FORM 10-QSB/A
                                 (AMENDMENT NO. 1)
                     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  September  30,  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  ____

Indicate  by check mark whether the registrant is a shell company (as defined in
Rule  12b-2  of  the  Exchange  Act)  Yes _____  No __X__

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest practicable date: 24,359,156 shares of Issuer's voting
common  stock  were  outstanding  on  November  1,  2005.


                                      PAGE

EXPLANATORY  NOTE: This Amendment No. 1 corrects a typographical error in the
Form  8-K  filed  on  October  26, 2005.  The merger agreement provides that the
number  of  shares  issuable upon the earnout potentially payable for the fiscal
year  ending  December 31, 2005 is based on a dollar amount of $3,000,000, which
is  the  numerator  in  the  stated  quotient  formula  for the number of shares
issuable.  This  dollar  amount  was  erroneously  reported as $3,500,000 in the
original  filing.  Except  for  such  correction,  this Amendment No. 1 does not
otherwise modify or update the original Form 8-K filing.  For convenience of the
reader,  this  Amendment  No.  1  repeats  the  complete  text  of the Form 8-K,
including  the  items  which  have  not  been  amended.


                                 SPACEDEV, INC.
                        AMENDMENT NO. 1 TO FORM 10-QSB
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2005


INDEX                                                                      PAGE

PART  I  --  FINANCIAL  INFORMATION                                          1

     ITEM  1.  FINANCIAL  STATEMENTS                                         1

          Consolidated  Balance  Sheets                                      1
          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                       14

     Overview                                                               14
     Recent  Developments                                                   15
     Critical  Accounting  Standards                                        17
     Results  of  Operations                                                17
     Liquidity  and  Capital  Resources                                     23
     Cash  Flows                                                            24
     Recent  Accounting  Pronouncements                                     25

      ITEM  3.  CONTROLS AND PROCEDURES                                     34

PART  II  --  OTHER  INFORMATION                                            35

     ITEM  1.  LEGAL  PROCEEDINGS                                           35

     ITEM  2.  UNREGISTERED  SALES  OF  EQUITY  SECURITIES                  35

     ITEM  3.  DEFAULTS  UPON  SENIOR  SECURITIES                           35

     ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS  35

     ITEM  5.  OTHER  INFORMATION                                           35

     ITEM  6.  EXHIBITS                                                     36

SIGNATURES                                                                  37


                                      PAGE


                         PART I -- FINANCIAL INFORMATION

ITEM  1.     FINANCIAL  STATEMENTS

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

<TABLE>
<CAPTION>



<S>                                                                         <C>            <C>
--------------------------------------------------------------------------  -------------  -------------
--------------------------------------------------------------------------  -------------  -------------

At September 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2005           2004
--------------------------------------------------------------------------  -------------  -------------

 ASSETS

 CURRENT ASSETS
      Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . .     $4,022,243     $4,078,593
      Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . .      1,096,645        427,358
      Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . .         10,412          5,754
      Note receivable (Note 5) . . . . . . . . . . . . . . . . . . . . . .      1,326,453              -
--------------------------------------------------------------------------  -------------  -------------
 Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . .      6,455,753      4,511,705

 FIXED ASSETS - NET. . . . . . . . . . . . . . . . . . . . . . . . . . . .        822,980        248,066

 OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         64,469         43,042
--------------------------------------------------------------------------  -------------  -------------
                                                                               $7,343,202     $4,802,813
--------------------------------------------------------------------------  -------------  -------------
--------------------------------------------------------------------------  -------------  -------------
The  accompanying  notes  are  an  integral part of these
consolidated financial statements.


</TABLE>



                                      PAGE 1


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

<TABLE>
<CAPTION>



<S>                                                                         <C>            <C>
--------------------------------------------------------------------------  -------------  -------------
--------------------------------------------------------------------------  -------------  -------------

At September 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2005           2004
--------------------------------------------------------------------------  -------------  -------------

 LIABILITIES AND STOCKHOLDERSEQUITY

 CURRENT LIABILITIES
      Current portion of notes payable  (Note 3(a)). . . . . . . . . . . .  $     18,797   $     36,239
      Current portion of capitalized lease obligations . . . . . . . . . .         2,479          3,943
      Accounts payable and accrued expenses. . . . . . . . . . . . . . . .       398,443        161,980
      Accrued payroll, vacation and related taxes. . . . . . . . . . . . .       350,145        207,028
      Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . .       126,453         49,779
      Employee stock purchase plan . . . . . . . . . . . . . . . . . . . .         9,974          3,406
      Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . .       168,470        265,547
--------------------------------------------------------------------------  -------------  -------------

 TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . .  $  1,074,761        727,922

 NOTES PAYABLE, LESS CURRENT MATURITIES (NOTE 3(A)). . . . . . . . . . . .             -         18,797

 CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES. . . . . . . . . .             -          2,479

 DEFERRED GAIN - ASSETS HELD FOR SALE (NOTE 3(A)). . . . . . . . . . . . .       859,996        977,267
--------------------------------------------------------------------------  -------------  -------------

 TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,934,757      1,726,465

 COMMITMENTS AND CONTINGENCIES

 STOCKHOLDERSEQUITY
      Convertible preferred stock, $.001 par value, 10,000,000 shares
           authorized, 248,460 and 250,000 shares issued and outstanding,
           respectively (Note 4) . . . . . . . . . . . . . . . . . . . . .           248            250
      Common stock, $.0001 par value; 50,000,000 shares authorized, and
           22,319,156 and 20,026,263  shares issued and outstanding,
           respectively (Note 4) . . . . . . . . . . . . . . . . . . . . .         2,231          2,002
      Additional paid-in capital (Note 4). . . . . . . . . . . . . . . . .    20,091,408     16,724,176
      Additional paid-in capital - stock options . . . . . . . . . . . . .             -        750,000
      Deferred compensation. . . . . . . . . . . . . . . . . . . . . . . .             -       (250,000)
      Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . .   (14,685,442)   (14,150,080)
--------------------------------------------------------------------------  -------------  -------------

 TOTAL STOCKHOLDERSEQUITY. . . . . . . . . . . . . . . . . . . . . . . . .     5,408,445      3,076,348
--------------------------------------------------------------------------  -------------  -------------

 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY . . . . . . . . . . . . . . . .  $  7,343,202   $  4,802,813
--------------------------------------------------------------------------  -------------  -------------
--------------------------------------------------------------------------  -------------  -------------
The  accompanying  notes  are  an  integral part of these consolidated financial statements.

</TABLE>



                                      PAGE 2



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


<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Three and Nine Months Ending                          Three-Months Ending                         Nine-Months Ending
                                      -------------------------------------------  ------------------------------------------
              September 30,               2005         %         2004        %        2005          %       2004        %
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------
<S>                                   <C>            <C>     <C>           <C>     <C>           <C>     <C>          <C>
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------

 NET SALES. . . . . . . . . . . . . . $  2,234,010   100.0%  $ 1,230,126   100.0%  $  5,942,558  100.0%  $ 3,445,569   100.0%

 TOTAL COST OF SALES. . . . . . . . .    1,709,077    76.5%      952,944    77.5%     4,571,505   76.9%    2,702,583    78.4%

 GROSS MARGIN . . . . . . . . . . . .      524,933    23.5%      277,182    22.5%     1,371,053   23.1%      742,986    21.6%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------

 OPERATING EXPENSES
    Marketing and sales expense . . .      188,655     8.4%      120,367     9.8%       493,344    8.3%      335,652     9.7%
    General and administrative. . .        253,341    11.3%      108,049     8.8%       654,524   11.0%      313,784     9.1%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------

 TOTAL OPERATING EXPENSES . . . . . .      441,996    19.8%      288,416    18.6%     1,147,868   19.3%      649,436    18.8%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------

 INCOME FROM OPERATIONS . . . . . . .       82,937     3.7%       48,766     4.0%       223,185    3.8%       93,550     2.7%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------

 NON-OPERATING (INCOME) EXPENSE
    Interest income . . . . . . . . .      (24,848)   -1.1%      (69,632)   -0.5%       (69,632)  -1.2%       (5,619)   -0.2%
    Interest expense. . . . . . . . .          452     0.0%       23,110     1.9%         2.283    0.0%       62,633     1.8%
    Gain on building sale (Note 3(a))      (29,318)   -1.3%      (29,318)   -2.4%       (87,953   -1.5%      (87,954)   -2.6%
    Non-Cash loan fee - equity conversions
      (Note 3(c)).                                -    0.0%      663,481    53.9%        28,875    0.5%    2,456,794    71.3%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------

 TOTAL NON-OPERATING (INCOME) EXPENSE      (53,714)   -2.4%      651,654    53.0%      (126,427)  -2.1%    2,425,854    70.4%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------

 INCOME (LOSS) BEFORE TAXES . . . . .      136,651     6.1%     (602,888)  -49.0%       349,612    5.9%   (2,332,304)  -67.7%

 INCOME TAX PROVISION . . . . . . . .          400     0.0%            -     0.0%         1,200    0.0%            -     0.0%

 NET INCOME (LOSS). . . . . . . . . . $    136,251     6.1%     (602,888)  -49.0%  $    348,412   5.90%  $(2,332,304)  -67.7%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------

 NET INCOME (LOSS) PER SHARE:
      Net income (loss) . . . . . . . $       0.01           $     (0.03)          $       0.02          $    (0.13)
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------

      Weighted-Average Shares
        Outstanding                     21,241,448            19,228,019             21,777,211           18,019,886

 FULLY DILUTED NET INCOME (LOSS) PER SHARE:
      Net income (loss) . . . . . . . $       0.00                ($0.03)          $       0.01          $    (0.13)
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------

     Fully Diluted Weighted-Average
         Shares Outstanding             29,362,131            19,228,019             21,719,369           18,019,886

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


</TABLE>




                                      PAGE 3


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


<TABLE>
<CAPTION>



<S>                                                            <C>           <C>
-------------------------------------------------------------  ------------  ------------
-------------------------------------------------------------  ------------  ------------

 Nine-Months Ended September 30,. . . . . . . . . . . . . . .         2005          2004
-------------------------------------------------------------  ------------  ------------
 CASH FLOWS FROM OPERATING ACTIVITIES
      Net income (loss) . . . . . . . . . . . . . . . . . . .  $   348,412   $(2,332,304)
      Adjustments to reconcile net income (loss) to net cash
          provided by (used in) operating activities:
           Depreciation and amortization. . . . . . . . . . .      108,265        55,236
           Gain on disposal of building sale. . . . . . . . .      (87,953)      (87,954)
           Non-cash loan fees . . . . . . . . . . . . . . . .       28,875     2,456,794
           Change in operating assets and liabilities . . . .      (84,760)      (25,552)

 NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . .      312,839        66,220


CASH FLOWS FROM INVESTING ACTIVITIES
      Notes Receivable. . . . . . . . . . . . . . . . . . . .   (1,326,453)            -
      Purchases of fixed assets . . . . . . . . . . . . . . .     (651,864)     (165,770)
-------------------------------------------------------------  ------------  ------------

NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . .   (1,978,317)     (165,770)


 CASH FLOWS FROM FINANCING ACTIVITIES
      Principal payments on notes payable . . . . . . . . . .      (27,330)      (32,555)
      Principal payments on capitalized lease obligations . .       (2,774)       (9,163)
      Employee Stock Purchase Plan. . . . . . . . . . . . . .       48,343             -
      Payments on notes payable - related party . . . . . . .            -      (614,778)
      Proceeds from issuance of common and preferred stock. .      600,881     3,783,725
      Proceeds from revolving credit facility . . . . . . . .            -       458,908
-------------------------------------------------------------  ------------  ------------

 NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . . . . . . .      619,120     3,586,137


 Net (decrease) increase in cash and cash equivalents . . . .   (1,046,358)    3,486,587


 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . .    5,068,601       592,006
-------------------------------------------------------------  ------------  ------------

 CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . .  $ 4,022,243   $ 4,078,593
-------------------------------------------------------------  ------------  ------------
-------------------------------------------------------------  ------------  ------------

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


</TABLE>





                                      PAGE 4


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



<TABLE>
<CAPTION>



<S>                                                                           <C>        <C>
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
 Nine-Months Ended September 30, . . . . . . . . . . . . . . . . . . . .. . . . 2005       2004
----------------------------------------------------------------------------  -------    --------

 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for:
           Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,283    $305,038

 NONCASH INVESTING AND FINANCING ACTIVITIES:

During the nine-months ending September 30, 2005 and 2004, the Company converted
     $47,702  and  $12,628  of  employee  stock purchase plan contributions into
     34,040  and  14,070  shares  of  common  stock,  respectively.

During the nine-months ending September 30, 2005, the Company declared dividends
     payable  of  $128,057  to  the  holders  of  its  preferred  stock.

During  the  nine-months  ending  September  30,  2005,  the  Company  converted
     dividends  payable  of  $174,976 into 113,621 shares of common stock to the
     holders  of  its  preferred  stock.

During the nine-months ending September 30, 2005, the Company did not maintain a
     balance under its revolving credit facility, therefore the Company recorded
     no  non-cash  loan  fees.

