FORM 10-QSB

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20429


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

     For  the  quarterly  period  ended  September  30,  2003

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

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

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


                             Colorado     84-1374613

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


                   13855 Stowe Drive, Poway, California 92064

                    (Address of principal executive offices)

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

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

Checkmark  whether  the issuer (1) has filed all reports required to be filed by
Sections  13  or  15(d)  of  the  Securities  Exchange  Act  of  1934 during the
preceding  12  months  (or  for  such  shorter  period  that the  registrant was
required  to  file  such  reports),  and  (2)  has  been  subject to such filing
requirements  for  the  past  90  days.   Yes    X       No
                                              ----

State  the  number  of  shares  outstanding of each of the  issuer's  classes of
common equity, as of the latest practicable date:  16,184,360 shares of Issuer's
voting  common  stock  were  outstanding  on  October  31,  2003

<PAGE>
                                 SPACEDEV, INC.
                                   FORM 10-QSB
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2003

INDEX     PAGE
-----     ----

PART  I   FINANCIAL  INFORMATION



<TABLE>
<CAPTION>



<S>                                                                                  <C>

ITEM 1.   Financial Statements (Unaudited)                                              1
     Condensed Consolidated Balance Sheets at September 30, 2003 and 2002               1
     Condensed Consolidated Statements of Operations for September 30, 2003 and 2002    3
     Condensed Consolidated Statements of Cash Flows for September 30, 2003 and 2002    4
     Notes to Condensed Consolidated Financial Statements                               6

ITEM 2. Management's Discussion and Analysis of Financial Condition
     and Results of Operations                                                          14

ITEM 3. Qualitative and Quantitative Disclosures About Market Risk                      24

ITEM 4. Controls and Procedures                                                         25

PART II   OTHER INFORMATION

ITEM 1. Legal Proceedings                                                               26
ITEM 2. Changes in Securities                                                           26
ITEM 3. Defaults Upon Senior Securities                                                 27
ITEM 4. Submission of Matters to Vote of Security Holders                               27
ITEM 5. Other Information                                                               27
ITEM 6. Exhibits and Reports on Form 8-K                                                27

Signatures                                                                              28

Certifications                                                                          29

</TABLE>



<PAGE>

ITEM  1.   FINANCIAL  STATEMENTS


                         SPACEDEV, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

At September 30,                2003       2002
----------------------------  --------  ----------
<S>                           <C>       <C>
 ASSETS

 CURRENT ASSETS
      Cash                    $314,229  $   35,743
      Accounts receivable      297,037     117,552
      Other assets              10,581           -
                              --------  ----------
 Total current assets          621,847     153,295
                              --------  ----------

 FIXED ASSETS - NET            115,288   2,090,925

 CAPITALIZED SOFTWARE  COSTS         -     138,010

 OTHER ASSETS                   35,544      82,465
                              --------  ----------

TOTAL ASSETS                  $772,679  $2,464,695
                              --------  ----------
                              --------  ----------

</TABLE>

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

                                   1

<PAGE>

                         SPACEDEV, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

 At September 30,                                                              2003           2002
-------------------------------------------------------------------------  -------------  -------------
<S>                                                                        <C>            <C>
 LIABILITIES AND STOCKHOLDERS DEFICIT

 CURRENT LIABILITIES
      Current portion of notes payable                                     $     44,654   $    215,065
      Current portion of capitalized lease obligations                           19,804         35,480
      Notes payable - related party                                              80,000        234,666
      Accounts payable and accrued expenses                                     349,464        542,786
      Accrued payroll, vacation and related taxes                               116,725        132,786
      Customer deposits and deferred revenue                                          -        219,957
      Billing in excess of costs incurred and estimated earnings (Note 2)             -         81,010
      Provision for anticipated loss (Note 2)                                         -         17,914
      Revolving credit facility (Note 4)                                        629,500              -
      Other accrued liabilities (Note 3)                                        139,759              -
                                                                           ------------    ------------
 TOTAL CURRENT LIABILITIES                                                    1,379,906      1,479,664
                                                                           ------------    ------------
 NOTES PAYABLE, LESS CURRENT MATURITIES (NOTE 4)                                 55,012      2,330,126

 CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES                           6,239         16,018

 NOTES PAYABLE - RELATED PARTY, LESS CURRENT MATURITIES                         506,397        559,931

 DEFERRED GAIN - ASSETS HELD FOR SALE (NOTE 4)                                1,094,539              -

 DEFERRED REVENUE                                                                 5,000          5,000
                                                                           ------------    ------------
 TOTAL LIABILITIES                                                            3,047,093      4,390,739
                                                                           ------------    ------------
 COMMITMENTS AND CONTINGENCIES

 STOCKHOLDERSDEFICIT
      Convertible preferred stock, $.0001 par value, 10,000,000 shares
           authorized no shares issued or outstanding                                 -              -
      Common stock, $.0001 par value; 50,000,000 shares authorized, and
           16,029,360 and 14,391,008 shares issued and outstanding,
           respectively                                                           1,602          1,439
      Additional paid-in capital (Note 6)                                     8,921,791      7,785,810
      Additional paid-in capital - stock options                                750,000        750,000
      Deferred compensation                                                    (250,000)      (250,000)
      Accumulated deficit                                                   (11,697,807)   (10,213,293)
                                                                           ------------    ------------
TOTAL LIABILITIES & STOCKHOLDERS DEFICIT                                     (2,274,414)    (1,926,044)
                                                                           ------------    ------------
                                                                           $    772,679   $  2,464,695
                                                                           ------------    ------------
                                                                           ------------    ------------

</TABLE>

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

                                   2

<PAGE>

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

<TABLE>
<CAPTION>



                                               Three Months Ending                     Nine Months Ending


 Three and Nine Months Ending September 30,        2003               2002               2003               2002
----------------------------------------------  ------------        ------------        ------------        ------------
<S>                                             <C>           <C>   <C>           <C>   <C>           <C>   <C>           <C>
 NET SALES                                      $   767,780   100%  $   757,116   100%  $ 2,054,576   100%  $ 2,569,524   100%

 TOTAL COST OF SALES                                642,940    84%      709,419    94%    1,682,424    82%    2,150,996    84%
----------------------------------------------  ------------  ----  ------------  ----  ------------  ----  ------------  ----
 GROSS MARGIN                                       124,840    16%       47,697     6%      372,152    18%      418,528    16%
----------------------------------------------  ------------  ----  ------------  ----  ------------  ----  ------------  ----

 OPERATING EXPENSES
    Marketing and sales expense                     112,321    15%       89,762    12%      311,368    15%      158,534     6%
    Research and development                         20,555     3%            -     0%      272,537    13%            -     0%
    Stock and stock option based compensation         4,685     1%     (454,062)  -60%        4,685     0%     (454,062)  -18%
    General and administrative                      137,324    18%      247,731    33%      661,943    32%      546,695    21%
----------------------------------------------  ------------  ----  ------------  ----  ------------  ----  ------------  ----

 TOTAL OPERATING EXPENSES                           274,885    36%     (116,569)  -15%    1,250,533    61%      251,167    10%
----------------------------------------------  ------------  ----  ------------  ----  ------------  ----  ------------  ----

 PROFIT (LOSS) FROM OPERATIONS                     (150,045)  -20%      164,266    22%     (878,381)  -43%      167,361     7%
----------------------------------------------  ------------  ----  ------------  ----  ------------  ----  ------------  ----

 NON-OPERATING EXPENSE (INCOME)
    Interest expense                                 30,056     4%       65,093     9%       64,683     3%      185,105     7%
    Non-cash interest expense
      debt discount (recovery) (Note 5)             (88,408)  -12%            -     0%      112,500     5%            -     0%
    Gain on Building Sale (Note 4(a))               (29,319)   -4%            -     0%      (78,181)   -4%            -     0%
    Loan Fee - Equity Compensation                  148,412    19%            -     0%      148,412     7%            -     0%
----------------------------------------------  ------------  ----  ------------  ----  ------------  ----  ------------  ----

 TOTAL NON-OPERATING EXPENSE (INCOME)                60,741     8%       65,093     9%      247,414    12%      185,105     7%
----------------------------------------------  ------------  ----  ------------  ----  ------------  ----  ------------  ----

 PROFIT (LOSS) BEFORE TAXES                        (210,786)  -27%       99,173    13%   (1,125,795)  -55%      (17,744)   -1%

 INCOME TAX BENEFIT                                  (2,526)    0%            -     0%            -     0%            -     0%
----------------------------------------------  ------------  ----  ------------  ----  ------------  ----  ------------  ----
 NET (LOSS) INCOME                              $  (208,260)  -27%  $    99,173    13%  $(1,125,795)  -55%  $   (17,744)   -1%
----------------------------------------------  ------------  ----  ------------  ----  ------------  ----  ------------  ----
----------------------------------------------  ------------  ----  ------------  ----  ------------  ----  ------------  ----


 NET LOSS PER SHARE:
      Net loss                                       ($0.01)        $      0.01              ($0.07)        $      0.00
----------------------------------------------  ------------        ------------        ------------        ------------

      Weighted-Average Shares Outstanding        15,525,203          14,877,307          15,408,961          14,853,988

</TABLE>

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

                                   3

<PAGE>

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

<TABLE>
<CAPTION>

 Nine-Months Ended September 30,                                                    2003         2002
------------------------------------------------------------------------------  ------------  ----------
<S>                                                                             <C>           <C>
 CASH FLOWS FROM OPERATING ACTIVITIES
      Net loss                                                                  $(1,126,098)  $ (17,744)
      Adjustments to reconcile net loss to net cash
           provided by (used in) operating activities:
           Depreciation and amortization                                            153,023     218,204
           Contributed assets                                                             -     (16,251)
           (Gain) loss on disposal of assets                                        (78,181)      7,410
           Common stock and stock options issued for compensation and services      153,028    (454,062)
           Non-cash interest expense - convertible debt program                     112,500           -
           Change in operating assets and liabilities:                             (158,844)     42,096

 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                               (944,572)   (220,347)



CASH FLOWS FROM INVESTING ACTIVITIES
      Sale of assets                                                              3,150,124           -
      Purchases of fixed assets                                                      (3,100)          -
------------------------------------------------------------------------------  ------------  ----------

NET CASH PROVIDED BY INVESTING ACTIVITIES                                         3,147,024           -



 CASH FLOWS FROM FINANCING ACTIVITIES
      Principle payments on notes payable                                        (2,542,131)    (58,166)
      Principal payments on capitalized lease obligations                           (25,306)    (27,046)
      Payments on notes payable - related party                                    (179,999)     94,666
      Proceeds from issuance of common stock                                        466,115      34,999
      Proceeds from revolving credit facility                                       623,186           -
      Payments on convertible debt program                                         (257,736)          -
------------------------------------------------------------------------------  ------------  ----------

 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                             (1,915,871)     44,453



 Net increase in cash                                                               286,581    (175,894)



 CASH AT BEGINNING OF PERIOD                                                         27,648     211,637
------------------------------------------------------------------------------  ------------  ----------

 CASH AT END OF PERIOD                                                          $   314,229   $  35,743
------------------------------------------------------------------------------  ------------  ----------
------------------------------------------------------------------------------  ------------  ----------
</TABLE>

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

                                   4

<PAGE>

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

<TABLE>
<CAPTION>




 Nine-Months Ended September 30,                                                                             2003      2002
----------------------------------------------------------------------------------------------------------  -------  --------
<S>                                                                                                         <C>      <C>
 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for:
           Interest                                                                                         $30,470  $191,105

 NONCASH INVESTING AND FINANCING ACTIVITIES:

 During the nine-months ending September 30, 2003 and 2002, the Company issued 3,600 and
      2,000 shares of stock for 2002 employee awards and services for 2003 summer & student
      interns and recorded expenses of $4,685 and $938, respectively.

