FORM 10-QSB

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


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

     For  the  quarterly  period  ended  March  31,  2006

[ ]  TRANSITION  REPORT  UNDER  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 small business issuer 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)  filed  all reports required to be filed by
Sections  13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter  period  that the registrant was required to file such reports), and (2)
has  been  subject  to such filing requirements for the past 90 days.
Yes   [X]  No [ ]

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

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:  28,813,334 shares of Issuer's voting
common  stock  were  outstanding  on  May  1,  2006.

Transitional  Small  Business  Disclosure  Format:  Yes  [ ]  No [X]

                                     PAGE

                                  SPACEDEV, INC.
                                   FORM 10-QSB
                      FOR THE QUARTER ENDED MARCH 31, 2006


INDEX                                                                       PAGE

PART  I  --  FINANCIAL  INFORMATION                                           1
ITEM  1.     FINANCIAL  STATEMENTS                                            1
Consolidated  Balance  Sheets                                                 1
Consolidated  Statements  of  Operations                                      3
Consolidated  Statements  of  Cash  Flows                                     4
NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS                                6
ITEM  2.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OR PLAN OF OPERATION    18
Overview                                                                     18
Selection  of  Significant  Contracts                                        20
Results  of  Operations                                                      21
Liquidity  and  Capital  Resources                                           25
Cash  Position                                                               26
Critical  Accounting  Standards                                              26
Recent  Accounting  Pronouncements                                           27
Risk  Factors                                                                27
ITEM  3.     CONTROLS  AND  PROCEDURES                                       39
PART  II  --  OTHER  INFORMATION                                             39
ITEM  1.     LEGAL  PROCEEDINGS                                              39
ITEM  2.     UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS    39
ITEM  3.     DEFAULTS  UPON  SENIOR  SECURITIES                              39
ITEM  4.     SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS     39
ITEM  5.     OTHER  INFORMATION                                              40
ITEM  6.     EXHIBITS                                                        40
SIGNATURES                                                                   42

                                     PAGE


                         PART I -- FINANCIAL INFORMATION

ITEM  1.     FINANCIAL  STATEMENTS

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

<TABLE>
<CAPTION>

<S>                          <C>          <C>

At March 31,. . . . . . . .         2006        2005
---------------------------  -----------  ----------

 ASSETS

 CURRENT ASSETS
      Cash. . . . . . . . .  $ 1,142,595  $5,412,949
      Accounts receivable .    5,769,883     620,048
      Inventory (Note 2). .    3,014,626           -
      Other current assets.      213,122      11,306
---------------------------  -----------  ----------
 TOTAL CURRENT ASSETS . . .   10,140,226   6,044,303

 FIXED ASSETS - NET . . . .    3,280,171     293,590

 GOODWILL (NOTE 5). . . . .   12,246,362           -

 OTHER ASSETS . . . . . . .      898,762     117,115
---------------------------  -----------  ----------
                             $26,565,521  $6,455,008
---------------------------  -----------  ----------
---------------------------  -----------  ----------
The  accompanying  notes  are  an  integral part of these consolidated financial
statements.

</TABLE>
                                     PAGE 1


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

<TABLE>
<CAPTION>

<S>                                                                         <C>            <C>

 At March 31,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2006           2005
--------------------------------------------------------------------------  -------------  -------------

 LIABILITIES AND STOCKHOLDERSEQUITY

 CURRENT LIABILITIES
      Accounts payable and accrued expenses (Note 3(a)). . . . . . . . . .  $  2,159,367   $    400,261
      Accrued payroll, vacation and related taxes. . . . . . . . . . . . .     1,500,497        248,805
      Billings in excess of costs incurred and estimated earnings (Note 2)     1,635,230              -
      Other accrued liabilities (Note 2) . . . . . . . . . . . . . . . . .     2,199,130        268,505
--------------------------------------------------------------------------  -------------  -------------

 TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . .     7,494,224        917,571

 CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES. . . . . . . . . .       113,282            413

 DEFERRED GAIN - ASSETS HELD FOR SALE (NOTE 3(A)). . . . . . . . . . . . .       801,359        918,631
--------------------------------------------------------------------------  -------------  -------------

 TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . .     8,408,865      1,836,615

 COMMITMENTS AND CONTINGENCIES

 STOCKHOLDERSEQUITY
      Convertible preferred stock, $.001 par value, 10,000,000
          shares authorized, and 253,610 and 250,000 shares
          issued or outstanding, respectively (Note 4)
      Series C Convertible preferred stock (Note 4(a)) . . . . . . . . . .           249            250
      Series D-1 Convertible preferred stock (Note 4 (b)). . . . . . . . .             5              -
      Common stock, $.0001 par value; 100,000,000 and 50,000,000 shares
          authorized, and 28,710,496 and  21,373,980  shares issued
            and outstanding, respectively (Note 4) . . . . . . . . . . . .         2,870          2,137
      Additional paid-in capital (Note 4). . . . . . . . . . . . . . . . .    32,863,959     18,962,806
      Additional paid-in capital - stock options . . . . . . . . . . . . .             -        750,000
      Deferred compensation. . . . . . . . . . . . . . . . . . . . . . . .             -       (250,000)
      Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . .   (14,710,427)   (14,846,800)
--------------------------------------------------------------------------  -------------  -------------
 TOTAL STOCKHOLDERSEQUITY. . . . . . . . . . . . . . . . . . . . . . . . .    18,156,656      4,618,393
--------------------------------------------------------------------------  -------------  -------------

 TOTAL LIABILITIES AND STOCKHOLDERSEQUITY. . . . . . . . . . . . . . . . .  $ 26,565,521   $  6,455,008
--------------------------------------------------------------------------  -------------  -------------
--------------------------------------------------------------------------  -------------  -------------
The  accompanying  notes  are  an  integral part of these consolidated financial
statements.

</TABLE>

                                     PAGE 2

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

<TABLE>
<CAPTION>

<S>                                                      <C>           <C>           <C>          <C>
 Three-Months Ending March 31,. . . . . . . . . . . . .         2006             %         2005       %
-------------------------------------------------------  ------------  ------------  -----------  ------
 NET SALES. . . . . . . . . . . . . . . . . . . . . . .  $ 7,174,778         100.0%  $1,806,889   100.0%

 TOTAL COST OF SALES *. . . . . . . . . . . . . . . . .    5,265,106          73.4%   1,396,835    77.3%

 GROSS MARGIN . . . . . . . . . . . . . . . . . . . . .    1,909,672          26.6%     410,054    22.7%
-------------------------------------------------------  ------------  ------------  -----------  ------
 OPERATING EXPENSES
    Marketing and sales . . . . . . . . . . . . . . . .      643,560           9.0%     145,017     8.0%
    Research and development. . . . . . . . . . . . . .       81,777           1.1%       8,472     0.1%
    General and administrative. . . . . . . . . . . . .    1,230,733          17.2%     190,998    10.6%
-------------------------------------------------------  ------------  ------------  -----------  ------
 TOTAL OPERATING EXPENSES * . . . . . . . . . . . . . .    1,956,070                    344,487
-------------------------------------------------------  ------------                -----------
 INCOME/(LOSS) FROM OPERATIONS. . . . . . . . . . . . .      (46,398)         -0.6%      65,567     3.6%

 NON-OPERATING INCOME/(EXPENSE)
    Interest income . . . . . . . . . . . . . . . . . .       33,615           0.5%       7,960     0.4%
    Interest expense. . . . . . . . . . . . . . . . . .       (5,283)         -0.1%      (1,222)   -0.1%
    Gain on building sale (Note 3(a)) . . . . . . . . .       29,318           0.4%      29,318     1.6%
-------------------------------------------------------  ------------  ------------  -----------  ------
 TOTAL NON-OPERATING INCOME . . . . . . . . . . . . . .       57,650           0.8%      36,056     2.0%
-------------------------------------------------------  ------------  ------------  -----------  ------

 INCOME BEFORE TAXES. . . . . . . . . . . . . . . . . .       11,252           0.2%     101,623     5.6%

 INCOME TAX PROVISION . . . . . . . . . . . . . . . . .        4,235           0.1%         400     0.0%

 NET INCOME . . . . . . . . . . . . . . . . . . . . . .  $     7,017           0.1%  $  101,223     5.6%
-------------------------------------------------------  ------------  ------------  -----------  ------
 NET INCOME PER SHARE:
      Net income. . . . . . . . . . . . . . . . . . . .  $         0                 $        0
-------------------------------------------------------  ------------                -----------
      Weighted-Average Shares Outstanding . . . . . . .   27,276,451                 21,291,972

 FULLY DILUTED NET INCOME PER SHARE:
      Net income. . . . . . . . . . . . . . . . . . . .  $         0                 $        0
-------------------------------------------------------  ------------                -----------
     Fully Diluted Weighted-Average Shares Outstanding.   36,225,300                 29,908,287
-------------------------------------------------------  ------------                -----------


 * The following table shows how the Company's stock option expense would be allocated to all expenses.

    Cost of Sales . . . . . . . . . . . . . . . . . . .  $         -               $         -
    Marketing and sales . . . . . . . . . . . . . . . .            -                         -
    Research and development. . . . . . . . . . . . . .            -                         -
    General and administrative. . . . . . . . . . . . .       90,701                         -
-------------------------------------------------------  ------------              ------------
                                                         $    90,701               $         -
-------------------------------------------------------  ------------              ------------
-------------------------------------------------------  ------------              ------------
The  accompanying  notes  are  an  integral part of these consolidated financial
statements.

</TABLE>


                                     PAGE 3


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


<TABLE>
<CAPTION>



<S>                                                        <C>           <C>
 Three-Months Ending March 31,. . . . . . . . . . . . . .         2006         2005
---------------------------------------------------------  ------------  -----------
 CASH FLOWS FROM OPERATING ACTIVITIES
      Net income. . . . . . . . . . . . . . . . . . . . .  $     7,017   $  101,223
      Adjustments to reconcile net income to net cash
           used in operating activities:
           Depreciation and amortization. . . . . . . . .      147,370       29,061
           Gain on disposal of building sale. . . . . . .      (29,318)     (29,318)
           Stock option expense and stock awards. . . . .       92,876            -
           Change in operating assets and liabilities . .   (3,481,569)     135,217

 NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES. . .   (3,263,624)     236,183

CASH FLOWS FROM INVESTING ACTIVITIES
      Other assets, capitalized acquisition costs . . . .   (1,066,564)           -
      Purchases of fixed assets . . . . . . . . . . . . .     (324,256)     (43,269)
---------------------------------------------------------  ------------  -----------
NET CASH  USED IN  INVESTING ACTIVITIES . . . . . . . . .   (1,390,820)     (43,269)

 CASH FLOWS FROM FINANCING ACTIVITIES
      Principal payments on notes payable . . . . . . . .   (4,675,832)      (8,997)
      Principal payments on capitalized lease obligations       (8,815)        (883)
      Dividend payments on Series D-1 Preferred . . . . .      (98,774)           -
      Employee stock purchase plan. . . . . . . . . . . .       42,767        9,846
      Proceeds from issuance of preferred stock . . . . .    4,764,296      151,468
      Proceeds from issuance of common stock. . . . . . .       23,359            -
---------------------------------------------------------  ------------  -----------
 NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . . . . .       47,001      151,434
---------------------------------------------------------  ------------  -----------
 NET (DECREASE)/INCREASE IN CASH. . . . . . . . . . . . .   (4,607,443)     344,348
---------------------------------------------------------  ------------  -----------
 CASH AT BEGINNING OF PERIOD. . . . . . . . . . . . . . .    5,750,038    5,068,601
---------------------------------------------------------  ------------  -----------
 CASH AT END OF PERIOD. . . . . . . . . . . . . . . . . .  $ 1,142,595   $5,412,949
---------------------------------------------------------  ------------  -----------
---------------------------------------------------------  ------------  -----------
The  accompanying  notes  are  an  integral part of these consolidated financial
statements.

</TABLE>
                                     PAGE 4


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


---------------------------------------------------  ------     --------
 Three-Months Ending March 31,. . . . . . . . . . .    2006         2005
---------------------------------------------------  ------     --------

 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for:
           Interest . . . . . . . . . . . . . . . .  $5,283     $313,978
---------------------------------------------------  ------     --------


NONCASH  INVESTING  AND  FINANCING  ACTIVITIES:

During  the  three-months  ending  March 31, 2006 and 2005 the Company converted
     $34,516  and  $11,303  of  employee  stock purchase plan contributions into
     24,885  and  7,915  shares  of  common  stock,  respectively.

During  the  three-months  ending  March  31, 2006 and 2005 the Company declared
     dividends payable of $41,967 and $42,226, repectively to the holders of its
     Series  C  preferred  stock.

During  the three-months ending March 31, 2005 the Company paid dividends valued
     at  $60,967  in the form of 39,589 shares of common stock to the holders of
     its  Series  C  preferred  stock.

During  the  three-months  ending  March  31, 2006 the Company declared and paid
     dividends  payable  of  $98,774  to the holders of its Series D-1 preferred
     stock.

During  the three-months ending March 31, 2006, the Company financed $125,687 in
     fixed  assets  through  a  capital  lease  obligation.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated financial
                                   statements.