During  the  nine-months ending September 30, 2004, the Company issued 1,954,661
     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 $1,240,500 The Company recorded
     additional non-cash loan fees of approximately $1,718,000 and charged these
     fees  to  expense.

During  the  nine-months  ending  September 30, 2004, the Company issued 589,212
     shares  of  its  common  stock  to the participants in our convertible debt
     program  in 2003 from conversions of warrants thereby receiving cash in the
     amount  of  $227,500. The Company recorded additional non-cash loan fees of
     approximately  $738,700  and  charged  these  fees  to  expense.

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


</TABLE>




                                      PAGE 5


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-  and  nine  month  periods  ending September 30, 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.

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.

2.       REVENUE  RECOGNITION

The  Company's  revenues  for  the nine months ended September 30, 2005 and 2004
were  derived  primarily  from  United  States  government  cost  plus fixed fee
(CPFF).  Revenues from the CPFF contracts during the nine months ended September
30,  2005  and  2004 were recognized as expenses as 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 September 30, 2005, the deferred gain
was  $859,996.  This  amortization  is  included  in the Company's occupancy and
facility  expense, included in the Company's non-operating expenses, and totaled
$87,953  and  $87,954  for  the  nine  months ended September 30, 2005 and 2004,
respectively.

Deferred  gain  consisted  of  the  following:


                                      PAGE 6



Nine  Months  Ended  September  30,  2005

Original Deferred Gain  $1,172,720
Less Amortization 2003    (107,499)
Less Amortization 2004    (117,272)
Less Amortization 2005     (87,953)
----------------------  -----------
                        $  859,996
----------------------  -----------

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 September 30, 2005
and  2004,  the  outstanding  balances  on these notes were $18,797 and $55,036,
respectively, with interest expense for the nine months ended September 30, 2005
and  2004 of $1,277 and $3,691, respectively. As of September 30, 2005, only one
note  remained  outstanding.

Future  -minimum  principal  payments  on  settlement  notes  are  as  follows:

For  the  twelve  months  ended  September  30,

2006                    $   18,797
2007                             -
2008                             -
----------------------  -----------
Total Settlement Notes  $   18,797


b)     Related  Parties

The  Company  had  a note payable to its CEO. As part of the Company's preferred
stock  offering (see Note 5), the note was paid in full during the third quarter
of  2004  and  no  amounts  were  outstanding  at  September  30,  2005 or 2004.

Interest  expense  on  this  note  was  $0 and $29,256 for the nine months ended
September  30,  2005  and  2004,  respectively.

c)     Revolving  Credit  Facility.

In June 2003, the Company entered into a Security Agreement, Secured Convertible
Note,  Registration  Rights  Agreement  and  Common  Stock Purchase Warrant with
Laurus  Master  Fund,  Ltd.  ("Laurus"). Pursuant to the agreements, the Company
received  a  $1  million  revolving  credit facility in the form of a three-year
Convertible  Note  secured  by  the  Company's  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 may
be  repaid at the Company's option, in cash or through the issuance of shares of
the  Company's  common  stock  provided the market price of the common stock was
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 each month
plus  an  unused  line  payment  of  0.20%  per  annum. Approximately $29,600 in
interest  and  approximately  $4,000  in  fees were recorded under the revolving
credit  facility  in  the  first  nine  months of 2004. There was no outstanding
balance  on  the  revolving  credit  facility at any time during the nine months
ended  September  30,  2005.

The  Convertible Note includes a right of conversion in favor of Laurus.  Laurus
exercised  its  conversion  rights  from  time  to  time  in 2004 on outstanding
balances.  There have been no outstanding balances in 2005.  When Laurus chooses


                                      PAGE 7


to exercise its conversion rights, the Convertible Note is converted 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 to 103% of the
then fair market value of the Company's common stock ("Adjusted Fixed Conversion
Price").

Laurus  converted  $1,240,507  under  the Convertible Note into 1,954,661 shares
during the nine months ended September 30, 2004. Laurus has converted a total of
$2,500,000  into 3,406,417 shares under the Convertible Note since the inception
of the revolving credit facility. For the nine month period ending September 30,
2004, the Company recorded $1,718,120 in expense for the non-cash loan fee based
on  the  fair  market value of the stock when Laurus converted and $2,607,099 in
expense  for  the  non-cash loan fee since the inception of the revolving credit
facility.  There  have been no conversions during the first nine months of 2005.
The fair market value of the common stock used in 2004 was established using the
closing  price  on  the  date  of  conversion.

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-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. Laurus subsequently extended the waiver
for  two  additional six-month periods into 2004, under which Laurus permitted a
credit  advance  up  to  $1  million, which amount would have otherwise exceeded
eligible accounts receivable. The revolving credit facility is secured by all of
the  assets  of  the  Company.

In conjunction with the 2004 waiver, Laurus was paid a fee of $10,000, which was
recorded  as additional interest expense in 2004. The Company is required to pay
a  continuation  fee of $10,000 for 2005. 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. 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.  Laurus exercised the warrant in part for 25,000 shares in April 2005. The
warrant  may be exercised for the balance of the shares any time or from time to
time  until  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. 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 March
31,  2004 credit facility modification. This additional warrant was exercised by
Laurus  in April 2005 and resulted in a non-cash interest expense of $28,875 for
the  nine  months  ended  September 30, 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 August 25, 2004 credit facility modification, i.e.,
there  was  a  100,000  share  ceiling  on  the  number of warrants to be issued
regardless  of  the  amount  converted  under  the  revolving  credit  facility.

The  Company  may  terminate  its  agreements  with Laurus before the end of the
initial  three-year  term,  i.e.,  June  3,  2006,  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 two percent (2%) of the total amount available under


                                      PAGE 8


the  revolving  credit  facility  if  such payment occurs after June 3, 2005 and
prior  to  June  3,  2006.  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.

As  a  result  of the amendments and modifications discussed above, at September
30,  2005  the  revolving  credit  facility provided for up to a maximum of $1.5
million  in  principal  amount of aggregate borrowing The fixed conversion price
for  future  amounts  under the revolving credit facility 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  nine  months  ended  September  30,  2005.

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

PREFERRED  STOCK

In  August  2004,  the Company entered into a Securities Purchase Agreement with
Laurus,  whereby  the  Company issued 250,000 shares of its Series C Convertible
Preferred Stock, par value $0.001 per share, 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 common stock at a rate of
$1.54  per  share  at  any  time after the date of issuance, and are entitled to
quarterly, cumulative dividends at a rate of 6.85% beginning on January 1, 2005.
For  the  nine  months ended September 30, 2005, approximately $128,000 has been
accrued  for  dividends  earned  in  2005.  Approximately  $175,000  of  accrued
dividends  were  satisfied  by the issuance of the Company's common stock during
the  nine  months  ended  September  30,  2005. Dividends are payable in cash or
shares  of  the Company's common stock at the holder's option with the exception
that  dividends  must  be paid in shares of the Company's 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
$1.85  per  share.  In January 2005, $60,967 was converted into 39,589 shares of
the Company's common stock from previous dividend accruals. In May 2005, $56,300
was  converted  into  36,559 shares of the Company's common stock from dividends
accrued  from  January  through  April  2005  and in September 2005, $57,708 was
converted  into  37,473  shares  of  the  Company's  common stock from dividends
accrued from May through August 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 the common stock for the
22 days immediately preceding the date of preferred stock conversion exceeds the
Stated  Value.  The  preferred shares have a liquidation preference equal to the
Stated  Value  upon  the  Company's  dissolution, liquidation or winding-up. The
preferred  shares  have  no  voting  rights.  As  of  September  30, 2005, 1,540
preferred  shares  had been converted into 10,000 shares of the Company's common
stock

In  conjunction  with the preferred stock, 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
filed a registration statement for the resale of all of the shares of its common
stock  issuable upon conversion of the preferred shares and the warrant, as well
as  an  estimated number of shares payable as dividends on the preferred shares,
which  was  declared  effective  in  November  2004.

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 nine months ended September 30, 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%,


                                      PAGE 9


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 nine months ended September 30, 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:


<TABLE>
<CAPTION>



<S>                                                                    <C>         <C>
=====================================================================  ==========  ============
 NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . . .       2005          2004
=====================================================================  ==========  ============

 As reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 348,412   $(2,332,304)
 Add:  Stock based employee compensation
 expense included in reported net income. . . . . . . . . . . . . . .  $       -   $         -
 Deduct:  Stock based employee compensation expense determined under
 the fair value based method for all awards . . . . . . . . . . . . .  $ 553,989   $   303,425
---------------------------------------------------------------------  ----------  ------------
 Pro forma. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $(205,577)  $(2,635,729)
=====================================================================  ==========  ============
 NET INCOME (LOSS) PER SHARE:

 As reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    0.02   $     (0.13)
 Pro forma. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   (0.01)  $     (0.15)
=====================================================================  ==========  ============
</TABLE>


Beginning  January  2006,  the  Company  plans  to  adopt SFAS 123R as currently
required  by  the  Securities  and  Exchange Commission. See Note 7 below. As of
September 30, 2005, the Company had not yet determined the impact of SFAS 123(R)
on  its  financial  statements.

November  1997,  the  Company entered into a five-year employment agreement with
Mr.  James  W.  Benson,  its  CEO.  On  July  16,  2000, the Company amended the
employment  agreement with Mr. Benson extending the term until July 16, 2005. As
part  of  the  original employment agreement, the Company granted options to Mr.
Benson  to  purchase  up  to 2,500,000 of non-plan, non-registered shares of the
Company's common stock. Options for 500,000 of these shares were vested prior to
the  expiration  of  Mr.  Benson's employment agreement and those options remain
outstanding,  and  the  balance  expired  unvested.  The  vested options have an
exercise  price  of $1.00 and expire in July 2010. The Compensation Committee of
the  Board  of  Directors  is  currently  negotiating  a  new agreement with Mr.
Benson..  Mr.  Benson is currently continuing as an employee "at will" under the
laws  of  the  State  of  California.

The options previously granted to Mr. Benson, as part of his employment contract
were  subject to the following vesting conditions, which were amended in January
2000  and  later  ratified by the Board in July 2000. The agreement provided the
Board  flexibility  to  award  options  for an additional 1,500,000 of non-plan,
non-registered  shares  of  [restricted]  common  stock  to  Mr.  Benson,  which
additional  options  were  not  granted.

5.     NOTES  RECEIVABLE

On September 8, 2005, the Company made a secured loan in the principal amount of
$1.2 million to Starsys Research Corporation ("Starsys"), a design, engineering,
and manufacturing company located in Boulder, Colorado which provides mechanical
systems to the aerospace industry. The loan accrues interest at 8% per annum and
matures  on  December 31, 2005 or earlier in certain circumstances. No principal
or  interest  payments  are  due  before  maturity.  The  maturity  date  may be
accelerated  upon  the  occurrence  of  certain  events  of default. The loan is
secured  by  a  security interest in all of the assets of Starsys, subject to an
intercreditor  agreement  with  Vectra  Bank   Colorado,   National  Association


                                      PAGE 10


("Vectra"),  described below. In addition, Starsys has agreed to pay the Company
a  placement  agent  fee  and to reimburse the Company expenses in the aggregate
amount  of  $120,000.  This amount was deferred until the closing of the Plan of
Merger  (see  Note  7) and added to the principal balance of the note evidencing
the  loan.

In  connection  with  making  the  loan, the Company entered into an exclusivity
agreement  with  Starsys which provides that Starsys will not discuss a material
sale  of  its  assets,  a  material  sale  of  its  stock,  a merger, or similar
transaction  with any other party until October 31, 2005. Prior to completion of
the  loan  described  above,  the Company and Starsys entered into a non-binding
letter  of  intent  concerning  a  transaction  of  the  nature described in the
exclusivity  agreement.   The  structure  and  economic  terms  of  a  potential
transaction, however, remained subject to further negotiations and due diligence
by  both  parties; however, on October 26, 2005, the Company and Starsys entered
into  a  definitive  merger  agreement  (see  Note  7,  Subsequent  Events).

6.     NEW  ACCOUNTING  PRONOUNCEMENTS

In  December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No.  153,  Exchanges  of Nonmonetary Assets- An Amendment of APB Opinion No. 29.
The  guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is
based  on  the principle that exchanges of nonmonetary assets should be measured
based  on  the fair value of the assets exchanged. The guidance in that Opinion,
however,  included  certain  exceptions  to  that principle. SFAS No. 153 amends
Opinion  No.  29 to eliminate the exception for nonmonetary exchanges of similar
productive  assets  and  replaces  it  with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has  commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The provisions of SFAS No. 153
are  effective  for  nonmonetary  asset  exchanges  occurring  in fiscal periods
beginning  after  June  15,  2005. Early application was permitted and companies
must  apply  the  standard  prospectively.  The adoption of this standard is not
expected  to  have  a  material  effect  on  the Company's financial position or
results  of  operations.