 During the nine-months ending September 30, 2003,  the Company issued 12,000 shares of
      stock converted from employee stock options for $7,104 in cash.

 During the nine-months ending September 30, 2003,  the Company eliminated its convertible debt
      by repaying half of the notes in cash ($237,500) and having the note holders convert the other half
      into 614,853 shares of the Company's common stock.  The Company recorded additional
       loan fees of $131,350 and charged these fees to equity.

 During the nine-months ending September 30, 2003,  the Company issued 60,000 shares of
       its common stock to the Laurus Master Fund from conversions of its convertible debt notes
      under its revolving credit facility with Laurus; thereby realizing a corresponding reduction in debt
       of $33,000.  The Company recorded additional loan fees of $16,994 and charged these fees
       to equity.

 During the nine-months ending September 30, 2003,  the Company financed $10,135 in fixed
      assets through various capital lease obligations.

 During the nine-months ending September 30, 2002, the Company recovered 500,000 shares of
       stock for a credit of $455,000 upon final judgment of the outstanding litigation against
      EMC Holdings, Inc. The expense for this matter was recorded during 2001.

</TABLE>

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

                                   5

<PAGE>
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.       BASIS  OF  PRESENTATION

The  accompanying  condensed consolidated financial statements of SpaceDev, Inc.
(the  "Company")   include  the  accounts   of  the  Company  and  its  inactive
subsidiaries,  Integrated  Space  Systems,  Inc. ("ISS"), and SpaceDev, Inc., an
Oklahoma  corporation.  In the opinion of management, the condensed 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 condensed 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,  2003  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 nine-months ending September 30,
2003  are  not  necessarily  indicative  of results that may be expected for the
fiscal year ending December 31, 2003 or any future period, and the Company makes
no  representations  related  thereto.

The accompanying condensed consolidated financial statements as of September 30,
2003  and  2002 have been prepared assuming the Company will continue as a going
concern.  Even  though  the Company reduced its working capital deficit with the
sale and leaseback of its facility, the Company had a working capital deficit of
approximately  $758,000  as  of  September  30, 2003, and incurred a net loss of
approximately  $1,126,000  for  the  nine-months  then ending.  These conditions
raise  substantial  doubt  about  the  Company's  ability to continue as a going
concern.  During  the first nine-months of 2003, management raised approximately
$426,000  through  a  private  equity  placement,  approximately $7,000 from the
exercise  of  employee  stock  options  under  the Company's 1999 Employee Stock
Option  Plan, concluded a transaction to sell its facility and lease it back for
a  ten  (10)  year  period  and  secured a revolving credit facility with Laurus
Master  Fund,  Ltd.  for $1.0 million.  Subsequent to September 2003, management
intends  to  obtain  new  commercial and government contracts and to utilize its
revolving  credit  facility.  Beyond  this,  management is not currently seeking
additional  financing; however, management may seek additional capital through a
combination  of  public  and private debt or equity placements in the future, if
sufficient  contracts  are  not  obtained.  There  can  be no assurance that new
contracts  or additional debt or equity financing needed to fund operations will
be  available  or obtained in sufficient amounts necessary to meet the Company's
needs.

The  accompanying condensed consolidated financial statements do not include any
adjustments  to  reflect  the  possible future effects on the recoverability and
classification  of  assets or the amounts and classification of liabilities that
may  result  from  the  possible inability of the Company to continue as a going
concern.

The  preparation  of  financial statements in conformity with generally accepted
accounting  principles  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.

Certain  reclassifications  have  been  made  to  the  prior  period   financial
statements   to   conform   to   the   current   period    presentation.   These
reclassifications  had no effect on reported total assets or net loss. Beginning
in  second  quarter  2002,  capitalized  software costs are being amortized over
their estimated useful lives using the straight-line method. Periodically and at
least  annually,  management performs a review for impairment in accordance with
SFAS  No.  144.  During  the  nine-months  ending  September  30,  2003,   these
capitalized  software  costs  were  fully  amortized.

                                   6

<PAGE>

2.       REVENUE  RECOGNITION

In  November  1999, SpaceDev was awarded a $4.9 million turnkey mission contract
by  the  Space Sciences Laboratory ("SSL") at University of California, Berkeley
("UCB").  SpaceDev  was  competitively  selected  by  UCB/SSL  to design, build,
integrate,  test  and  operate  for  one year a small scientific, Earth-orbiting
spacecraft called CHIPSat.  In 2000, the Company reviewed the contract status at
year-end and determined that the total estimated costs at the end of the program
would  exceed  the  likely  revenue.  As a result, the Company accrued a loss of
approximately  $860,000 based on the expected contract modification of $600,000,
which  was  approved  on  June  15,  2001.  Pursuant  to  a series of subsequent
modifications,  the  total  value  of  the  CHIPSat  project  was  increased  to
approximately  $7.2  million.  The  total  expected  loss  on  the  contract  is
approximately  $514,000  of  which approximately $18,000 remained on the balance
sheet  for  the  nine-months  ending  September  30, 2002 while none remained at
September  30, 2003.  As of September 30, 2003, approximately 99.5% of the total
contract  costs  were expended.  The CHIPSat contract is expected to conclude in
the  first quarter of 2004.  Although we have concluded the majority of our work
on  this  project,  the  Company  will  continue to receive $5,000 per month for
support  on  this  contract  through  January  2004.

In  September  2001,  the  Company  was  awarded  a  contract  for a proprietary
propulsion research program valued at approximately $1.6 million.  Total revenue
was  extended to $1.8 million in April 2002 and the contract expired on July 31,
2003.  As  a  part  of the propulsion program, the Company competed with another
vendor to design a hybrid propulsion system.  On September 19, 2003, the Company
was  awarded an exclusive contract for the proprietary components and technology
to  power the hybrid rocket motor.  The new total contract value is estimated to
be  approximately  $650,000.  Revenues  from this contract will begin during the
fourth  quarter  of  2003  and  continue  through  2004.

On  the  projects listed above billings in excess of costs incurred at September
30,  2002  was  approximately  $81,000 while there were no billings in excess of
costs  incurred  at  September  30,  2003.

3.     OTHER  ACCRUED  LIABILITIES

In June 2001, the Company accrued a $150,000 contingent liability related to its
guarantee  on a performance bond on behalf of Space Innovations Limited ("SIL"),
which  was  then a subsidiary of the Company.  In 1999, the Company was required
to  guarantee  a performance bond on behalf of SIL in connection with a contract
to build a satellite bus for an Australian domestic spacecraft project.  SIL was
unable  to  perform  on  the contract and subsequently declared bankruptcy.  The
Company  paid  this  debt in January 2003 with the proceeds from the sale of the
building.  (See  Note  4(a))

4.     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.  The Company's Chief Executive
Officer  provided  a guarantee for the leaseback.  In conjunction with the sale,
the  Company  entered  into  a  lease  agreement with the buyer to leaseback its
facilities.  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, 2003, the deferred
gain  was  $1,094,539.  This  amortization  will  be  included  in the Company's
occupancy  and  facility  expense  and totaled $78,181 as of September 30, 2003.

                                   7

<PAGE>

4.     NOTES  PAYABLE  CONT.

Deferred  Gain  consisted  of  the  following:

<TABLE>
<CAPTION>

Nine-Months Ending September 30, 2003
<S>                                    <C>
Deferred Gain                          $1,172,720
Less Amortization to date                 (78,181)
-------------------------------------  -----------
                                       $1,094,539
                                       -----------

</TABLE>
In  2001, the Company entered into three settlement loan agreements with various
vendors.  The  total  of $171,402 for all three loans called for payment between
24 and 50 months with interest that ranges from 0% to 8%.  At September 30, 2003
and  2002,  the  outstanding  balances on these notes were $99,666 and $161,008,
with  interest  expense  of  $5,638  and  $3,287,  respectively.

Future  minimum  principal  payments  on  notes  payable  are  as  follows:

<TABLE>
<CAPTION>

Period Ending September 30,
<S>                          <C>
2003                         44,654
2004                         36,215
2005                         18,797
---------------------------  ------
Total Settlement Notes       99,666
---------------------------  ------

</TABLE>

     b)      Related  Parties

The  Company has a note payable to the CEO.  At September 30, 2003 and 2002, the
balance  was  $586,397 and $639,931, respectively, with accrued interest of 10%.
The  note  was amended on March 20, 2000 to call for annual payments of not less
than  $80,000  per  year  with  interest  at  10%.

Future  minimum  principal  payments  on  notes  payable, related parties are as
follows:

<TABLE>
<CAPTION>

Period Ending September 30,
<S>                          <C>
2003                         $     80,000
2004                               80,000
2005                               80,000
2006                               80,000
2007                               80,000
Thereafter                        186,397
-----------------------------------------
                             $    586,397
-----------------------------------------

</TABLE>

                                   8

<PAGE>

4.     NOTES  PAYABLE  CONT.

Interest expense on this note was $27,899 and $34,699 for the nine-months ending
September  30,  2003  and  2002,  respectively.


c)     Revolving  Credit  Facility.