                                     PAGE 5


                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       BASIS  OF  PRESENTATION

The  accompanying  consolidated  financial  statements  of  SpaceDev, Inc. ("the
Company")  include  the  accounts  of  the  Company and its subsidiary, Starsys,
Inc.  and  its inactive subsidiary SpaceDev Oklahoma,  an Oklahoma  corporation.
In  the opinion of management, the consolidated financial statements reflect all
normal and recurring adjustments, which are necessary for a fair presentation of
the  Company's financial position, results  of  operations  and  cash  flows  as
of  the  dates  and  for  the  periods  presented.   The  consolidated financial
statements  have  been prepared in accordance with generally accepted accounting
principles  for interim financial information.  Consequently,  these  statements
do  not  include  all  disclosures  normally  required  by  generally  accepted
accounting  principles  of  the  United  States  of America for annual financial
statements  nor  those  normally  made  in  an Annual  Report  on  Form  10-KSB.
Accordingly,  reference  should  be  made  to the Company's Form 10-KSB filed on
March  28,  2006  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 been modified, as a result of
the  Company's  acquisition  of  Starsys  Research  Corporation,  to  include  a
"percentage-of-completion" method of revenue recognition and inventory policies.
The  consolidated  results  of operations for the three-months ending  March 31,
2006  are  not  necessarily  indicative of results that may be expected  for the
fiscal  year  ending  December  31,  2006 or any future period, and the  Company
makes  no  representations  related  thereto.

On  March  31, 2004, the Company was awarded a contract from the Missile Defense
Agency  for  approximately $43.3 million. The microsatellite distributed sensing
experiment was intended to analyze, design, develop, fabricate, integrate, test,
operate  and  support  a networked cluster of three formation-flying boost phase
and  midcourse  tracking microsatellites and a second cluster of microsatellites
with laser communication technology to support national missile defense. We were
informed  in  2005 that the Missile Defense Agency had re-routed the part of the
contract  related  to the laser communications experiment to another program and
that  they  would not be exercising their option for the additional microsats at
this time; however, the contract vehicle remained at $43.3 million and left open
the  opportunity for some other purchase to take its place. We estimate that the
second  cluster  would  have  represented approximately $10 million of the $43.3
million contract, and have reduced our current backorder accordingly. We believe
the remaining unbilled contract backlog amount of approximately $22.4 million to
be  secure.  The  Company  has recognized approximately $10.9 million in revenue
under  this  contract  through  March  31,  2006.

Management  intends  to seek and obtain new government and commercial contracts,
use its revolving credit facility only for specially funded programs, if at all,
and  possibly  raise  additional  equity  or debt capital in a public or private
offering  or  fund-raising  effort  in 2006 or beyond. There can be no assurance
that  existing contracts will be completed successfully or that new contracts or
additional  debt  or equity financing that may be needed to fund operations will
be  available or, if available, obtained in sufficient amounts necessary to meet
the  Company's  needs  or on terms that are favorable to the Company. Management
believes  that,  if  current  contracts  remain  on  schedule  and are funded as
expected,  they  will  be  sufficient  to  fund  the  Company  through  2006.

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

                                     PAGE 6


2.       ACCOUNTING  POLICIES

(a)  Revenue  Recognition

The  Company's  revenues for the three-months ending March 31, 2006 were derived
from  United  States government cost plus fixed fee (CPFF) contracts, some fixed
price  contracts  and  some commercial sales of component and subsystem products
that  the  Company  acquired in its acquisition of Starsys, which is compared to
primarily  CPFF contracts for the same three-month period in 2005. Revenues from
the  CPFF contracts during the first three-months ending March 31, 2006 and 2005
were  recognized as expenses were incurred. Estimated contract profits are taken
into earnings in proportion to revenues recorded. Time and material revenues are
recognized  as  services  are  performed and costs incurred. Certain fixed price
contracts  were  prepared  according to the "percentage-of-completion" method of
accounting  for  long-term  contracts. The amount of revenues recognized is that
portion  of the total contract amount that the actual cost expended bears to the
anticipated  final total cost based on current estimates of cost to complete the
project  (cost-to-cost  method).  Total  cost  that is anticipated to exceed the
contract amount, that is, the excess of cost over contract amount is immediately
recognized  as  a  loss  on  the contract. Recognition of profit commences on an
individual  project  only  when  cost  to complete the project can reasonably be
estimated  and  after there has been some meaningful performance achieved on the
project.  Recognition  of  losses  on  projects are taken as soon as the loss is
reasonably  determinable  and  accrued  on  the  balance  sheet in other accrued
liabilities.  The  current  accrual  for  potential  losses  on exiting projects
represents approximately $1.6 million. As projects are completed, the accrual is
adjusted  as  projects  move  toward  completion and more accurate estimates are
established.  Changes  in  job  performance,  job  conditions,   and   estimated
profitability,  including  those  arising from contract penalty provisions (when
applicable), and final contract settlements may result in revisions to costs and
income  and  are recognized in the period in which the revisions are determined.
Contract  costs  include  all  direct  material, direct labor and sub-contractor
costs,  other  costs  such  as supplies, tools and travel which are specifically
related  to a particular contract. All other selling, general and administrative
costs  are  expensed  as  incurred.

(b)  Inventory

Inventory  is valued based on lower-of-cost-or-market method and is disbursed on
a  FIFO  (First-In, First-Out) basis, unless required by customer contract to be
distributed  by  specific  identification  for  lot control purposes.  Inventory
includes  raw  material  inventory, finished goods inventory and work-in-process
inventory (which includes "costs and estimated earnings in excess of billings on
uncompleted  contracts"  and represents revenues recognized in excess of amounts
billed).  Actual  results  of  contracts  may differ from management's estimates
and such differences could be material to the consolidated financial statements.
Professional  fees  are billed to customers on a time and materials basis.  Time
and  material  revenues  are  recognized  as  services  are  performed and costs
incurred.

3.     NOTES  PAYABLE

a)     Building  and  Settlement  Notes

In  December  2002, the Company entered an agreement to sell its interest in its
Poway,  California  headquarters  facility.  The  transaction  closed in January
2003.  The  escrow  transaction included the sale of the land and building.  Net
fixed  assets  were reduced by approximately $1.9 million and notes payable were
reduced  by  approximately  $2.4 million while a deferred gain was recorded.  In
conjunction  with  the sale, the Company entered into a lease agreement with the
buyer  to  leaseback its facilities.  The Company's then Chief Executive Officer
provided  a  guarantee  for the leaseback.  The gain on the sale of the facility
was  deferred and amortized in proportion to the gross rental charged to expense
over the lease term.  Deferred gain of $1,172,720 is being amortized at the rate
of $117,272 per year for ten (10) years ending in January 2013.  As of March 31,
2006,  the  deferred  gain  was  $801,359.  This amortization is included in the
Company's  non-operating  expenses  and  totaled  $29,318  and  $29,318  for the
three-months  ending  March  31,  2006  and  2005,  respectively.


                                     PAGE 7


Deferred  Gain  consisted  of  the  following:

Three-Months  Ended  March  31,  2006

<TABLE>
<CAPTION>

<S>                     <C>
Original Deferred Gain  $1,172,720
Less Amortization 2003    (107,499)
Less Amortization 2004    (117,272)
Less Amortization 2005    (117,272)
Less Amortization 2006     (29,318)
----------------------  -----------
                        $  801,359
                        -----------
</TABLE>

In  2001, the Company entered into three settlement loan agreements with various
vendors.  The  total of $171,402 for all three loans called for payments between
24  and  50  months with interest that ranges from 0% to 8%.  At March 31, 2005,
the  outstanding  balances on these notes were $37,130 with interest expense for
the three-months ending March 31, 2005 of $539.  (As of March 31, 2006, no notes
remained  outstanding.)

b)     Revolving  Credit  Facility.

On  June  3,  2003,  the  Company  entered  into  a  Security Agreement, Secured
Convertible  Note,  Registration  Rights  Agreement  and  Common  Stock Purchase
Warrant,  with  the  Laurus  Master  Fund,  Ltd.  ("Laurus").  Pursuant  to  the
agreements,  the  Company received a $1 million revolving credit facility in the
form  of  a  three-year  Convertible  Note  secured by its assets subject to the
amount  of eligible accounts receivables.  The net proceeds from the Convertible
Note  were  used  for  general  working  capital  purposes.  Advances  on  the
Convertible  Note  were  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  Wall  Street Journal Prime plus 0.75% on any outstanding
balance.  In  addition,  the  Company is required to pay a collateral management
payment  of  0.55% of the average aggregate outstanding balance during the month
plus an unused line payment of 0.20% per annum.  Availability of funds under the
revolving  credit facility is based on the Company's accounts receivable, except
as  waivers  are  provided by Laurus. Laurus has exercised its conversion rights
from time to time on outstanding balances. Laurus converted a total of 3,406,417
shares  to  reduce the debt by an aggregate of $2,500,000 since the inception of
the  revolving  credit  facility.  There  was  no  outstanding  balance  on  the
revolving  credit  facility  at  March  31, 2006 and 2005 and there have been no
conversions  during  the  first  three  months  of  2006  and  2005.

In  conjunction  with this transaction, Laurus was paid a fee of $20,000 for the
first  year,  which  was  expensed  as additional interest expense in 2003.  The
Company  is  required to pay a continuation fee of $10,000 each year thereafter.
In  addition,  Laurus  received  a  warrant  to  purchase  200,000 shares of the
Company's  common stock for the initial $1 million revolving credit facility, as
stated  herein.  The  warrant  exercise price was computed as follows: $0.63 per
share for the purchase of up to 125,000 shares; $0.69 per share for the purchase
of  an  additional  50,000  shares;  and  $0.80 per share for the purchase of an
additional  25,000  shares.  The  warrant exercise price may be paid in cash, in
shares  of the Company's common stock, or by a combination of both.  The warrant
expiration  date  is  June  3,  2008.  In  addition  to the initial warrant, the
Company  issued  two  additional  warrants:  1)  to purchase 50,000 shares at an
exercise price of $1.0625 per share in relation to the $500,000 revolving credit
facility  expansion  convertible at $0.85 per share, which warrant was exercised
by  Laurus  on  April 19, 2005; and, 2) to purchase 50,000 shares at an exercise
price  of  $1.925  per  share  in  relation  to  the $1 million revolving credit
facility  expansion  convertible  at  $1.00  per  share.

The  Company  may terminate its revolving credit facility with Laurus before the
end  of  the initial three year term for a fee; or, the agreement will expire on
June  3,  2006.

                                     PAGE 8


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

a)     Series  C  Preferred  Stock.

On  August  25,  2004,  the Company entered into a Securities Purchase Agreement
with  the Laurus Master Fund, Ltd., whereby the Company issued 250,000 shares of
its  Series  C  Non-Redeemable Convertible Preferred Stock, par value $0.001 per
share  (the  "Series  C  Preferred Shares"), to Laurus for an aggregate purchase
price  of  $2,500,000  or  $10.00  per share (the "Stated Value").  The Series C
Preferred  Shares are convertible into shares of the Company's common stock at a
rate  of  $1.54  per  share  at  any time after the date of issuance, and accrue
quarterly,  cumulative  dividends at a rate of 6.85%.  The first payment was due
on  January  1,  2005.  As of March 31, 2006 and 2005, approximately $99,000 and
$42,000  has been accrued for dividends and are payable in cash or shares of our
common  stock  at  the holder's option with the exception that dividends must be
paid in shares of our common stock for up to 25% of the aggregate dollar trading
volume  if  the  fair market value of the Company's common stock for the 20-days
preceding  the  conversion date exceeds 120% of the conversion rate.  On January
11, 2005, $60,967 of accrued dividends were paid in the form of 39,589 shares of
the  Company's common stock.  Also, on May 5, 2005, $56,301 of accrued dividends
were  paid  in  the  form  of  36,559  shares of the Company's common stock from
dividends  accrued  and on September 28, 2005, $57,708 of accrued dividends were
paid  in  the  form of 37,473 shares of the Company's common stock. The Series C
Preferred  Shares  are redeemable by the Company in whole or in part at any time
after  issuance for (a) 115% of the Stated Value if the average closing price of
the  common  stock  for the 22 days immediately preceding the date of conversion
does  not  exceed $1.48 per share or (b) the Stated Value if the average closing
price  of  our  common  stock  for the 22 days immediately preceding the date of
conversion  exceeds  the  Stated  Value.  The  Series  C Preferred Shares have a
liquidation  right  equal  to  the  Stated Value upon the Company's dissolution,
liquidation or winding-up.  The Series C Preferred Shares have no voting rights,
except  as  required  by  law.

In  conjunction  with  the  Series  C  Preferred  Shares,  the  Company issued a
five-year  common  stock  purchase warrant to Laurus for the purchase of 487,000
shares  of  the  Company's common stock at an exercise price of $1.77 per share.

b)     Series  D-1  Preferred  Stock.

On  January  12,  2006, the Company entered into a Securities Purchase Agreement
with  a  limited number of institutional accredited investors, including Omicron
Capital,  Tailwind  Capital,  Bristol  Capital  Management, Nite Capital and the
Laurus  Master  Fund,  Ltd.  On January 13, 2006, the Company issued and sold to
these  investors 5,150 shares of our Series D-1 Amortizing Convertible Perpetual
Preferred  Stock, par value $0.001 per share, for an aggregate purchase price of
$5,150,000,  or  $1,000  per share.  The Company also issued various warrants to
these  investors as described below.  The Company paid cash fees and expenses of
$119,209  to  a  finder  for  the  introduction  of  potential investors in this
financing,  and  paid  $60,000 to the lead investor's counsel for legal expenses
incurred  in  the transaction.  The preferred shares are convertible into shares
of the Company's common stock at a rate of $1.48 per share and accrue quarterly,
cumulative  dividends  at  a  rate  of  LIBOR  plus  4%  on the first day of the
applicable quarter with the first payment due on April 1, 2006.  As of March 31,
2006,  the Company accrued and paid approximately $99,000 for dividends in cash.