In  December  2004,  FASB issued Statement of Financial Accounting Standards No.
123  (revised  2004),  Share-Based Payment (SFAS No. 123R). FAS No. 123R revised
SFAS  No.  123,  Accounting  for  Stock-Based  Compensation,  and supersedes APB
Opinion  No.  25,  Accounting  for  Stock  Issued  to Employees, and its related
implementation  guidance.  SFAS No. 123R will require compensation costs related
to  share-based payment transactions to be recognized in the financial statement
(with  limited  exceptions).  The  amount  of compensation cost will be measured
based  on  the  grant-date  fair  value  of  the equity or liability instruments
issued.  Compensation  cost  will be recognized over the period that an employee
provides  service  in  exchange  for  the  award.

In  March  2005,  the Securities and Exchange Commission issued Staff Accounting
Bulletin  No.  107  (SAB  No.  107),  Share-Based Payment, providing guidance on
option  valuation  methods, the accounting for income tax effects of share-based
payment arrangements upon adoption of SFAS No. 123R, and the disclosures in MD&A
subsequent  to  the  adoption.  In  April  2005,  the  Securities  and  Exchange
Commission  adopted  a rule which delayed the compliance date for small business
issuers to the start of the first fiscal year beginning after December 15, 2005.
The  Company will provide SAB No. 107 required disclosures upon adoption of SFAS
No.  123R in January 2006 and is currently evaluating the impact the adoption of
the  standard  will  have  on  the  Company's financial condition and results of
operations.

In  June  2005,  FASB  issued  SFAS  No.  154,  Accounting  Changes  and  Errors
Corrections,  a  replacement  of APB Opinion No. 20 and FAS No. 3. The Statement
applies  to  all  voluntary  changes  in  accounting  principle, and changes the
requirements  for  accounting  for  and  reporting  of  a  change  in accounting
principle.  SFAS  No.  154  requires retrospective application to prior periods'
financial  statements of a voluntary change in accounting principle unless it is
impractical.  APB Opinion No. 20 previously required that most voluntary changes
in  accounting  principle be recognized by including in net income of the period
of the change the cumulative effect of changing to the new accounting principle.
SFAS  No.154  is not expected to have a material adverse effect on the Company's
financial  position  or  results  of  operations.


                                      PAGE 11


7.     SUBSEQUENT  EVENTS

In  October  2005,  the Company entered into an Agreement and Plan of Merger and
Reorganization   ("merger  agreement"),   with   Starsys   Research  Corporation
("Starsys"),   a  Colorado   corporation,   and  Scott  Tibbitts,   its  largest
shareholder.  Pursuant to the merger agreement, Starsys will merge with and into
a  newly-created,  wholly-owned  subsidiary  of  the Company. Holders of Starsys
common  stock  will  become  holders of the Company's common stock following the
merger.  The  merger  agreement  is  subject to a number of conditions described
below, including effectiveness of a Form S-4 registration statement and approval
of  the  respective  shareholders  of  SpaceDev  and  Starsys.

     Merger  Consideration.  The  Company  will  pay  and  issue  the  following
consideration  at  the  effective  time  of the merger, subject to adjustment as
provided  in  the  merger  agreement:

-    cash  in  the  aggregate  amount  of  $1,500,000;  and

-    an  aggregate  number  of shares of the Company's common stock equal to the
     quotient  of (A) $7,500,000 divided by (B) the greater of (1) $1.40 and (2)
     the  lesser  of  (x) $1.90 and (y) the volume weighted average price of the
     Company's  common  stock  for  the  preceding  20  trading  days.

Fifty percent (50%) of the number of shares of the Company's common stock issued
at  closing  will  be  deposited  in  escrow  as  security  for  the  payment of
indemnification  claims  under the merger agreement, which escrow will generally
last  until  ten  (10)  days  following the date of audited financial statements
prepared  for  the  surviving corporation for the fiscal year ending 2006 (i.e.,
approximately  April  2007).

Following  the  merger,  Starsys  shareholders  may also be entitled to receive,
based  on  the  achievement  by the surviving corporation of certain performance
criteria  for  each  of  the fiscal years ending December 31, 2005, December 31,
2006  and  December  31, 2007, additional earnout consideration consisting of up
to:

-    For  the  fiscal  year  ended  December  31,  2005, $350,000 in cash and an
     aggregate  number  of  shares  of  the  Company's common stock equal to the
     quotient  of  (A) $3,000,000 divided by (B) the greater of (1) $2.00
     and (2) the volume weighted average price of the Company's common stock for
     the  twenty  (20)  trading days preceding the date of the audit opinion for
     Starsys'  fiscal  year  ended  December  31,  2005;

-    For  the  fiscal  year  ended  December  31,  2006, $350,000 in cash and an
     aggregate  number  of  shares  of  the  Company's common stock equal to the
     quotient  of (A) $7,500,000 divided by (B) the greater of (1) $2.50 and (2)
     the  volume  weighted  average  price of the Company's common stock for the
     twenty  (20)  trading  days  preceding  the  date  of the audit opinion for
     Starsys'  fiscal  year  ended  December  31,  2006;  and,

-    For  the  fiscal  year  ended  December  31,  2007, $350,000 in cash and an
     aggregate  number  of  shares  of  the  Company's common stock equal to the
     quotient  of (A) $7,500,000 divided by (B) the greater of (1) $3.00 and (2)
     the  volume  weighted  average  price of the Company's common stock for the
     twenty  (20)  trading  days  preceding  the  date  of the audit opinion for
     Starsys'  fiscal  year  ended  December  31,  2007.

If any shares of the Company's common stock are payable as earnout consideration
for  the  fiscal  year  ending  December  31, 2005, fifty percent (50%) of those
shares  will  be  deposited  in  the  escrow  described  above.

Each  outstanding  share  of the Company's common stock will remain unchanged in
the  merger.

Working  Capital  Contribution.  The Company will contribute $2.5 million to the
working  capital  of  the  surviving  corporation  through  the  end  of  2006.


                                      PAGE 12


Treatment  of  Stock  Options and Warrants. The holders of options, warrants and
other  rights  to  purchase Starsys common stock must exercise such rights on or
before  the  closing  of  the  merger.  Any options, warrants or other rights to
purchase  Starsys  common  stock which are not exercised prior to the closing of
the merger will be cancelled and will terminate and expire as of that closing of
the  merger.  The  Company  will  assume no options, warrants or other rights to
purchase  Starsys  common  stock  pursuant  to  the  merger.

Loan  Repayments. At the closing of the merger, the Company will (i) pay off the
remaining  principal  and  interest  of  all  loans  to Starsys from Vectra Bank
Colorado, together with any other costs incurred in connection with those loans,
(ii)  cancel  and  terminate  the  secured  loan of $1.2 million and all accrued
interest  and fees, from the Company to Starsys (the "SpaceDev loan"), and (iii)
pay  off  subordinated  loans  in the aggregate amount of approximately $920,000
owed  by  Starsys  to  certain  Starsys  shareholders.  The  Company will not be
obligated to pay off more than $4,600,000 in the aggregate (excluding the amount
of  the  SpaceDev  loan) for all of the loans and related costs described above.

Reservation  of  Options.  The  Company  has  agreed  to reserve for issuance to
Starsys officers, employees and consultants options to buy a number of shares of
the  Company's common stock equal to at least 15% of the number of shares of the
Company's  common  stock issued at the closing and as earnout consideration. The
Company  will seek approval of its shareholders to increase the amount of shares
available  under  the Company's 2004 Equity Incentive Plan, or under a new stock
or equity plan to be adopted, to provide sufficient reserves for the issuance of
the  options  referenced  above.

Representations,  Warranties  and  Covenants.  The Company and Starsys have made
customary  representations,  warranties  and  covenants in the merger agreement,
including,  among others, covenants (i) not to (A) solicit proposals relating to
alternative  business   combination  transactions  or  (B)  subject  to  certain
exceptions,   enter  into  discussions  concerning  or  provide  information  in
connection  with  alternative  business  combination transactions, (ii) to cause
shareholder meetings to be held to consider approval of the merger agreement (in
the  case  of Starsys and the Company), and (iii) subject to certain exceptions,
for  the board of directors of Starsys to recommend adoption by its shareholders
of  the merger agreement and for our board of directors to recommend adoption by
its  shareholders  of  the  merger  agreement.

Conditions  to Closing. Consummation of the merger is subject to certain closing
conditions,   including,   among  others,  shareholder  approvals,   absence  of
governmental restraints, effectiveness of a Form S-4 registration statement, and
accuracy  of  representations.  The  merger  agreement  allows Starsys and us to
terminate  the  merger  agreement  upon  the  occurrence  (or non-occurrence) of
certain  events.

Following the effective time of the merger, Scott Tibbitts, who is currently the
Chief Executive Officer of Starsys, will become a director and executive officer
of  the  Company.

In  October  2005, the Company entered into a Securities Purchase Agreement with
Laurus  Master  Fund,  Ltd.  whereby  the Company issued 2,032,520 shares of its
common  stock  to Laurus for an aggregate purchase price of $2,500,000, or $1.23
per  share,  representing 80% of the 20-day volume weighted average price of the
Company's  common  stock  through  October  28,  2005.  In  conjunction with the
Securities  Purchase  Agreement,  the  Company  issued  a five-year common stock
purchase warrant to Laurus for the purchase of 450,000 shares of common stock at
an  exercise price of $1.93 per share. The Company has committed to register all
of  the  shares  of  stock underlying the common stock and the warrant after the
Form  S-4  (described  above)  becomes  effective.  Also in conjunction with the
agreement,  the  Company  has  agreed  to  pay Laurus a fee equal to 3.5% of the
proceeds  raised from them, exclusive of the proceeds obtained from the exercise
of  the  warrants.

                                      PAGE 13


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

THIS  QUARTERLY REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE  MEANING  OF  THE  PRIVATE  SECURITIES  LITIGATION REFORM ACT OF 1995, WHICH
REFLECT  MANAGEMENT'S  CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL
PERFORMANCE.  IN  THIS  REPORT,  THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS,"
"INTENDS," "FUTURE," "MAY," "SHOULD," "PLAN," "CONTINUE," OR "WILL," AND SIMILAR
EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. THESE AND OTHER FORWARD-LOOKING
STATEMENTS  ARE  SUBJECT  TO  CERTAIN  RISKS  AND UNCERTAINTIES, INCLUDING THOSE
DISCUSSED  IN  THE  BUSINESS  RISKS SECTION OF THIS ITEM 2 AND ELSEWHERE IN THIS
FORM  10-QSB,  THAT  COULD  CAUSE  ACTUAL  RESULTS  TO  DIFFER  MATERIALLY  FROM
HISTORICAL  RESULTS  OR  THOSE  ANTICIPATED.  READERS ARE CAUTIONED NOT TO PLACE
UNDUE  RELIANCE  ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
DATE  HEREOF.  WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS  TO  THESE  FORWARD-LOOKING  STATEMENTS  WHICH  MAY BE MADE TO REFLECT
EVENTS  OR  CIRCUMSTANCES  OCCURRING SUBSEQUENT TO THE FILING OF THE FORM 10-QSB
WITH  THE  SECURITIES  AND  EXCHANGE  COMMISSION.

OVERVIEW

We  are engaged in the conception, design, development, manufacture, integration
and  operation  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 which are provided 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 and 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 future,
virtually all of our current work is for branches of the United States military.
We  are  also developing commercial hybrid rocket motors for use in small launch
vehicles,  targets  and  sounding  rockets,  and  small,  high-performance space
vehicles  and  subsystems  for  commercial  customers.

During  the  first nine months of 2005, 93% of our net sales were generated from
direct  government  contracts and 7% were generated from government-related work
through  subcontracts  with  others. In 2004, approximately 90% of our net sales
were generated by government or government-related work. We anticipate that over
90%  of  net  sales  generated during the remainder of 2005 will be generated by
government  or government-related work. We will continue to seek both government
and  commercial  business  and anticipate that net sales from government sources
will  to  continue  to  represent in excess of 70% of our net sales 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,
including International Traffic in Arms Regulations, which may limit our ability
to  develop  market  opportunities  outside  the  United  States.

At  this  time,  over 90% of our forecasted sales for 2005 are under contract or
near  contract  award.  We may not be able to win enough new business to achieve
our  targeted  growth  projection  or to maintain a positive cash flow position.
During  the  first nine months of 2005, we submitted five bids for government or
commercial  programs  and  continued our work with the United States Congress to
identify  directed  funding  for  our  programs.

In  order  to  perform  the  Missile  Defense  Agency  contract  on schedule and
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.  We  are  actively seeking to hire spacecraft and propulsion
engineers, and we are investigating various partnership arrangements to increase
resource  availability.

                                      PAGE 14


RECENT  DEVELOPMENTS

In  October  2005,  we  entered  into  an  Agreement  and  Plan  of  Merger  and
Reorganization, which we refer to as the merger agreement, with Starsys Research
Corporation,  a   Colorado   corporation,   and   Scott  Tibbitts,  its  largest
shareholder.  Pursuant to the merger agreement, Starsys will merge with and into
a  newly-created, wholly-owned subsidiary of SpaceDev. Holders of Starsys common
stock  will  become holders of our common stock following the merger. The merger
agreement  is  subject  to  a  number  of  conditions described below, including
effectiveness  of  a  Form  S-4  registration  statement  and  approval  of  the
respective  shareholders  of  SpaceDev  and  Starsys.