On  June  3,  2003,  the  Company  entered  into  a  Security Agreement, Secured
Convertible  Note,  Registration  Rights  Agreement  and  Common  Stock Purchase
Warrant,  with Laurus Master Fund, Ltd. ("Laurus"), which were filed on Form 8-K
dated  June  18,  2003.  Pursuant  to  the agreements, the Company received a $1
million  revolving  credit facility in the form of a three-year Convertible Note
secured by its assets.  The net proceeds from the Convertible Note shall be used
for  general  working  capital  needs.  Advances  on the Convertible Note may be
repaid at the Company's option, in cash or through the issuance of the Company's
shares  of  common  stock.  The Convertible Note carries an interest rate of WSJ
Prime  plus  0.75%  on  any  outstanding  balance.  In  addition, the Company is
required  to  pay  a  collateral  management  payment  of  0.55%  of the average
aggregate  outstanding  balance  during the month plus an unused line payment of
0.20%  per  annum.  The  outstanding balance on the revolving credit facility at
September  30, 2003 was $629,500 of which, approximately $6,300 had been accrued
for  interest.

The  Company  filed  a  registration  statement on Form SB-2 on July 25, 2003 in
connection  with  this  transaction.  The  Form  SB-2  was declared effective on
August  6,  2003.  With  the  securities approved for public resale, the Company
will  have  an  option  to  pay  amounts  outstanding under the revolving credit
facility  by converting shares of its common stock at the fixed conversion price
of  $0.55  per  share  on the first $1 million of principal, as long as the then
current  market  price  is  more  than  118%  of  the  fixed  conversion  price.

The  Convertible  Note  includes  a  right of conversion in favor of Laurus.  If
Laurus  exercises  its  conversion  right at any time or from time to time at or
prior  to maturity, on any outstanding balance at the time, the Convertible Note
will  be  convertible  into  shares  of  the  Company's  common stock at a fixed
conversion  price,  subject  to  adjustments  for stock splits, combinations and
dividends  and  for  shares  of  common  stock  issued  for  less than the fixed
conversion  price  (unless  exempted  pursuant  to  the  agreements).  The fixed
conversion  price  will  be adjusted after conversion of the first $1 million to
103%  of  the  then  fair  market  value  of  our  common stock ("Adjusted Fixed
Conversion  Price").  As  of  September  30,  2003,  Laurus had converted 60,000
shares  to  reduce  the  amount  borrowed under the revolving credit facility by
$33,000.  The  Company  expensed  approximately  $17,000  for  non-cash loan fee
expenses.  Fair  market  value  of  the  stock was determined by discounting the
closing  market  price  on  the  date  of  the  conversion  by  20%.

Availability  of  funds under the revolving credit facility will be based on our
accounts  receivables,  except  as  waivers  are provided by Laurus.  An initial
three  (3)  month  waiver  was offered by Laurus, under which Laurus permitted a
credit  advance  up  to  $300,000,  which amount might otherwise exceed eligible
accounts  receivable during the period.  Laurus subsequently extended the waiver
for  an additional six (6) months, under which Laurus permitted a credit advance
up  to  $1  million,  which  amount  might  otherwise  exceed  eligible accounts
receivable  during  the period.  The revolving credit facility is secured by all
of  the  assets  of  the  Company.

In  conjunction  with this transaction, Laurus was paid a fee of $20,000 for the
first  year  (and  the  Company  will  be  required to pay a continuation fee of
$10,000 for each year thereafter), which fee was expensed as additional interest
expense.  In  addition,  Laurus received a warrant to purchase 200,000 shares of
the  Company's  common  stock,  as  stated  herein.  The value of the warrant of
approximately $98,475 will be treated as additional interest expense and will be
amortized  over  the  three-year  life  of  the  Convertible Note, unless sooner
terminated.  The  warrant exercise price is computed as follows: $0.63 per share

                                   9

<PAGE>

4.     NOTES  PAYABLE  CONT.

for the purchase of up to 125,000 shares; $0.69 per share for the purchase of an
additional  50,000 shares; and $0.80 per share for the purchase of an additional
25,000  shares. The warrant exercise price may be paid in cash, in shares of the
Company's common stock, or by a combination of both. The warrant expiration date
is  June 3, 2008. The warrant exercise price and the number of shares underlying
the  warrant  are  subject  to  adjustments  for  stock splits, combinations and
dividends.

In  addition  to  the  initial  warrant,  the  Company  is 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 is converted under the revolving credit
facility.  The  value of the warrant will be determined, if and when issued, and
will  be  treated  as additional interest expense and will be amortized over the
remaining  term of the Convertible Note, unless sooner terminated.  No more than
an aggregate of 100,000 shares of the Company's common stock may be purchased by
Laurus  under  such  additional  warrants.

5.     CONVERTIBLE  DEBT  NOTES  PAYABLE

From  October  14, 2002 through November 14, 2002, the Company sold an aggregate
of  $475,000  of 2.03% convertible debentures to various director's and officers
of  the  Company.  The  total  funding  was completed on November 14, 2002.  The
convertible  debentures  entitled the holder to convert the principal and unpaid
accrued  interest  into  the  Company's common stock when the note matures.  The
maturity on the notes was six (6) months from issue date.  On March 25, 2003, an
amendment  was executed which extended these notes an additional six (6) months.
The  convertible  debentures  were  exercisable  into  a number of the Company's
common  shares  at  a  conversion price that equals the 20-day average ask price
less  10%,  which  was,  established  when  the  note was issued, or the initial
conversion  price.

Concurrent  with  the issuance of the convertible debentures, the Company issued
warrants  to  purchase  up  to  1,229,705  shares  of  our  common  stock to the
subscribers.  These  warrants  are exercisable for three (3) years from the date
of  issuance  at the initial exercise price which is equal to the 20-day average
ask  price  less  10%,  which  was  established when the note was issued, or the
initial  conversion price of the notes.  Upon issuance, the issued warrants were
valued using the Black-Scholes pricing model based on the expected fair value at
issuance  and  the  estimated  fair  value  was recorded as debt discount.  As a
result  of  the  change  to  the  maturity  date  of  the  convertible debt, the
amortization  period  for  the debt discounts was also extended during the first
quarter  in  2003.

On September 5, 2003, the Company repaid one-half of the convertible notes, with
the  condition  that  the note holders would convert the other half.  Also, as a
condition of the partial repayment, the note holders were required to relinquish
one-half  of  the   previously   issued   warrants.   Finally,   as   additional
consideration  for the transaction, the note holders were offered 5% interest on
their  notes,  rather  than the stated 2.03%.  All the note holders accepted the
offer  and the convertible notes were liquidated.  As of September 30, 2003, the
Company  recorded a credit of $88,408, as debt discount recovery; therefore, for
the  nine-months  ending  September  30,  2003,  the  debt  discount expense was
$112,500.  The  Company  also  expensed  $39,184  for non-cash loan fee expense.
Fair  market value of the stock was determined by discounting the closing market
price  on  the  date  of  the  transaction  by  20%,  based on the nature of the
restricted  securities.

                                   10

<PAGE>

5.     CONVERTIBLE  DEBT  NOTES  PAYABLE,  CONT.

<TABLE>
<CAPTION>

Convertible debentures - beginning balance                              $475,000
<S>                                                         <C>         <C>
Total interest expense incurred                             $  20,236
                   Accrued interest paid - current year     $ (18,161)
                   Accrued interest paid - prior year year  $  (2,075)
                   Convertible debtures paid                $(237,500)
                   Convertible debtures converted           $(237,500)
                                                            ----------
                                                            $(475,000)
                                                            ----------
Convertible debentures - ending balance balance                         $   0.00
----------------------------------------------------------              --------
----------------------------------------------------------              --------

Debt discount (Warrants) - beginning balance                            $475,000
                   Amount forfeited                         $(237,500)
                   Amount expensed prior year               $(125,000)
                   Amount expensed current year             $(267,879)
                   Current year - adjustment                $ 155,379
                                                            ----------
                                                            $(475,000)
                                                            ----------

Debt discount (Warrants) - ending balance                               $   0.00
----------------------------------------------------------              --------
----------------------------------------------------------              --------
</TABLE>

6.     STOCKHOLDERS'  DEFICIT  -  COMMON  STOCK  AND  WARRANTS

On  November 5, 2000, the Company commenced a private placement offering ("PPO")
for  a  maximum  of  1,000,000  shares of the Company's $0.0001 par value common
stock  and  warrants  to purchase an additional 1,000,000 shares of common stock
(the  "Units").  The  offering  price of the Unit(s) was the five-day average of
the  bid  and  ask price for the Company's common stock on the date of issuance,
with  a  minimum  per  Unit  price of $1.00.  The warrants allowed the holder to
acquire  additional  shares at $0.50 above the offering price of the shares. The
Company  sold  to  one  related-party  investor  under  these  terms.

On  March  2,  2001,  the  PPO  price was amended to the average of the high bid
prices  on  the  date  of  issuance and four preceding days, with no minimum per
share  price,  and  the  warrants  were  amended  to allow the holder to acquire
additional  shares  at  the  Unit  price.

The  Company  sold 153,060 Units under the PPO during 2002. The Company received
$75,000  for  the  Units  sold  under  the  PPO  during  2002.

On  January 16, 2003 and February 14, 2003, pursuant to an extension of the PPO,
the Company sold 665,188 and 196,079 Units, respectively.   The Company received
approximately  $326,000 and $100,000, respectively, for the Units sold under the
PPO  during  the  first  quarter  2003.  The  PPO  was  subsequently  closed.

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 period ending September 30, 2003 and
2002  using  the  minimum  value  method  as prescribed by SFAS 123.  Under this
method,  the  Company used the risk-free interest rate at the date of grant, the
expected  volatility,  the  expected dividend yield and the expected life of the
options  to determine the fair value of options granted.  The risk-free interest
rates ranged from 6.0% to 6.5%, expected volatility was 117%, the dividend yield
was  assumed  to be zero, and the expected life of the options was assumed to be
three  to  five  years  based  on the average vesting period of options granted.