Under  the purchase agreement, from the date of the effectiveness of the initial
registration  statement  filed  pursuant  to  the  registration rights agreement
(February 15, 2006), until the one-year anniversary of that date, if: (1) on any
trading  day  during  such  period  the  volume  weighted  average  price of the
Company's common stock for each of the 20 trading days immediately prior to such
date  exceeds  $1.63; and, (2) the average daily trading volume of the Company's
common  stock  exceeds  $100,000 on each of those days, then the Company has the
option,  subject  to  a number of additional conditions, to put to the investors
"units"  at  $1,000 per unit for an aggregate purchase price of up to $2,000,000
(or  a  lesser  amount  to the extent the preferred stock warrants issued at the


                                     PAGE 9


initial closing of the financing, which are described below, have been exercised
to  purchase  these  units).  Each  "unit"  consists  of one share of Series D-1
Preferred  Stock  and  a  common  stock  warrant,  which entitles the holders to
purchase  up  to  an  aggregate of 440,829 shares of common stock at an exercise
price of $1.51 and otherwise has the same terms as the warrants described in the
following  paragraph.

Certain  warrants  the Company issued to the Series D-1 investors at the closing
entitle  the investors to purchase up to an aggregate of 1,135,138 shares of the
Company's  common  stock  at an exercise price of $1.51 per share.  The warrants
are  exercisable  for five years following the date of grant.  The warrants have
"ratchet"  anti-dilution  provisions  reducing the warrant exercise price if the
Company  issues  equity securities (other than in specified exempt transactions)
at  an  effective  price below the warrant exercise price to such lower exercise
price.

The  Company  also  issued certain other warrants to the Series D-1 investors at
the closing (the "preferred stock warrants").  These warrants entitle the holder
to  purchase  an  aggregate  number of 2,000 "units", which are identical to the
"units" described above, at an exercise price of $1,000 per unit.  The preferred
stock warrants are exercisable from the effective date (February 15, 2006) until
the  one-year  anniversary  of that date.  If any units subject to the preferred
stock  warrants  remain  unsold  after  (1)  their  expiration  date and (2) the
exercise  of  the  Company's  put  option,  if  applicable,  and any holder of a
preferred  stock  warrant  issued  in the financing has exercised the warrant in
full,  then the preferred stock warrant grants that holder the right to purchase
440,829  with  a  strike  price  of $1.51 per share, the warrant has a five year
expiration  date  once  issued.

Other  Provisions.

The  purchase  agreement  contains  a  number of covenants by the Company, which
include:

-    A  grant  of  preemptive  rights  to the investors to participate in future
     financings  until  the  first  anniversary  of  the  closing  date  of  the
     financing;

-    An  agreement  not  to  issue  any  shares of the Company's common stock or
     securities  or other rights to acquire shares of common stock until six (6)
     months after the effective date, except under specified conditions intended
     to  ensure the terms are no less favorable to the Company than the terms of
     this  financing;  and,

-    An  agreement  not  to  effect  any  transaction  involving the issuance of
     securities  convertible,  exercisable  or  exchangeable  for  the Company's
     common stock at a price per share or rate which may change over time, which
     the Company refers to as a variable-rate transaction, so long as any shares
     of  Series  D-1  Preferred  Stock  are  outstanding.

In  connection  with  this  financing,  Laurus  consented  to and waived certain
contractual  rights  in respect of the authorization and issuance of one or more
series of Series D-1 Preferred Stock and the other transactions described below,
and  certain  other  transactions.  The  Company paid Laurus Capital Management,
L.L.C.,  and the manager of Laurus, $87,000 in connection with Laurus's delivery
of  the  consent  and  $1,000  to  Laurus'  counsel  for  their  related  fees.


                                     PAGE 10


COMMON  STOCK  AND  WARRANTS

The  Company  adopted  FAS  123(R)  to  account for its stock-based compensation
beginning  January  1, 2006.  Previously, the Company elected to account for its
stock-based  compensation  plans  under  APB  25.  The Company computed, for pro
forma  disclosure  purposes,  the  value  of  all  options  granted  during  the
three--months ending March 31, 2005 using the minimum value method as prescribed
by  SFAS  123  and amended by SFAS 148.  Under this method, the Company used the
risk-free  interest  rate  at  the  date  of grant, the expected volatility, the
expected  dividend  yield  and the expected life of the options to determine the
fair  value of options granted. The risk-free interest rates ranged from 6.0% to
6.5%,  expected  volatility was 117%, the dividend yield was assumed to be zero,
and the expected life of the options was assumed to be three to five years based
on  the  average  vesting  period  of  options  granted.

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


<TABLE>
<CAPTION>

<S>                                                      <C>
 Net Income (Loss). . . . . . . . . . . . . . . . . . .       2005
-------------------------------------------------------  ----------
 As reported. . . . . . . . . . . . . . . . . . . . . .  $ 101,223
 Add: Stock based employee compensation expense
 included in reported net income. . . . . . . . . . . .  $       -

 Less: Stock based employee compensation expense
  determined under the fair value based method for all
 awards . . . . . . . . . . . . . . . . . . . . . . . .  $(213,553)
-------------------------------------------------------  ----------
 Pro forma. . . . . . . . . . . . . . . . . . . . . . .  $(112,330)
-------------------------------------------------------  ----------
-------------------------------------------------------  ----------
</TABLE>


For the quarter ended March 31, 2006, the Company expensed approximately $91,000
of  stock  option  expenses  due  to  SFAS  123(R)  in its financial statements.


5.  GOODWILL

On  January  31,  2006,  SpaceDev  acquired  Starsys Research Corporation and in
accordance  with  U.S.  generally accepted accounting principles, the merger was
accounted for using the purchase method of accounting. Under the purchase method
of  accounting, the total estimated purchase price was allocated to Starsys' net
tangible assets and identifiable intangible assets based on their fair values as
of  the date of completion of the merger.  The excess of the purchase price over
those  fair  values  was recorded as goodwill.  Goodwill is not amortized but is
tested  for  impairment  at  least  annually.  The  combined  company will incur
additional amortization expense based on the identifiable amortizable intangible
assets  acquired  pursuant  to  the  merger  agreement and their relative useful
lives.  Additionally,  to  the  extent  the  value  of  goodwill or identifiable
intangible  assets  or  other  long-lived  assets  become impaired, the combined
company  may  be required to record material charges relating to the impairment.
The  goodwill  balance  as  of  March  31, 2006 was approximately $12.2 million.


                                     PAGE 11


The following is a schedule of the goodwill incurred on the Starsys acquisition.
<TABLE>
<CAPTION>

<S>                               <C>
--------------------------------  -----------
Starsys Total Assets . . . . . .  $(7,851,494)
Starsys Total Liabilities. . . .   13,054,140
Cash to Starsys Stockholders . .      410,791
Equity to Starsys Stockholders .    5,576,846
Fees Associated with Acquisition    1,056,079
--------------------------------  -----------
                                  $12,246,362
--------------------------------  -----------
--------------------------------  -----------
</TABLE>

6.     NEW  ACCOUNTING  PRONOUNCEMENTS

There  were no recent Accounting Pronouncements that affected the Company during
the  first quarter of 2006.  For past pronouncements, please refer the Company's
10-KSB  filed  on  March  28,  2006.

7.     CHANGE   IN   ACCOUNTING   PRINCIPLE   AND   ACCOUNTING  FOR  SHARE-BASED
COMPENSATION

The  Company  adopted  Financial  Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 123 (revised 2004) (123(R)) on January
1,  2006.  Upon  the  adoption of SFAS No. 123(R), compensation costs associated
with  share-based  compensation  and  stock  option  awards  will be recorded to
expense over the requisite period(s) associated with the stock or options. Prior
to  the  adoption  of  SFAS  123(R),  the  Company  accounted  for   share-based
compensation and stock option awards issued to employees, directors and officers
under  the recognition and measurement principles of Accounting Principles Board
(APB)  No.  25,  Accounting  for  Stock  Issued  to   Employees,   and   related
interpretations.  Generally,  no  share-based  employee compensation expense was
recognized for stock option grants, as all options granted had an exercise price
equal  to  the  fair  market value of the underlying common stock at the date of
grant.  Similarly,  no  compensation  expense  had  been  recognized  under  the
Company's  1999  Employee  Stock  Purchase  Plan  (ESPP).

As  noted above, in the first quarter 2006, the Company adopted SFAS No. 123(R),
which requires companies to measure an equity instrument based on the grant-date
fair  value  of  the  award  and  expense  the  value.  The   Company  uses  the
Black-Scholes  pricing  model  to determine the fair value of its options on the
measurement  date. The cost is recognized over the requisite period (usually the
vesting  period).  During  the  first quarter 2006, the Company had stock option
expense  of  $90,701 related to a new officer stock option award coincident with
the  Starsys  merger.  Without  the  adoptions of SFAS No. 123(R), the Company's
operating  income, net income and net income per share would have been increased
to  the  pro  forma  non-GAAP  amounts  indicated  below:


                                     PAGE 12


                         SPACEDEV, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF OPERATIONS - SUPPLEMENTAL SCHEDULE
                                   (UNAUDITED)

<TABLE>
<CAPTION>

<S>                                                      <C>           <C>       <C>        <C>
 Three-Months Ending March 31,. . . . . . . . . . . . .         2006          %      2005         %
-------------------------------------------------------  ------------  --------  -----------  -------
 GAAP OPERATING INCOME. . . . . . . . . . . . . . . . .  $   (46,398)     -0.6%  $   65,567      3.6%
    FAS 123(R) stock option expense . . . . . . . . . .       90,701       1.3%           -      0.0%
-------------------------------------------------------  ------------  --------  -----------  -------
 NON-GAAP OPERATING INCOME. . . . . . . . . . . . . . .       44,303       0.6%      65,567      3.6%
-------------------------------------------------------  ------------  --------  -----------  -------
 NON-OPERATING INCOME/(EXPENSE)
    Interest income . . . . . . . . . . . . . . . . . .       33,615       0.5%       7,960      0.4%
    Interest expense. . . . . . . . . . . . . . . . . .       (5,283)     -0.1%      (1,222)    -0.1%
    Gain on building sale . . . . . . . . . . . . . . .       29,318       0.4%      29,318      1.6%
-------------------------------------------------------  ------------  --------  -----------  -------
 TOTAL NON-OPERATING INCOME . . . . . . . . . . . . . .       57,650       0.8%      36,056      2.0%
-------------------------------------------------------  ------------  --------  -----------  -------
 NON-GAAP NET INCOME BEFORE TAXES . . . . . . . . . . .  $   101,953       1.4%  $  101,623      5.6%
-------------------------------------------------------  ------------  --------  -----------  -------
 INCOME TAX PROVISION . . . . . . . . . . . . . . . . .        4,235       0.1%         400      0.0%

 NON-GAAP NET INCOME. . . . . . . . . . . . . . . . . .  $    97,718       1.4%  $  101,223      5.6%
-------------------------------------------------------  ------------  --------  -----------  -------
 NET INCOME PER SHARE:
      Non-GAAP Net Income Per Share . . . . . . . . . .  $      0.00       0.0%  $     0.00      0.0%
-------------------------------------------------------  ------------  --------  -----------  -------
      Weighted-Average Shares Outstanding . . . . . . .   27,276,451              21,291,972

 FULLY DILUTED NET INCOME PER SHARE:
      Non-GAAP Fully Diluted Income Per Share . . . . .  $      0.00             $      0.00
-------------------------------------------------------  ------------            -----------
     Fully Diluted Weighted-Average Shares Outstanding.   36,225,300              29,908,287
-------------------------------------------------------  ------------            -----------
-------------------------------------------------------  ------------            -----------
</TABLE>

The  Company  believes  that evaluating its ongoing operating results with these
non-GAAP  measurements  may  be  useful  as  a  supplement  to its standard GAAP
financial  measurement presentation. Accordingly, the Company has chosen certain
non-GAAP  financial  information  to  evaluate  its  ongoing  operations and for
internal  planning  and forecasting purposes. The Company believes that non-GAAP
financial  measures  should  be  considered in addition to, and not a substitute
for,  financial  information  prepared  in  accordance  with  GAAP.  The Company
presents  such non-GAAP financial measures in reporting its financial results to
provide  additional  and  supplemental disclosure to evaluate operating results.
Whenever  the  Company  uses  a  non-GAAP  financial  measurement, it provides a
reconciliation  of the non-GAAP financial measure to the most closely applicable
GAAP  financial  measurement.


8.     UNAUDITED  PRO  FORMA  COMBINED  CONSOLIDATED  STATEMENTS  OF  OPERATIONS

The  following unaudited pro forma combined statements of operations give effect
to  the  merger of SpaceDev and Starsys using the purchase method of accounting,
as  required  by  Statement  of Financial Accounting Standard No. 141, "Business
Combinations."  The Company acquired Starsys Research Corporation on January 31,
2006  and is "accounting acquirer" for accounting purposes. Under this method of
accounting,  the  combined  company will allocate the purchase price to the fair
value  of  assets  of  Starsys  deemed  to  be  acquired, including identifiable
intangible  assets  and  goodwill.  The  purchase price allocation is subject to
revision  when  the  combined  company  obtains additional information regarding
asset  valuation.  The unaudited pro forma combined statements of operations are
based  on  respective  historical  consolidated  financial  statements  and  the
accompanying  notes  of  the  Company,  and  those  of  Starsys included herein.


