CAPTION>



<S>                                                                                                      <C>         <C>

 Net Income (Loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       2005        2004

 As reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 101,223   $(442,549)
 Stock based employee compensation expense included in reported net income
 Stock based employee compensation expense determined under the fair value based method for all awards.  $ 213,553   $(536,614)
                                                                                                         ----------  ----------
 Pro forma. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $(112,330)  $(979,163)
=======================================================================================================  ==========  ==========
 Net Income (Loss) Per Share:

 As reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    0.00   $   (0.03)
 Pro forma. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   (0.01)  $   (0.03)
-------------------------------------------------------------------------------------------------------  ----------  ----------
</TABLE>

Beginning  January  2006,  the  Company  plans to adopt SFAS 123(R) as currently
required  by  the Securities and Exchange Commission.  As of March 31, 2005, the
Company  had  not  yet  determined  the  impact  of SFAS 123(R) on its financial
statements.

On  November  21,  1997,  the  Company  entered  into a five (5) year employment
agreement  with  its  CEO.  On July 16, 2000, the Company amended the employment
agreement  with  its CEO extending the term until July 16, 2005.  As part of the
original  employment  agreement,  the  Company  granted  options  to  the CEO to
purchase  up  to  2,500,000  shares of the Company's $.0001 par value restricted
common  stock.

The  options are subject to the following vesting conditions, which were amended
on  January  21,  2000  and  later  ratified by the Board on July 16, 2000.  The
agreement  provided  an  option  for the Board to award options on an additional
1,500,000  shares  of  restricted  common  stock  at a later date.  The exercise
prices  are  set  forth  in  the  following  chart:

<TABLE>
<CAPTION>

                                                                                                                  Exercise
                       Number                                                                                    price per
                       Of shares         Vesting Conditions                                                          share
----------------       ---------         -----------------------------------------------------------   -----------------
<S>                    <C>               <C>                                                           <C>
Granted Options:
                       500,000. . . . .  Currently vested                                              $            1.00
                       500,000. . . . .  Obtaining $6,500,000 additional equity capital                $            1.50
                       500,000. . . . .  Financing and executing a definitive space launch agreement   $            2.00
                       500,000. . . . .  Launching of first lunar or deep-space mission                $            2.50
                       500,000. . . . .  Successful completion of first lunar or deep-space mission    $            3.00
Options to be Granted
upon the Occurrence of
Certain Vesting Conditions,
if achieved during the term
of contract:
                       250,000. . . . .  Upon the Company market capitalization reaching $250 million    $          5.00
                       500,000. . . . .  Upon the Company market capitalization reaching $500 million    $         10.00
                       750,000. . . . .  Upon the Company market capitalization reaching $1 billion      $         20.00
----------------       ---------         -----------------------------------------------------------   -----------------

</TABLE>

                                       11
                                      PAGE

All  options  expire  on  July  16,  2010.

In  accordance  with  APB  25,  the  Company recognized $500,000 of compensation
expense  and  $250,000 of deferred compensation in 1997.  The options granted to
the CEO are subject to vesting conditions and have exercise prices between $1.00
and  $3.00  per  share.

On  August  27,  2001, as part of an annual review process, an additional 10,000
options  were granted to the CEO at the exercise price of $0.9469 per share with
a  set  vesting  schedule of 3,333 shares per year after issuance with the third
year  having  3,334  options  vest.  These  options expire five years from grant
date.

6.     NEW  ACCOUNTING  PRONOUNCEMENTS

There  were no recent Accounting Pronouncements that affected the Company during
the  first quarter of 2005.  For past pronouncements, please refer the Company's
10-KSB  filed  on  March  28,  2005.

7.     SUBSEQUENT  EVENTS

Effective  April  12, 2005, Susan C. Benson accepted an appointment to the Board
of Directors of SpaceDev, Inc., bringing the total number of board members to 9,
five  of  whom  are  independent directors.  Since joining SpaceDev in 1997, Ms.
Benson  has served as corporate secretary until 2003. From approximately 1998 to
2004,  Ms. Benson was, in part, responsible for the Company's investor relations
and  public  relations  activities,  managing  SpaceDev's strategic messaging to
build  industry  and  media  awareness  as  well  as  strengthening  shareholder
relations.  Pursuant to the terms of a marital separation agreement entered into
between  James  Benson and Ms. Benson on November 18, 2004, Ms. Benson currently
owns  approximately 4.6 million shares of SpaceDev common stock and is currently
the  Company's  largest  stockholder.

Effective  April  14,  2005,  SpaceDev,  Inc.  entered into a 16- month lease to
expand  its  fabrication  and test facilities. This additional SpaceDev facility
will  also  be  located  in  Poway, California. It will add approximately 11,000
square  feet  of  fabrication  space and cost the Company approximately $107,000
over  the  term  of the lease. SpaceDev plans to use the new facilities to begin
construction  of  portable,  high  tech  rocket  motor test support equipment in
anticipation  of  test firing new rocket motors being developed for its low-cost
expendable  small  launch  vehicle,  SpaceDev Streaker(TM).   Under an Air Force
Research  Laboratory  contract announced last October, SpaceDev has designed and
will  begin  development  of the SpaceDev Streaker(TM) hybrid upper stage rocket
motor.

                                       12
                                      PAGE

ITEM  2.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS

     The  following  discussion should be read in conjunction with the Company's
consolidated  financial statements and the notes thereto and the other financial
information  appearing  elsewhere  in  this document.  Readers are also urged to
carefully  review  and consider the various disclosures made by us which attempt
to advise interested parties of the factors which affect our business, including
without  limitation  our  General Registration Statement on Form 10SB12G/A filed
January  28,  2000  as  well as any or all of our recent filings including prior
year  10-KSB  and  quarterly  10-QSB  filings.

     In  addition  to historical information, the following discussion and other
parts  of this document may contain forward-looking statements. These statements
relate  to future events or our future financial performance. In some cases, you
can  identify  forward-looking  statements by terminology such as "may," "will,"
"should,"  "expect,"  "plan,"  "anticipate,"  "believe,"  "estimate," "predict,"
"potential,"  or  "continue,"  the  negative  of  such terms or other comparable
terminology. These statements are only predictions. Although we believe that the
expectations  reflected  in  the  forward-looking  statements are reasonable, we
cannot  guarantee  future   results,   levels  of   activity,   performance   or
achievements.  Moreover,  neither we nor any other person assumes responsibility
for  the  accuracy  and  completeness  of  the  forward-looking  statements.  We
undertake no obligation to publicly update any of the forward-looking statements
after the date of this report to conform such statements to actual results or to
changes  in  our  expectations.