                                   11

<PAGE>

6.     STOCKHOLDERS'  DEFICIT  -  COMMON  STOCK  AND  WARRANTS,  CONT.

If  the Company had accounted for these options in accordance with SFAS 123, the
total  value of options granted during the periods ending September 30, 2003 and
2002  would  be  amortized  on  a pro forma basis over the vesting period of the
options.  Thus,  the Company's consolidated net loss would have been as follows:
<TABLE>
<CAPTION>




Nine-Months Ending September 30,      2003         2002
--------------------------------  ------------  ----------
<S>                               <C>           <C>

Net loss:
 As reported                      $(1,033,870)  $ (17,744)
 Pro forma                        $(1,234,318)  $(190,991)
Loss per Share:
--------------------------------
 As reported                      $      (.06)  $    (.00)
 Pro forma                        $      (.08)  $    (.01)

</TABLE>



7.     NEW  ACCOUNTING  PRONOUNCEMENTS

In  November  2002,  the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements
for  Guarantees,  Including  Indirect Guarantees of Indebtedness of Others." FIN
No.  45  elaborates  on  previously  existing  disclosure  requirements for most
guarantees. It also clarifies that at the time a company issues a guarantee, the
company must recognize an initial liability for the fair value, or market value,
of  the  obligations  it  assumes  under  the  guarantee  and must disclose that
information in its financial statements. The provisions related to recognizing a
liability  at  inception  of the guarantee for the fair value of the guarantor's
obligations  does not apply to product warranties or to guarantees accounted for
as  derivatives. FIN No. 45 also requires expanded disclosures regarding product
warranty  expense.  The  initial  recognition and initial measurement provisions
apply on a prospective basis to guarantees issued or modified after December 31,
2002.  The  adoption of this Statement is not expected to have a material effect
on  the  consolidated  financial  statements.

In  January   2003,  the  FASB   issued  FASB   Interpretation  (FIN)  No.   46,
"Consolidation  of Variable Interest Entities, an interpretation of ARB No. 51."
This  interpretation provides guidance on: 1) the identification of entities for
which  control is achieved through means other than through voting rights, known
as  "variable interest entities" (VIEs); and 2) which business enterprise is the
primary  beneficiary  and when it should consolidate the VIE. This new model for
consolidation applies to entities: 1) where the equity investors (if any) do not
have  a controlling financial interest; or 2) whose equity investment at risk is
insufficient  to  finance  that entity's activities without receiving additional
subordinated   financial   support  from  other  parties.  In   addition,   this
interpretation  requires  that  both  the  primary  beneficiary  and  all  other
enterprises  with  a  significant  variable  interest  in  a VIE make additional
disclosures.  This  interpretation  is  effective  for  all  new VIEs created or
acquired  after January 31, 2003. For VIEs created or acquired prior to February
1,  2003, the provisions of the interpretation must be applied no later than the
beginning  of  the first interim or annual reporting period beginning after June
15,  2003.  Certain  disclosures are effective immediately. The adoption of this
Statement  is  not  expected  to  have  a  material  effect  on the consolidated
financial  statements.

                                   12

<PAGE>

7.     NEW  ACCOUNTING  PRONOUNCEMENTS,  CONT.

In  April 2003, the Financial Accounting Standards Board (FASB) issued Statement
of  Financial Accounting Standard (SFAS) No. 149, "Amendment of Statement 133 on
Derivative  Instruments  and  Hedging  Activities."  SFAS  No.  149  amends  and
clarifies  financial   accounting  and  reporting  for  derivative  instruments,
including   certain  derivative   instruments   embedded   in  other   contracts
(collectively  referred to as derivatives) and for hedging activities under SFAS
No.  133,  "Accounting  for Derivative Instruments and Hedging Activities." SFAS
No. 149 requires that contracts with comparable characteristics be accounted for
similarly.  SFAS  No.  149  is  effective for contracts entered into or modified
after  June  30,  2003,  and for hedging relationships designated after June 30,
2003.  The  adoption of this Statement is not expected to have a material effect
on  the  consolidated  financial  statements.

In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 150, "Accounting for Certain Financial
Instruments  with Characteristics of both Liabilities and Equity."  SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments  with  characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as  a  liability (or an asset in some circumstances).  SFAS No. 150 is effective
for  financial  instruments  entered  into  or  modified after May 31, 2003, and
otherwise  is  effective  at the beginning of the first interim period beginning
after  June  15, 2003.  The adoption of this Statement is not expected to have a
material  effect  on  the  consolidated  financial  statements.

8.     SUBSEQUENT  EVENTS

On  October 4, 2003 and October 14, 2003, respectively, Laurus Master Fund, Ltd.
Converted  $30,250  and  $55,000,  respectively,  of  convertible debt under the
Revolving  Credit Facility into 55,000 and 100,000 shares of common stock of the
Company,  respectively.  The  Company's  debt  was  reduced by the corresponding
$30,250  and  $55,000,  respectively.

                                   13

<PAGE>

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

The  following  discussion  should  be  read  in  conjunction with the Company's
condensed  consolidated financial statements and the notes thereto and the other
financial  information  appearing  elsewhere in this document.  Readers are also
urged  to carefully review and consider the various disclosures made by us which
attempt  to  advise interested parties of the factors which affect our business,
including  without  limitation  our  General  Registration  Statement  on  Form
10SB12G/A  filed  January  28,  2000  and  our Form 10-KSB filed March 28, 2003.

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

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

OVERVIEW

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

We  were  incorporated  under  the laws of the State of Colorado on December 23,
1996  as  Pegasus  Development Group, Inc. ("PDGI") and subsequently changed our
name  to  "SpaceDev." We became apublicly traded company in October 1997 and are
trading  on  the  Over-the-Counter  Bulletin Board ("OTCBB") under the symbol of
"SPDV."

                                   14

<PAGE>

In  February  1998,  our  operations  were  expanded  with  the  acquisition  of
Integrated Space Systems, Inc. ("ISS"), a California corporation founded for the
purpose  of  providing engineering and technical services related to space-based
systems.  The ISS employee base, acquired upon acquisition, largely consisted of
former General Dynamics personnel and enlarged our then current employee base to
20  employees.  ISS  was  purchased for approximately $3.6 million, paid in Rule
144  restricted  common  shares  of  SpaceDev.  Goodwill  of  approximately $3.5
million  was  capitalized  and  was  to be amortized over a period of 60 months,
based  on  the  purchase  price  exceeding  the net asset value of approximately
$164,000.  As  a result of a change in corporate focus, on November 15, 2001, we
determined  that  the  unamortized  balance  of  goodwill  from  ISS,  which was
approximately  $923,000,  had become impaired and it was written off.  While the
ISS  segment  did  provide small hybrid propulsion space systems and engineering
services  on  separate  contracts  (mainly  with   government   agencies),   the
engineering service contracts had expired and, therefore, would not be producing
revenue or cash flow to support future operations. We determined that all future
business,  contracts  and  proposals  would be sought after only in the SpaceDev
name,  making  it  a  more  efficient  way  for  us to manage and track multiple
contracts  and  work on many different business ventures at the same time within
the  same  operating segment.  We intend to dissolve ISS by the end of the year,
now  that  all  activities  have  been  integrated  into  SpaceDev,  Inc.

In  November  1999,  we won a $4.9 million turnkey mission contract by the Space
Sciences  Laboratory  ("SSL")  at University of California, Berkeley ("UCB"). We
were  competitively  selected  by  UCB/SSL to design, build, integrate, test and
operate,  for  one  year,  a  small  NASA-sponsored  scientific,  Earth-orbiting
spacecraft  called  CHIPSat.  CHIPSat  is  the  first mission of NASA's low-cost
University-Class  Explorer  ("UNEX")  series.  CHIPSat  launched  as a secondary
payload on a Delta-II rocket on January 12, 2003.  The satellite achieved 3-axis
stabilization,  meaning  it  was  pointing  and  tracking  properly,  with   all
individual  components  and  systems successfully operating and is continuing to
work  well  in  orbit.  In 2000, we reviewed the contract status at year-end and
determined that the total estimated costs at the end of the program would exceed
the  likely  revenue.  As  a result, we accrued a loss of approximately $860,000
based  on  the expected contract modification of $600,000, which was approved on
June  15, 2001.  On November 28, 2001, a second contract modification was signed
with  UCB,  which added approximately $1.2 million to the contract as well as an
increase  in  contract  scope.  This  increased  the  total  contract revenue to
approximately  $6.8  million and reduced the total expected loss on the contract
to approximately $460,000.  During 2002, an additional contract modification for
approximately  $400,000  was signed, which also increased the contract value and
scope to the current value of the CHIPSat project of approximately $7.4 million,
changing the total expected loss on the contract to approximately $514,000, most
of  which  could have been recorded as research and development costs associated
with  the  development of our ongoing satellite design and development programs.
As  of  September 30, 2003, approximately 99.5% of the total contract costs were
expended.  The  CHIPSat contract is expected to conclude in the first quarter of
2004,  although  we  have concluded the majority of our work on this project, we
will  continue  to receive $5,000 per month for support on this contract through
January  2004.  Revenues  for the nine-months ending September 30, 2003 and 2002
were  approximately  $346,000  and  $1.2  million,  respectively.

In  April  2001,  we were awarded one of four $1.0 million contracts from NASA's
Jet Propulsion Laboratory in Pasadena, California. As part of a Boeing-led team,
we  participated  in  a  study of the options for a potential Mars sample return
mission  in  2011. The contract ran from April through October 2001. Our revenue
from  this  contract  in  2002  and  2001 was approximately $7,000 and $216,000,
respectively.

In  September  2001,  we  were  awarded  a contract for a proprietary propulsion
research  program  valued  at  approximately  $1.6  million.  Total  revenue was
extended  to  $1.8  million  in  April 2002 and the contract expired on July 31,
2003.  As  a  part of the propulsion program, we competed with another vendor to
design  a  hybrid  propulsion system.  On September 19, 2003, we were awarded an

                                   15

<PAGE>

exclusive  contract  for  the proprietary components and technology to power the
hybrid  rocket  motor.  The  new  total  contract  value   is  estimated  to  be
approximately $650,000. Revenues from this contract will begin during the fourth
quarter  of  2003  and  continue  through  2004.

On  April  30,  2002,  we  were  awarded  Phase  I  of  a  contract to develop a
Shuttle-compatible  propulsion  module  for the Air Force Research Lab ("AFRL").
We  received  an  award for Phase II of the contract on March 28, 2003, and will
use  the  project  to  further expand our product line to satisfy commercial and
government  space  transportation  requirements.  The  first  two  phases of the
contract  (including  an additional add-on option) are worth up to approximately
$2.5  million, of which $100,000 was awarded for Phase I, and approximately $1.4
million  was  awarded  for Phase II.  AFRL Phase II is a cost-plus contract.  In
addition  to  the  Phase  I  and  Phase  II  awards,  there  is  an option worth
approximately  $1 million.  The option has been awarded and work will begin once
certain  milestones  are  met  to  the satisfaction of the AFRL project manager.
Revenues  for the nine-month period ending September 30, 2003 were approximately
$29,600  for  Phase  I  and  $676,000  for  Phase  II.