                                     PAGE 13


The  unaudited  pro forma combined statements of operations for the three months
ended  March  31,  2006  assume  the  merger  took  place on January 1, 2006 and
combines  SpaceDev's  historical  statement  of  operations  for  the year ended
December  31, 2005 with Starsys' historical statement of operations for the year
ended  December  31,  2005  as  if the merger took place on January 1, 2005. The
unaudited  pro  forma  combined  statements  of  operations  should  be  read in
conjunction  with  the  related  notes  included  in  this  Form  10-QSB and the
consolidated  audited  financial  statements of SpaceDev, Inc. The unaudited pro
forma  combined  statements of operations are not necessarily indicative of what
the  actual results of operations and financial position would have been had the
merger  taken  place  on  January 1 of each period presented and do not indicate
future  results  of  operations.


                                     PAGE 14


        UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                 MARCH 31, 2006

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

                                       SPACEDEV      STARSYS      PRO FORMA ADJUSTMENTS    PRO FORMA
                                       ------------  -----------  -----------------------  ------------
 NET SALES. . . . . . . . . . . . . .  $ 2,889,592   $5,920,870   $              (51,345)  $ 8,759,117
-------------------------------------  ------------  -----------  -----------------------  ------------
 COST OF SALES. . . . . . . . . . . .    2,097,469    4,443,218                        -     6,540,687
-------------------------------------  ------------  -----------  -----------------------  ------------
 GROSS MARGIN . . . . . . . . . . . .      792,123    1,477,652                  (51,345)    2,218,430

 OPERATING EXPENSES
    Marketing and sales expense . . .      497,614      265,300                  (51,345)      711,569
    Research and development. . . . .       67,412        9,082                        -        76,494
    General and administrative. . . .      364,718    1,176,493                        -     1,541,211
-------------------------------------  ------------  -----------  -----------------------  ------------
 TOTAL OPERATING EXPENSES . . . . . .      929,744    1,450,875                  (51,345)    2,329,274
-------------------------------------  ------------  -----------  -----------------------  ------------
 INCOME/(LOSS) FROM OPERATIONS. . . .     (137,621)      26,777                        -      (110,844)
-------------------------------------  ------------  -----------  -----------------------  ------------
 NON-OPERATING INCOME/(EXPENSE)
    Interest income . . . . . . . . .       33,615       28,306                        -        61,921
    Interest expense. . . . . . . . .         (110)     (27,656)                       -       (27,766)
    Gain on building sale . . . . . .       29,318            -                        -        29,318
-------------------------------------  ------------  -----------  -----------------------  ------------
 TOTAL NON-OPERATING INCOME/(EXPENSE)       62,823          650                        -        63,473
-------------------------------------  ------------  -----------  -----------------------  ------------
 INCOME/(LOSS) BEFORE INCOME TAXES. .      (74,798)      27,427                        -       (47,371)
 Income tax provision . . . . . . . .        4,200           35                        -         4,235
-------------------------------------  ------------  -----------  -----------------------  ------------
 NET INCOME/(LOSS). . . . . . . . . .  $   (78,998)  $   27,392   $                    -       (51,606)
-------------------------------------  ------------  -----------  -----------------------  ------------
 NET INCOME/(LOSS) PER SHARE:
      Net Income/(Loss) . . . . . . .  $     (0.00)  $     0.05   $                    -   $     (0.00)
-------------------------------------  ------------  -----------  -----------------------  ------------
 Shares Outstanding . . . . . . . . .   28,710,496      520,000                 (520,000)   28,710,496
-------------------------------------  ------------  -----------  -----------------------  ------------
-------------------------------------  ------------  -----------  -----------------------  ------------

</TABLE>

                                     PAGE 15


        UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                 DECEMBER 31, 2005

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


                                       SPACEDEV      STARSYS       PRO FORMA ADJUSTMENTS    PRO FORMA
                                       ------------  ------------  -----------------------  ------------

 NET SALES. . . . . . . . . . . . . .  $ 9,005,011   $17,762,730   $                    -   $26,767,741
-------------------------------------  ------------  ------------  -----------------------  ------------
 COST OF SALES. . . . . . . . . . . .    6,905,902    14,721,176                        -   $21,627,078
-------------------------------------  ------------  ------------  -----------------------  ------------
 GROSS MARGIN . . . . . . . . . . . .    2,099,109     3,041,554                        -   $ 5,140,663

 OPERATING EXPENSES
    Marketing and sales expense . . .      673,636             -                  673,636
    General and administrative. . . .    1,113,973     6,000,676                        -     7,114,649
-------------------------------------  ------------  ------------  -----------------------  ------------
 TOTAL OPERATING EXPENSES . . . . . .    1,787,609     6,000,676                        -     7,788,285
-------------------------------------  ------------  ------------  -----------------------  ------------
 INCOME/(LOSS) FROM OPERATIONS. . . .      311,500    (2,959,122)                       -    (2,647,622)
-------------------------------------  ------------  ------------  -----------------------  ------------
 NON-OPERATING INCOME/(EXPENSE)
    Interest income . . . . . . . . .      105,840             -                        -       105,840
    Rental income . . . . . . . . . .            -        88,146                   88,146
    Interest expense. . . . . . . . .       (2,873)     (506,525)                       -      (509,398)
    Gain on building sale . . . . . .      117,272             -                        -       117,272
    Loan fee - equity compensation. .      (28,875)            -                        -       (28,875)
-------------------------------------  ------------  ------------  -----------------------  ------------
 TOTAL NON-OPERATING INCOME/(EXPENSE)      191,364      (418,379)                       -      (227,015)
-------------------------------------  ------------  ------------  -----------------------  ------------
 INCOME/(LOSS) BEFORE INCOME TAXES. .      502,864    (3,377,501)                       -    (2,874,637)
 Income tax provision . . . . . . . .        1,600             -                        -         1,600
-------------------------------------  ------------  ------------  -----------------------  ------------
 NET INCOME/(LOSS). . . . . . . . . .  $   501,264   $(3,377,501)  $                    -    (2,876,237)
-------------------------------------  ------------  ------------  -----------------------  ------------
 NET INCOME/(LOSS) PER SHARE:
      Net Income/(Loss) . . . . . . .  $      0.02   $     (6.49)  $                (0.08)
-------------------------------------  ------------  ------------  -----------------------  ------------
 Shares Outstanding . . . . . . . . .   29,030,858       520,447                5,357,143    34,388,001
-------------------------------------  ------------  ------------  -----------------------  ------------
-------------------------------------  ------------  ------------  -----------------------  ------------

</TABLE>

The  unaudited  pro  forma  combined  consolidated information reflects our best
estimates. The actual results of operations may have differed from the pro forma
amounts  reflected  herein  because  of  various  factors,  including,  without
limitation,  access  to  additional information, changes in value and changes in
operating results. However, the Company believes that any final adjustments will
not  be  material  to  the  statement  of  operations.


9.     SUBSEQUENT  EVENTS

On  April 1, 2006, the Company was awarded the third task order on a $43-million
contract  with  the  Missile  Defense  Agency  to  conduct   a   micro-satellite
Distributed  Sensing Experiment (DSE), as well as other micro-satellite studies,
as  required.  The  second  Task Order was awarded on October 20, 2004 (although


                                     PAGE 16


effective October 1, 2004) and was completed on March 31, 2006. The commencement
of  Phase  III of this contract followed a successful DSE Critical Design Review
held  from March 7 through March 8, 2006. The third Task Order was awarded for a
total  of  $1,547,266  and  will  run  through  May  31,  2006.

                                     PAGE 17


ITEM  2.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OR  PLAN  OF  OPERATION

     The  following  discussion should be read in conjunction with the Company's
consolidated  financial statements and the notes thereto and the other financial
information  appearing  elsewhere  in  this document.  Readers are also urged to
carefully  review  and consider the various disclosures made by us which attempt
to advise interested parties of the factors which affect our business, including
without  limitation  our  fiscal  year  2005  Form  10-KSB  and quarterly 10-QSB
filings.

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

     Actual  results  could  differ  materially  from  those anticipated by such
forward-looking  statements.  Factors  that  could  cause  or contribute to such
differences  include,  but  are  not  limited  to  those identified in the "Risk
Factors"  subsection  below.

OVERVIEW

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

     We  acquired Starsys Research Corporation on January 31, 2006 in a tax-free
forward triangular merger, renamed the company Starsys, Inc., and now hold it as
a  wholly-owned  subsidiary  of  SpaceDev.  Starsys is engaged in the design and
manufacture  of  mechanical  and electromechanical subsystems and components for
spacecraft.  Starsys'  subsystems  enable  critical spacecraft functions such as
pointing  solar arrays and communication antennas and restraining, deploying and
actuating  moving  spacecraft  components.  Starsys manufactures a wide range of
products  that include bi-axis gimbals, flat plate gimbals, solar array pointing
mechanisms,  deployable  booms,  separation systems, thermal louvers, actuators,
restraint  devices  and  cover  systems.  Starsys'  products  are  sold  both as
"off-the-shelf"  catalog  products, which represent previously qualified devices
with  spaceflight history, and as custom systems that are developed for specific
applications.  Starsys'  products  are  typically  sold  directly  to spacecraft
manufacturers.  Starsys'  customer base is segregated into three major segments:


                                     PAGE 18


(1)  domestic and international commercial spacecraft (communication and imaging
satellites), (2) civil spacecraft (NASA) that are primarily scientific in nature
and  (3) defense spacecraft that support the United States' military capability.
Starsys  also  offers  products  to  non-space  customers,  including aerospace,
maritime,  and  industrial  customers.

     Starsys' engineering and manufacturing capabilities position the company to
provide  both  mechanical  and  electromechanical  subsystems  for   spacecraft.
Starsys'  strategy  is to identify opportunities to develop products from custom
mechanical  and  electromechanical subsystems. To extend the product life cycle,
Starsys has developed and expanded a "product platforms" business model. Product
platforms  are  subsystems  for  which non-recurring and development engineering
have  been  completed and for which there is continued customer demand. Starsys'
product  offerings  currently  include  High  Output Paraffin ("HOP") actuators,
hinges,  battery  bypass  switches,  thermal louvers, bi-axial gimbals and solar
array  drives,  among  others.  The  product life cycle for this type of product
within  the  space  industry  is  approximately  15  years.

     The  acquisition of Starsys fundamentally changed our profile. Starsys is a
mature  operating  company  with  2005 revenues of approximately $18 million and
2005  losses  of  approximately  $3.4  million.  We  believe  there are numerous
potential  synergies  between  the  historic  SpaceDev  business,  and  Starsys'
business,  including  but  not  limited  to providing SpaceDev with a production
capability as its technologies migrate from advanced systems to products, access
to  quality  facilities  and  a  strong  market  of   aerospace   engineers,   a
diversification  of customers and revenues, and the ability to bid on larger and
more  vertically  integrated  programs  and  projects.

     Our  historic SpaceDev business approach is to provide smaller spacecraft -
generally  250  kg  (550  pounds)  mass  and  less  -  and cleaner, safer hybrid
propulsion  systems  to   commercial,   government,   university   and   limited
international  customers.  We are developing smaller spacecraft and miniaturized
subsystems  using proven, lower cost, high-quality off-the-shelf components. Our
space  products  are  modular  and  reproducible,  which  allows  us  to  create
affordable  space  solutions  for  our  customers.  By  utilizing our innovative
technology  and  experience,  and  space-qualifying commercial industry-standard
hardware, software and interfaces, we provide increased reliability with reduced
costs  and  risks.

     We  have  been  awarded,  have  successfully  concluded or are successfully
concluding  contracts  from  such esteemed government, university and commercial
customers  as  the  Air  Force Research Laboratory, Boeing, the California Space
Authority,  the Defense Advanced Research Projects Agency, NASA's Jet Propulsion
Laboratory,  Lockheed  Martin, Lunar Enterprise Corporation, Malin Space Science
Systems,  the  Missile  Defense  Agency (formerly the "Ballistic Missile Defense
Organization"),  the  National  Reconnaissance Office, Scaled Composites and the
University  of  California  at  Berkeley  via  NASA.

     During  the first three months of 2006, 85% of our net sales were generated
from  direct government contracts, 7% was generated from government-related work
through  subcontracts  with  others,  and   8%  was  generated  from  commercial
contracts. For the same three month period in 2005, approximately 95% of our net
sales were generated by government or government-related work.  We will continue
to  seek  both  government and commercial business and anticipate that net sales
from  government sources will continue to represent in excess of 80%  of our net
sales  for  the  next several years.  Currently, we are focusing on the domestic
United  States government market, which we believe is only about one-half of the
global government market for our technology, products and services.  Although we
are  interested  in  exploring  increased  international  revenue  and  contract
opportunities,  we  are  restricted  by  export  control  regulations, including
International  Traffic  in  Arms  Regulations,  which  may  limit our ability to
develop  market opportunities outside the United States on some of our products.