     Actual  results  could  differ  materially  from  those anticipated by such
forward-looking  statements.  Factors  that  could  cause  or contribute to such
differences  include,  but  are  not  limited  to,  the  level  of  sales to key
customers;  the  economic  conditions  affecting  our   industry;   actions   by
competitors;  fluctuations  in  the  price of raw materials; the availability of
outside  contractors  at  prices  favorable  to  the  Company; our dependence on
single-source  or  a  limited  number  of  suppliers; our ability to protect our
proprietary  technology;  market  conditions  influencing  prices or pricing; an
adverse  outcome in potential litigation, claims and other actions by or against
us;  technological  changes  and  introductions  of  new competing products; the
current  recession;  U.S.  government  budget cuts; terrorist attacks or acts of
war,  particularly  given  the  acts  of  terrorism against the United States on
September  11,  2001  and subsequent military responses by the United States and
coalition  forces;  mission  disasters  such  as  the  loss of the space shuttle
Columbia  on  February  1,  2003  during  its  re-entry into earth's atmosphere;
ability  to  retain  key  personnel;  changes  in market demand; exchange rates;
productivity;  weather;  and  market and economic conditions in the areas of the
world in which we operate and market our products. These are some of the factors
that  we think could cause our actual results to differ materially from expected
and  historical  events.

OVERVIEW

     We  are  engaged  in  the  conception,  design,  development,  manufacture,
integration  and  operations of space technology systems, products and services.
We  are currently focused on the commercial and military development of low-cost
microsatellites, nanosatellites and related subsystems, hybrid rocket propulsion
for  space,  launch  and human flight vehicles as well as associated engineering
and  technical  services  primarily to government agencies, and specifically the
Department  of  Defense.  Our  products  and  solutions  are  sold,  mainly on a
project-basis,  directly to these customers and include sophisticated micro- and
nanosatellites,  hybrid  rocket-based  launch  vehicles, Maneuvering and orbital
Transfer  Vehicles  as  well as safe sub-orbital and orbital hybrid rocket-based
propulsion  systems.  Although  we believe there will be a commercial market for
our microsatellite and nanosatellite products and services in the long-term, the
early  adopters of this technology appears to be the military and our "products"
are  considered  to  be the outcome of specific projects. We are also developing
hybrid  rocket  motors  for  possible use in commercial and miltary small launch
vehicles, targets and sounding rockets and small high-performance space vehicles
and  subsystems.

                                       13
                                      PAGE

     We  were  incorporated  under the laws of the State of Colorado on December
23, 1996 as Pegasus Development Group, Inc. ("PDGI").  SpaceDev, LLC of Colorado
was  originally formed in 1997 for commercial space exploration and was the sole
owner of shares of common stock of SpaceDev (a Nevada corporation) ("SpaceDev"),
formed  on  August  22, 1997.  On October 22, 1997, PDGI issued 8,245,000 of its
$.0001  par  value common stock for 100 percent (1,000,000 shares) of SpaceDev's
common  stock  owned  by  SpaceDev,  LLC.  Upon  the acquisition of the SpaceDev
stock, SpaceDev was merged into PDGI and, on December 17, 1997, PDGI changed its
name  to SPACEDEV, INC.  After the merger, SpaceDev, LLC, changed its name to SD
Holdings,  LLC  on  December  17,  1997.  We became a publicly traded company in
October  1997  and  are  trading  on  the Nasdaq Over-the-Counter Bulletin Board
("OTCBB")  under  the  symbol  "SPDV."

SELECTION  OF  SIGNIFICANT  CONTRACTS

     On  March  31,  2004,   we   were   awarded   a   $43,362,271,   five-year,
cost-plus-fixed  fee indefinite delivery/indefinite quantity contract to conduct
a  microsatellite  distributed  sensing  experiment,  an  option  for  a   laser
communications  experiment,  and other microsatellite studies and experiments as
required  in  support  of  the  Advanced Systems Deputate of the Missile Defense
Agency.  This  effort  will  be  accomplished  in  a phased approach.  The total
five-year  contract has a ceiling amount of $43,362,271.  The principal place of
performance  will  be at our facilities located in Poway, California.  We expect
to  complete the work under the contract before March 2009.  Government contract
funds  will  not  expire  at the end of the current government fiscal year.  The
microsatellite distributed sensing experiment is intended to design and build up
to  six  responsive,  affordable,  high  performance  microsatellites to support
national  missile  defense.  The milestone-based, multiyear, multiphase contract
had  an effective start date of March 1, 2004.  The first phase was completed on
September  30,  2004 and resulted in detailed mission and microsat designs.  The
first  phase  revenue  was approximately $1.14 million.  On October 1, 2004, the
second phase of the contract began with an approximate value of $8.3 million and
is  expected  to  last  approximately 16 months.  During the three-months ending
March  31,  2005  we  recognized  approximately $1,444,000 in revenues from this
second  phase.  The  overall  contract calls for us to analyze, design, develop,
fabricate,  integrate,  test,  operate  and support a networked cluster of three
formation-flying  boost  phase  and  midcourse tracking microsatellites, with an
option  to  design,  develop,  fabricate, integrate, test, operate and support a
second cluster of three formation flying microsats to be networked on-orbit with
high  speed  laser  communications  technology.

     On  December  18,  2003, we were awarded a contract by the Defense Advanced
Research  Projects  Agency  for the study of Novel Satcom Microsat Constellation
Deployment.  The contract was a milestone-based, fixed price contract with total
consideration  of  approximately  $200,000.  On  August  6,  2004, an additional
$39,849  was  added  to  the  contract  for  increased  scope bringing the total
contract  value  on  this  fixed price effort to approximately $240,000. We have
successfully  completed  this  contract  and the entire revenue of approximately
$240,000  was  realized in 2004, with $90,878 in the first three-months of 2004.
We  expect  to either further expand this contract or obtain new contracts under
the  Defense Advanced Research Projects Agency program(s); however, there can be
no  assurance  as  to  whether  such  contract(s)  will be awarded to us, or, if
awarded,  there  can  be  no assurance as to the amounts or terms of the awards.

     On  October  2,  2003,  we were awarded an exclusive, follow-on contract to
provide  the  hybrid  rocket  motor systems and components for SpaceShipOne.  We
provided  our  facilities,  resources  and  a  team of launch vehicle and hybrid
propulsion  engineers  and  technical  personnel  in support of the SpaceShipOne
program.  The  contract  called  for  us  to use our best efforts to satisfy the
requirements of the SpaceShipOne program, based on our experience with the prior
phases.  We  provided  re-usable  flight  test  hardware,  including a bulkhead,
commonly known as the SpaceDev bulkhead, machined in the flight configuration, a
main oxidizer valve of the current design and associated interfaces and plumbing
to  the  SpaceDev  bulkhead,  a motor control system, igniter housings, pressure
transducers,  and  thermocouples  as  required  for  input  to the motor control
system.  In  addition,  we produced and assembled test motors, including but not
limited to, all expendable or semi-reusable materials as defined by our baseline
design  motor.  We  also provided on-site engineering test support and post-test
analysis.  Provisions  were made in the contract for minimum monthly payments in
the  event of customer schedule slippage as well as additional levels of support
via  engineering  change  orders,  if  required.  The  total  contract value was
originally  estimated  at  $615,000.  Approximately  $686,000  of  revenue   was
realized in 2004, with approximately $180,000 from engineering change orders and
the  remaining $506,000 from the contract. Of this total, approximately $106,000
was  recognized  during  the  first  quarter  of  2004.