On  July  9,  2003,  we  were  awarded  a Phase I contract to develop micro- and
nano-satellite  bus  and subsystem designs.  This AFRL Small Business Innovation
Research  ("SBIR") contract, valued at approximately $100,000, will enable us to
explore  the  further  miniaturization  of  our  unique  and innovative microsat
subsystems.  It  will also enable us to explore ways to reduce the time and cost
to  build  small  satellites  through  further  standardization in order to help
define  de  facto  standards  for payload hardware and software interfaces.  The
contract  is  fixed  price,  milestone-based  and should be completed within one
year.  This  SBIR  has  the possibility of Phase II carry-forward work; however,
there  can  be  no assurance that such work will be awarded to us.  Revenues for
the  nine-months  ending  September  30,  2003  were  approximately  $16,000.

On  July  9, 2003, we were awarded a Phase I SBIR contract by AFRL to design and
begin the development of the SpaceDev Streaker(TM) small launch vehicle ("SLV").
SpaceDev Streaker(TM) will be designed to responsively and affordably lift up to
1,000  pounds to Low Earth Orbit ("LEO").  The SpaceDev Streaker(TM) SLV concept
is  based  on  a  proprietary  combination  of  technologies  to  increase   the
performance  of  hybrid  rocket  motor  technology.  Hybrid  rocket motors are a
combination  of  solid  fuel  and  liquid  oxidizer, and can be relatively safe,
clean,  non-explosive,  and  storable,  and  can  be  throttled,  shut  down and
restarted.  This contract is valued at approximately $100,000, is a fixed price,
milestone-based  agreement, which should be completed within one year. This SBIR
has  the  possibility  of  Phase II carry-forward work; however, there can be no
assurance  that  such  work will be awarded to us.  Revenues for the nine-months
ending  September  30,  2003  were  approximately  $20,000.

Also,  on July 9, 2003, we were awarded a second contract by the Missile Defense
Agency  ("MDA")  to  explore  the  use  of  micro-satellites in national missile
defense.  Our  microsats  are  operated  over  the  Internet  and are capable of
pointing  and  tracking  targets  in  space  or  on the ground.  This study will
explore  fast  response  microsat  launch  and  commissioning;  small, low-power
passive  sensors;  target  acquisition  and tracking; formation flying and local
area  networking  within  a cluster of microsats; and an extension of our proven
use  of  the  Internet  for  on-orbit  command,  control and data handling.  The
contract  value  is  $800,000, and the total value of our microsatellite studies
for  MDA will be over $1 million this year.  Revenues for the nine-months ending
September  30,  2003  were  approximately  $145,000.

On  July  24, 2003, we were awarded a contract by Lunar Enterprise of California
("LEC")  for  a first phase project to begin developing a conceptual mission and
spacecraft  design  for  a  lunar  lander  program. The unmanned mission will be
designed  to put a small dish antenna near the south pole of the Moon. From that
location  it  will  be in near-constant sunlight for solar power generation, and
should  be  able  to perform multi-wavelength astronomy while communicating with
ground  stations  on  Earth.  The  contract value is $100,000 to be completed by
November  2003, with a possible immediate follow-on phase of $140,000 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.  This phase, if
awarded,  would  be  targeted  for  a February 2004 completion. Revenues for the
nine-months  ending  September  30,  2003  were  approximately  $70,000.

                                   16

<PAGE>

On  June  18,  2001,  we entered into a relationship with two individuals (doing
business as EMC Holdings Corporation ("EMC")) whereby EMC was to provide certain
consulting  and  advisory services to us.  EMC received the first installment of
500,000  shares  of  our  common  stock on June 26, 2001.  Total expense for the
initial  stock  issuance  through September 30, 2001 was approximately $455,000.
Pursuant  to a demand for arbitration filed by us on November 7, 2001, we sought
the  return  of  all  or  a  portion  of  the  shares issued to EMC. Following a
three-day  arbitration  in May and June 2002, on July 17, 2002, an interim award
was  issued  in  favor  of  us  against  EMC, ordering the return of the initial
installment  of our 500,000 shares and denying EMC's own claim for $118,000.  On
October  22,  2002, a tentative final award was issued in our favor including an
award  of  approximately  $83,000  in  attorney and arbitration fees to us.  The
tentative  final  ruling  became  effective  on  October  29, 2002, and has been
submitted  to  the  Superior  Court  of  California, Orange County, for entry of
judgment.  Because  collection of the attorney and arbitration fees award is not
assured,  we  expensed  all of our fees related to this matter.  Any recovery of
the fees will be recorded as income in the period they are received; however, at
this  time, we do not expect any recovery.  The return of our 500,000 shares, as
provided in the interim award issued on July 17, 2002, was recorded in the third
quarter  of  2002  as  a reversal of the original expense recorded.  Because the
original  expense was not recorded as an extraordinary item, the reversal of the
expense  did  not  qualify  as  an  extraordinary  item.

RESULTS  OF  OPERATIONS

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

   Nine-Months Ending September 30, 2003 -vs.- Nine-Months Ending  September 30,
                                      2002

During  the  nine-months  ending  September  30,  2003,  we  had  net  sales  of
approximately  $2,055,000  as  compared to net sales of approximately $2,570,000
for the same nine-month period in 2002.  Sales in 2003 reflected the substantial
completion of CHIPSat and the completion of the proprietary propulsion contract,
AFRL  Phase  I  and  MDA  Phase  I, while a new exclusive proprietary propulsion
contract,  as well as, new contracts with MDA, AFRL and Lunar Enterprises began.
Revenues  for  the  nine-months  ending  September  30,  2003  were comprised of
approximately  $30,000  and $675,000 from Phase I and Phase II, respectively, of
the  AFRL  project,  $397,000  and  $13,000  from  the  old  and new proprietary
propulsion  contract,  respectively,  $250,000 and $145,000 from MDA Phase I and
II,  respectively,  $346,000 from the CHIPSat program, $70,000 from the contract
by  Lunar  Enterprises  of  California and approximately $129,000 from all other
programs.  In  the  first  nine-months  of  2002,  sales   were   comprised   of
approximately  $1,237,000  from  the  CHIPSat  program,   $1,055,000   from  the
proprietary  propulsion  contract  and  $278,000  from  all  other  programs.

For the nine-months ending September 30, 2003, we had costs of sales (direct and
allocated  costs  associated  with   individual   contracts)  of   approximately
$1,682,000, or 82% of net sales, as compared to approximately $2,151,000, or 84%
of  net  sales,  during  the  same  period  in  2002.  Although   proportionally
consistent,  the  decrease in cost of sales was primarily due to a lower overall
cost  structure,  combined with the implementation of stronger cost controls and
project  monitoring.  Also,  we altered our cost allocation method in the second
quarter  as we completed CHIPSat, our main fixed price contract at the time, and
began  work  on  our new AFRL and MDA cost plus contracts.  We continue to focus
efforts  on  developing  project  management skills and reports to assist in the
efficient and effective management of our projects.  The gross margin percentage
for  the  nine-months ending September 30, 2003 was 18% of net sales as compared
to  16%  of  net  sales  for  the  same  nine-month  period  in  2002.

                                   17

<PAGE>

We  experienced an increase of approximately $999,700 in operating expenses from
approximately $251,000, or 10% of net sales, in the nine-months ending September
30,  2002  to approximately $1,251,000, or 61% of net sales, for the nine-months
ending  September   30,   2003.   Operating   expenses   include   general   and
administrative  expenses  ("G&A"), marketing and sales expenses and research and
development  expenses  as  well  as  stock  and  stock option based compensation
expenses.  In  2002,  we experienced a one-time reversal for the EMC transaction
(see  EMC Holdings Corporation transaction in MD&A Overview Section above).  The
increase  in  operating  expenses  for  the  nine-month  period  would have been
approximately  $546,000,  rather  than the stated $999,700 increase, without the
one-time  EMC  reversal.

-     Marketing  and  sales  expenses  accounted  for  approximately  28% of the
increase in operating expenses, from approximately $158,500, or 6% of net sales,
for  the  first  nine-months  of  2002, to approximately $311,000, or 15% of net
sales,  during the same period in 2003, mainly due to our decision to expand our
marketing  department  and  add  a  Vice  President  of  Marketing  and  Product
Development.  Although  our  Vice President of Marketing and Product Development
is  no  longer  with  us,  our  CEO, Mr. Benson is leading our marketing & sales
efforts  and  his  expenses  are  being  charged  to  that  department.

-     Research  and development ("R&D") expenses accounted for approximately 49%
of  the  increase  in  operating  expenses.  We  began incurring R&D expenses of
approximately  $273,000,  or  13%  of  net  sales, during the nine-months ending
September  30,  2003.  Approximately  $192,000 of R&D was in connection with our
hybrid  rocket  propulsion  design  system  and  technologies  and the remaining
$81,000  was  part  of  our  satellite  bus  design  and  development.

-     Without  the  EMC one-time adjustment, approximately 2% of the increase in
operating  expenses came from stock and stock option based compensation expense.
During  the  nine-months  ending September 30, 2003, we had an increase in stock
and  stock  option  based compensation expense from approximately ($454,000), or
(18%)  of  net  sales, in 2002 to approximately $4,700 or 0% of net sales during
the  same  nine-month  period  in  2003.  This  increase  was  mainly due to the
reversal  of  stock compensation from the EMC arbitration ruling as noted above.

-     G&A  expenses accounted for approximately 21% of the increase in operating
expenses.  The  increase  in  G&A  expenses  from approximately $547,000 for the
nine-months  ended  September  30,  2002  to approximately $662,000 for the same
nine-months  in 2003 was primarily due to new one-time revolving credit facility
expenses  plus rent of approximately $207,000 (we owned the building in 2002 and
incurred  interest  expense  on  loans  but  not  rental  payments), offset by a
reduction  in G&A labor expense of $92,000 primarily due to the loss of our Vice
President  of  Operations,  which  led  to  the  net  increase  of approximately
$115,000  in  G&A  expenses.

Non-operating  expenses/(income)  consists  of  interest  expense, non-cash debt
discount  expenses  and  deferred  gain on the sale of our building, as well as,
other  loan  fees  and  expenses.

-     Interest  expense  for  the nine-months ending September 30, 2003 and 2002
was approximately $65,000, or 3% of net sales, and $185,000, or 7% of net sales,
respectively.  The  decrease  was  due to the building sale on January 31, 2003,
which  eliminated  building  debt  and  reduced  overall  interest  on the notes
associated  with  the  building.  We continue to pay interest expense on certain
capital  leases  and settlement notes.  In addition, we accrued interest expense
related  to  our  related  party  note, convertible debentures and our revolving
credit  facility.  In  the  nine-months  ending September 30, 2003 and 2002, the
accrued  interest  on  our  related  party  note  was   $27,899   and   $34,699,
respectively.  We  also  accrued and paid $18,161 of interest on our convertible
notes  for  the  nine-months  ending  September  30,  2003.