     At  this time, over 70% of our forecasted sales for 2006 are under contract
or  near  contract  award.  We  may  not  be  able to win enough new business to
achieve  our  targeted  growth  projection  or  to maintain a positive cash flow
position.  During  the  first  three  months  of 2006 we submitted approximately
twenty-five  bids  for government or commercial programs ranging from $25,000 to
$350  million and continued our work with the United States Congress to identify
directed  funding  for  our  programs.


                                     PAGE 19


     In  order  to perform the Missile Defense Agency contract (described below)
on  schedule  and  successfully  execute  other  existing   and   new   business
opportunities,  we  must substantially increase our staff and hire new engineers
or  subcontract  the  work  to  third  parties.  We are actively seeking to hire
spacecraft  and  propulsion  engineers,  and  we  are  investigating  various
partnership  arrangements  to  increase  resource  availability.

SELECTION  OF  SIGNIFICANT  CONTRACTS

     On  July  18,  2005,  we  were awarded a subcontract to provide scientific,
engineering,  development  and  programmatic  support  to  the  development  and
demonstration  of  innovative  SSA  (space  situational awareness) nanosatellite
(<15kg)  spacecraft.  SSA  is  the  ability  to  search,  identify  and  monitor
spacecrafts  for  the  purpose  of obtaining space superiority.  The subcontract
covers  the conceptual/preliminary phase of development and includes all aspects
of potential systems from the platforms and associated payloads to the links and
nodes  and  ground  support.  The  cost  plus  fixed fee subcontract resulted in
revenues  of  approximately $120,000.  We completed this subcontract in December
2005.   In  January 2006, we submitted a proposal for the next phase subcontract
and,  in  March  2006,  we  were  awarded  the  subcontract  in  the  amount  of
approximately  $1.2  million  and  began  work  on  this  phase.

     On  February  28,  2006,  we  were  awarded  two  important Boom Technology
contracts  for  advance  research and development of a self-deployed articulated
boom for approximately $950,000 and a jack screw deployed boom for approximately
$1.5  million by the Air Force Research Laboratory.  AFRL placed these contracts
with  Starsys  which will leverage the significant technical talent and advances
Starsys  engineers  have  already  made  in  this  critical  space  technology.

     On  April  1,  2006,  we  were awarded the third task order on a five-year,
cost-plus-fixed  fee  indefinite delivery/indefinite quantity contract for up to
$43,362,271  to  conduct  a  microsatellite  distributed  sensing  experiment in
support  of  the  Advanced Systems Deputate of the Missile Defense Agency, which
contract  was  originally  awarded  on  March  31,  2004.   The   microsatellite
distributed  sensing  experiment  is  now  intended to analyze, design, develop,
fabricate,  integrate,  test,  operate  and support a networked cluster of three
formation-flying  boost  phase and midcourse tracking microsatellites to support
national  missile  defense.  The milestone-based, multiyear, multiphase contract
had an effective start date of March 1, 2004.  This effort is being accomplished
in  a phased approach.  The first phase, or "Task Order," for approximately $1.1
million  was  completed  on September 30, 2004 and resulted in a general mission
and  microsatellite design. The second Task Order for approximately $8.3 million
was  awarded  in  October  2004  and  was originally expected to be completed by
January  2006 but was extended at the request of the Missile Defense Agency, and
subsequently  completed  on March 31, 2006.  The second Task Order resulted in a
detailed  mission  and  microsatellite  design,  as  exemplified by a successful
Critical  Design  Review  in  March  2006.  In  addition  to the three networked
microsat  under  our second Task Order, the $43 million contract also envisioned
an option for a second three microsats using laser communication technology.  We
were  informed  in  2005 that the Missile Defense Agency had re-routed the laser
communications  experiment  to  another  program  and  that  they  would  not be
exercising  their option for the additional microsats at this time; however, the
contract  vehicle remained at $43 million and left open the opportunity for some
other  purchase  to  take  its place.  We estimate that the second cluster would
have represented approximately $10 million of the $43 million contract, and have
reduced  our  current  backorder accordingly.  We believe the remaining unbilled
contract  backlog  amount  of approximately $25 million to be secure.  The third
Task  Order  was awarded on April 1, 2006 for a total of $1,547,266 and will run
through  May 31, 2006.   We expect either a modification to the third Task Order
or  a  fourth  Task Order to be awarded by the Missile Defense Agency before the
end  of  May  2006, which is expected to fund the program through the end of the
government  fiscal year.  We expect continued modifications to the current phase
throughout  2006  and  2007.


                                     PAGE 20

RESULTS  OF  OPERATIONS

     Please  refer to the consolidated financial statements, which are a part of
this report, for further information regarding the results of operations. Due to
our  January 2006 acquisition of Starsys, all 2006 -vs.- 2005 comparisons are of
limited  meaningfulness  and  usefulness.

  THREE-MONTHS ENDING MARCH 31, 2006 -VS.- THREE-MONTHS ENDING MARCH  31, 2005

     During  the  three-months  ending  March  31,  2006,  we  had  net sales of
approximately  $7,175,000  as  compared to net sales of approximately $1,807,000
for  the  same period in 2005.  Sales increased primarily due to our acquisition
of  Starsys  on  January  31, 2006 which has generated revenues of approximately
$4.3  million,  as well as the further work on our existing government contracts
of  approximately  $2.9  million,  particularly  our  contract  with the Missile
Defense Agency which generated revenues in excess of approximately $2.4 million.
For  the  three  months  ended  March  31,  2006,  revenue  from  government and
government related work was approximately $6,489,000 and revenue from commercial
customers  was approximately $686,000.  Our government customers include but are
not  limited  to  the Missile Defense Agency, the Air Force Research Laboratory,
NASA,  and the U.S. Army.  Our government related work customers include but are
not  limited  to  General  Dynamics,  Northrop Grumman and Raytheon.  Commercial
customers  include,  Lockheed Martin and Sumitomo.  Revenue for the three-months
ended March 31, 2005 primarily represented $1,444,000 of work on the second Task
Order for the Missile Defense Agency contract. Ongoing Small Business Innovation
Research  contracts  with the Air Force Research Laboratory represented sales of
approximately  $310,000  in  the  three-months  ending  March  31,  2005.

     For  the  three-months  ended March 31, 2006, we had costs of sales (direct
and  allocated  costs  associated  with  individual  contracts) of approximately
$5,265,000  or  73.5%  of net sales, as compared to approximately $1,397,000, or
77.3%  of  net  sales,  during the same period in 2005.  The increase in cost of
sales  and  the  improved  gross  margin  percentage were both due to the higher
margin  contracts and products sold by Starsys.  We continue to focus efforts on
managing  our  growth  including  but  not  limited  to  recruiting new talented
engineers,  developing  and  acquiring project management skills and creating or
expanding  systems  to  assist  in the efficient and effective management of our
projects.

     We  experienced  an  increase  of  approximately  $1,612,000  in  operating
expenses  from  approximately  $344,000,  or  19.1%  of  net  sales,   for   the
three-months  ending March 31, 2005 to approximately $1,956,000, or 27.3% of net
sales,  for  the three-months ending March 31, 2006.  Operating expenses include
general  and  administrative  expenses,  research  and   development   expenses,
marketing  and  sales expenses, and amortization expense for stock options under
FASB  123(R).

-    General  and  administrative expenses increased approximately $949,000 from
     approximately  $191,000, or 10.6% of net sales, for the three-months ending
     March  31, 2005 to approximately $1,140,000, or 15.9% of net sales, for the
     same  three month period in 2006. This increase is attributed mainly to the
     assumption  of  general  and  administrative  costs  from  Starsys  and the
     addition of our new Chief Executive Officer. We do expect to recognize some
     cost  saving  and  efficiencies  as the companies eliminate redundancies in
     certain  general  and  administrative  functions.

-    Research  and  development  expenses  increased during the first quarter of
     2006, from approximately $8,000, or 0.1% of net sales, for the three-months
     ending  March  31,  2005,  to  approximately $82,000, or 1.1% of net sales,
     during  the  same  period  in  2006.  The  total  dollar value increased by
     approximately $74,000, mainly due to a shift in cost categorization, as our
     Chief  Executive Officer became our Chief Technology Officer. We have begun
     an  effort  to  focus  a  limited  amount of our resources on internal IR&D
     efforts.

                                     PAGE 21


-    Marketing  and  sales  expenses increased during the first quarter of 2006,
     from  approximately  $145,000,  or  8.0% of net sales, for the three-months
     ending  March  31,  2005,  to approximately $644,000, or 9.0% of net sales,
     during  the same period in 2006. The total dollar increase of approximately
     $499,000  was  mainly due to our decision to bid on certain large proposals
     in  January  and  February 2006 as well as absorbing a larger marketing and
     sales  organization  as  part  of  the  merger  with  Starsys.

-    Our  stock option expense is based on a calculation using the minimum value
     method  as  prescribed  by FAS 123(R), otherwise known as the Black-Scholes
     method. Under this method, we used a risk-free interest rate at the date of
     grant,  an  expected volatility, an expected dividend yield and an expected
     life  of  the  options  to determine the fair value of options granted. The
     risk-free  interest  rate  was  estimated  at 4.0%, expected volatility was
     86.7%,  the dividend yield was assumed to be zero, and the expected life of
     the  options  was  assumed  to  be three years based on the average vesting
     period  of  options  granted.  The total expense for the three months ended
     March 31, 2006 was $90,701 as compared to no expense during the same period
     in  2005,  as  we  adopted  FAS  123(R)  on  January  1,  2006.

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

     Interest  expense  for  the three-months ending March 31, 2006 and 2005 was
insignificant  as  we  incurred  no  interest  expense  on  our revolving credit
facility,  which  had  a zero balance for the three-months ending March 31, 2006
and  2005.  We  began  generating  interest  income  in late 2004, and the first
quarters  of  2006  and  2005,  we  recognized approximately $34,000 and $8,000,
respectively  in  interest  income  due  to  our  cash  management  practices.

     We recognized approximately $29,000 and $29,000 of the deferred gain on the
sale  of  the  building  during the three-months ending March 31, 2006 and 2005,
respectively,  and  we  will continue to amortize the remaining deferred gain of
approximately  $801,000  into  non-operating  income  over  the remainder of the
lease.

     During  the  three-months ending March 31, 2006, we generated net income of
approximately  $7,000, or 0.1% of net sales, despite recognizing over $90,000 in
non-cash  charges  related to expensing stock options under FAS 123(R), compared
to  net  income  of  approximately $101,000, or  5.6% of net sales, for the same
three-month  period  in 2005.  During the three-months ending March 31, 2006, we
incurred  a  positive  EBITDA  (earnings  before interest taxes depreciation and
amortization)  of  approximately  $192,000,  or 2.7% of net sales, compared to a
EBITDA  of  approximately  $95,000,  or  5.2% of net sales, for the three-months
ending  March  31,  2005.

                                     PAGE 22


     The  following  table   reconciles   Earnings   Before   Interest,   Taxes,
Depreciation and Amortization (EBITDA) to net income (loss) for the three-months
ending  March  31,  2006  and  2005,  respectively,  and  represents  our  ninth
consecutive  quarter  of  positive  and  growing  EBITDA:


<TABLE>
<CAPTION>

<S>                                    <C>               <C>
FOR THE THREE MONTHS ENDING . . . . .  MARCH 31, 2006    March 31, 2005
                                            (UNAUDITED)       (Unaudited)
NET INCOME. . . . . . . . . . . . . .  $         7,017   $       101,223
-------------------------------------  ----------------  ----------------

Interest Income . . . . . . . . . . .          (33,615)           (7,960)
Interest Expense. . . . . . . . . . .            5,283             1,222
Gain on Building Sale . . . . . . . .          (29,318)          (29,318)
Stock Option Expense . . . . . . . .            90,701                 -
Provision for income taxes. . . . . .            4,235               400
Depreciation and Amortization . . . .          147,370            29,116
-------------------------------------  ----------------  ----------------
EBITDA* . . . . . . . . . . . . . . .  $       191,673   $        94,683
-------------------------------------  ----------------  ----------------
*  Earnings  Before  Interest,  Taxes,  Depreciation  and  Amortization.

</TABLE>

     EBITDA  should  not  be  considered  as an alternative to net income (as an
indicator  of  operating  performance)  or  as an alternative to cash flow (as a
measure  of  liquidity or ability to service debt obligations).  We believe that
EBITDA  provides  an  important additional perspective on our operating results,
our ability to service our long-term obligations, our ability to fund continuing
growth,  and  our  ability  to  continue as a going concern.   Beginning in 2003
through  the  current  quarter  in  2006,  we showed continued progress in total
revenue  as  well  as  in  EBITDA.