                                       14
                                      PAGE

     On  July  24,  2003,  we  were  awarded  a  contract by Lunar Enterprise of
California  for  a  first phase project to begin developing a conceptual mission
and  spacecraft  design for a lunar lander program. The unmanned mission will be
designed  to put a small dish antenna near the south pole of the Moon. From that
location  it  will  be in near-constant sunlight for solar power generation, and
should  be  able  to perform multi-wavelength astronomy while communicating with
ground  stations  on Earth. The contract value was $100,000 and was completed by
November  2003.  We  were  awarded  a  follow-on phase to further analyze launch
opportunities,  spacecraft  design,  trajectory possibilities, potential landing
areas,  available  technologies  for  a  small  radio  astronomy   system,   and
communications  and data handling requirements on July 20, 2004 in the amount of
$150,000.  Although  the  complete project is currently unfunded, if the project
were  to  proceed  past  the analysis stage, the total mission cost could exceed
$50-$75  million.  Again, we can give no assurance that any additional contracts
will  be awarded to us from this contract.  We successfully completed this stage
of  the  project,  and  all revenues were recognized in the second half of 2004.

     On  July  9, 2003, we were awarded a contract by the Missile Defense Agency
to  explore  the  use  of microsatellites in national missile defense.  It was a
precursor  contract  to  the  $43  million  contract   mentioned   above.    Our
microsatellites  are  operated over the Internet and are capable of pointing and
tracking  targets  in space or on the ground.  This study explored fast response
microsatellite  launch  and  commissioning;  small,  low-power  passive sensors;
target  acquisition  and  tracking;  formation  flying and local area networking
within  a  cluster of microsatellites; and an extension of our proven use of the
Internet  for  on-orbit  command,  control  and  data handling. The contract was
successfully  concluded  on  February  27,  2004.  The  total contract value was
$800,000  with  approximately  $319,000  of   revenue  realized   in  2004   and
approximately  $481,000  of  revenue   realized  in  2003.   This  contract  was
considered  an  investigatory  phase  by  MDA.

     Also,  on July 9, 2003, we were awarded a Phase I Small Business Innovation
Research  contract by Air Force Research Lab to design and effectively begin the
development of our small launch vehicle.  The SpaceDev Small Launch Vehicle will
be  designed to responsively and affordably lift up to 1,000 pounds to Low Earth
Orbit.  The  concept  is  based  on a proprietary combination of technologies to
increase  the  performance  of  hybrid  rocket  motor technology.  Hybrid rocket
motors  are  a  combination  of  solid  fuel  and  liquid  oxidizer,  and can be
relatively  safe, clean, non-explosive, and storable, and can be throttled, shut
down and restarted.  This contract was valued at approximately $100,000, and was
a fixed price, milestone-based agreement, which was completed in about one year.
Phase  II  of  this  Small  Business  Innovation  Research  grant was awarded on
September 29, 2004 and is worth approximately $1,557,000.  The contract outlines
the  development  and  test  firing  of  our  large  Common Core Booster for the
SpaceDev  Small  Launch  Vehicle.  Congress  has  awarded  us approximately $3.0
million  in  additional  funding  for  this  project,  which  we  expect will be
available by mid-2005.  We believe that there is additional interest by Congress
in  providing  further  funding  to expand and accelerate the scope of the work;
however,  there  can  be  no  assurance  that  such  work will be awarded to us.
Revenue  from  this  project  for  the  three-months  ending  March 31, 2005 was
approximately  $58,000  for  Phase  I  and  approximately $195,000 for Phase II.
Revenues  for  the three-months ending March 31, 2004 were approximately $24,000
for  Phase  I.

     Also,  on July 9, 2003, we were awarded a Phase I contract to develop micro
and  nanosatellite bus and subsystem designs. This Air Force Research Laboratory
Small  Business  Innovation  Research  contract  was  valued  at   approximately
$100,000,  and  enabled  us to explore the further miniaturization of our unique
and  innovative microsatellite subsystems. It also enabled us to explore ways to
reduce  the  time  and  cost  to  build   small   satellites   through   further
standardization  in order to help define de facto standards for payload hardware
and  software  interfaces. The contract was fixed price, milestone-based and was
completed  within one year. On August 23, 2004, we were awarded Phase II of this
Small  Business  Innovation  Research,  which  was later amended on September 8,
2004,  to  shorten  the  length  of  the  overall  contract, worth approximately
$739,000  for carry-forward work. Revenues for the three-months ending March 31,
2005  were  approximately  $115,000  for Phase II. Revenues for the three-months
ending  March  31,  2004  were  approximately  $30,000  for  Phase  I.

                                       15
                                      PAGE

     On  April  30,  2002,  we  were  awarded Phase I of a contract to develop a
Shuttle-compatible  propulsion module for the Air Force Research Laboratory.  We
received  an  award for Phase II of the contract on March 28, 2003, and used the
project  to further expand our product line to satisfy commercial and government
space  transportation  requirements.  The  first  two  phases  of  the  contract
(including  an  additional add-on option) were worth approximately $2.5 million,
of  which  $100,000  was awarded for Phase I, and approximately $1.4 million was
awarded  for Phase II.  Phase II is a cost-plus fixed fee contract.  In order to
complete  Phase  II,  we requested and were granted approximately four months of
additional  time  and approximately $240,000 of additional funding, memorialized
by  a  contract  amendment executed on July 7, 2004.  In addition to the Phase I
and Phase II awards, there was an option worth approximately $800,000, which was
initiated  on  May  3,  2004, of which approximately $565,000 was funded and the
balance to complete Phase II remains unfunded.  Part of the funding for Phase II
came  from  the  original  $1  million  option;  thereby  reducing the option to
approximately  $800,000.  An  additional  effort  to  develop   a   miniaturized
Shuttle-compatible  propulsion  module  has  been  added  to this contract worth
approximately  $150,000.  These  programs  funds  were expended in 2004 so there
were no revenues on this contract for 2005.  Revenue for the three-months ending
March  31,  2004  was  approximately  $413,000  for  Phase  II.