                                   18

<PAGE>

-     In  conjunction with our convertible notes, we recorded a convertible note
debt  discount  of $475,000 related to warrants that accompanied the convertible
debt  issue  in  2002;  however,  since we made a partial repayment and the note
holders  converted  the  remaining balance and forfeited half of their warrants,
the  debt  discount amount was reduced from $475,000 to $237,500.  The reduction
is  exclusively  attributable  to  forfeiture  of half of the original warrants.
During  the  nine-months  ended  September  30,  2003,  the convertible debt was
eliminated.   A  debt  discount  adjustment  of $234,394 was made and the ending
balance  of  $112,500  was  recorded on the income statement for the nine-months
ending  September  30,  2003.

-     We  recognized  approximately  $78,000 of the deferred gain on the sale of
the  building  during  the  nine-months  ending  September  30, 2003 and we will
continue to amortize the remaining deferred gain of $1,094,539 into other income
over  the  remainder  of  the lease.  In relation to the gain we received on the
building,  we also accrued an income tax payable expense of $40,000 at March 31,
2003  of which none remained at September 30, 2003.  The reduction of the income
tax  payable  was  due  to a change in estimate based on the loss we experienced
during  the  first  nine-months  of  2003.

-     We  realized  loan  fees  related  to  our  revolving  credit facility and
expenses  related  to  the conversion of notes to common stock below fair market
value  of  approximately $148,000 for the three and nine-months ending September
30,  2003.  We  anticipate additional expenses related to similar note to equity
conversions  in  the  quarters  ahead.

During  the  nine-months  ending  September  30, 2003, we incurred a net loss of
approximately  $1,126,000,  or  55%  of  net  sales,  compared  to a net loss of
approximately  $18,000,  or  1% of net sales, for the same nine-months ending in
2002.  The  increase  in  the net loss was due to our reduction in revenues with
the substantial completion of CHIPSat and the delay in starting our new AFRL and
MDA projects, combined with the increase in our operating expenses, as discussed
above.

  Three-Months Ending September 30, 2003 -vs.- Three-Months Ending September 30,
                                      2002

During  the  three-months  ending  September  30,  2003,  we  had  net  sales of
approximately  $768,000  as  compared to net sales of approximately $757,000 for
the  same  three-month  period  in  2002.  Sales  in  the  third quarter of 2003
reflected  the  substantial  completion  of  CHIPSat  and  the completion of the
proprietary  propulsion  contract,  AFRL  Phase  I  and MDA Phase I, while a new
exclusive  proprietary  propulsion contract, as well as, new contracts with MDA,
AFRL  and  Lunar  Enterprises,  began.  Revenues  for  the  three-months  ending
September 30, 2003 were comprised of approximately $463,000 from Phase II of the
new  AFRL  contract,  $145,000  from the new MDA project, $70,000 from the Lunar
Enterprises  contract,  $36,000  from  the AFRL SBIR programs,  $15,000 from the
CHIPSat  program, $13,000 from the new exclusive proprietary propulsion contract
and  $26,000  from  all  other programs.  In the three-months ended September 30
2002,  sales  were comprised of approximately $432,000 from the CHIPSat program,
$249,000  from  the  proprietary  propulsion contract and $76,000 from all other
programs.

For  the  three-months  ending September 30, 2003, we had costs of sales (direct
and  allocated  costs  associated  with  individual  contracts) of approximately
$643,000,  or 84% of net sales, as compared to approximately $709,000, or 94% of
net  sales, during the same three-month period in 2002. The reduction in cost of
sales  was  primarily  attributable  to  an  effort  to  separate investments in
technology  development from direct costs on current projects and a reduction in
headcount  and  overall  spending  during  the period. Also, we altered our cost
allocation  method in the second quarter as we completed CHIPSat, our main fixed
price  contract  at  the  time, and began work on our new AFRL and MDA cost plus
contracts  in  the  third  quarter.  We recorded a corresponding increase in the
gross  margin  percentage  for the three-months ending September 30, 2003, which
increased  to  16% as compared to 6% for the same three-month period in 2002. We
also  experienced  a  shift  in business from fixed price to cost-plus projects,
with  the  award  of  AFRL  Phase  II in the second quarter and the start of our
newest  MDA  project during the third quarter of 2003. AFRL Phase II and the MDA
project  are  both  cost-plus  programs.

                                   19

<PAGE>

We  experienced an increase of approximately $392,000 in operating expenses from
approximately  ($117,000),  or  (15%)  of  net sales, in the three-months ending
September  30, 2002 to approximately $275,000, or 36% of net sales, for the same
three-months  period  in  2003.   Operating   expenses   include   general   and
administrative  expenses  and  marketing and sales expenses, as well as research
and  development  expenses.  In 2002, we experienced a one-time reversal for the
EMC  transaction  (see  EMC  Holdings  Corporation  transaction in MD&A Overview
Section  above).  Our  operating  expenses for the three-month period would have
decreased by approximately $63,000, rather than an increase of $392,000, without
the  one-time  EMC  reversal.

-     Marketing  and  sales  expenses accounted for an increase of approximately
41%  in operating expenses, from approximately $90,000, or 12% of net sales, for
the three-months ending September 30, 2002, to approximately $112,000, or 15% of
net  sales, during the same period in 2003, mainly due to our decision to expand
our  marketing  department  and  allocate a majority of Mr. Benson's expenses to
marketing  and  sales  for as long as he continues to lead our marketing & sales
efforts.

-     Research  and  development  expenses  accounted   for   an   increase   of
approximately  39%  in  operating  expenses,  from  no  R&D  expenses during the
three-months  ending  September 30, 2002, to approximately $21,000, or 3% of net
sales,  during the same three-month period in 2003, due to an effort to separate
investments  in  technology  development  from direct costs on current projects.

-     Without  the EMC one-time adjustment, approximately 26% of the increase in
operating  expenses came from stock and stock option based compensation expense.
During  the  three-months ending September 30, 2003, we had an increase in stock
and  stock  option  based compensation expense from approximately ($454,000), or
(60%)  of  net  sales, in 2002 to approximately $4,700 or 1% of net sales during
the  same  three-month  period  in  2003.  This  increase  was mainly due to the
reversal  of  stock compensation from the EMC arbitration ruling as noted above.

-     G&A  expenses  accounted  for  approximately  a  206% decline in operating
expenses,  more  than  offsetting  the  M&S,  R&D  and  stock based compensation
increases.  G&A  expenses  consist  primarily  of  salaries  for  administrative
personnel,  fees  for outside consultants, rent, insurance, legal and accounting
fees  and  other  overhead expenses.  We experienced a decrease of approximately
$111,000 in G&A expenses from approximately $248,000 for the three-months ending
September  30, 2002 to approximately $137,000 for the same three-month period in
2003.  This  decrease was due to a number of factors, including the reallocation
of  the  CEO  compensation to marketing and sales, the absence of other salaries
previously  charged  to  G&A  in  2002 and the change in allocation method as we
shift  from  mainly  fixed-price  contracts  to cost-plus contracts for the time
being.

Non-operating  expenses/(income)  consist  of  interest  expense,  non-cash debt
discount  expenses,  deferred  gain on the sale of our building, other loan fees
and  expenses.

-     Interest  expense  for the three-months ending September 30, 2003 and 2002
was  approximately $30,000, or 4% of net sales, and $65,000, or 9% of net sales,
respectively.  The  decrease  was  due to the building sale on January 31, 2003,
which  eliminated  building  debt  and  reduced  overall  interest  on the notes
associated  with  the  building.  We continue to pay interest expense on certain
capital  leases and settlement notes.  In addition, we accrued and paid interest
expense  related  to  our related party note and convertible debentures.  In the
three-months  ending  September  30,  2003 and 2002, the accrued interest on our
related  party  note was $8,766 and $11,066, respectively.  We also paid $20,236
in  interest  on our convertible notes for the three-months ending September 30,
2003.

                                   20

<PAGE>


-     In  conjunction with our convertible notes, we recorded a convertible note
debt  discount  of $475,000 related to warrants that accompanied the convertible
debt  issue  in  2002;  however,  since we made a partial repayment and the note
holders  converted  the  remaining balance and forfeited half of their warrants,
the  debt  discount  was  reduced  to  $237,500.  The  reduction  is exclusively
attributable  to  forfeiture  of  half  of  the  original  warrants.  During the
three-month  period  ending  September  30,  2003,  the  convertible  debt   was
eliminated.  A  debt  discount  adjustment  of  $267,879 was made and the ending
credit  balance  of  $88,408  was  recorded  on  the  income  statement  for the
three-month  period  ending  September  30,  2003.

-     We  recognized  approximately  $29,000 of the deferred gain on the sale of
the  building  during  the  three-months  ending  September 30, 2003 and we will
continue  to  amortize  the  remaining  deferred  gain of  $1,094,539 into other
income over the remainder of the lease.   In relation to the gain we received on
the  building, we also credited the accrued income tax payable expense by $2,526
due  to  a  change  in accrual estimate during the first quarter of 2003 and the
loss  we  incurred  for  the  three-months  ending  September  30,  2003.

-     We  realized  loan  fees  related  to  our  revolving  credit facility and
expenses  related  to  the conversion of notes to common stock below fair market
value  of approximately $148,000 for the three-months ending September 30, 2003.
We  anticipate additional expenses related to similar note to equity conversions
in  the  quarters  ahead.

During  the  three-months  ending  September 30, 2003, we incurred a net loss of
approximately  $208,000,  or  16%  of  net  sales,  compared  to  a  profit   of
approximately  $99,000, or 13% of net sales, for the same three-months ending in
2002. The net loss would have decreased, if not for the one-time recovery charge
related  to  the  EMC  transaction,  as  discussed  above.

LIQUIDITY  AND  CAPITAL  RESOURCES

Cash Position For Nine-Months Ending September 30, 2003 -vs.- Nine-Months Ending
                               September 30, 2002

Net  increase  in  cash  during  the  nine-months  ending September 30, 2003 was
approximately $287,000, compared to a net decrease of approximately $176,000 for
the  same  nine-months  in  2002.  Net cash used in operating activities totaled
approximately  $945,000  for  the  nine-months  ending  September  30,  2003, an
increase of approximately $725,000 as compared to approximately $220,000 used in
operating  activities  during  the  same  nine-months in 2002, mainly due to the
increase  in  our  net  loss.