                               [GRAPHIC  OMITED]


                                     PAGE 23


                               [GRAPHIC  OMITED]



<TABLE>
<CAPTION>

<S>                                       <C>           <C>           <C>           <C>           <C>           <C>
FOR THE THREE MONTHS ENDING. . . . . . .      3/31/04       6/30/04       9/30/04      12/31/04       3/31/05       6/30/05
    (Unaudited). . . . . . . . . . . . .   (Unaudited)   (Unaudited)   (Unaudited)   (UNAUDITED)   (UNAUDITED)   (UNAUDITED)
NET INCOME (LOSS). . . . . . . . . . . .  $  (442,549)  $(1,286,866)  $  (602,888)  $  (694,750)  $   101,223   $   110,938
----------------------------------------  ------------  ------------  ------------  ------------  ------------  ------------

Interest Income. . . . . . . . . . . . .            -             -        (5,619)      (13,386)       (7,960)      (36,824)
Interest Expense . . . . . . . . . . . .       19,788        19,736        23,110        (6,707)        1,222           609
Non-Cash Interest exp. (Debt Discount) .      464,000     1,329,313       663,481       797,636             -        28,875
Gain on Building Sale. . . . . . . . . .      (29,318)      (29,318)      (29,318)      (29,318)      (29,318)      (29,318)
Stock option expense . . . . . . . . . .            -             -             -             -             -             -
Provision for income taxes . . . . . . .            -             -             -         1,600           400           400
Depreciation and Amortization. . . . . .       15,954        16,533        22,749        28,250        29,061        35,077
----------------------------------------  ------------  ------------  ------------  ------------  ------------  ------------
EBITDA . . . . . . . . . . . . . . . . .  $    27,874   $    49,398   $    71,515   $    83,325   $    94,628   $   109,758
----------------------------------------  ------------  ------------  ------------  ------------  ------------  ------------



CONTINUED:

<S>                                       <C>           <C>           <C>
FOR THE THREE MONTHS ENDING. . . . . . .      9/30/05      12/31/05    3/31/06
    (Unaudited). . . . . . . . . . . . .   (UNAUDITED)   (UNAUDITED)
NET INCOME (LOSS). . . . . . . . . . . .  $   136,251   $   152,851   $  7,017
----------------------------------------  ------------  ------------  ---------

Interest Income. . . . . . . . . . . . .      (24,848)      (36,208)   (33,615)
Interest Expense . . . . . . . . . . . .          452           590      5,283
Non-Cash Interest exp. (Debt Discount) .            -             -          -
Gain on Building Sale. . . . . . . . . .      (29,318)      (29,318)   (29,318)
Stock option expense . . . . . . . . . .            -             -     90,701
Provision for income taxes . . . . . . .          400           400      4,235
Depreciation and Amortization. . . . . .       44,078        83,708    147,370
----------------------------------------  ------------  ------------  ---------
EBITDA . . . . . . . . . . . . . . . . .  $   127,015   $   172,023   $191,673
----------------------------------------  ------------  ------------  ---------
----------------------------------------  ------------  ------------  ---------
</TABLE>

                                     PAGE 24


LIQUIDITY  AND  CAPITAL  RESOURCES

     CASH  POSITION  FOR  THREE-MONTHS  ENDED  MARCH 31, 2006 -VS.- THREE-MONTHS
ENDED  MARCH  31,  2005

     Net  decrease  in  cash  during  the three-months ending March 31, 2006 was
approximately  $4,607,000  compared  to a cash increase of $344,000 for the same
three-month period in 2005, primarily due to the acquisition of Starsys Research
Corporation  and related debt repayment and transaction costs.  These items were
partially  offset by the sale of our Series D-1 Preferred Stock to a small group
of  institutional  investors  in  January  2006.  Net  cash  used  in  operating
activities  totaled  approximately  $3,264,000 for the three-months ending March
31,  2006,  a  decrease of approximately $3,500,000 as compared to approximately
$236,000  provided by operating activities during the same three-month period in
2005,  primarily  due  to  the increase in accounts receivable which we received
upon  the  acquisition of Starsys as well as the increase in all other operating
expenses  from  the  acquired  company

     Net  cash used in investing activities totaled approximately $1,391,000 for
the  three-months  ending March 31, 2006, compared to approximately $43,000 used
in  investing  activities  during  the  same  three-month  period  in 2005.  The
increase  in  cash  used in investing activities is primarily due to the need to
provide  working  capital  for the operations of Starsys, which was insolvent at
the  time  we  acquired  it.

     Net cash provided by financing activities totaled approximately $47,000 for
the  three-months  ending  March  31, 2006, which is a decrease of approximately
$104,000 from the approximately $151,000 provided by financing activities during
the  same  three-months  in 2005.  This is primarily attributable to the sale of
our  Series D-1 Preferred Stock in January 2006, which was then used to fund the
merger  with  Starsys, pay off the secured debt, and pay down payables and other
accruals  on  Starsys'  books  at  the  end  of  January  2006.

     At  March  31,  2006,  our  cash,  which  included  cash  reserves and cash
available  for  investment,  was  approximately  $1,143,000,   as   compared  to
approximately  $5,413,000  at  March  31,  2005,  a  decrease  of  approximately
$4,270,000  mainly  due to the use of cash to fund our acquisition of Starsys in
January  2006  and  to  provide  working capital for the combined company in the
first  quarter  of  2006.

     As  of  March  31,  2006, our backlog of funded and non-funded business was
approximately $37 million, compared to approximately $45 million as of March 31,
2005.  With  respect  to  the  Missile Defense Agency program, we expect over $8
million in revenue to be generated in 2006.  Although the Missile Defense Agency
contract  was awarded to us, there can be no assurance that the contract will be
continued  through  all  phases,  and,  if  continued, that it will generate the
amounts  anticipated.

     Deferred income taxes are provided for temporary differences in recognizing
certain  income and expense items for financial and tax reporting purposes.  The
deferred  tax  asset of $2,484,000 and $2,075,000 as of March 31, 2006 and 2005,
respectively,  consist  primarily  of the income tax benefits from net operating
loss  and capital loss carry forwards, amortization of goodwill and research and
development  credits.  A  valuation  allowance has been recorded to fully offset
the deferred tax asset as it is more likely than not that the assets will not be
utilized.  The valuation allowance increased approximately $645,000 in 2006 from
$1,857,000  at  December  31,  2005  to  $2,502,000  at March 31, 2006.  Of this
valuation  allowance,  $2,259,000, at March 31, 2006 is related to net operation
losses  of  the  acquired  business.  The  tax  benefit  of these tax loss carry
forwards,  if  and  when  realized,  will reduce the existing value of goodwill.

     At March 31, 2006, the Company had federal and state tax net operating loss
carry  forwards  of  approximately $4,214,000 and $2,316,000, respectively.  The
federal  and  state  tax  loss  carry  forwards  will  expire  in 2023 and 2012,
respectively,  unless  previously  utilized.


                                     PAGE 25


     The  Company also has acquired federal and Colorado net operating losses in
conjunction  with  the  acquisition  of  Starsys of approximately $5,727,000 and
$9,220,000,  respectively.  These  net  operating  losses  will be subject to an
annual  limitation  under  internal  revenue  code  section  382.

     The  Company  also  has  federal  and  California research tax credit carry
forwards  of  approximately  $68,000  and  $47,000, respectively, which begin to
expire  in  2018.

     Pursuant to Internal Revenue Code Section 382 and 383, the Company's use of
its  net operating losss and credit carry forwards may be limited as a result of
the  cumulative  changes  in  the  ownership  of more than 50% over a three year
period.

CASH  POSITION

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

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

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

CRITICAL  ACCOUNTING  STANDARDS

     Due  to  the acquisition of Starsys, our revenues transitioned in 2006 from
being  primarily cost plus fixed fee contracts, where revenues are recognized as
costs  are  incurred and services are performed, to 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,.
Losses  on  contracts  are  recognized  when  they  become  known and reasonably
estimable  (see  the  Notes  to  SpaceDev's  Consolidated Financial Statements).
Actual  results  of  contracts  may  differ from management's estimates and such
differences  could  be  material  to  the  consolidated  financial   statements.
Professional  fees  are  billed  to  customers  on a time-and-materials basis, a
fixed-price  basis  or a per-transaction basis.  Time-and-materials revenues are
recognized  as  services  are  performed.  Deferred  revenue  represents amounts
collected from customers for services to be provided at a future date.  Research
and  development  costs  are  expensed  as  incurred.

     In  October  1995,  the  Financial Accounting Standards Board (FASB) issued
Statement  of  Financial  Accounting  Standards  (SFAS)  No. 123, Accounting for
Stock-Based  Compensation.  We  adopted  SFAS No. 123 in 1997.  Through December
31,  2005,  we  have elected to measure compensation expense for our stock-based


                                     PAGE 26


employee  compensation  plans using the intrinsic value method prescribed by APB
Opinion  No. 25, Accounting for Stock Issued to Employees and provided pro forma
disclosures  as  if  the  fair value based method prescribed in SFAS No. 123 had
been  utilized.  (See  the  Note  4   to   SpaceDev's   Consolidated   Financial
Statements.)  We  have  valued  our  stock, stock options and warrants issued to
non-employees at fair value in accordance with the accounting prescribed in SFAS
No.  123,  which  states  that  all  transactions in which goods or services are
received  for the issuance of equity instruments shall be accounted for based on
the  fair  value  of  the consideration received or the fair value of the equity
instruments  issued,  whichever  is  more  reliably  measurable.

     SFAS  No.  148,  Accounting  for  Stock-Based Compensation - Transition and
Disclosure,  which amends SFAS No. 123, Accounting for Stock-Based Compensation,
was  published by the Financial Accounting Standards Board on December 31, 2002.
The  effective  date  of  FASB  No.  148  is  December  15,  2002.  SFAS No. 123
prescribes  a  "fair value" methodology to measure the cost of stock options and
other  equity  awards.  Companies  may  elect  either  to  recognize  fair value
stock-based  compensation costs in their financial statements or to disclose the
pro forma impact of those costs in the footnotes.  Through December 31, 2005, we
had  chosen  the  latter  approach.

     In  December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment (FAS No. 123(R)), which replaces SFAS No. 123 and supersedes APB Opinion
No.  25. SFAS No. 123R requires all share-based payments to employees, including
grants  of  employee stock options, to be recognized in the financial statements
based  on their fair values. In addition, the adoption of SFAS No. 123R requires
additional  accounting  related  to  the  income  tax  effects  and   additional
disclosure  regarding  the  cash flow effects resulting from share-based payment
arrangements.  SFAS  No.  123R  is  effective  January 1, 2006 for calendar year
companies. Accordingly, we implemented the revised standard in the first quarter
of  2006.  [See  Note  4 to our consolidated financial statements for additional
information.]

     On  December 20, 2005, in response to SFAS No. 123R, our Board of Directors
approved  accelerating the vesting of all unvested stock options held by current
employees,  including executive officers, and members of the Board of Directors.
The  accelerated  vesting  was  effective  as  of  December  20,  2005.

RECENT  ACCOUNTING  PRONOUNCEMENTS

     There  were  no  recent Accounting Pronouncements that affected the Company
during  the first quarter of 2006.  For past pronouncements, please refer to our
Form  10-KSB  filed  on  March  28,  2006.

RISK  FACTORS

     The  following  factors, among others, could cause actual results to differ
materially  from  those  contained in forward-looking statements made herein and
presented  elsewhere  by  management  from  time  to  time.

RISKS  RELATED  TO  OUR  COMPANY

     SPACEDEV  AND  STARSYS  HAVE  EXPERIENCED  LOSSES  FROM OPERATIONS IN PRIOR
PERIODS  AND  HAVE  BEEN  REQUIRED TO SEEK ADDITIONAL FINANCING TO SUPPORT THEIR
BUSINESSES.

     In prior years, both SpaceDev and Starsys have experienced operating losses
and,  in some periods, revenues from operations have not been sufficient to fund
their  respective  operations.  On a pro forma basis, the combined company would
have  had  a net loss from operations of approximately $5.0 million for the year
ended  December  31, 2004 and $2.9 million for the year ended December 31, 2005,
assuming  the  merger  had  occurred  on  January  1,  2004.  The success of the
combined  company's  business  depends upon our ability to generate revenue from
existing  contracts,  to  execute  programs  cost-effectively,  to  attract  and
complete  successfully  additional  government  and  commercial  contracts,  and
possibly  to  obtain additional financing. The likelihood of our success must be


                                     PAGE 27


considered  in  light  of  the  expenses,  difficulties  and  delays  frequently
encountered  in  connection  with  developing  businesses,  those   historically
encountered  by  us,  and  the  competitive  environment  in  which  we operate.

     IF  WE ARE UNABLE TO RAISE CAPITAL, WE MAY BE UNABLE TO FUND OPERATING CASH
SHORTFALLS  AND  FUTURE  GROWTH  OPPORTUNITIES.

     In the past, both SpaceDev and Starsys have relied upon cash from financing
activities to fund part of the cash requirements of their respective businesses.
We  may  need additional financing to fund our projected operations or expansion
plans.  Additional  financing may not be available to us on acceptable terms, or
at  all.  Any  financing may cause additional dilution to existing shareholders.
Any debt financing or other issuance of securities senior to common stock likely
will  include  financial  and  other  covenants that will restrict our operating
flexibility  and  our  ability to pay dividends to common shareholders. SpaceDev
has  not  paid dividends on its common stock in the past and does not anticipate
paying  dividends  on  its  common  stock  in  the  foreseeable  future.

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

     Some of our government contracts are phased contracts in which the customer
may  determine  to  terminate  the  contract  between  phases  for  any  reason.
Accordingly, the entire contract amount may not be realized by us.  In the event
that  subsequent  phases  of some of our government contracts, including but not
limited  to the Missile Defense Agency contract, are not awarded to us, it could
have  a  material  adverse  effect  on  our  financial  position  and results of
operations.