     In  November  1999,  we  won  a  $4.9 million mission contract by the Space
Sciences  Laboratory  at  the  University  of  California  at Berkeley.  We were
competitively  selected  to  design, build, integrate, test and operate, for one
year,  a  small  NASA-sponsored  scientific,  Earth-orbiting  spacecraft  called
CHIPSat.  CHIPSat is the first and, to our knowledge, only successful mission of
NASA's  low-cost  University-Class  Explorer  series to date.  Due to additional
NASA  and  customer  reviews, additional work, schedule extensions and a fee for
one  year  of  satellite operations, the CHIPSat contract award was increased by
approximately  $2.5  million in 2001 and 2002, bringing the total contract value
for  design, build, launch and operations to approximately $7.4 million. CHIPSat
launched  as  a  secondary  payload  on  a  Delta-II rocket on January 12, 2003.
CHIPSat  is  the  world's  first  orbiting  Internet   node,   achieved   3-axis
stabilization,  meaning  it  was  pointing  and  tracking  properly,  with   all
individual  components  and systems successfully operating, and is continuing to
work  well  in  orbit  after  more than two years.  As of December 31, 2004, the
total contract costs were expended.  CHIPSat is still operating successfully and
providing  the  University  of  California  at Berkeley with new and interesting
data.  The  University of California at Berkeley requested to extend the program
and we negotiated a new time and materials contract in the first quarter of 2004
in  the  form  of a purchase order with the University of California at Berkeley
for  continuing  support  of this project.  The contract will continue until the
University  of  California  at  Berkeley  decides  that  no   further   relevant
information  is  forthcoming  or funding is terminated, at which time the use of
the  microsatellite  will  revert  to  NASA  and  then  to us.  Revenues for the
three-months  ending  March  31, 2004 were approximately $12,000.  There were no
revenues  for  the  three-months  ending  March  31,  2005.

RESULTS  OF  OPERATIONS

     Please  refer to the consolidated financial statements, which are a part of
this  report,  for  further  information  regarding  the  results of operations.

  THREE-MONTHS ENDING MARCH 31, 2005 -VS.- THREE-MONTHS ENDING MARCH  31, 2004

     During  the  three-months  ending  March  31,  2005,  we  had  net sales of
approximately  $1,807,000  as  compared to net sales of approximately $1,015,000
for  the  same  period  in  2004.  Sales  increased  primarily  due  to  our new
government contracts.  Sales in 2005 reflected our continued work on the Missile
Defense  Agency  Task Order 2 contract of approximately $1,444,000 which is part
of  our  approximately $43 million contract.  We also had ongoing Small Business
Innovation  Research  contracts  with  the Air Force Research Laboratory.  These
contracts  are  both  for Phase II efforts, and are for SpaceDev,s  Small Launch
Vehicle  as  well as our micro and nanosatellite bus and subsystem designs work.
Sales  for  these  efforts totaled $195,000 and $115,000, respectively.  We also
had  a  smaller  project  that  had  approximately  $53,000  in revenue with the
California  Space  Grant Foundation.  Revenues for the three-months ending March
31,  2004  were  comprised  of  approximately  $412,000  from Air Force Research
Laboratory  Phase II contract, $319,000 from the Missile Defense Agency Phase II
contract,  $106,000  from  the  SpaceShipOne  program,  $91,000 from our Defense
Advanced  Research Projects Agency contract, $54,000 from our two Small Business
Innovation Research contracts listed above, and $33,000 from all other programs.

                                       16
                                      PAGE

     For  the  three-months ending March 31, 2005, we had costs of sales (direct
and  allocated  costs  associated  with  individual  contracts) of approximately
$1,397,000,  or  77.3%  of  net sales, as compared to approximately $807,500, or
79.6%  of  net  sales,  during the same period in 2004.  The increase in cost of
sales  was  primarily  due  to higher engineering costs related to executing the
above  named  projects  and contracts.  We continue to focus efforts on managing
our  growth  including  but  not  limited  to recruiting new talented engineers,
developing  project  management  skills  and  creating  systems to assist in the
efficient and effective management of our projects.  The gross margin percentage
for  the  three-months ending March 31, 2005 was 22.7% of net sales, an increase
of  2.3%  of net sales, as compared to 20.4% of net sales for the same period in
2004.

     We  experienced an increase of approximately $149,000 in operating expenses
from  approximately $195,000, or 19.2% of net sales, for the three-months ending
March  31,  2004  to  approximately  $344,000,  or  19.1%  of net sales, for the
three-months  ending  March  31,  2005.  Operating  expenses include general and
administrative expenses, which includes our research and development expenses as
well  as  marketing  and  sales  expenses.

     Marketing  and  sales  expenses  increased during the first quarter of 2005
     (but  decreased  as  a percentage of sales), from approximately $99,000, or
     9.8%  of  net  sales,  for  the  three-months  ending  March  31,  2004, to
     approximately  $145,000,  or  8.0%  of net sales, during the same period in
     2005. The total dollar value increased by approximately $46,000, mainly due
     to  our decision to expand our marketing and sales department, with partial
     costs  of  our  Vice  President  of  New Business Development and our Chief
     Executive  Officer  being  charged  to  marketing  and  sales  expenses.

     General  and  administrative expenses increased approximately $103,000 from
     approximately  $96,000,  or  9.5% of net sales, for the three-months ending
     March  31,  2004  to approximately $199,000, or 11.0% of net sales, for the
     same  three  month  period in 2005. This increase is attributed to the need
     for  more  support  personnel,  including  a  human  resources director for
     engineer recruiting, a contract administrator and upcoming SEC compliances,
     including Sarbanes Oxley 404 compliance and FASB 123(R) compliance. We also
     incurred  research  and  development costs approximately $8,500, or 0.5% of
     net  sales,  and  $15,300,  or  1.5%  of net sales, during the three-months
     ending  March  31,  2005  and  2004,  respectively.

     Non-operating expense (income) consisted of interest expense, non-cash debt
discount expense and deferred gain on the sale of our building, as well as other
loan  fees  and  expenses. Non-operating expenses decreased to the point that we
recorded  non-operating  income  for  the  first  quarter  2005.

     Interest  expense  for  the three-months ending March 31, 2005 and 2004 was
     approximately  $1,200,  or  0.1%  of net sales, and $19,800, or 2.0% of net
     sales, respectively. The decrease was due to a reduction in debt with fewer
     notes  payable.  We  continue  to  pay  interest expense on certain capital
     leases  and settlement notes, although the balances continue to decline. We
     ceased  accruing interest expense on our related party note, which was paid
     in full during 2004, and on our revolving credit facility, which also had a
     zero  balance  for  the  three-months  ending March 31, 2005. For the first
     quarter  of  2004, we accrued interest on our related party note (which was
     later paid in full last year) of approximately $14,600. We also accrued and
     paid  approximately  $1,200  of  interest on our various capital leases and
     notes  payable and accrued and paid approximately $0 and $4,000 of interest
     on our revolving credit facility for the three-months ending March 31, 2005
     and  2004,  respectively.  For  the  three-months  ending  March  31, 2004,
     interest  expense  on  our  revolving  credit facility/convertible debt was
     $4,000.  Interest  expense  on  our settlement notes/capital leases for the
     three-month  period  ending March 31, 2005 and 2004 were $1,200 and $8,000,
     respectively.  We  began generating interest income in late 2004, and as of
     March  31,  2005, we recognized approximately $8,000, or 0.4% of net sales,
     in  interest  income  due  to  increasing  cash  balances.