Merger  Consideration.  We will pay and issue the following consideration at the
effective  time  of  the merger, subject to adjustment as provided in the merger
agreement:

-    cash  in  the  aggregate  amount  of  $1,500,000;  and

-    an  aggregate number of shares of our common stock equal to the quotient of
     (A)  $7,500,000  divided by (B) the greater of (1) $1.40 and (2) the lesser
     of  (x)  $1.90  and  (y)  the  volume  weighted  average  price
          of our common stock for the preceding 20 trading days.

Fifty  percent  (50%)  of  the  number  of  shares of our common stock issued at
closing  will  be  deposited  in  escrow   as   security   for  the  payment  of
indemnification  claims  under the merger agreement, which escrow will generally
last  until ten days following the date of audited financial statements prepared
for  the  surviving  corporation  for  the  fiscal  year   ending  2006   (i.e.,
approximately  April  2007).

Following  the  merger,  Starsys  shareholders  may also be entitled to receive,
based  on  the  achievement  by the surviving corporation of certain performance
criteria  for  each  of  the fiscal years ending December 31, 2005, December 31,
2006  and  December  31, 2007, additional earnout consideration consisting of up
to:

-    For  the  fiscal  year  ended  December  31,  2005, $350,000 in cash and an
     aggregate number of shares of our common stock equal to the quotient of (A)
     $3,000,000  divided  by  (B)  the  greater  of (1) $2.00 and (2) the
     volume  weighted  average  price of our common stock for the twenty trading
     days preceding the date of the audit opinion for Starsys' fiscal year ended
     December  31,  2005;

-    For  the  fiscal  year  ended  December  31,  2006, $350,000 in cash and an
     aggregate number of shares of our common stock equal to the quotient of (A)
     $7,500,000  divided  by  (B)  the  greater  of (1) $2.50 and (2) the volume
     weighted  average  price  of  our  common stock for the twenty trading days
     preceding  the  date  of  the  audit opinion for Starsys' fiscal year ended
     December  31,  2006;  and,

-    For  the  fiscal  year  ended  December  31,  2007, $350,000 in cash and an
     aggregate number of shares of our common stock equal to the quotient of (A)
     $7,500,000  divided  by  (B)  the  greater  of (1) $3.00 and (2) the volume
     weighted  average  price  of  our  common stock for the twenty trading days
     preceding  the  date  of  the  audit opinion for Starsys' fiscal year ended
     December  31,  2007.

If  any  shares of our common stock are payable as earnout consideration for the
fiscal  year  ending December 31, 2005, fifty percent (50%) of those shares will
be  deposited  in  the  escrow  described  above.

Each  outstanding share of our common stock will remain unchanged in the merger.

Working  Capital  Contribution.  We  will contribute $2.5 million to the working
capital  of  the  surviving  corporation  through  the  end  of  2006.

Treatment  of  Stock  Options and Warrants. The holders of options, warrants and
other  rights  to  purchase Starsys common stock must exercise such rights on or
before  the  closing  of  the  merger.  Any options, warrants or other rights to
purchase  Starsys  common  stock which are not exercised prior to the closing of


                                      PAGE 15


the merger will be cancelled and will terminate and expire as of that closing of
the  merger.  We  will  assume  no options, warrants or other rights to purchase
Starsys  common  stock  pursuant  to  the  merger.

Loan Repayments. At the closing of the merger, we will (i) pay off the remaining
principal  and  interest  of  all  loans  to  Starsys from Vectra Bank Colorado,
together  with  any  other  costs  incurred in connection with those loans, (ii)
cancel  and  terminate the secured loan of $1.2 million and all accrued interest
and  fees,  from  us  to  Starsys,  and  (iii) pay off subordinated loans in the
aggregate  amount  of  approximately $920,000 owed by Starsys to certain Starsys
shareholders.  We  will  not be obligated to pay off more than $4,600,000 in the
aggregate (excluding the amount of our loan to Starsys) for all of the loans and
related  costs  described  above.

Reservation  of  Options.  We  have  agreed  to  reserve for issuance to Starsys
officers,  employees  and  consultants  options to buy a number of shares of our
common  stock  equal to at least 15% of the number of shares of our common stock
issued at the closing and as earnout consideration. We will seek approval of our
shareholders  to  increase  the amount of shares available under our 2004 Equity
Incentive  Plan,  or  under a new stock or equity plan to be adopted, to provide
sufficient  reserves  for  the  issuance  of  the  options  referenced above. In
September  2005,  we  made  a secured loan to Starsys in the principal amount of
$1.2  million. The loan accrues interest at 8% per annum and matures on December
31,  2005,  or  earlier in certain circumstances. Principal or interest payments
are  due  before  maturity.  The  maturity  date  may  be  accelerated  upon the
occurrence  of  certain  events  of  default.  The loan is secured by a security
interest  in all of the assets of Starsys, subject to an intercreditor agreement
with  Vectra  Bank  Colorado,  National  Association.

Our  proposed  acquisition of Starsys exposes us to a number of risks, including
those  described  below  under  "Risks  Related  to  the Proposed Acquisition of
Starsys."

In  July 2005, we were awarded a small contract by Lunar Enterprise Corporation,
a  wholly  owned  subsidiary of Space Age Publishing Company to perform the work
necessary  to  create a conceptual mission architecture and mission design for a
human  servicing mission to the Lunar south pole targeted for the period of 2010
to  2015.  We were awarded an earlier phase by Lunar Enterprise for a conceptual
mission  and  spacecraft  design  for  a lunar lander program 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. These contracts are expected to
result  in revenues of $125,000 and $150,000, respectively. The current contract
calls  for us to identify and evaluate existing technology, technology currently
under  development,  and  proposed  technology  that could be developed by NASA,
other  countries  or  the  private  sector  in  time to be incorporated into the
mission.

On  July  18,  2005,  we  were  awarded  a  subcontract  to  provide scientific,
engineering,  development  and  programmatic  support  to  the  development  and
demonstration  of  innovative  SSA  (space  situational awareness) nanosatellite
(<15kg)  spacecraft.  SSA  is  the  ability  to  search,  identify  and  monitor
spacecrafts  for  the  purpose  of  obtaining space superiority. The subcontract
covers  the conceptual/preliminary phase of development and includes all aspects
of potential systems from the platforms and associated payloads to the links and
nodes  and  ground  support.  The cost plus fixed fee subcontract is expected to
result  in revenues of approximately $400,000, but only $120,000 has been funded
at  this  time.  We  expect  to  complete  this subcontract by December 2005. We
believe  a  subcontract for the next phase of the project will be awarded at the
beginning  of 2006 to complete the system requirements review of the development
phase.  We  will need to bid and compete for the next-phase subcontract if it is
awarded.

On  June  27,  2005,  we were awarded a $1.25 million fixed price subcontract by
Andrews  Space,  Inc.  to  design  a  small  spacecraft  that will travel to the
vicinity of the Moon through a gravity tunnel that is part of the InterPlanetary
Superhighway,  a  route which requires significantly less fuel than conventional
trajectories.  In  early  June 2005, we were awarded a letter subcontract not to
exceed  $100,000  by  Andrews  for  the same program. The overall program, which
Andrews has signed with NASA, is to design, develop, launch, and operate a small
low-cost  spacecraft,  called  SmallTug,  on  a mission to the Lunar L1 point to
demonstrate key technologies and advanced orbital mechanics in support of NASA's
human  and  robotic  exploration of the Moon and Mars. On September 14, 2005, we


                                      PAGE 16


were  notified  by  Andrews that the subcontract was cancelled. Revenues for the
nine  months ended September 30, 2005 were approximately $400,000, including our
final  invoice  to  Andrews.

For  a  description of our other material ongoing contracts, please see our Form
10-KSB  for  the  year  ended  December  31,  2004.

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.


RESULTS  OF  OPERATIONS

 NINE MONTHS ENDED SEPTEMBER 30, 2005 -VS.- NINE MONTHS ENDED SEPTEMBER 30, 2004

Net  Sales

Our  net  sales increased by approximately 72% to $5,943,000 for the nine months
ended September 30, 2005 compared to net sales of $3,446,000 for the same period
in 2004. Net sales increased due to our acquisition of and performance under new
and  existing  government  contracts. Net sales in the 2005 period reflected our
continued  work  on  the  Missile  Defense  Agency  Task  Order  2  contract  of
approximately  $4,114,000  which  is  part of our March 31, 2004 Missile Defense
Agency  contract  described  below.  We also recorded net sales on 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  and our micro and nanosatellite bus and subsystem designs work.
Net  sales for these contracts totaled $592,000 and $509,000 for the nine months
ended  September  30,  2005  and 2004, respectively. In addition, we started our
Phase  I  effort with Andrews Space which had revenues for the nine months ended
September  30,  2005  of  $393,000.

Net  sales  for  the nine months ended September 30, 2004 included $957,000 from
the Air Force Research Laboratory Phase II contract, $1,141,000 from the Missile
Defense  Agency  Phase  I, $318,000 also from the Missile Defense Agency Phase 0
contract  (which  was  the  precursor  to  Phase  I contract), $610,000 from the
SpaceShipOne  program  and  $200,000 from our Defense Advanced Research Projects
Agency contract for the study of Novel Satcom Microsat Constellation Deployment.

On  March  31, 2004, we were awarded a 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. The total five-year contract
provides  for  a  maximum  of  $43,362,271  in  aggregate payments. We expect to
complete  the  work  under  the  contract  before  March 2009. The contract is a
milestone-based,  multiyear, multiphase contract and had an effective start date
of  March  1,  2004.  The  first  phase  was completed on September 30, 2004 and
generated  approximately  $1.14  million  of  revenue.  The  second phase of the
contract  began  in  October  2004,  and  is  expected  to  generate  a total of
approximately  $8.3  million of revenue over approximately 16 months. During the


                                      PAGE 17


nine  months ended September 30, 2005, we recognized approximately $4,114,000 of
revenue  from  this second phase. The overall contract called 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. In addition
to  the  three networked microsat under our Phase II task order, the $43 million
contract  also  envisioned  an  option  for a second three microsats using laser
communication  technology.  We  were  recently informed that the Missile Defense
Agency  had  re-routed  the  laser communications experiment that would use this
option to another program and that they would not be exercising their option for
the  additional microsats at this time; however, the contract vehicle remains at
$43  million and leaves open the opportunity for some other purchase to take its
place.  We  continue  on-time  and  on-budget  for  delivery  of the first three
microsats.   We  estimate  that  the  second  cluster   would  have  represented
approximately  $10  million  of  the  $43 million contract, and have reduced our
current  backorder  accordingly.  We  believe  the  remaining  unbilled contract
backlog amount of $33 million to be secure. We are currently proposing our Phase
III  task order and the Missile Defense Agency continues to be very pleased with
our  progress  on the three microsat distributed sensing experiment and while we
cannot  be  assured  of  any  new  business,  the  Missile  Defense  Agency  was
encouraging and excited about continuing a productive business relationship with
us.


Cost  of  Sales

For  the  nine months ended September 30, 2005, cost of sales were approximately
$4,572,000,  or  76.9% of net sales, as compared to approximately $2,703,000, or
78.4%  of  net  sales, during the same period in 2004. Cost of sales consists of
direct and allocated costs associated with individual contracts. The increase in
cost  of  sales was directly tied to increases in net sales, and the decrease in
cost  of  sales  as  a  percentage  of net sales was due to improved systems and
processes  for management of our projects and improved labor productivity. Gross
margin  improvement  is  limited  due  to  the cost plus fixed fee nature of our
contracts.

Operating  Expenses

Operating  expenses increased from $649,000, or 18.8% of net sales, for the nine
months  ended  September  30,  2004 to approximately $1,148,000, or 19.3% of net
sales,  for the nine months ended September 30, 2005. Operating expenses include
general  and  administrative  expenses  and  marketing  and  sales  expenses.

-    Marketing and sales expenses increased from approximately $336,000, or 9.7%
     of  net  sales,  for   the   nine  months  ended  September  30,  2004,  to
     approximately  $493,000,  or  8.3%  of net sales, during the same period in
     2005.  The  increase was attributable to the allocation of a portion of the
     personnel  costs  of our Vice President of New Business Development and our
     Chief  Executive  Officer  to marketing and sales expenses as well as costs
     associated  with  the  preparation and submission of bids for new projects.

-    General and administrative expenses increased from $314,000, or 9.1% of net
     sales,  for  the nine months ended September 30, 2004 to $655,000, or 11.0%
     of  net  sales,  for the nine months ended September 30, 2005. The increase
     was  attributable to the increase in personnel, including a human resources
     director and a contract administrator, and upcoming SEC compliance efforts,
     including  those related to the Sarbanes-Oxley Act of 2002 and FASB 123(R).
     Research  and  development costs are included in general and administrative
     expenses  and  did  not  comprise  a  significant  portion  of  general and
     administrative  expenses  for  the nine months ended September 30, 2004 and
     2005.

Non-Operating  Expense  (Income)

Non-operating  expense  (income)  consisted  of deferred gain on the sale of our
building,  other  non-cash loan fees and expenses and interest expense. Interest
expense  did  not comprise a significant portion of non-operating expense during


                                      PAGE 18


the  nine  months  ended  September  30, 2004 or 2005. We recorded non-operating
income  for  the  nine  months  ended  September  30,  2005.