Net  cash  provided by investing activities totaled approximately $3,147,000 for
the  nine-months  ending  September  30,  2003,  compared  to no cash used in or
provided by investing activities during the same nine-month period in 2002.  The
increase in cash provided by investing activities is attributable to the sale of
the  building  on  January  31,  2003.

Net  cash  used in financing activities totaled approximately $1,916,000 for the
nine-months  ending  September  30,  2003,  which is a decrease of approximately
$1,960,000  from  the  approximately  $44,000  provided  by financing activities
during  the  same  nine-month  period  2002.  This  is primarily attributable to
paying  off  notes payable associated with the building sale and advances on our
new  revolving  credit  facility.

At September 30, 2003, our cash, which includes cash reserves and cash available
for investment, was approximately $314,000, as compared to approximately $36,000
at  September  30,  2002,  an  increase of approximately $278,000, mainly due to
advances  on  our  revolving  credit  facility.  At  September   30,  2003,  our
working  capital  ratio  improved to 0.49 for the nine-months ended, an increase
from  0.10  for  the  same  nine-month  period  in  2002.

                                   21

<PAGE>

As  of  September  30,  2003,  our backlog of funded and non-funded business was
approximately  $2.6  million,  as  opposed  to  approximately $2.9 million as of
September  30,  2002.  During  the nine-months ending September 30, 2003, we won
the  AFRL  Phase  II  contract  worth  approximately  $1.4  million,  negotiated
increases  of  approximately  $1.0  million  to  the AFRL Phase II Contract as a
deferred  option still open, completed our first proprietary propulsion contract
and  was  awarded  a  new  exclusive  proprietary propulsion contract, completed
significant  milestones on CHIPSat, completed MDA's Phase I project and obtained
a  purchase  order  for  a  new $800,000 project, obtained two AFRL SBIR Phase I
grants  and  were  awarded  a  $100,000  contract  by  Lunar  Enterprises.

Deferred  income  taxes  are  provided  for temporary differences in recognizing
certain  income and expense items for financial and tax reporting purposes.  The
deferred  tax  asset  of  approximately  $1.3 million consisted primarily of the
income  tax  benefits  from  net  operating  loss carryforwards, amortization of
goodwill  and  research  and  development credit carryforwards.  The federal and
state  tax  loss  carry  forwards  will  expire  through  2022 unless previously
utilized.  The  State  of  California  has  suspended  the  utilization  of  net
operating  losses  for  2003.  A  valuation allowance has been recorded to fully
offset the deferred tax asset as it is more likely than not that the assets will
not  be  utilized.  The  valuation  allowance  decreased  approximately $100,000
during  the nine-months ending September 30, 2003, from $1.4 million at December
31,  2002  to  $1.3  million  at  September  30,  2003.  Please  refer  to   our
consolidated  financial  statements, which are a part of this report for further
information  regarding  our  liquidity  and  capital  resources.

     Critical  Accounting  Standards

Our  revenues  are  transitioning  from  primarily  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  cost-plus 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  Condensed  Consolidated
Financial Statements).  Actual results of contracts may differ from management's
estimates  and  such differences could be material to the condensed 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.  Billings
in  excess  of  costs  incurred  and  estimated earnings represent the excess of
amounts  billed  in  accordance  with  the  contractual billing terms.  Deferred
revenue  represents amounts collected from customers for services to be provided
at  a  future  date.  Research  and  development costs are expensed as incurred.

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

                                   22

<PAGE>

FAS  148,  Accounting  for Stock-Based Compensation - Transition and Disclosure,
which  amends the FAS 123, Accounting for Stock-Based Compensation was published
by  Financial  Accounting  Standards  Board on December 31, 2002.  The effective
date of the new FASB Statement is December 15, 2002.  FAS 123 prescribes a "fair
value" methodology to measure the cost of stock options and other equity awards.
Companies  may  elect  either  to  recognize fair value stock-based compensation
costs in their financial statements or to disclose the pro forma impact of those
costs  in  the  footnotes.  We  have  chosen the latter approach.  The immediate
impact  of  FAS  148  is  more  frequent and prominent disclosure of stock-based
compensation  costs,  starting  with  financial  statements  for  the year ended
December 31, 2002 for companies whose fiscal year is the calendar year.  FAS 148
also  provides  some  flexibility  for  the transition, if a company chooses the
fair-value  cost  recognition  of  employee  stock  options.

Fixed  assets are depreciated over their estimated useful lives of three-to-five
years  using the straight-line method of accounting in accordance with Statement
of Financial Accounting Standards No. 144.  Goodwill and other intangible assets
were  created  upon  the acquisition of our subsidiaries.  Intangible assets are
amortized  over  their  assets' estimated future useful lives on a straight-line
basis over three-to-five years.  Goodwill and other intangibles are periodically
reviewed  for  impairment  based on an assessment of future operations to ensure
they  are  appropriately  valued  in  accordance  with  Statement  of  Financial
Accounting  Standards  No.  142.  Effective November 2001, there will be no more
amortization  of  goodwill.  (See  Notes to the Condensed Consolidated Financial
Statements.)


Cash  Position  and  Going  Concern

Our auditors expressed in their formal auditors' opinion dated February 13, 2003
that our December 31, 2002 financial position raises substantial doubt about our
ability  to  continue  as  a  going concern.  The opinion is based on net losses
incurred  by  us for the years ended December 31, 2002 and 2001 of approximately
$400,000  and  $1.9  million,  respectively,  and  working  capital  deficits of
approximately  $200,000  and  $1.0  million,  respectively,  for  those   years.
Although  there  was  an improvement in the working capital deficit in the third
quarter  of  2003  and  we  anticipate further progress along these lines, items
remain  that  raise  substantial  doubt about our ability to continue as a going
concern.  Management believes that this condition remains at September 30, 2003.
Our  ability  to  continue  as  a  going  concern  depends  upon  our ability to
ultimately  implement our plans to obtain profitable new business and reduce the
working  capital  deficit.  We are also investigating the possibility of raising
additional  capital  to further support operations as new contracts and business
opportunities  materialize.  The  prospective  funding, as well, as new business
opportunities  can  come  from a variety of sources, including public or private
equity  markets, state and federal grants and government and commercial customer
program  funding.  However,  there  can  be no assurance that we will be able to
obtain  such  funding  as  needed  or, if such funding is available, that we can
obtain it on terms favorable to the Company.  The likelihood of our success must
be  considered  in  light  of  the  expenses, difficulties and delays frequently
encountered  in  connection  with  the developing businesses, those historically
encountered  by  us,  and  the  competitive  environment  in  which  we operate.

On  January  31,  2003,  we  closed escrow on the sale of our facility in Poway,
California and entered into a ten-year lease for the same facility.  The selling
price  of  the  facility  was  $3.2  million.  The total debt repayment from the
transaction  was approximately $2.4 million.  The approximate net proceeds to us
for  working  capital  purposes  was  approximately  $636,000.  However,  due to
continuing  delays and customer schedule slips on existing contracts and further
delays  in  obtaining new contract business, we remain in a tight cash position.

                                   23

<PAGE>

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

During  the  first  nine-months  of  2003, we raised approximately $426,000 from
accredited  investors  by  selling  861,267 units of our common stock and common
stock purchase warrants under in a private placement offering made under Section
4(2)  of  the Securities Act of 1933, and Rule 506, to accredited investors only
("PPO").  We  subsequently  closed  the  PPO.  (See  Note  6  of  the  Condensed
Consolidated  Financial  Statements.)

We have sustained ourselves over the last few years with a mixture of government
and  commercial  contracts.  In particular, we anticipated and received an award
for  AFRL  Phase  II  on  March 28, 2003. AFRL Phase II is a cost-plus contract,
which  will  require  us  to  incur certain costs in advance of regular contract
reimbursements from AFRL. Although we will need a certain amount of cash to fund
advance  payments  on  the  contract,  we  will be entitled, as a small business
concern,  to  recover  our  costs  on a weekly basis and we have established the
Laurus Master Fund revolving credit facility at the end of the second quarter of
2003  to  support  our  advance  payment needs.  In addition, we anticipated and
received a purchase order from the MDA to explore the use of micro-satellites in
national  missile  defense.  To  be explored in this study will be fast response
microsat  launch  and commissioning; small, low-power passive sensors; formation
flying and local area networking within a cluster of microsats; and an extension
of  our  proven  use  of  the  Internet  for  on-orbit command, control and data
handling. The purchase order value is $800,000.  It is a cost plus agreement and
should  be  completed  in  the  first  quarter  of  2004.

We  can  continue  to  grow  and  execute  certain parts of our strategy without
additional equity funding by identifying, bidding and winning new commercial and
government  funded  programs.  We expect to obtain new commercial and government
contracts;  however,  depending on the timing of those contracts, we may need to
seek additional and possibly immediate financing through a combination of public
and  private  debt  or  equity  placements,  commercial  project  financing  and
government  programs  to  fund future operations and commitments.  We obtained a
revolving  credit facility from Laurus Master Fund, with certain waivers through
the first quarter of 2004; however, there can be no assurance that new contracts
or  additional  debt  or  equity  financing  needed  to  fund operations will be
available  or  obtained  in  sufficient  amounts  necessary  to  meet our needs.


ITEM  3.   QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

Our market risks relate primarily to changes in interest rates. We borrow money,
when  necessary,  on  a  revolving basis under our $1.0 million revolving credit
facility  from  Laurus  to  fund  capital expenditures and other working capital
needs.  Our revolving credit facility carries a variable interest rate pegged to
market  indices  and, therefore, our statements of operations and our cash flows
may  be  impacted  by changes in interest rates. As of September 30, 2003, there
was  $629,500  amount  outstanding  under  the  revolving  credit  facility.

                                   24

<PAGE>

ITEM  4:  CONTROLS  AND  PROCEDURES

Within  90  days  prior  to  the  filing  date of this report, 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 our disclosure controls and procedures are
effective  to  ensure  that  information  required  to be disclosed by us in the
reports  that  we file under the Exchange Act is accumulated and communicated to
management,  including  our Chief Executive Officer and Chief Financial Officer,
as  appropriate  to allow timely decisions regarding required disclosure.  There
have  been  no  significant changes in our internal controls or in other factors
that  could significantly affect internal controls subsequent to the date of our
evaluation,  including  any  significant actions regarding any deficiencies.  We
have  and  continue  to  review  our  controls and procedures regularly with our
management  and  Board  of  Directors.