                                       17
                                      PAGE

     We recognized approximately $29,000 and $29,000 of the deferred gain on the
     sale  of  the  building  during  the three-months ending March 31, 2005 and
     2004, respectively, and we will continue to amortize the remaining deferred
     gain of approximately $919,000 into non-operating income over the remainder
     of  the  lease.  We  also  accrued an income tax payable expense of $400 at
     March  31,  2004.

     For  the  three-months ending March 31, 2004, we realized loan fees related
     to our revolving credit facility of approximately $464,000. We did not have
     additional  expenses  related  to similar note to equity conversions in the
     first  quarter  of  2005,  and  do  not  anticipate  these fees through the
     remainder  of  the  year.

     During the three-months ending March 31, 2005, we generated a net profit of
approximately  $101,000,  or  5.6%  of  net  sales,  compared  to  a net loss of
approximately  $442,500,  or 43.6% of net sales, for the same three-month period
in  2004.  During the three-months ending March 31, 2005, we incurred a positive
EBITDA  (earnings  before  interest  taxes  depreciation  and  amortization)  of
approximately  $95,000,  or  5.2%  of  net  sales,  compared  to  a  EBITDA   of
approximately  $28,000,  or 2.7% of net sales, for the three-months ending March
31,  2004.

     The  following  table   reconciles   Earnings   Before   Interest,   Taxes,
Depreciation and Amortization (EBITDA) to net income (loss) for the three-months
ending  March  31,  2005  and  2004,  respectively:

<TABLE>
<CAPTION>

<S>                                     <C>               <C>
FOR THE THREE-MONTHS ENDING. . . . . .  MARCH 31, 2005    March 31, 2004
                                             (UNAUDITED)       (Unaudited)
--------------------------------------  ----------------  ----------------
NET INCOME (LOSS). . . . . . . . . . .  $       101,223   $      (442,549)
--------------------------------------  ----------------  ----------------
Interest Income. . . . . . . . . . . .           (7,960)                -
Interest Expense . . . . . . . . . . .            1,222            19,788
Non-Cash Interest exp. (Debt Discount)                -                 -
Gain on Building Sale. . . . . . . . .          (29,318)          (29,318)
 Loan Fee - Equity Conversion. . . . .                -           464,000
Provision for income taxes . . . . . .              400                 -
Depreciation and Amortization. . . . .           29,061            15,954
--------------------------------------  ----------------  ----------------
EBITDA . . . . . . . . . . . . . . . .  $        94,628   $        27,875
--------------------------------------  ----------------  ----------------
</TABLE>

     EBITDA  should  not  be  considered  as an alternative to net income (as an
indicator  of  operating  performance)  or  as an alternative to cash flow (as a
measure  of  liquidity or ability to service debt obligations).  We believe that
EBITDA  provides  an  important additional perspective on our operating results,
our ability to service our long-term obligations, our ability to fund continuing
growth,  and  our  ability  to  continue as a going concern.   Beginning in 2003
through  the  current  quarter  in  2005,  we showed continued progress in total
revenue  as  well  as  in  EBITDA.

                                       18
                                      PAGE

                               [GRAPHIC  OMITED]



                               [GRAPHIC  OMITED]

                                       19
                                      PAGE

LIQUIDITY  AND  CAPITAL  RESOURCES

     CASH  POSITION  FOR  THREE-MONTHS  ENDING MARCH 31, 2005 -VS.- THREE-MONTHS
ENDING  MARCH  31,  2004

     Net  increase  in  cash  during  the three-months ending March 31, 2005 was
approximately  $344,000 compared to a net increase of approximately $390,000 for
the  same three-month period in 2004.  Net cash provided by operating activities
totaled  approximately  $236,000  for the three-months ending March 31, 2005, an
increase of approximately $397,000 as compared to approximately $161,000 used in
operating  activities  during  the  same  three-month  period   in   2004.   The
improvement  in  cash  position from operations was mainly due to our ability to
generate  net income of approximately $101,000 for the three-month period ending
March  31,  2005,  versus  a  net  loss  of  approximately $443,000 for the same
three-month  period last year, combined with an increase in depreciation expense
and  an  increase in accounts payable and related accruals, which generated cash
for  the  three-month  period  ending  March  31,  2005.

     Net cash used in investing activities totaled approximately $43,000 for the
three-months  ending  March  31,  2005, compared to approximately $8,000 used in
investing  activities  during the same three-month period in 2004.  The increase
in  cash  used  in  investing  activities  is attributable the purchase of fixed
assets,  primarily  computer  hardware  and  software  tools  in  2005.

     Net  cash  provided  by financing activities totaled approximately $151,000
for the three-months ending March 31, 2005, which is a decrease of approximately
$408,000 from the approximately $559,000 provided by financing activities during
the  same  three-months  in  2004.  This  is  primarily  attributable   to   the
advances/conversions  under our revolving credit facility with the Laurus Master
Fund  in  2004.

     At  March  31,  2005,  our  cash,  which  includes  cash  reserves and cash
available  for  investment,  was  approximately  $5,413,000,  as   compared   to
approximately  $982,000  at  March  31,  2004,  an  increase  of   approximately
$4,431,000 mainly due to the issuance of our preferred stock in August 2004, the
exercise  of  stock  options  and  warrants  throughout  the  quarter  and
advances/conversions  under  our  revolving  credit  facility  in  2004.

     As  of  March  31,  2005, our backlog of funded and non-funded business was
approximately $45 million, compared to approximately $45 million as of March 31,
2004,  as  we  continue  to  generate  new business while we execute on existing
backorders.  With  respect  to  the  Missile  Defense  Agency program, we expect
approximately  $8  million  in  revenue  to  be generated in 2005.  Although the
Missile  Defense  Agency  contract  was awarded to us, there can be no assurance
that  the contract will be continued through all phases, and, if continued, that
it  will  generate  the  amounts  anticipated.

     Deferred income taxes are provided for temporary differences in recognizing
certain  income and expense items for financial and tax reporting purposes.  The
deferred  tax  asset of $2,328,000 and $2,360,000 as of March 31, 2005 and 2004,
respectively,  consisted primarily of the income tax benefits from net operating
loss  and  capital loss carryforwards, amortization of goodwill and research and
development  credits.  A  valuation  allowance has been recorded to fully offset
the deferred tax asset as it is more likely than not that the assets will not be
utilized.  The  valuation allowance increased approximately $10,000 in 2005 from
$2,318,000  at  December  31,  2004  to  $2,328,000  at  March  31,  2005.