-    We  recognized  approximately  $88,000  of deferred gain on the sale of our
     building during each of the nine month periods ended September 30, 2005 and
     2004,  and  we  will  continue  to  amortize the remaining deferred gain of
     approximately  $860,000 into non-operating income over the remainder of the
     lease  of  the  building,  which  is  schedule  to  expire  in  2013.

-    We  recorded  loan fees related to our revolving credit facility of $29,000
     and  $2,457,000  for  the  nine  months  ended September 30, 2005 and 2004,
     respectively.  Although  we  did not have a balance on our revolving credit
     facility  during  the  nine  months  ended  September 30, 2005, we recorded
     $29,000 in non-cash loan fees upon Laurus's exercise of warrants to acquire
     50,000 shares of our common stock, which were granted in 2004 in connection
     with  the  revolving credit facility. Additional non-cash loan fees will be
     recorded  as the warrants granted to Laurus related to the revolving credit
     facility  are  exercised.

Net  Income  and  EBITDA

Net  income  was approximately $348,000, or 5.9% of net sales, compared to a net
loss  of  approximately  $2,332,000,  or 67.7% of net sales, for the nine months
ended  September  30,  2005 and 2004, respectively. During the nine months ended
September  30,  2005,  we  had earnings before interest, taxes, depreciation and
amortization,  or  EBITDA,  of  approximately  $331,000,  or  5.6% of net sales,
compared  to  approximately  $149,000, or 4.3% of net sales, for the nine months
ended  September  30,  2005  and  2004.

The  following  table reconciles EBITDA to net income (loss) for the nine months
ended  September  30,  2005  and  2004:


<TABLE>
<CAPTION>



<S>                             <C>                   <C>
FOR THE NINE-MONTHS ENDING . .  SEPTEMBER 30, 2005    September 30, 2004
                                         (UNAUDITED)           (Unaudited)
NET INCOME (LOSS). . . . . . .  $           348,412   $        (2,332,304)
------------------------------  --------------------  --------------------

Interest Income. . . . . . . .              (69,632)               (5,619)
Interest Expense . . . . . . .                2,283                62,633
Gain on Building Sale. . . . .              (87,953)              (87,954)
Loan Fee - Equity Conversion.                28,875             2,456,794
Provision for income taxes . .                1,200                     -
Depreciation and Amortization.              108,265                55,236
------------------------------  --------------------  --------------------
EBITDA . . . . . . . . . . . .  $           331,450   $           148,786
------------------------------  --------------------  --------------------
</TABLE>


EBITDA  is  a  non-GAAP  financial  measure  and  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.  Our management regularly evaluates our progress based on
EBITDA.  Beginning  in  2003  through  the  quarter ended September 30, 2005, we
showed  continued  improvement  in  net  sales  as  well  as  in  EBITDA.


                                      PAGE 19



                               [GRAPHIC  OMITED]



                               [GRAPHIC  OMITED]




                                      PAGE 20



 THREE MONTHS ENDED SEPTEMBER 30, 2005 -VS.- THREE MONTHS ENDED SEPTEMBER 30,
                                      2004

Net  Sales

Net  sales  increased  by  approximately 82% to approximately $2,234,000 for the
three  months  ended  September 30, 2005, compared to net sales of approximately
$1,230,000  for  the  same  period  in  2004.  Net  sales  increased  due to our
acquisition  of and performance under new and existing government contracts. Net
sales  in  the  2005  period reflected our continued work on our Missile Defense
Agency  Task  Order 2 contract of approximately $1,432,000, which is part of our
March  31,  2004  Missile Defense Agency contract. We also recorded net sales on
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  and  our  micro  and  nanosatellite  bus and
subsystem  designs  work.  Net  sales  for  these contracts totaled $178,500 and
$140,000for the three months ended September 30, 2005, respectively. We also had
some  ongoing  smaller  programs  with Andrews Space, which had revenues for the
three months ended September 30, 2005 of $293,000. We expect to generate a total
of  approximately  $8 million in revenue in 2005 from the Missile Defense Agency
program,  $4,114,000  of  which  has  already  been  recorded.

Net  sales  for the three months ended September 30, 2004 included approximately
$584,000 from the Missile Defense Agency Phase I contract, $283,000 from the Air
Force  Research  Laboratory Phase II contract and $216,000 from the SpaceShipOne
program.

Cost  of  Sales

For  the  three months ended September 30, 2005, cost of sales was approximately
$1,709,000  or  76.5% of net sales, compared to approximately $953,000, or 77.5%
of  net  sales,  during  the  same period in 2004. Cost of sales consists of our
direct and allocated costs associated with individual contracts. The increase in
cost  of  sales was directly tied to increases in net sales, and the decrease in
cost  of  sales  as  a  percentage  of net sales was due to improved systems and
processes  for management of our projects and improved labor productivity. Gross
margin  improvement  is  limited  due  to  the cost plus fixed fee nature of our
contracts.

Operating  Expenses

Operating expenses increased from approximately $228,000, or 18.6% of net sales,
for  the  three  months  ended  September 30, 2004 to approximately $442,000, or
19.8%  of  net  sales,  for the three months ended September 30, 2005. Operating
expenses  include  general  and  administrative expenses and marketing and sales
expenses.

-    Marketing and sales expenses increased from approximately $120,000, or 9.8%
     of  net  sales,  for  the  three  months  ended  September  30,  2004,   to
     approximately  $189,000,  or  8.4%  of net sales, during the same period in
     2005.  The  increase was attributable to the allocation of a portion of the
     personnel  costs  of our Vice President of New Business Development and our
     Chief  Executive  Officer  to marketing and sales expenses as well as costs
     associated  with  the  preparation and submission of bids for new projects.

-    General  and administrative expenses increased from approximately $108,000,
     or  8.8%  of  net  sales,  for the three months ended September 30, 2004 to
     approximately $253,000, or 11.3% of net sales, for the same period in 2005.
     The  increase  was  attributable  to the increase in personnel, including a
     human  resources  director  and  a contract administrator, and upcoming SEC
     compliance  efforts,  including  those related to the Sarbanes-Oxley Act of
     2002  and  FASB  123(R).  Research  and  development  costs are included in
     general   and   administrative    expenses   and   did   not   comprise   a
     significant  portion  of  general  and administrative expenses for the nine
     months  ended  September  30,  2004  and  2005.


                                      PAGE 21


Non-Operating  Expense  (Income)

Non-operating  expense  (income)  consisted  of deferred gain on the sale of our
building,  other  non-cash loan fees and expenses and interest expense. Interest
expense  did  not comprise a significant portion of non-operating expense during
the  three months ended September 30, 2005. We recorded non-operating income for
the  three  months  ended  September  30,  2005.

-    We recognized approximately $29,000 of the deferred gain on the sale of our
     building  during  each of the three month periods ending September 30, 2005
     and  2004,  respectively,  and  we  will continue to amortize the remaining
     deferred  gain of approximately $860,000 into non-operating income over the
     remainder  of  the  lease  of  the building, which is schedule to expire in
     2013.

-    We  recorded  loan  fees  related  to  our  revolving  credit  facility  of
     approximately $0 and $663,000 for the three months ended September 30, 2005
     and  2004,  respectively.  Additional  loan  fees  will  be recorded as the
     warrants  granted  to  Laurus  related to the revolving credit facility are
     exercised.

Net  Income  and  EBITDA

Net income was approximately $136,000, or 6.1% of net sales for the three months
ended  September  30, 2005, compared to a net loss of approximately $603,000, or
49.0%  of  net  sales, for the same three-month period in 2004. We had EBITDA of
approximately  $127,000,  or  5.7%  of  net  sales  for  the  three months ended
September  30, 2005, compared to EBITDA of approximately $72,000, or 5.8% of net
sales,  for  the  three  months  ended  September  30,  2004.

The  following table reconciles EBITDA to net income (loss) for the three months
ended  September  30,  2005  and  2004:


<TABLE>
<CAPTION>



<S>                                     <C>                   <C>
FOR THE THREE MONTHS ENDED . . . . . .  SEPTEMBER 30, 2005    September 30, 2004
                                                 (UNAUDITED)           (Unaudited)
NET INCOME (LOSS). . . . . . . . . . .  $           136,251   $          (602,888)
--------------------------------------  --------------------  --------------------

Interest Income. . . . . . . . . . . .              (24,848)               (5,619)
Interest Expense . . . . . . . . . . .                  452                23,110
Non-Cash Interest exp. (Debt Discount)                    -                     -
Gain on Building Sale. . . . . . . . .              (29,318)              (29,318)
Loan Fee - Equity Conversion. . . . .                     -               663,481
Provision for income taxes . . . . . .                  452                     -
Depreciation and Amortization. . . . .              244,128                22,749
--------------------------------------  --------------------  --------------------
EBITDA . . . . . . . . . . . . . . . .  $           127,065   $            71,515
--------------------------------------  --------------------  --------------------

</TABLE>

Please  see  the disclosure above concerning the use, and limitations, of EBITDA
as  a  non-GAAP  financial  measure.


                                      PAGE 22


LIQUIDITY  AND  CAPITAL  RESOURCES

           Overview

Although we remained cash flow positive during the first nine months of 2005, we
will  need  to  raise  additional  capital to fulfill our obligations, estimated
between $2.5 million and $5 million, in connection with the Starsys acquisition.
We  anticipate  that such funds will come from public or private sales of equity
or  debt  securities.  In  October  2005,  we entered into a Securities Purchase
Agreement  with  Laurus pursuant to which we issued and sold 2,032,520 shares of
our  common  stock  to  Laurus  for an aggregate purchase price of $2,500,000 or
$1.23  per  share.  (See Note 8 to the Financial Statements for more information
regarding  the  October  2005  financing.)  In  addition  to amounts required in
connection  with  the  Starsys  acquisition, we may require investor or customer
funding of $10 to $30 million in the near future in order to execute our current
business  plan.  Such  funds  could come from further public or private sales of
equity  or  debt  securities,  or  government  and  commercial  customers,  or a
combination  of  both.

Our plan to increase cash generation from operations 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 program by
successfully  performing  under  our existing 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.

With  the  exception  of our investment in a fabrication facility for our hybrid
rocket  motor  testing,  for which we expect to incur approximately $1.5 million
over  the  next  twelve  months,  we  do  not  believe  that significant capital
expenditures will be required to increase sales; however, additional capital may
be  required  to support and sustain our growth. We may also be required to make
certain  capital  expenditures  to  bring  our  facilities  into compliance with
classified  government projects if and when awarded to us, although at this time
we  have  insufficient  information  to  estimate the cost of any such measures.

During  the  nine  months  ended  September  30,  2005,  we raised approximately
$648,000  through the exercise of options and warrants and from participation in
our  Employee  Stock  Purchase  Plan. During the nine months ended September 30,
2004, we raised approximately $5,258,000 through a combination of conversions on
our  revolving  credit  facility  and  exercises  of  options  and  warrants.

On  March  31,  2004, we negotiated an amendment to our Secured Convertible Note
dated  June  3,  2003  with  Laurus 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 our obtaining sufficient eligible accounts receivable. 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 our obtaining sufficient eligible accounts receivable and
committed  to  convert  the entire $1 million into equity by the end of 2004. At
December  31,  2004,  Laurus had converted approximately $2,272,000 of debt into
2,990,000  shares  under  the  revolving  credit  facility.

There  are no outstanding borrowings under the Laurus revolving credit facility.
We  currently  have  available  borrowing capacity of approximately $1.5 million
under  the  revolving  credit  facility,  subject to certain accounts receivable
limitation  or  subsequent  waivers  with  Laurus. The borrowing limit under the
revolving  credit  facility  varies based upon our eligible outstanding accounts
receivable.  The  credit  facility  will  expire  in  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.


                                      PAGE 23


Other  than cash on hand and amounts available under the Laurus revolving credit
facility,  we  have  no  unused  sources  of  liquidity  at  this  time.

CASH  FLOWS

Net  decrease  in  cash  during  the  nine  months  ended September 30, 2005 was
approximately  $1,046,000 compared to a net increase of approximately $3,487,000
for  the  same  nine-month  period  in  2004.  Net  cash  provided  by operating
activities  totaled  approximately  $313,000 for the nine months ended September
30,  2005,  an  increase  of  approximately  $247,000  compared to approximately
$66,000  provided  by  operating activities during the same nine-month period in
2004.  The  improvement  in  cash  from  operating  activities resulted from our
acquisition  of  and  performance  under  new and existing government contracts.

Net  cash  used in investing activities totaled approximately $1,978,000 for the
nine months ended September 30, 2005, compared to approximately $166,000 used in
investing  activities during the same nine-month period in 2004. The increase in
cash  used  in  investing activities was attributable to the $1.2 million bridge
loan  we entered into with Starsys, our purchase of certain fixed assets related
to  the  construction  of  our  fabrication  and test facility for hybrid rocket
motors  and  the  purchase  of additional computer hardware and software tools .