                                   25

<PAGE>

                            PART II OTHER INFORMATION

ITEM  1.  LEGAL  PROCEEDINGS

On  June  18,  2001,  we entered into a relationship with two individuals (doing
business  as  EMC  Holdings  Corporation  ("EMC")),  whereby  EMC was to provide
certain consulting and advisory services to us in exchange for our common stock.
EMC received the first installment of 500,000 shares of our common stock on June
26,  2001.  Total  expense  for the initial stock issuance through September 30,
2001 was valued at approximately $455,000.  Pursuant to a demand for arbitration
filed by us on November 7, 2001, we sought the return of all or a portion of the
shares  issued  to EMC.  EMC filed a its own claim with the American Arbitration
Association  on  November  13, 2001, alleging that we owed EMC $118,000 in fees,
plus  damages.

A  three-day  arbitration  hearing was held in May and June 2002 with respect to
claims arising out of consulting and advisory service agreements between EMC and
us.  On  July  17, 2002, an interim award was issued in favor of us against EMC,
ordering  the  return  of  the initial installment of 500,000 shares and denying
EMC's claim for $118,000.  On October 22, 2002, a status conference was held and
a  tentative  final award was issued again in the favor of us.  Included in this
tentative  final  ruling  was  an award of approximately $83,000 in attorney and
arbitration  fees to us.  The tentative final ruling became effective on October
29,  2002, and was submitted to the Superior Court of California, Orange County,
for  entry  of  judgment.

Because collection of the attorney and arbitration fees award is not assured, we
expensed  all  of our fees related to this matter.  Any recovery of fees will be
recorded  as  income in the period they are received.  The return of the 500,000
shares,  as  provided in the interim award issued on July 17, 2002, was recorded
in  the  third  quarter  of 2002 as a reversal of the original expense recorded.
There  were  no  further  developments  during  the  third  quarter  of  2003.

ITEM  2.    CHANGES  IN  SECURITIES

Pursuant  to  its  independent  director  compensation plan, adopted January 16,
2000,  the  Company  granted options to purchase 10,000 shares each to Howell M.
Estes, III and Scott McClendon and 5,000 shares each to Robert Walker and Wesley
T.  Huntress  for  their  attendance and participation at the Board of Directors
meeting held on July 18, 2003.  These options were issued with an exercise price
of  $0.71 per share, (based on the closing price of our common stock on the date
of grant), will vest over two years and will expire on the five-year anniversary
date  of  the  date  of  grant.

On July 18, 2003, we issued a total of 2,100 shares to employees in exchange for
services rendered to us in 2002 and awards given by us in 2002.  The shares were
issued  with  restrictions  pursuant  to  Section  4(2)  of  the Securities Act.

Also,  on  July  18,  2003,  pursuant  to our 1999 Stock Option Plan, we granted
options  to  purchase  up to 50,000 shares of our common stock to one of our new
engineers.  These  options were issued with an exercise price of $0.60 per share
(based on the closing price of our common stock on the date of grant), will vest
over five years and will expire on the nine-year anniversary date of the date of
grant.

On  August 7, 2003, we issued a total of 1,000 shares to an employee in exchange
for  summer intern services rendered to us in 2003.  The shares were issued with
restrictions  pursuant  to  Section  4(2)  of  the  Securities  Act.

On  September  15,  2003,  we  issued  a  total  of 500 shares to an employee in
exchange  for  summer  intern  services rendered to us in 2003.  The shares were
issued  with  restrictions  pursuant  to  Section  4(2)  of  the Securities Act.

                                   26

<PAGE>


ITEM  3.    DEFAULTS  UPON  SENIOR  SECURITIES

     None.

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

     None.

ITEM  5.    OTHER  INFORMATION

     None.

ITEM  6.  EXHIBITS  AND  REPORTS  ON  FORM  8-K
<TABLE>
<CAPTION>

(a)                                                                                              Exhibits
<S>                                                                                              <C>
AFRL Small Vehicle Launch Technology SBIR contract                                                  10.1
AFRL Small Satellite Bus Technologies SBIR contract                                                 10.2
AFRL Small Shuttle Compatible Propulsion Module contract                                            10.3
MDA Advanced Systems Deputate for the Micro Satellite Experiment                                    10.4
MDA Advanced Systems Deputate for the Micro Satellite Experiment (Modification)                     10.5
Lunar Enterprises of California contract                                                            10.6
Hybrid Rocket Motor Systems and Components contract*                                                10.7
Third Amendment to Series A Subordinated Convertible Note - Benson1,  dated Sept. 5,  2003          10.8
Third Amendment to Series A Subordinated Convertible Note - Benson2,  dated Sept. 5,  2003          10.9
Third Amendment to Series A Subordinated Convertible Note - Benson3,  dated Sept. 5,  2003          10.10
Third Amendment to Series A Subordinated Convertible Note - Benson4,  dated Sept. 5,  2003          10.11
Third Amendment to Series A Subordinated Convertible Note - Skarupa,  dated Sept. 5,  2003          10.12
Third Amendment to Series A Subordinated Convertible Note - Schaffer, dated Sept. 5,  2003          10.13
Certificate of James W. Benson Pursuant to Section 1350 of Chapter 63 of Title 18 U.S. Code         99.1
Certificate of Richard B. Slansky Pursuant to Section 1350 of Chapter 63 of Title 18 U.S. Code      99.2
</TABLE>

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

(b)     Reports  on  Form  8-K

                                   27

<PAGE>

                                   SIGNATURES

     Pursuant  to  the  requirements of the Securities Exchange Act of 1934, the
Registrant  has  duly  caused  this  report  to  be  signed on its behalf by the
undersigned  thereunto  duly  authorized.

                                                                 SPACEDEV,  INC.
                                                                      Registrant



Dated:  November  11,  2003                                ---------------------
                                                               James  W.  Benson
                                                       Chief  Executive  Officer



Dated:  November  11,  2003                                ---------------------
                                                            Richard  B.  Slansky
                                                       Chief  Financial  Officer

                                   28

<PAGE>

                                 SPACEDEV, INC.
                             a Colorado corporation
                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

                            Section 302 Certification

I,  James  W.  Benson,  certify  that:

     1.     I  have  reviewed  this quarterly report on Form 10-QSB of SpaceDev,
Inc.,  a  Colorado  corporation  (the  "registrant");

     2.     Based  on  my  knowledge, this quarterly report does not contain any
untrue  statement  of a material fact or omit to state a material fact necessary
in  order to make the statements made, in light of the circumstances under which
such  statements were made, not misleading with respect to the period covered by
this  quarterly  report;

     3.     Based on my knowledge, the financial statements, and other financial
information  included  in  this quarterly report, fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods presented in this quarterly report;

     4.     The registrant's other certifying officers and I are responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  we  have:

     a)     designed  such  disclosure  controls  and  procedures to ensure that
material  information  relating  to  the  registrant, including its consolidated
subsidiaries,  is made known to us by others within those entities, particularly
during  the  period  in  which  this  quarterly  report  is  being  prepared;

     b)     evaluated  the effectiveness of the registrant's disclosure controls
and  procedures  as  of  a  date within 90 days prior to the filing date of this
quarterly  report  (the  "Evaluation  Date");  and

     c)     presented  in  this  quarterly  report  our  conclusions  about  the
effectiveness  of the disclosure controls and procedures based on our evaluation
as  of  the  Evaluation  Date;

     5.     The  registrant's  other  certifying  officers and I have disclosed,
based  on our most recent evaluation, to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent  function):

     a)     all  significant deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and  have  identified for the
registrant's  auditors  any  material  weaknesses  in  internal  controls;  and

     b)     any  fraud,  whether  or  not  material, that involves management or
other  employees  who  have  a  significant  role  in  the registrant's internal
controls;  and

     6.     The  registrant's  other certifying officers and I have indicated in
this  quarterly report whether or not there were significant changes in internal
controls  or  in other factors that could significantly affect internal controls
subsequent  to  the date of our most recent evaluation, including any corrective
actions  with  regard  to  significant  deficiencies  and  material  weaknesses.

Date:  November  12,  2003

     By:  /s/  James  W.  Benson
-------------------------------
James  W.  Benson
Chief  Executive  Officer


                                   29

<PAGE>

                                 SPACEDEV, INC.
                             a Colorado corporation
                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

                            Section 302 Certification

I,  Richard  B.  Slansky,  certify  that:

     1.     I  have  reviewed  this quarterly report on Form 10-QSB of SpaceDev,
Inc.,  a  Colorado  corporation  (the  "registrant");

     2.     Based  on  my  knowledge, this quarterly report does not contain any
untrue  statement  of a material fact or omit to state a material fact necessary
in  order to make the statements made, in light of the circumstances under which
such  statements were made, not misleading with respect to the period covered by
this  quarterly  report;

     3.     Based on my knowledge, the financial statements, and other financial
information  included  in  this quarterly report, fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods presented in this quarterly report;

     4.     The registrant's other certifying officers and I are responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  we  have:

     a)     designed  such  disclosure  controls  and  procedures to ensure that
material  information  relating  to  the  registrant, including its consolidated
subsidiaries,  is made known to us by others within those entities, particularly
during  the  period  in  which  this  quarterly  report  is  being  prepared;

     b)     evaluated  the effectiveness of the registrant's disclosure controls
and  procedures  as  of  a  date within 90 days prior to the filing date of this
quarterly  report  (the  "Evaluation  Date");  and

     c)     presented  in  this  quarterly  report  our  conclusions  about  the
effectiveness  of the disclosure controls and procedures based on our evaluation
as  of  the  Evaluation  Date;

     5.     The  registrant's  other  certifying  officers and I have disclosed,
based  on our most recent evaluation, to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent  function):

     a)     all  significant deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and  have  identified for the
registrant's  auditors  any  material  weaknesses  in  internal  controls;  and

     b)     any  fraud,  whether  or  not  material, that involves management or
other  employees  who  have  a  significant  role  in  the registrant's internal
controls;  and

     6.     The  registrant's  other certifying officers and I have indicated in
this  quarterly report whether or not there were significant changes in internal
controls  or  in other factors that could significantly affect internal controls
subsequent  to  the date of our most recent evaluation, including any corrective
actions  with  regard  to  significant  deficiencies  and  material  weaknesses.


Date:  November  12,  2003

     By:  /s/  Richard  B.  Slansky
----------------------------
Richard  B.  Slansky
Chief  Financial  Officer


                                   30

<PAGE>