     At March 31, 2005, the Company has federal and state tax net operating loss
and  capital  loss  carryforwards  of  approximately  $4,829,000 and $2,203,000,
respectively.  The  federal and state tax loss carryforwards will expire in 2023
and  2013,  respectively,  unless  previously utilized.  The State of California
suspended  the  utilization of net operating loss for 2002 and 2003, and limited
them  for  2004.

                                       20
                                      PAGE

CRITICAL  ACCOUNTING  STANDARDS

     Our revenues transitioned in 2003 and early 2004 from being based primarily
on  fixed-price   contracts,   where   revenues   are   recognized   using   the
percentage-of-completion  method  of  contract  accounting based on the ratio of
total  costs incurred to total estimated costs, to primarily cost-plus fixed fee
contracts,  where revenues are recognized as costs are incurred and services are
performed.  Losses  on  contracts  are  recognized  when  they  become known and
reasonably  estimable  (see  Notes  to  the  Consolidated Financial Statements).
Actual  results  of  contracts  may  differ from management's estimates and such
differences  could  be  material  to  the  consolidated  financial   statements.
Professional  fees  are  billed  to  customers  on a time-and-materials basis, a
fixed-price  basis  or  a per-transaction basis. Time-and-materials revenues are
recognized  as  services  are  performed.  Deferred  revenue  represents amounts
collected  from customers for services to be provided at a future date. Research
and  development  costs  are  expensed  as  incurred.

     In  October  1995,  the  Financial Accounting Standards Board (FASB) issued
SFAS  No.  123,  "Accounting for Stock-Based Compensation."  We adopted SFAS No.
123  in  1997.  We  have  elected  to  measure  compensation  expense  for   our
stock-based  employee  compensation  plans  using  the  intrinsic  value  method
prescribed  by  APB  Opinion  25, "Accounting for Stock Issued to Employees" and
have provided pro forma disclosures as if the fair value based method prescribed
in  SFAS  No.  123  has been utilized.  (See Notes to the Consolidated Financial
Statements.)  We  have  valued  our  stock, stock options and warrants issued to
non-employees at fair value in accordance with the accounting prescribed in SFAS
No.  123,  which  states  that  all  transactions in which goods or services are
received  for the issuance of equity instruments shall be accounted for based on
the  fair  value  of  the consideration received or the fair value of the equity
instruments  issued,  whichever  is  more  reliably  measurable.

     SFAS  No.  148,  Accounting  for  Stock-Based Compensation - Transition and
Disclosure,  which amends SFAS No. 123, Accounting for Stock-Based Compensation,
was  published by the Financial Accounting Standards Board on December 31, 2002.
The  effective  date  of  FASB  No.  148  is  December  15,  2002.  SFAS No. 123
prescribes  a  "fair value" methodology to measure the cost of stock options and
other  equity  awards.  Companies  may  elect  either  to  recognize  fair value
stock-based  compensation costs in their financial statements or to disclose the
pro  forma  impact  of  those costs in the footnotes.  We have chosen the latter
approach.  The  immediate  impact of SFAS No. 148 is more frequent and prominent
disclosure of stock-based compensation costs, starting with financial statements
for  the  year  ended  December  31, 2002 for companies whose fiscal year is the
calendar  year.  SFAS  No. 148 also provides some flexibility for the transition
if  a company chooses the fair-value cost recognition of employee stock options.

CASH  POSITION

     Although  we  remain  cash  flow  positive during the first three months in
2005,  our  ability  to  increase  cash  generation  from operations and thereby
continue  as  a  going  concern without the need to raise equity capital depends
upon  our ability to ultimately implement our business plan, which includes (but
is  not  limited to) generating substantial new revenue from the Missile Defense
Agency  by successfully performing under our $43 million contract and continuing
to  attract and successfully complete other government and commercial contracts.
The  Missile Defense Agency contract is staged, and we cannot guarantee that all
subsequent  phases will be awarded or will be awarded to us.  Recent budget cuts
may  affect  government  spending  on  these  space-based  contracts.

     In  order to perform the Missile Defense Agency contract on schedule and to
successfully  execute  other  existing  and  new business opportunities, we must
substantially  increase our staff and hire new engineers or subcontract the work
to  third  parties.  Although  we  are actively and aggressively seeking to hire
spacecraft and propulsion engineers to fulfill existing and new business demand,
there  can  be  no  assurance  that  we will be able to attract such engineering
resources  or if we are able to attract them, that they will be available in the
timeframe  needed  or  for  a  reasonable  cost.

                                       21
                                      PAGE

     In addition, we need to continue developing project management expertise to
profitably execute on new business contracts and effectively and efficiently bid
on  and  win  new  business.  We have no current need to draw any funds from our
revolving  credit  facility  and  we  will  only  investigate the possibility of
raising  additional  capital  if  we  have  a compelling need to do so or as new
contracts  and  business  opportunities materialize.  New business opportunities
can  come  from  a  variety  of  sources, including state and federal grants and
government and commercial customer programs.  However, there can be no assurance
that  we  will  be  able  to  obtain  such  new  business  contracts or, if such
contracts  are  available,  that  we  can  obtain then on terms favorable to the
Company.  The  likelihood  of  our  success  must  be considered in light of the
expenses,  difficulties and delays frequently encountered in connection with the
developing businesses, those historically encountered by us, and the competitive
environment  in  which  we  operate.

     At  the end of 2002, we raised $475,000 from certain directors and officers
by  issuing  2.03%  convertible debentures.  The convertible debentures entitled
the  holder to convert the principal and unpaid accrued interest into our common
stock  when  the  note  matured.  The original maturity on the notes was six (6)
months  from  issue  date;  however,  on  March  19, 2003, the maturity date was
extended to twelve (12) months from issue date.  The convertible debentures were
exercisable  into  common  shares  at  a conversion price that equals the 20-day
average  asking  price  less 10%, which was established when the debentures were
issued,  or  the  initial conversion price.  Concurrent with the issuance of the
convertible debentures, we issued warrants to purchase up to 1,229,705 shares of
our  common  stock to the subscribers.  These warrants are exercisable for three
(3)  years  from  the  date  of  issuance  at the initial exercise price, or the
initial  conversion  price  on  the debentures.  On September 5, 2003, we repaid
one-half  of  the  convertible  notes,  with the condition that the note holders
would  convert  the  other half.  Also, as a condition of the partial repayment,
the  note holders were required to relinquish one-half of the 1,229,705 warrants
previously  issued.  As  additional  consideration for the transaction, the note
holders  were  offered 5% interest on their notes, rather than the stated 2.03%.
All  the  note holders accepted the offer and the convertible notes were retired
in  2003.  All  of  the  remaining warrants for 614,853 shares were exercised in
2004.