Net cash provided by financing activities totaled approximately $619,000 for the
nine  months  ended  September  30,  2005,  which is a decrease of approximately
$2,967,000  from  the  approximately $3,586,000 provided by financing activities
during  the  same  nine-month  period in 2004. The difference is attributable to
warrant  and  option  exercises and the receipt of $2.5 million from the sale of
preferred  stock  to  Laurus  in  August  2004.

Our  cash, cash reserves and cash available for investment decreased slightly to
approximately  $4,022,000  at  September  30,  2005,  compared  to approximately
$4,079,000  at  September  30,  2004.  The  decrease  was  attributable  to cash
generated  from  operations,  the  receipt  of $2.5 million from the issuance of
preferred  stock  to  Laurus  in  August 2004, the exercise of stock options and
warrants  throughout  the first nine months of 2005 of approximately $600,000 as
well  as those exercised during the same period in 2004 and advances/conversions
under  our  revolving  credit  facility in 2004, which offset the bridge loan to
Starsys  on  September  14,  2005.   Cash  plus  accounts  receivable  increased
approximately  14%  from  approximately  $4.5  million  at September 30, 2004 to
approximately  $5.1  million  at  September  30,  2005.

Our  backlog  of funded and non-funded business was approximately $33 million at
September 30, 2005, compared to approximately $44 million at September 30, 2004.
With  respect  to  the  Missile  Defense Agency program, we expect to generate a
total  of  approximately  $8  million  in  revenue  in 2005. We were informed in
September  2005  that  the  Missile  Defense  Agency  had  re-routed  the  laser
communications  experiment  to  another  program  and  that  they  would  not be
exercising their option for a second cluster, at this time; however, the Missile
Defense  Agency  also  informed  us  of  several  other opportunities that might
replace  the  laser  communications experiment and while we cannot be assured of
any  new  business, the Missile Defense Agency was encouraging and excited about
continuing  a  productive  business  relationship  with  us. As a result of this
notification,  we  reduced our backlog by approximately $10 million. The Missile
Defense  Agency  contract  is  an  IDIQ  contract,  meaning  it is an indefinite
delivery,  indefinite  quantity  contract  which  can be re-funded up to the $43
million  ceiling  with  other  microsatellites  or  new business without further
signature authority. 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.

We  had  a  net deferred tax asset of approximately $2,193,000 and $2,218,000 at
September  30,  2005  and  2004,  respectively, which consisted primarily of the
income  tax  benefits  from  net  operating loss and capital loss carryforwards,
amortization  of  deferred gain on sale of building and research and development
credits.  Deferred  income  taxes represent temporary differences in recognizing
certain  income  and  expense  items for financial and tax reporting purposes. 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


                                      PAGE 24


allowance  decreased  from  $2,318,000  at  December  31,  2004 to $2,193,000 at
September  30,  2005.

We  had  federal and state tax net operating loss and capital loss carryforwards
of  approximately  $4,325,000 and $1,629,000 at September 30, 2005 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.

RECENT  ACCOUNTING  PRONOUNCEMENTS

A   number  of  new  accounting  pronouncements  have  been  issued  for  future
implementation as discussed in the footnotes to our interim financial statements
(see  Note  7).

OFF  BALANCE  SHEET  ARRANGEMENTS

We  do  not have any off-balance sheet arrangements, as defined in Item303(c)(2)
of  Regulation  S-B.

BUSINESS  RISKS

The  following  is  a summary of the many risks and uncertainties we face in our
business. You should carefully read these risks and uncertainties as well as the
other  information  in this report in evaluating our business and its prospects.

     SOME  OF  OUR  GOVERNMENT CONTRACTS ARE STAGED AND WE CANNOT GUARANTEE THAT
ALL  STAGES  OF  THE  CONTRACTS  WILL  BE  AWARDED  TO  US  OR  AT  ALL.

Some  of  our government contracts, including our March 31, 2004 Missile Defense
Agency  contract,  are  phased contracts, in which the customer may determine to
terminate  the  contract  between  phases  for  any reason. For example, we were
informed  in  September  2005  that the Missile Defense Agency had re-routed the
laser  communications  experiment  to another program and that they would not be
exercising their option for a second cluster, at this time; however, the Missile
Defense  Agency  also  informed  us  of  several  other opportunities that might
replace  the  laser  communications experiment and while we cannot be assured of
any  new  business, the Missile Defense Agency was encouraging and excited about
continuing  a  productive business relationship with us. Accordingly, the entire
contract  amount  may not be realized by us. In the event that subsequent phases
of  some  of  our government contracts, including but not limited to the Missile
Defense Agency contract, are not awarded to us, it could have a material adverse
effect  on  our  and  financial  position  and  results  of  operations.

     HISTORICALLY,  OUR  REVENUES  FROM  OPERATIONS  HAVE NOT BEEN SUFFICIENT TO
SUPPORT  OUR  BUSINESS.

In  prior  years,  our revenues from operations have not been sufficient to fund
our operations. The success of our business depends upon our ability to generate
revenue  from  existing  contracts  and  continuing  to attract and successfully
complete  additional  government  and  commercial  contracts, and the receipt of
additional  financing.  Successful  execution  of  existing  contracts  and  the
acquisition  of  new  business  depends,  in part, on our development of project
management  expertise to profitably execute on current and future contracts. Our
new  business  opportunities may come from a variety of sources, including state
and  federal grants and government and commercial customer programs. However, if
we  are  in  need of further funding, we may be unable to obtain such funding or
contracts  as  needed or on terms favorable to us. 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.


                                      PAGE 25


     IF  WE ARE UNABLE TO RAISE CAPITAL, WE MAY BE UNABLE TO FUND OPERATING CASH
SHORTFALLS.

We will need additional financing to fund our obligations in connection with the
Starsys  acquisition.  In the past, we have not been able to generate sufficient
cash  from  our  operating  activities  and have relied upon cash from financing
activities  to  fund  part of the cash requirements of our business.  Additional
financing  may  not  be  available  to  us  on  acceptable terms, or at all. Any
inability  to  obtain  needed  financing  would  hinder our ability to close the
Starsys  acquisition  while funding our projected operating needs. Any financing
may  cause  significant dilution to existing shareholders. Any debt financing or
other  financing  of  securities  senior  to  common  stock  likely will include
financial  and  other covenants that will restrict our operating flexibility and
our  ability  to  pay  dividends  to  shareholders.

     WE  FACE  SIGNIFICANT  COMPETITION AND MANY OF OUR COMPETITORS HAVE GREATER
RESOURCES  THAN  WE  DO.

We  face  significant  competition  for our government and commercial contracts.
Many  of  our  competitors  have greater resources than we do and may be able to
devote  greater  resources  than  us to research and development, and marketing.
Given the sophistication inherent in our operations, larger competitors may have
a  significant advantage and may be able to more efficiently adapt and implement
technological  advances.

     WE  MAY  NOT  SUCCESSFULLY  OR  TIMELY  DEVELOP  PRODUCTS.

Many  of  our products and technologies (including our hybrid rocket technology)
are  currently  under  various  stages  of  development. Further development and
testing  of  our  products and technologies will be required to prove additional
performance   capability   beyond  current  levels  and  to  confirm  commercial
viability.  Additionally,  the  final  cost  of development cannot be determined
until  development  is complete. Our ongoing and future product development will
depend, in part, on the ability to timely complete our projects within estimated
cost  parameters  and  ultimately deploy the product in a cost-effective manner.

     THE  MARKETPLACE  FOR  OUR  TECHNOLOGY  AND  PRODUCTS  IS  UNCERTAIN.

The demand for our technology, products and services is uncertain and we may not
obtain  in  a  sufficient  market  share  to sustain our business or to increase
profitability.  Our  business  plan  assumes  that  near-term  revenues  will be
generated largely from government contracts for microsatellites with a long-term
commercial  market developing for private manned and unmanned space exploration.
Because  microsatellites  and  commercial space exploration are still relatively
new  concepts,  it  is  difficult to accurately predict the ultimate size of the
market.  Many  of  our  products and services are new and unproven, and the true
level  of consumer demand is uncertain. Lack of significant market acceptance of
our  products  and services, delays in such acceptance, or failure of markets to
develop  could  negatively affect our business, financial condition, and results
of  operations.

     A  SUBSTANTIAL  PORTION  OF  OUR  NET  SALES  ARE GENERATED FROM GOVERNMENT
CONTRACTS,  WHICH  MAKES  US  SUSCEPTIBLE  TO  THE UNCERTAINTIES INHERENT IN THE
GOVERNMENT  BUDGETING  PROCESS.  IN  ADDITION,  MANY  OF  OUR  CONTRACTS  CAN BE
TERMINATED  BY  THE  CUSTOMER.

Our  concentration  of government work makes us susceptible to government budget
cuts  and  policy changes, which may impact the award of new contracts or future
phases  of existing contracts.  Government budgets are subject to the prevailing
political  climate,  which  is  subject  to  change  at any time.  Additionally,
awarded  contracts could be altered or terminated prior to the time we recognize
our  projected  revenue.  Many  contracts  have  "exit  ramp"  provisions, which
provide the customer the right to terminate the contract for any of a variety of
reasons,  including  but  not limited to, non-performance by us.  Many contracts
are  awarded  in  phases  where  future  phases  are  not  guaranteed  to  us.


                                      PAGE 26


     OUR LIMITED OPERATING HISTORY AND LACK OF EXPERIENCE IN OUR NEW OR PROPOSED
LINES  OF  BUSINESS  MAKES  IT  DIFFICULT  TO  PREDICT  OUR  FUTURE  SUCCESS.

We  launched  our  first  microsatellite,  CHIPSat, in January 2003 and, on June
21st,  September  29th  and  October 4th, 2004, our hybrid rocket technology was
first  utilized in connection with the SpaceShipOne launch. We intend to provide
microsatellites  to  early  adopters,  primarily  the  U.S.  military (e.g., the
Missile  Defense  Agency), and hybrid rocket motors to government and commercial
customers  (e.g.,  the  Air  Force  Research  Laboratory and Scaled Composites).
However,  we  have  limited  operating  history and, as a result, our historical
financial  information  is  of limited value in projecting our future success in
these  markets.

     OUR PRODUCTS AND SERVICES ARE TECHNOLOGICALLY ADVANCED AND MAY NOT FUNCTION
UNDER  CERTAIN  CONDITIONS.

Most  of  our  products are technologically advanced and sometimes novel systems
that must function under demanding operating conditions. Our products may not be
successfully  launched  or   operated,   or  perform  as  intended.   Like  most
organizations  that  have  launched  satellite programs, we, in the future, will
likely, experience some product and service failures, schedule delays, and other
problems in connection with our products. Our products and services are and will
continue  to  be subject to significant technological change and innovation. Our
success  will  generally  depend on our ability to continue to conceive, design,
manufacture  and market new products and services on a cost-effective and timely
basis.  We  anticipate that we will incur significant expenses in the design and
initial  manufacture  and  marketing  of  new  products  and  services.

     LAUNCH  FAILURES  COULD  HAVE  SERIOUS  ADVERSE  AFFECTS  ON  OUR BUSINESS.

A launch failure of one of our microsatellites could have series adverse effects
on  our business because a large portion of contract payment is often contingent
on a successful launch. Microsatellite launches are subject to significant risks
the  realization  of  which  can  cause  disabling  damage to or total loss of a
microsatellite.  Delays  in the launch could also adversely affect our net sales
as  the  customer  may have timing requirements for milestone payments or we may
have  guarantee  requirements.  Delays  could  be caused by a number of factors,
including:

-    designing,  constructing,  integrating,  or  testing  the  microsatellite,
     microsatellite  components,  or  related  ground  systems;
-    delays  in  receiving  the  license necessary to operate the microsatellite
     systems;
-    delays  in  obtaining  the  customer's  payload;
-    delays  related  to  the  launch  vehicle;
-    weather;  and
-    other  events  beyond  our  control.

Delays  and  the  perception  of  potential  delay  could  negatively affect our
marketing  efforts  and  limit our ability to obtain new contracts and projects.

     OUR  EXPANSION  INTO  OTHER  NEW  LINES OF BUSINESS MAY DIVERT MANAGEMENT'S
ATTENTION  FROM  OUR  EXISTING  OPERATIONS  AND  PROVE  TO  BE  TOO  COSTLY.

Our  current  business  plan  contemplates  the migration of our technology from
projects  into  products  for  microsatellites and hybrid rocket motors over the
next  several years. In the meantime, we are investigating other applications of
our  technology and other markets for our technologies and prospective products.
Our  expansion  into  new  lines  of  business may be difficult for us to manage
because  they  may involve different disciplines and require different expertise
than  our  core  business.  Consequently, this expansion may divert management's
time  and  attention  away  from  our  core  business,  and we may need to incur
significant  expenses  in  order  to  develop  the  expertise, and reputation we
desire.  Any  revenues generated by new lines of business may not be significant
enough  to  offset  the expenditures required to enter such business, or provide
the  anticipated  return  on  investment.


                                      PAGE 27


     OUR  SUCCESS  DEPENDS  ON  OUR  ABILITY  TO  RETAIN  OUR  KEY  PERSONNEL.