     WE PROVIDE OUR PRODUCTS AND SERVICES PRIMARILY THROUGH FIXED-PRICE AND COST
PLUS  FIXED  FEE  CONTRACTS.  STARSYS  HAS  EXPERIENCED  SIGNIFICANT  LOSSES  ON
FIXED-PRICE  CONTRACTS.  COST  OVERRUNS  MAY  RESULT  IN  FURTHER LOSSES AND, IF
SIGNIFICANT,  COULD  IMPAIR  OUR  LIQUIDITY  POSITION.

     Under  fixed-price  contracts,  our customers pay us for work performed and
products  shipped  without  adjustment  for  the  costs we incur in the process.
Therefore,  we generally bear all or a significant portion of the risk of losses
as  a  result  of  increased  costs on these contracts.  Starsys has experienced
significant  cost  overruns  on  development  projects  under  its  fixed-price
contracts,  resulting  in  estimated  losses  on  uncompleted  contracts of $2.7
million  for Starsys' fiscal 2004, and an additional $2.5 million for the twelve
months  ended  December  31,  2005.  As  of December 31, 2005, based on a formal
evaluation  process,  Starsys  reserved approximately $1.5 million for potential
risks  on  these  remaining  development  projects.  Fixed-price  contracts  may
provide  for  sharing  of  unexpected  costs incurred or savings realized within
specified  limits  and  may provide for adjustments in price depending on actual
contract performance other than costs.  We bear the entire risk of cost overruns
in excess of the negotiated maximum amount of unexpected costs to be shared. Any
significant  overruns  in  the  future could materially impair our liquidity and
operations.

     Under  cost  plus  fixed  fee  contracts,  we  are reimbursed for allowable
incurred  costs  plus  a  fee,  which  may  be  fixed  or variable.  There is no
guarantee as to the amount of fee we will be awarded under a cost plus fixed fee
contract  with  a variable fee.  The price on a cost plus fixed fee reimbursable
contract  is  based  on  allowable  costs  incurred, but generally is subject to
contract  funding  limitations.  Therefore, we could bear the amount of costs in
excess  of  the  funding limitation specified in the contract, and we may not be
able  to  recover  those  cost  overruns.

     IF  WE  FAIL  TO  INTEGRATE  OUR OPERATIONS EFFECTIVELY, THE COMBINATION OF
SPACEDEV  AND  STARSYS WILL NOT REALIZE ALL THE POTENTIAL BENEFITS OF THE MERGER
AND  MAY  BE  COUNTER  PRODUCTIVE.


                                     PAGE 28


     The  integration  of  SpaceDev  and  Starsys  is  ongoing  and  may be time
consuming  and expensive and may disrupt the combined company's operations if it
is not completed in a timely and efficient manner. If this integration effort is
not  successful,  the  combined company's results of operations could be harmed.
In addition, the combined company may not achieve anticipated synergies or other
benefits  of  the merger. The combined company may encounter difficulties, costs
and  delays  involved in integrating their operations, including but not limited
to  the  following:

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

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

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

-    potential  incompatibility  of  business  cultures;

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

-    the  loss  of  key  employees;

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

-    potential  incompatibilities  of  processes, technologies and systems; and,

-    potential  difficulties  integrating  and  harmonizing  financial reporting
     systems.

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

     If  the  anticipated benefits of the merger are not realized or do not meet
the expectations of financial or industry analysts, the market price of SpaceDev
common  stock  may  decline.  This  could  occur  if,  among  other  reasons:

-    the  integration  of  the  two  companies  is  unsuccessful;

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

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

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

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

     IF WE FAIL TO INTEGRATE STARSYS, INC., OUR NEW WHOLLY OWNED SUBSIDIARY, OUR
CASH  FLOW  AND  OPERATING  RESULTS  COULD  BE  ADVERSELY  AFFECTED.

     We  recently  acquired Starsys, Inc., as a subsidiary of SpaceDev.  Starsys
which  was  insolvent  at  the  time  of  the  merger  and  we have begun making
post-acquisition  cash investments into Starsys.  As stated previously, SpaceDev
and  Starsys have experienced losses from operations in prior periods, requiring
that  we  seek  additional  financing  to support our businesses.  Our operating
plans  assume  revenue  and  cash  growth  from SpaceDev and Starsys.  If we are
unable  to  effectively  integrate  our  new  subsidiary, or if we are unable to
create  positive  cash  flow  within  SpaceDev  or  Starsys,  our  cash flow and
operating  results  could  be  adversely  affected.


                                     PAGE 29


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

     Our  concentration  of  government  work makes us susceptible to government
budget  cuts  and policy changes, which may impact the award of new contracts or
future phases of existing contracts.  Government budgets (both in general and as
to  space and defense projects) are subject to the prevailing political climate,
which  is  subject to change at any time.  Additionally, awarded contracts could
be  altered  or terminated prior to the time we recognize our projected revenue.
Many  contracts  are awarded in phases where future phases are not guaranteed to
us.  In  addition, obtaining contracts and subcontracts from government agencies
is  challenging, and contracts often include provisions that are not standard in
private  commercial  transactions.  For  example,  government  contracts  may:

-    include  provisions  that  allow  the  government  agency  to terminate the
     contract  without  penalty  under  some  circumstances;

-    be  subject  to  purchasing  decisions  of  agencies  that  are  subject to
     political  influence;

-    contain  onerous  procurement  procedures;  and

-    be  subject  to  cancellation  if  government  funding becomes unavailable.

     Securing  government  contracts  can  be  a  protracted  process  involving
competitive bidding.  In many cases, unsuccessful bidders may challenge contract
awards,  which  can  lead  to  increased  costs, delays and possible loss of the
contract  for  the  winning  bidder.

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

     As  of  May  1,  2006,  SpaceDev  is obligated to issue 9,776,177 shares of
SpaceDev  common  stock  if all of SpaceDev's outstanding warrants are exercised
and  shares  of  preferred  stock  converted.  In  addition,  as of May 1, 2006,
SpaceDev  has  outstanding  stock options to purchase an aggregate of 11,012,142
shares  of SpaceDev common stock, of which 10,312,142 are currently vested.  The
total  number  of  shares, issuable upon the exercise or conversion of currently
vested  warrants,  options  and  preferred  stock (20,088,319 shares) represents
approximately 70% of SpaceDev's issued and outstanding shares of common stock as
of  May  1,  2006.

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

     SpaceDev  has  a limited operating history and, as a result, our historical
financial  information  is  of limited value in projecting our future success in
these  markets.  We  launched our first microsatellite, CHIPSat, in January 2003
and,  in  June,  September  and  October, 2004, our hybrid rocket technology was
first  utilized  in connection with SpaceShipOne.  We hope to sell an increasing
percentage  of  SpaceDev's  products  and  services  in  commercial markets, but
virtually  all  of SpaceDev's historical work has been from government contracts
and  government-related  work.  We recently announced our intention to enter the
launch  services market by providing a microsat bus, integration services, and a
launch  vehicle  as  a package. We will be dependent on the performance of Space
Exploration  Technologies,  a small company with limited operating history which
has  not  yet  had  a  successful  launch,  for  our  first launch vehicle.  Our
microsatellites,  nanosatellites  and  launch  services  may  not achieve market
acceptance,  and  our  future  prospects  are  therefore  difficult to evaluate.

     WE  MAY  NOT  SUCCESSFULLY  OR  TIMELY  DEVELOP  PRODUCTS.

     Many of our products and technologies are currently under various stages of
development.  Further  development  and testing of our products and technologies
will  be  required  to  prove  additional  performance capability beyond current


                                     PAGE 30


levels  and  to  confirm  commercial  viability. Additionally, the final cost of
development cannot be determined until development is complete.  Our ongoing and
future  product  development  will  depend,  in  part,  on the ability to timely
complete our projects within estimated cost parameters and ultimately deploy the
product  in  a  cost-effective  manner.  In  addition, Starsys has contracted to
execute  development  programs  under  fixed  price   contracts.   Under   these
contracts,  even  if  our  costs  begin  to  exceed the amount to be paid by the
customer  under  the  contract, we are required to complete the contract without
receiving any additional payments from the customer.  It is difficult to predict
accurately the total cost of executing these programs.  If the costs to complete
these  programs  significantly  exceed the payments from the customers under the
contracts,  our  results  of  operations  will  be  harmed.

     THE  MARKETPLACE  FOR  OUR  TECHNOLOGY  AND  PRODUCTS  IS  UNCERTAIN.

     The  demand  for  our technology, products and services is uncertain and we
may  not obtain a sufficient market share to sustain our business or to increase
profitability.  Our  business  plan  assumes  that  near-term  revenues  will be
generated  largely   from   government   contracts   for   microsatellites   and
electromechanical  systems  for  spacecraft  with  a long-term commercial market
developing  for  private manned and unmanned space exploration.  Microsatellites
and  commercial  space  exploration are still relatively new concepts, and it is
difficult to predict accurately the ultimate size of the market. In addition, we
are  developing  new  product  areas  such as large deployable structures, solar
array  drives, slip rings and precision scanning assemblies for spacecraft. Many
of  our  products  and  services  are  new  and  unproven, and the true level of
customer  demand  is  uncertain.  Lack  of  significant market acceptance of our
products  and  services, delays in such acceptance, or failure of our markets to
develop  or  grow could negatively affect our business, financial condition, and
results  of  operations.

     OUR  OPERATING  RESULTS  COULD  FLUCTUATE  ON A QUARTERLY AND ANNUAL BASIS,
WHICH  COULD  CAUSE  OUR  STOCK  PRICE  TO  FLUCTUATE  OR  DECLINE.

     Our  operating  results  may  fluctuate  from  quarter-to-quarter  and
year-to-year  for  a  variety  of reasons, many of which are beyond our control.
Factors  that  could  affect  our quarterly and annual operating results include
those  listed  below  as  well  as others listed in this "Risk Factors" section:

-    we  may  not  be  awarded  all  stages  of  existing  or  future contracts;

-    the  timing  of  new  technological  advances  and product announcements or
     introductions  by  us  and  our  competitors;

-    changes  in  the  terms  of  our  arrangements with customers or suppliers;

-    our  current  reliance  on a few customers for a significant portion of our
     net  sales;

-    the  failure  of  our  key  suppliers  to  perform  as  expected;

-    general  or  particular political conditions that could affect spending for
     the  products  that  we  offer;

-    delays  or  failures  to  satisfy  our obligations under our contracts on a
     timely  basis;

-    the  failure  of  our  products  to  successfully  launch  or  operate;

-    the  uncertain  market  for  our  technology  and  products;

-    the availability and cost of raw materials and components for our products;
     and

-    the  potential  loss  of  or  inability  to  hire  key  personnel.

     As a result of these factors, period-to-period comparisons of our operating
results  may not be meaningful, and you should not rely on them as an indication
of our future performance. In addition, our operating results may fall below the
expectations  of  public  market analysts or investors. In this event, our stock
price  could  decline  significantly.

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

                                     PAGE 31


     We  face  significant  competition  for  our  government   and   commercial
contracts.  Many of our competitors have greater resources than we do and may be
able  to  devote  greater  resources  than  us  to  research and development and
marketing.  Given  the  sophistication  inherent  in  our   operations,   larger
competitors may have a significant advantage and may be able to more efficiently
adapt  and implement technological advances. In addition, larger and financially
stronger  corporations  have  advantages  over us in obtaining space and defense
contracts  due  to  their  superior  marketing  (lobbying)  resources   and  the
perception  that  they  may  be  a  better  choice  than  smaller  companies for
mission-critical  projects  because  of  the higher likelihood that they will be
able  to  continue in business for the necessary future period.  Furthermore, it
is  possible  that other domestic or foreign companies or governments, some with
greater  experience  in  the  space  industry  and  many  with greater financial
resources  than  we  possess,  could  seek  to produce products or services that
compete  with  our  products  or   services,   including  new   mechanisms   and
electromechanical  subsystems  using  new  technology  which  could  render  our
products  less  viable.  Some of our foreign competitors currently benefit from,
and  others  may  benefit in the future from, subsidies from or other protective
measures  implemented  by  their  home  countries.

     OUR  PRODUCTS  AND SERVICES MAY NOT FUNCTION WELL UNDER CERTAIN CONDITIONS.

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

     LAUNCH  FAILURES  OR  DELAYS  COULD  HAVE  SERIOUS  ADVERSE  EFFECTS ON OUR
BUSINESS.

     Launch failures or delays of our microsatellites could have serious adverse
effects  on  our  business.  Microsatellite  launches are subject to significant
risks, the realization of which can cause disabling damage to or total loss of a
microsatellite,  as  well as damage to our reputation among actual and potential
customers.  Delays  in  the  launch  could  also adversely affect our net sales.
Delays  could  be  caused  by  a  number  of  factors,  including:

-    designing,  constructing,  integrating,  or  testing  the   microsatellite,
     microsatellite  components,  or  related  ground  systems;

-    delays  in  receiving  the  license necessary to operate the microsatellite
     systems;

-    delays  in  obtaining  the  customer's  payload;

-    delays  related  to  the  launch  vehicle;

-    weather;  and,

-     other  events  beyond  our  control.

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

     OUR  U.S. GOVERNMENT CONTRACTS ARE SUBJECT TO AUDITS THAT COULD RESULT IN A
MATERIAL  ADVERSE AFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS IF
A  MATERIAL  ADJUSTMENT  IS  REQUIRED.