     During  the year ending December 31, 2003, we raised approximately $426,000
from  accredited  investors  by  selling  861,267  units of our common stock and
common  stock purchase warrants under in a private placement offering made under
Section  4(2)  of  the  Securities  Act  of  1933,  and  Rule 506, to accredited
investors  only.  We  subsequently  closed  the  Private  Placement  Offering.

     During  the  year  ending  December  31,  2004,  we  raised   approximately
$6,375,000 in cash from:  accredited investors who converted debt into 2,991,417
shares  of  our  common stock; the exercise of options and warrant for 1,748,983
shares  of  our  common  stock;  and, by selling 250,000 shares of our preferred
stock,  which  could be converted into 1,623,377 shares of our common stock at a
purchase  price  of  $1.54  per  share  and  which  underlying  common stock was
registered  with  the  Securities  and Exchange Commission on Form SB-2's during
2004.

     We  have  sustained  ourselves  over  the  last few years with a mixture of
government  and  commercial  contracts and capital raised in the private market.
In  particular, we anticipated and received an award from the Air Force Research
Laboratory  on  March  28, 2003 and from the Missile Defense Agency on March 31,
2004.  Both  awards  were  cost-plus  fixed  fee contracts, which required us to
incur  certain costs in advance of regular contract reimbursements.  Although we
have  needed  a certain amount of cash to fund advance payments on the contract,
we  have  been  entitled, as a small business concern, to recover our costs on a
weekly basis and we established the Laurus Master Fund revolving credit facility
at  the  end of the second quarter of 2003 to support our advance payment needs.
There  was  no balance on the revolving credit facility at March 31, 2005 and we
do  not  anticipate  further  need  to  draw  on  the revolving credit facility;
however,  the  revolving  credit  facility  will remain in place pursuant to our
original  agreement  with  the Laurus Master Fund until June 2006, unless sooner
terminated  by  either party.   We would be required to pay Laurus a termination
fee  for  early  termination  of  the  revolving  credit  facility.

                                       22
                                      PAGE

     On  March  31,  2004, we negotiated an amendment to our Secured Convertible
Note  dated  June  3, 2003 with the Laurus Master Fund to add a fixed conversion
price  at  $0.85  per  share for the next $500,000 converted under the revolving
credit  facility  after  the initial $1 million conversion.  In exchange for the
amendment,  Laurus  granted  us a six-month waiver to utilize the full revolving
credit  facility  in  advance  of  eligible  accounts.  On  August  25, 2004, we
negotiated  an  amendment  to  our  Secured  Convertible  Note  to  add  a fixed
conversion  price at $1.00 per share for the next $1 million converted under the
revolving  credit  facility after the $500,000 mentioned above.  In exchange for
the  amendment,  Laurus granted us a waiver to utilize the full revolving credit
facility  in advance of eligible accounts and committed to convert the entire $1
million  into  equity  by the end of the year.  At December 31, 2004, Laurus had
converted  approximately  $2,272,000  of  debt  into  2,990,000 shares under the
revolving  credit  facility.

     We  continued  to show positive cash flow in the first quarter of 2005.  We
also  realized  operating  profit  in  the  first quarters of 2005 and 2004; and
incurred  a  net  profit for the first quarter in 2005.  We anticipate that with
our  projected  increase  in  revenue  and  backorders from near term contracts,
combined  with  our  fiscally  responsible budget and project controls, that net
positive  cash flow from operations will continue and will be sufficient to fund
both  operations  and  capital  expenditures  in  2005  and beyond.  There is no
assurance,  however,  that we will sustain our current positive cash flow or our
operating  profit  now  or  in  the  future.


                                       23
                                      PAGE

RECENT  ACCOUNTING  PRONOUNCEMENTS

     There  were  no  recent Accounting Pronouncements that affected the Company
during  the  first quarter of 2005. For past pronouncements, please refer to the
Company's  10-KSB  filed  on  March  28,  2005.

FORWARD-LOOKING  STATEMENTS  AND  RISK  ANALYSIS

     During the first three-months of 2005, we submitted two bids for government
programs,  continued  our  work  with  the  United  States  Congress to identify
directed  funding  for our programs and are actively working to identify several
significant  commercial  programs.  We  believe  that  we will win some of these
opportunities,  which  would  enable  us  to  continue to enhance our backorder,
continue  to  grow  and  broaden  our  business  base,  although there can be no
assurance  that  these  contracts  will  be  awarded  to  us.

     To  date,  we  have maintained a mix of government and commercial business.
During  the  first  three-months  of  2005,  we  had  about  97%  government and
government-related  work.  In   2004,   we   had   about   90%   government   or
government-related  work.  We  anticipate  the remainder of 2005 to be about 90%
government  or  government-related  work. We will continue to do both government
and  commercial  business  and  anticipate  the  mix  of  government revenues to
continue  to  be  above  70%  for  the  next  several  years  as we increase our
government  and  commercial  marketing  efforts  for  both of our technology and
product  areas.  Currently,  we  are  focusing  on  the  domestic  United States
government  market,  which  we  believe  is  only  about  one-half of the global
government  market  for  our  technology, products and services. Although we are
interested in exploring international revenue and contract opportunities, we are
restricted  by  export  control regulations, e.g., International Traffic in Arms
Regulations, which may limit our ability to develop market opportunities outside
the  United  States.

     While  we  do not expect a reduction of government sales, a majority of our
government  work  is  contract  related.  We are beginning to develop commercial
products  with  the  long-term  idea  and  vision of becoming a product-oriented
company;  however,  in  the short-term, a majority of our revenue is expected to
come  from  government  cost plus fixed fee and some firm fixed price contracts.
Our  definition  of  short-term is the next three to five years and long-term is
five  to  ten  years  and  beyond.  We  anticipate winning contracts in both the
government  and  commercial  market segments, although there can be no assurance
that  the contracts will be awarded to us.  If they are not awarded to us, based
on  current  trends and proposals, we believe that we can offset fluctuations in
one  market segment with contracts from the other; however, our inability to win
business in both markets would have a negative effect on our business operations
and  financial  condition.

     We  believe that we will experience an accelerated growth in sales over the
next  few  years.  At  this  time, over 90% of the forecasted sales for 2005 are
under  contract  or near contract award.  There is no guarantee and there can be
no assurance that we will win enough new business to achieve our targeted growth
projection or to maintain a positive cash flow position.  Additionally, there is
no  guarantee  that awarded contracts will not be altered or terminated prior to
us  recognizing  our  projected  revenue  from  them.  Many contracts have "exit
ramps",  i.e., provides the customer the right to terminate the contract for any
of  a variety of reasons, including but not limited to non-performance by us, or
are  awarded  in  phases  the award of which is not guaranteed to us.  We do not
believe  that  any of our contracts will be terminated early; however, there can
be no assurance that they will not be terminated prior to completion or that all
phases  of  any  of  our  contracts  will  be awarded to us.  Finally, we do not
believe  that  significant capital expenditures will be required to achieve this
increase  in  sales;  however, additional capital may be required to support and
sustain  our  growth.