Our  success  is  dependent  upon  the  efforts  of  certain  key members of our
management and engineering team, including our chief executive officer, James W.
Benson,  our president and Chief Financial Officer, Richard B. Slansky, our vice
president  of  engineering, Frank Macklin and our vice president of programs and
new  business development, Randall K. Simpson.  The loss of any of these persons
could  have  a  material adverse effect on us.   Our future success is likely to
depend  substantially  on  our  continued  ability  to attract and retain highly
qualified  personnel.  The  competition  for  such personnel is intense, and our
inability  to  attract  and  retain such personnel could have a material adverse
effect  on  us.  We  do  not  maintain  key man life insurance on any of our key
personnel.

     WE  ARE  SUBJECT  TO  SUBSTANTIAL  REGULATION.  ANY  FAILURE TO COMPLY WITH
EXISTING  REGULATIONS,  OR INCREASED LEVELS OF REGULATION, COULD HAVE A MATERIAL
ADVERSE  EFFECT  ON  US.

Our  business  activities  are  subject  to  substantial  regulation  by various
agencies  and  departments  of  the  United  States  government  and, in certain
circumstances,  the governments of other countries. Several government agencies,
including NASA and the U.S. Air Force, maintain Export Control Offices to ensure
that  any  disclosure  of scientific and technical information complies with the
Export  Administration   Regulations  and  the  International  Traffic  in  Arms
Regulations  or,  "ITAR."  Exports  of  our  products,  services  and  technical
information  require either Technical Assistance Agreements or licenses from the
U.S. Department of State depending on the level of technology being transferred.
This  includes  recently  published   regulations  restricting  the  ability  of
U.S.-based  companies  to  complete  offshore  launches,  or  to  export certain
satellite  components  and  technical  data  to  any  country outside the United
States.  The  export  of  information  with  respect  to  ground-based  sensors,
detectors,  high-speed  computers,  and national security and missile technology
items are controlled by the Department of Commerce. The government has indicated
that  failure to comply with the ITAR and/or the Commerce Department regulations
may  subject  guilty  parties to fines of up to $1 million and/or up to 10 years
imprisonment  per  violation.  Failure to comply with any of the above mentioned
regulations  could  have  serious  adverse  effects  as  dictated  by  the rules
associated  with  compliance  to  the  ITAR  regulations.

In  addition,  the  space  industry  has specific regulations with which we must
comply.  Command  and  telemetry  frequency  assignments  for space missions are
regulated  internationally  by  the  International  Telecommunications Union, or
"ITU".  In  the  United States, the Federal Communications Commission, or "FCC,"
and  the  National  Telecommunications  Information  Agency, or "NTIA," regulate
command  and  telemetry  frequency  assignments.  All  launch  vehicles that are
launched  from a launch site in the United States must pass certain launch range
safety regulations that are administered by the U.S. Air Force. In addition, all
commercial  space  launches  that  we  would  perform require a license from the
Department of Transportation. Satellites that are launched must obtain approvals
for  command and frequency assignments. For international approvals, the FCC and
NTIA  obtain  these approvals from the ITU. These regulations have been in place
for  a  number  of  years to cover the large number of non-government commercial
space  missions  that have been launched and put into orbit in the last 15 to 20
years.  Any commercial deep space mission that we would perform would be subject
to  these  regulations.

 We  are  also  required  to  obtain permits, licenses, and other authorizations
under  federal,  state,  local  and foreign laws and regulations relating to the
environment.   Our   failure  to  comply  with   applicable  law  or  government
regulations,  including  any  of  the  above-mentioned  regulations,  could have
serious  adverse  effects  on  our  business.

     OUR  STOCK  PRICE  HAS  BEEN  AND  MAY CONTINUE TO BE VOLATILE, WHICH COULD
RESULT  IN  SUBSTANTIAL  LOSSES  FOR  INVESTORS  PURCHASING SHARES OF OUR COMMON
STOCK.

The  market  prices  of  securities  of technology-based companies like ours are
highly  volatile.   The  market   price  of  our  common  stock  has  fluctuated
significantly in the past. During the 52-week period ended November 1, 2005, the
high  and  low closing price of a share of our common stock was $2.31 and $1.43,
respectively.  Our market price may continue to exhibit significant fluctuations


                                      PAGE 28


in response to a variety of factors, many of which are beyond our control. These
factors  include,  among  others:

-    deviations  in  our  results  of  operations  from  estimates,
-    changes  in  estimates  of  our  financial  performance,
-    changes  in  market valuations of similar companies and stock market price,
-    our  proposed  acquisition  of  Starsys,  and
-    volume  fluctuations  generally.

Additionally, until the full effects of our cost reduction efforts become clear,
including whether those cuts have a long-term negative impact on revenues, it is
likely  that  our  quarter-to-quarter  performance will be unpredictable and our
stock  price  particularly  volatile.

     OUR NET OPERATING LOSS CARRYFORWARDS MAY BE SUBJECT TO AN ANNUAL LIMITATION
ON  THEIR  UTILIZATION, WHICH MAY INCREASE OUR TAXES AND DECREASE NET INCOME AND
CASH  FLOWS.

At  December  31,  2004 and September 30, 2005, we had federal and state tax net
operating  loss  and  capital loss carryforwards of approximately $2,218,000 and
$2,193,000,  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.  If our net operating loss carryforwards are subject to
an  annual  limitation on their utilization, our taxes may increase and our cash
flows  and  net  income  may  decrease.

     THE  CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK GIVES A FEW INDIVIDUALS
SIGNIFICANT  CONTROL  OVER IMPORTANT POLICY DECISIONS AND COULD DELAY OR PREVENT
CHANGES  IN  CONTROL.

As  of  November  1,  2005,   our  executive  officers  and  directors  together
beneficially owned approximately 45% of the issued and outstanding shares of our
common  stock.  As  a  result,  these  persons  could  have the ability to exert
significant  influence  over  matters  concerning  us, including the election of
directors,  changes  in  the size and composition of the board of directors, and
mergers  and  other  business  combinations involving us, among other things. In
addition,  through  control  of  the  board  of  directors and voting power, our
officers  and  directors  may  be  able  to control certain decisions, including
decisions  regarding  the  qualification  and  appointment of officers, dividend
policy,  access to capital (including borrowing from third-party lenders and the
issuance of additional equity securities), and the acquisition or disposition of
our assets. In addition, the concentration of voting power in the hands of those
individuals  could have the effect of delaying or preventing a change in control
of  our company, even if the change in control would benefit our shareholders. A
perception  in  the  investment community of an anti-takeover environment at our
company  could  cause  investors to value our stock lower than in the absence of
such  a  perception.

     OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY IS ESSENTIAL TO THE GROWTH
AND  DEVELOPMENT  OF  OUR  PRODUCTS  AND  SERVICES.

We  rely  on  patents,  trade  secrets  and know-how to develop and maintain our
competitive  position and technological advantage. We have a program and plan to
protect  our  intellectual property through a combination of license agreements,
patents, trademarks, service marks, copyrights, trade secrets, restricted access
and  other  methods.  If  any  of  these  programs,  plans or agreements are not
successful in protecting our intellectual property, our business prospects could
be  materially  adversely  affected.


                                      PAGE 29


     OUR  ABILITY TO SOURCE AND OBTAIN COMPONENTS AND RAW MATERIALS COULD AFFECT
OUR  ABILITY  TO  SATISFY  CUSTOMER  ORDERS  OR  CONTRACTS.

We  purchase  a  significant  percentage of our components, including structural
assemblies,  electronic  equipment,  and  computer chips, from third parties. We
also  occasionally  obtain from the U.S. government parts and equipment that are
used  in  our  projects or in the provision of our services.  If our sources for
components  and  raw  materials  are  unavailable  to  us for any reason, we may
experience  increased  costs and possible delays in securing alternative sources
of  supply.  In addition, we cannot guarantee that alternative sources of supply
would be available if and when required by us.  The failure to source and obtain
needed  components  and  raw  materials  could  result  in  the loss of existing
contracts  and  negatively affect our prospects for entering into new contracts.

     OUR  LIMITED  INSURANCE MAY NOT COVER ALL RISKS INHERENT IN OUR OPERATIONS.

We  may  find  it  difficult to insure certain risks involved in our operations,
including mircosatellite or launch vehicle failures. Insurance market conditions
or factors outside of our control at the time insurance is purchased could cause
premiums  to  be  significantly higher than current estimates. Additionally, the
U.S.  Department  of  State  has published regulations which could significantly
affect  the  ability  of brokers and underwriters to place insurance for certain
launches.  These  factors  could  cause  other  terms  to  be significantly less
favorable  than  those  currently  available, may result in limits on amounts of
coverage  that we can obtain, or may prevent us from obtaining insurance at all.
Furthermore,  proceeds  from  insurance  may  not be sufficient to cover losses.

     OUR GROWTH MAY NOT BE MANAGEABLE AND OUR BUSINESS COULD SUFFER AS A RESULT.

Even  if  we  are  successful  in  obtaining new business, failure to manage the
growth could adversely affect our operations. We may experience extended periods
of  very  rapid  growth,   and  our   acquisition  of  Starsys  is  expected  to
significantly increase our size. This growth could place a significant strain on
our management, operating, financial and other resources. Our future performance
will depend in part on our ability to manage growth effectively. We must develop
management  information  systems, including operating, financial, and accounting
systems  and  expand,  train, and manage employees to keep pace with growth. Our
inability  to  manage  growth  effectively  could  negatively  affect results of
operations  and  the  ability  to  meet  obligations  as  they  come  due..

     OUR  BUSINESS  COULD  BE  ADVERSELY AFFECTED BY TERRORIST ATTACKS AND OTHER
NATIONAL  AND  INTERNATIONAL  EVENTS.

Our  business  partially depends on activities regulated by various agencies and
departments  of  the  U.S.  government  and  other  companies  that  rely on the
government. In the recent past, 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 an increase in operating costs, including costs
for transportation, insurance, and security, as a result of terrorist activities
and  threats..

     WE  HAVE  NOT  PAID  DIVIDENDS  ON  OUR COMMON STOCK IN THE PAST AND DO NOT
ANTICIPATE  PAYING  DIVIDENDS  ON  OUR  COMMON  STOCK IN THE FORESEEABLE FUTURE.

We  have  not  paid  common  stock  dividends  since  our  inception  and do not
anticipate paying dividends in the foreseeable future. Our current business plan
provides  for  the reinvestment of earnings in an effort to complete development
of  our  technologies  and  products,  with  the  goal  of  increasing sales and
long-term  profitability  and  value. In addition, the revolving credit facility
with  Laurus  and  the  terms of our preferred stock currently restrict, and any
other  credit or borrowing arrangements that we may enter into may in the future
restrict  or  limit,   our   ability  to  pay  common  stock  dividends  to  our
shareholders.


                                      PAGE 30


     OUR  COMMON  SHAREHOLDERS MAY EXPERIENCE DILUTION IF OUR PREFERRED STOCK IS
CONVERTED  OR  OUR  OUTSTANDING  WARRANTS  AND  OPTIONS  ARE  EXERCISED

As of November 1, 2005, we are obligated to issue 3,616,226 shares of our common
stock  if  all of our outstanding warrants are exercised and shares of preferred
stock converted.  In addition, as of November 1, 2005, we have outstanding stock
options  to  purchase  an aggregate of 4,756,266 shares of our common stock. The
total number of shares, issuable upon the exercise of currently vested warrants,
options  and  preferred stock (8,372,492 shares) represents approximately 34% of
our  issued  and outstanding shares of common stock as of November 1, 2005.  Our
common shareholders may experience dilution if additional shares are issued upon
conversion  or  exercise  of  our  warrants,  options  and  preferred  stock.

     BECAUSE OUR STOCK IS SUBJECT TO THE SEC'S PENNY STOCK RULES, BROKER-DEALERS
MAY  EXPERIENCE  DIFFICULTY  IN  COMPLETING  CUSTOMER  TRANSACTIONS  AND TRADING
ACTIVITY  IN  OUR  SECURITIES  MAY  BE  ADVERSELY  AFFECTED.

Transactions  in  our  common  stock  are currently subject to the "penny stock"
rules  promulgated under the Securities Exchange Act of 1934. Under these rules,
broker-dealers  who recommend our securities to persons other than institutional
accredited  investors  must:

-    make  a  special  written  suitability  determination  for  the  purchaser;

-    receive  the  purchaser's written agreement to a transaction prior to sale;

-    provide the purchaser with risk disclosure documents which identify certain
     risks  associated  with  investing in "penny stocks" and which describe the
     market  for  these  "penny stocks" as well as a purchaser's legal remedies;
     and

-    obtain  a  signed and dated acknowledgment from the purchaser demonstrating
     that  the  purchaser  has  actually  received  the required risk disclosure
     document  before  a  transaction  in  a  "penny  stock"  can  be completed.

As  a  result of these rules, broker-dealers may find it difficult to effectuate
customer  transactions  and  trading activity in our securities may be adversely
affected.  As a result, the market price of our securities may be depressed, and
you  may  find  it  more  difficult  to  sell  our  securities.

RISKS  RELATED  TO  THE  PROPOSED  ACQUISITION  OF  STARSYS

The  following  risks  relate  to  our  proposed  acquisition  of  Starsys.  The
acquisition  of  Starsys  is  subject  to  several conditions and may not occur.