     During  the  three-months  ending  March  31, 2005, we raised approximately
$151,000  through the exercise of options and warrants.  During the three-months
ending March 31, 2004, we raised approximately $559,000 through a combination of
conversions  on  our  revolving  credit  facility  and  exercises of options and
warrants.  To  execute  our  strategy of rapidly growing our Company with small,
capable,  low-cost micro- and nanosatellites, hybrid propulsion products and new
commercial  revenue  sources,  we may require additional funding in order to win
significant government and commercial programs.  We believe investor or customer
funding  of  $10  to $30 million may be required in the future, which could come
from  a combination of private and/or public equity placements or government and
commercial  customers.  Our intent is to only raise additional capital only when
it  is  required or makes sense to do so.  We do not have any ongoing private or
public  equity  offerings  and  the  Board  has  not  authorized  any additional
financings  at  this  time.

                                       24
                                      PAGE

     We  have  sufficient capital to operate our business currently.  The amount
of  capital  we  may need to raise in the future is dependent upon many factors.
For  example,  the  need  for additional capital may be greater if (i) we do not
enter into future agreements with our customers on the terms we anticipate; (ii)
our  net  operating income or net income reverts to a deficit due to significant
unanticipated  expenses;  or  (iii)  we incur additional unexpected research and
development  costs  for  our  microsatellite  products  or  our   hybrid-related
propulsion  systems  to  meet  changed  or  unanticipated market, regulatory, or
technical  requirements.  If  these or other events occur, there is no assurance
that  we could raise additional capital on favorable terms, on a timely basis or
at  all.  If  additional  capital  is  not  raised,  it could have a significant
negative  effect  on our business operations and financial condition in the long
term.

     Our  ability  to execute a public offering of our common stock or otherwise
obtain  funds  is  subject  to  numerous  factors beyond our control, including,
without  limitation,  a receptive securities market and appropriate governmental
clearances.  No  assurances  can be given that we will remain profitable or cash
flow  positive,  or that any additional public offering will occur, that we will
be  successful in obtaining additional funds from any source or be successful in
implementing  an acceptable exit strategy on behalf of our investors.  Moreover,
additional funds, if obtainable at all, may not be available on terms acceptable
to  us  when  such  funds  are needed or may be on terms which are significantly
adverse  to  our  current stockholders.  The unavailability of funds when needed
could  have  a  material  adverse  effect  on  us.

     Our  business partially depends on activities regulated by various agencies
and departments of the United States government and other companies and agencies
that  rely  on  the  federal  government.  Recently,  in response to terrorists'
activities  and  threats  aimed  at  the  United  States,  transportation, mail,
financial,  and  other services have been slowed or stopped altogether.  Further
delays  or stoppages in transportation, mail, financial, or other services could
have  a  material  adverse  effect  on  our business, results of operations, and
financial  condition.  Furthermore,  we  may  experience  a  small  increase  in
operating  costs, such as costs for transportation, insurance, and security as a
result of the activities and potential activities.  The United States economy in
general  is  being  adversely affected by the terrorist activities and potential
activities,  and  any  economic  downturn  could adversely impact our results of
operations,  impair  our ability to raise capital, or otherwise adversely affect
our  ability  to  grow  our  business.  Conversely, because of the nature of our
products, there may be opportunities for us to offer solutions to the government
that  may  address some of the problems that the country faces at this time with
respect  to  terrorism,  national  defense  and  national  security.

ITEM  3.  CONTROLS  AND  PROCEDURES

     As of the end of the period covered by this report, the Company carried out
an evaluation of the effectiveness of the design and operation of its disclosure
controls  and  procedures  pursuant  to  the  Exchange  Act  Rule  13a-14.  This
evaluation  was  done  under  the  supervision and with the participation of the
Company's  Chief Executive Officer and Chief Financial Officer.  Based upon that
evaluation,  the  Chief  Executive Officer and Chief Financial Officer concluded
that  the  Company's  disclosure  controls  and  procedures  are  effective   in
gathering,  analyzing and disclosing information needed to satisfy the Company's
disclosure  obligations  under  the  Exchange  Act.

There were no significant changes in the Company's internal controls or in other
factors  that  could  significantly  affect those controls since the most recent
evaluation  of  such  controls.

                                       25
                                      PAGE

                          PART II -- OTHER INFORMATION

ITEM  1.     LEGAL  PROCEEDINGS
     None.

ITEM  2.     CHANGES  IN  SECURITIES

     None.

ITEM  3.     DEFAULTS  UPON  SENIOR  SECURITIES
     None.

ITEM  4.     SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS
     None.

ITEM  5.     OTHER  INFORMATION
     None.

ITEM  6.     EXHIBITS  AND  REPORTS  ON  FORM  8-K
(a)     Exhibits

<TABLE>
<CAPTION>



<S>                                                                                             <C>
Certificate of James W. Benson Pursuant to Rule 13a-14(a) promulgated under the
     Securities and Exchange act of 1934 as amended. . . . . . . . . . . . . . . . . . . . . .  31.1
Certificate of Richard B. Slansky Pursuant to Rule 13a-14(a) promulgated under the
     Securities and Exchange act of 1934 as amended. . . . . . . . . . . . . . . . . . . . . .  31.2
Certificate of James W. Benson Pursuant to Section 1350 of Chapter 63 of Title 18 U.S. Code. .  32.1
Certificate of Richard B. Slansky Pursuant to Section 1350 of Chapter 63 of Title 18 U.S. Code  32.2
</TABLE>

(b)     Reports  on  Form  8-K

We  have  filed  two  reports  on Form 8-K, since fiscal year ended December 31,
2004.  These reports, dated April 13, 2005 and April 15, 2005, disclosed: 1) our
appointment  of Susan C. Benson to our Board of Directors; and, 2) a contract to
expand  our  facilities  for  fabrication and testing of scaled-up hybrid rocket
motors.

                                       26
                                      PAGE

                                   SIGNATURES


     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.

     SPACEDEV,  INC.
Registrant


Dated:  May  16,  2005                                   /s/  James  W.  Benson
                                                         ----------------------
                                                              James  W.  Benson
                                                      Chief  Executive  Officer




Dated:  May  16,  2005                                /s/  Richard  B.  Slansky
                                                      -------------------------
                                                           Richard  B.  Slansky
                                      President  and  Chief  Financial  Officer


                                       27
                                      PAGE