     IF  WE  AND  STARSYS FAIL TO EFFECTIVELY INTEGRATE OUR OPERATIONS, WHERE IT
MAKES  SENSE  TO  DO  SO, THE COMBINED COMPANY MAY NOT REALIZE ALL THE POTENTIAL
BENEFITS  OF  THE  MERGER.

The  integration  of  SpaceDev  and  Starsys  may  become  a  time consuming and
expensive process and may disrupt the combined company's operations if it is not
completed  in  a  timely and efficient manner. If this integration effort is not
successful,  the  combined  company's  results  of  operations  could be harmed,
employee morale could decline, key employees could leave, customers could cancel
existing  orders  or choose not to place new ones and the combined company could
have  difficulty  complying  with  regulatory  requirements.  In  addition,  the
combined  company may not achieve anticipated synergies or other benefits of the
merger.  Following  the  merger,  SpaceDev and Starsys may operate as a combined
organization  utilizing  common information and communication systems, operating
procedures,  financial  controls  and  human  resources  practices. The combined
company  may  encounter  difficulties,  costs and delays involved in integrating
their  operations,  including  the  following:


                                      PAGE 31


-    failure  to  successfully  manage  relationships  with  customers and other
     important  relationships;

-    failure  of  customers  to  accept  new  services  or to continue using the
     products  and  services  of  the  combined  company;

-    difficulties in successfully integrating the management teams and employees
     of  the  two  companies;

-    challenges  encountered  in  managing larger, more geographically dispersed
     operations;

-    the loss of key employees;

-    diversion  of  the  attention  of  management  from  other ongoing business
     concerns;

-    potential incompatibilities of technologies and systems;

-    potential  difficulties  integrating  and  harmonizing  financial reporting
     systems;  and

-    potential incompatibility of business cultures.

If  the  combined  company's  operations  after  the  merger  do  not  meet  the
expectations of existing customers of either company, these customers may reduce
the  amount  of  business  or  cease  doing  business  with the combined company
altogether,  which  would harm the results of operations and financial condition
of  the  combined  company.

If  the  anticipated  benefits of the merger are not realized or do not meet the
expectations  of  financial or industry analysts, the market price of our common
stock  may  decline  after  the merger. The market price of our common stock may
decline  as  a  result  of  the  merger  if:

-    the integration of the two companies is unsuccessful;

-    the  combined  company does not achieve the expected benefits of the merger
     as  quickly  as  anticipated  or  the  costs of or operational difficulties
     arising  from  the  merger  are  greater  than  anticipated;

-    the  combined  company's  financial   results  after  the  merger  are  not
     consistent  with  the  expectations  of  financial  or  industry  analysts;

-    the  anticipated  operating  and  product  synergies  of the merger are not
     realized;  or

-    the  combined  company  experiences  the  loss  of significant customers or
     employees  as  a  result  of  the  merger.

     FAILURE  TO  COMPLETE THE MERGER COULD ADVERSELY AFFECT OUR FUTURE BUSINESS
AND  OPERATION  AS  WELL  AS  THE  MARKET  PRICE  OF  OUR  COMMON  STOCK.

The  merger  is subject to the satisfaction of closing conditions, including the
approval  by  both  SpaceDev  and Starsys shareholders, and we cannot assure you
that  the merger will be successfully completed. In the event that the merger is
not  completed,  we  may  be  subject  to  a  number  of  risks,  including:

-    the  price  of  our common stock may decline to the extent that the current
     market  price  of  our  common  stock reflects a market assumption that the
     merger  will  be  completed;


                                      PAGE 32


-    we  could  suffer  the  loss  of  customers,  revenues and employees due to
     uncertainties  resulting  from  an  uncompleted  merger;  and

-    our  costs  related  to  the merger, such as legal, accounting and advisory
     fees,  must  be  paid  even  if the merger is not completed, and such costs
     would  reduce  our reported earnings or increase our reported loss, for the
     period  when  it  was  determined that the merger would not be consummated.

     COMPLETION  OF THE MERGER MAY RESULT IN DILUTION OF OUR FUTURE EARNINGS PER
SHARE.

The  completion of the merger may not result in improved earnings per share or a
financial  condition  superior to that which would have been achieved by us on a
stand-alone  basis.  The  merger  could  fail  to  produce the benefits that the
companies  anticipate,  or could have other adverse effects that we currently do
not foresee.  In addition, some of the assumptions that either company has made,
such  as  the  achievement  of operating synergies, may not be realized. In this
event,  the  merger  could  result  in a reduction of our earnings per share, or
increase  in  loss  per  share, as compared to the earnings per share that would
have  been  achieved  by  us  if  the  merger  had  not  occurred.

     THE  COSTS  ASSOCIATED  WITH  THE  MERGER ARE DIFFICULT TO ESTIMATE, MAY BE
HIGHER THAN EXPECTED AND MAY HARM THE FINANCIAL RESULTS OF THE COMBINED COMPANY.

We estimate that we and Starsys will incur aggregate direct transaction costs of
approximately  $1.8  million  associated  with  the  merger  include legal fees,
accounting  fees,  investment  banking  costs,  etc.  ,   and  additional  costs
associated  with  consolidation  and  integration of operations, which cannot be
estimated  accurately  at  this  time.  If  the total costs of the merger exceed
estimates  or  the  benefits  of the merger do not exceed the total costs of the
merger,  the  financial  results  of  the  combined  company  could be adversely
affected.

     OUR  BUSINESS  COULD  SUFFER  DUE  TO  THE  ANNOUNCEMENT AND CLOSING OF THE
MERGER.

Further disclosures concerning the merger, and closing of the merger, may have a
negative  impact  on  our ability to sell our products and services, attract and
retain key management, technical, sales or other personnel, maintain and attract
new  customers  and  maintain  strategic  relationships  with third parties. For
example,  we  and Starsys may experience deferrals, cancellations or declines in
the  size  or  rate  of  orders  for  their respective products or services or a
deterioration  in our respective customer or business partner relationships. Any
such  events  could  harm  the  operating results and financial condition of the
combined  company  following  the  merger.

     OUR  OPERATING  RESULTS  MAY  SUFFER  AS  A  RESULT  OF PURCHASE ACCOUNTING
TREATMENT  AND  THE  IMPACT  OF AMORTIZATION OF INTANGIBLE ASSETS RELATED TO THE
MERGER.

In  accordance  with U.S. generally accepted accounting principles that apply to
us,  the  merger  will be accounted for using the purchase method of accounting,
which  will  result in incremental expenses that could have an adverse impact on
the  market value of our common stock following completion of the merger.  Under
the  purchase  method  of accounting, the total estimated purchase price will be
allocated  to  Starsys'  net  tangible assets and identifiable intangible assets
based  on  their  fair  values  as of the date of completion of the merger.  The
excess  of  the  purchase  price  over  those  fair  values  will be recorded as
goodwill.  Goodwill  is  not  amortized  but  is  tested for impairment at least
annually.  The combined company will incur additional amortization expense based
on  the  identifiable  amortizable  intangible  assets  acquired pursuant to the
merger  agreement  and their relative useful lives.  Additionally, to the extent
the  value  of  goodwill  or  identifiable intangible assets or other long-lived
assets  become impaired, the combined company may be required to record material
charges relating to the impairment.  These amortization and potential impairment
charges  could  have  a  material  impact  on  the combined company's results of
operations.  Changes  in  earnings per share, including changes that result from
this incremental expense, could adversely affect the trading price of our common
stock.


                                      PAGE 33


ITEM  3.  CONTROLS  AND  PROCEDURES

We  carried  out an evaluation, under the supervision and with the participation
of  our  management,  including  our Chief Executive Officer and Chief Financial
Officer,  of  the  effectiveness  of  the design and operation of our disclosure
controls  and  procedures.  Based  upon  that  evaluation,  our  Chief Executive
Officer  and  Chief  Financial  Officer have concluded that, as of September 30,
2005,  our  disclosure  controls  and  procedures  were effective to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange  Act  is  recorded, processed, summarized and reported, within the time
periods  specified  in  the Securities and Exchange Commission's rules and forms
and  were  also effective to ensure that information required to be disclosed in
the  reports  that  we  file or submit under the Exchange Act is accumulated and
communicated  to  management,  including  our  Chief Executive Officer and Chief
Financial  Officer,  to  allow  timely  decisions regarding required disclosure.
There  has been no change in our internal control over financial reporting  that
occurred  during  our  last  fiscal  quarter that has materially affected, or is
reasonably  likely  to  materially  affect,  our internal control over financial
reporting.


                                      PAGE 34


                          PART II -- OTHER INFORMATION

ITEM  1.     LEGAL  PROCEEDINGS

None.

ITEM  2.     UNREGISTERED  SALES  OF  EQUITY  SECURITIES

None.

ITEM  3.     DEFAULTS  UPON  SENIOR  SECURITIES

None.

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

The annual meeting of the shareholders of SpaceDev, Inc. was held at 13855 Stowe
Drive, Poway, California 92064, on August 12, 2005, at 9:00 A.M.  Out of a total
of  22,176,446  shares  outstanding on the date of record, 20,759,923 shares, or
approximately  93%,  were  voted in person or by proxy.  The following proposals
were  presented  and  passed  by  the  amounts  indicated  below:

PROPOSAL  1:  To  elect  seven  directors  to  hold office until the 2006 Annual
Meeting  of  Stockholders:

<TABLE>
<CAPTION>


<S>            <C>    <C>         <C>      <C>           <C>          <C>
                                                         BROKER
ISSUE                 FOR         AGAINST   ABSTAIN      NON-VOTES    TOTAL
-------------  -----  ----------  -------  ---------     ---------    ----------
Benson, Jim .  Total  20,730,496     0        29,427     1,416,523    22,176,446
Benson, Susan  Total  20,653,996     0       105,927     1,416,523    22,176,446
Blake . . . .  Total  20,730,416     0        29,507     1,416,523    22,176,446
Estes . . . .  Total  20,730,516     0        29,407     1,416,523    22,176,446
Huntress. . .  Total  20,730,516     0        29,407     1,416,523    22,176,446
McClendon . .  Total  20,729,416     0        30,507     1,416,523    22,176,446
Schaffer. . .  Total  20,280,516     0        29,407     1,866,523    22,176,446
Walker. . . .  Total  20,730,616     0        29,307     1,416,523    22,176,446
Slansky, R. .  Total  20,730,436     0        29,507     1,416,503    22,176,446

</TABLE>



PROPOSAL  2: To approve the appointment of PKF, Certified Public Accountants, as
our independent public accountants for the fiscal year ending December 31, 2005:

                                                         BROKER
ISSUE                 FOR         AGAINST   ABSTAIN      NON-VOTES    TOTAL
-------------  -----  ----------  -------  ---------     ---------    ----------
Accountants    Total  20,725,419   14,892     19,612     1,416,523    22,176,446



PROPOSAL  3:  To  amend  the  Company's  2004  Equity  Incentive  Plan:

                                                        BROKER
ISSUE                 FOR         AGAINST   ABSTAIN     NON-VOTES    TOTAL
-------------  -----  ----------  -------  ---------    ----------    ----------
Stock Option   Total  11,470,356  345,754     42,565    10,317,771    22,176,446
Plan



ITEM  5.     OTHER  INFORMATION

None.


*     Registrant  requested  confidential  treatment  pursuant to Rule 406 for a
portion of the referenced exhibit and has separately filed such exhibit with the
Commission.


                                      PAGE 35


ITEM  6.     EXHIBITS


Exhibits

Starsys  Loan  Agreement, dated as of September 8, 2005 by
   and between SpaceDev Inc., and Starsys Research Corporation ***    10.1

Starsys Secured Promissory Note, dated as of September 8, 2005 by
   and between SpaceDev Inc., and Starsys Research Corporation ***    10.2

Agreement and Plan of Merger Reorganization dated as of
   October 24, 2005 *t                                                      10.3

Securities Purchase Agreement, dated as of October 31,2005,  by
  and  between  SpaceDev, Inc.,  and Laurus Master Fund, Ltd. **            10.4

Registration Rights Agreement, dated as of October 31, 2005, by
   and between SpaceDev, Inc., and Laurus Master Fund, Ltd. **              10.5

Common Stock Purchase Warrant of the Company, dated as of
October 31, 2005 in favor of Laurus Master Fund, Ltd. **                    10.6

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


*    Incorporated by reference to the Registrant's Form 8-K filed
     October 26, 2005

**   Incorporated by reference to the Registrant's Form 8-K filed
     November 3, 2005

***  Previously filed

t    Certain  exhibits  and  schedules  have been omitted and SpaceDev agrees to
     furnish  to the Commission supplementally a copy of any omitted exhibits or
     schedules upon request.


                                      PAGE 36



                                   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:  December 1,  2005         /s/  James  W.  Benson
                                         --------------------------
                                         James  W.  Benson
                                         Chief  Executive  Officer



Dated:  December 1,  2005         /s/  Richard  B.  Slansky
                                         ---------------------------
                                         Richard  B. Slansky
                                         President & Chief Financial Officer







                                      PAGE 37