     The  accuracy  and  appropriateness  of  our  direct and indirect costs and
expenses  under  our contracts with the U.S. government are subject to extensive
regulation  and audit by the Defense Contract Audit Agency, by other agencies of


                                     PAGE 32


the  U.S.  government  or  prime  contractors.  These entities have the right to
audit  our  cost  estimates  and/or  allowable  cost allocations with respect to
certain  contracts.  From  time to time we may in the future be required to make
adjustments  and  reimbursements  as  a  result  of these audits.  Responding to
governmental audits, inquiries or investigations may involve significant expense
and  divert  management  attention.  Also, an adverse finding in any such audit,
inquiry  or investigation could involve contract termination, suspension, fines,
injunctions  or  other  sanctions.

     OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN OUR KEY PERSONNEL. THE JANUARY
2006 IMPLEMENTATION OF FAS 123(R) AND THE RELATED DECEMBER 20, 2005 ACCELERATION
OF  VESTING ALL OUTSTANDING STOCK OPTIONS REDUCED THE EFFECTIVENESS OF THE STOCK
OPTIONS  AS  A  RETENTION  DEVICE.

     Our  success  will  be  dependent  upon  the  efforts of key members of our
management  and  engineering  team,  including our chairman and chief technology
officer, James W. Benson, our chief executive officer and vice-chairman, Mark N.
Sirangelo,  our  president  and chief financial officer, Richard B. Slansky, our
vice president of engineering, Frank Macklin, our vice president of programs and
new business development, Randall K. Simpson, the managing director of SpaceDev,
Scott  Tibbitts, the president of Starsys, Inc., Robert Vacek, and certain other
SpaceDev  personnel.  The  loss of any of these persons, or other key employees,
including  personnel  with  security clearances required for classified work and
highly  skilled  technicians and engineers, could have a material adverse effect
on  us.  Our  future  success is likely to depend substantially on our continued
ability  to  attract  and retain highly qualified personnel. The competition for
such  personnel  is  intense,  and  our  inability  to  attract  and retain such
personnel  could  have  a  material adverse effect on us. At this time we do not
maintain  key  man  life  insurance  on  any  of  our  key  personnel.

     One  device  we have historically used to enhance our ability to retain and
incent key personnel is the grant of stock options which are subject to vesting.
If  the  employee  leaves  us  before the vesting period has been completed, the
employee must forfeit a portion of the stock options. In December 2005, in order
to  avoid adverse financial reporting effects in future years under FAS 123(R) a
new accounting standard, we eliminated all future vesting requirements on all of
our  8,031,036  stock  options  then  outstanding  in  the  hands  of employees,
officers,  and  directors.

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

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

     WE MAY NOT ADDRESS SUCCESSFULLY THE PROBLEMS ENCOUNTERED IN CONNECTION WITH
POTENTIAL  FUTURE  ACQUISITIONS.

     We expect to consider opportunities to acquire or make investments in other
technologies,  products  and  businesses  that  could  enhance our capabilities,
complement our current products or expand the breadth of our markets or customer
base. We have limited experience in acquiring other businesses and technologies;
the  Starsys  acquisition  was  our  first  major  acquisition.

Potential  and completed acquisitions and strategic investments involve numerous
risks,  including:

-    problems  assimilating  the  purchased  technologies,  products or business
     operations;

-    problems  maintaining uniform standards, procedures, controls and policies;

-    unanticipated  costs  associated  with  the  acquisition;

-    diversion  of  management's  attention  from  our  core  business;


                                     PAGE 33


-    adverse  effects  on  existing  business  relationships  with suppliers and
     customers;

-    incompatibility  of  business  cultures;

-    risks  associated  with entering new markets in which we have no or limited
     prior  experience;

-    dilution  of  common stock and shareholder value as well as adverse changes
     in  stock  price.

-    potential  loss  of  key  employees  of  acquired  businesses;  and

-    increased legal and accounting costs as a result of the newly adopted rules
     and  regulations  related  to  the  Sarbanes-Oxley  Act  of  2002.

     IF  OUR  KEY  SUPPLIERS  FAIL TO PERFORM AS EXPECTED, OUR REPUTATION MAY BE
DAMAGED.  WE  MAY  EXPERIENCE  DELAYS, LOSE CUSTOMERS AND EXPERIENCE DECLINES IN
REVENUES,  PROFITABILITY,  AND  CASH  FLOW.

     We  purchase  a  significant  percentage  of  our  product  components  and
subassemblies  from  third  parties.  If  our  subcontractors fail to perform as
expected  or  encounter financial difficulties, we may have difficulty replacing
them or identifying qualified replacements in a timely or cost effective manner.
As  a  result,  we  may  experience  performance  delays  that  could  result in
additional  program  costs,  contract  termination  for default or damage to our
customer relationships which may cause our revenues, profitability and cash flow
to  decline.  In  addition,  negative  publicity  from any failure of one of our
products  or  sub-systems  as  a  result  of a supplier failure could damage our
reputation  and  prevent  us  from  winning  new  contracts.

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

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

     SEVERAL  YEARS  OF  LOW DEMAND AND OVERCAPACITY IN THE COMMERCIAL SATELLITE
MARKET  HAVE  RESULTED  IN  SLOW  GROWTH  IN  DEMAND  FOR  SPACE  PRODUCTS.

     The  commercial  satellite  market has experienced pricing pressures due to
excess  capacity in the telecommunications industry and weakened demand over the
past  several years.  Satellite demand, and thus subsystem and component orders,
have  also  been  impacted  by  the  business  difficulties  encountered  by the
commercial satellite services industry.  This has resulted in a reduction in the
total  market  size  in  the near term.  While the market appears to be making a
recovery,  growth  in  the  demand  for  our  products  may  be  limited.

     OUR  COMPETITIVE  POSITION  WILL  BE SERIOUSLY DAMAGED IF WE CANNOT PROTECT
INTELLECTUAL  PROPERTY  RIGHTS  IN  OUR  TECHNOLOGY.

     Our  success,  in  part,  depends  on  our  ability  to  obtain and enforce
intellectual property protection for our technology. We rely on a combination of
patents,  trade  secrets  and contracts to establish and protect our proprietary
rights  in  our  technology.   However,   we  may  not  be   able   to   prevent
misappropriation  of our intellectual property, and the agreements we enter into
may  not be enforceable. In addition, effective intellectual property protection
may  be  unavailable  or  limited  in  some  foreign  countries.


                                     PAGE 34


     There  is  no guarantee any patent will be issued on any patent application
that  we  have  filed  or  may file. Further, any patent that we may obtain will
expire,  and  it  is  possible  that  it  may  be  challenged,   invalidated  or
circumvented.  If  we  do  not  secure  and  maintain  patent protection for our
technology  and  products, our competitive position will be significantly harmed
because it will be much easier for competitors to sell products similar to ours.
Alternatively,  a  competitor  may  independently develop or patent technologies
that  design around our  patented technology.  In addition,  it is possible that
any  patent  that  we  may  obtain  may not provide  adequate protection and our
competitive  position  could  be  significantly  harmed.

     As  we  expand our product line or develop new uses for our products, these
products  or  uses  may be outside the scope of our current patent applications,
issued  patents,  and  other  intellectual  property  rights. In addition, if we
develop new products or enhancements to existing products, there is no guarantee
that  we  will  be able to obtain patents to protect them. Even if we do receive
patents  for  our  existing  or  new  products,  these  patents  may not provide
meaningful protection. In some countries outside of the United States, effective
patent  protection  is  not  available.  Moreover,  some countries that do allow
registration  of  patents  do  not  provide meaningful redress for violations of
patents.  As  a  result,  protecting intellectual property in these countries is
difficult  and our competitors may successfully sell products in those countries
that  have  functions  and  features that infringe on our intellectual property.

     We  may  initiate  claims or litigation against third parties in the future
for  infringement  of  our  proprietary  rights  or  to  determine the scope and
validity  of  our  proprietary  rights or the proprietary rights of competitors.
These  claims  could  result  in costly litigation and divert the efforts of our
technical  and  management  personnel.  As a result, our operating results could
suffer and our financial condition could be harmed, regardless of the outcome of
the  case.

     CLAIMS  BY  OTHER COMPANIES THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY
OR  THAT  PATENTS  ON  WHICH  WE  RELY  ARE  INVALID  COULD ADVERSELY AFFECT OUR
BUSINESS.

     From  time  to  time,  companies  may  assert  patent,  copyright and other
intellectual  proprietary  rights  against  our  products  or products using our
technologies  or  other  technologies  used  in  our industry.  These claims may
result  in our involvement in litigation.  We may not prevail in such litigation
given  the  complex  technical issues and inherent uncertainties in intellectual
property  litigation.  If  any of our products were found to infringe on another
company's  intellectual  property  rights,  we could be required to redesign our
products or license such rights and/or pay damages or other compensation to such
other  company.  If  we  were  unable  to  redesign our products or license such
intellectual  property  rights used in our products, we could be prohibited from
making  and  selling  such  products.

     Other  companies or entities also may commence actions seeking to establish
the invalidity of our patents.  In the event that one or more of our patents are
challenged,  a  court  may invalidate the patent or determine that the patent is
not  enforceable,  which could harm our competitive position.  If any of our key
patents  are  invalidated, or if the scope of the claims in any of these patents
is  limited  by  court  decision,  we  could  be  prevented  from  licensing the
invalidated or limited portion of such patents.  Even if such a patent challenge
is  not  successful, it could be expensive and time consuming to address, divert
management  attention  from  our  business  and  harm  our  reputation.

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

     Our  business  activities  are subject to substantial regulation by various
agencies  and  departments  of  the  United  States  government  and, in certain
circumstances,  the governments of other countries. Several government agencies,
including NASA and the U.S. Air Force, maintain Export Control Offices to ensure
that  any  disclosure  of scientific and technical information complies with the
Export  Administration  Regulations  and  the  International  Traffic   in  Arms


                                     PAGE 35


Regulations,  or  "ITAR."  Exports  of  our  products,  services  and  technical
information  require  either  Technical  Assistance  Agreements,   manufacturing
license  agreements  or  licenses from the U.S. Department of State depending on
the  level  of  technology  being  transferred. This includes recently published
regulations restricting the ability of U.S.-based companies to complete offshore
launches,  or  to  export certain satellite components and technical data to any
country  outside  the  United  States. The export of information with respect to
ground-based sensors, detectors, high-speed computers, and national security and
missile  technology  items are controlled by the Department of Commerce. Failure
to  comply  with the ITAR and/or the Commerce Department regulations may subject
guilty  parties  to fines of up to $1 million and/or up to 10 years imprisonment
per  violation.

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

     We  are  also  subject  to  laws  and regulations regulating the formation,
administration  and  performance  of,  and   accounting   for,  U.S.  government
contracts.  With  respect  to  such  contracts,  any  failure  to  comply   with
applicable  laws  could result in contract termination, price or fee reductions,
penalties,  suspension  or  debarment from contracting with the U.S. government.

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

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

     The  market  prices  of  securities of technology-based companies like ours
particularly  in industries (also like ours) where substantial value is ascribed
to  a hope for future increase in the size of the total market, are often highly
volatile.  The  market price of our common stock has fluctuated significantly in
the  past.  Our market price may continue to exhibit significant fluctuations in
response  to  a  variety  of  factors,  many  of  which  are beyond our control,
including:

-    deviations  in  our  results  of  operations  from  estimates;

-    changes  in  estimates  of  our  financial  performance;

-    changes  in  our  markets,  including  decreased government spending or the
     entry  of  new  competitors;

-    our  inability  to  obtain  financing  necessary  to  operate our business;

-    changes  in  technology;

-    potential  loss  of  key  personnel;

-    short  selling;

-    changes  in  market valuations of similar companies and stock market price;

-    the  Starsys  merger;  and


                                     PAGE 36


-    volume  fluctuations  generally,  including  resales  by  former  Starsys
     stockholders  or  by  Laurus.

     CHANGES  IN STOCK OPTION ACCOUNTING RULES MAY ADVERSELY AFFECT OUR REPORTED
OPERATING  RESULTS  PREPARED  IN  ACCORDANCE  WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES,  OUR STOCK PRICE AND OUR EFFORTS IN RECRUITING ADDITIONAL EMPLOYEES.

     Technology  companies,  in  general,  and our company in particular, depend
upon  and  use  broad  based  employee stock option programs to hire, incent and
retain  employees  in a competitive marketplace. Through fiscal 2005, we did not
recognize  compensation  expense  for  stock  options  issued  to  employees  or
directors, except in limited cases involving modifications of stock options, and
we  instead disclosed in the notes to our financial statements information about
what such charges would be if they were expensed. An accounting standard setting
body  has  adopted  a  new  accounting  standard  that will require us to record
equity-based  compensation expense for stock options and employee stock purchase
plan  rights  granted  to  employees  based  on  the  fair  value  of the equity
instrument  at  the time of grant. We are now recording these expenses beginning
with  the  first  quarter of 2006. The change in accounting rules will lead to a
decrease  in reported earnings, if we have earnings, or an increased loss, if we
do  not  have  earnings.  This  may negatively impact our future stock price. In
addition,  this  change  in accounting rules could impact our ability to utilize
broad  based  employee  stock  plans  to  reward employees and could result in a
competitive  disadvantage  to  us  in  the  employee  marketplace.

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

     As  of  May  1,  2006,  our  executive  officers  and   directors  together
beneficially  owned approximately 50.27% of the issued and outstanding shares of
our  common  stock.  As  a result, these persons could have the ability to exert
significant  influence  over  matters  concerning  us, including the election of
directors,  changes  in  the size and composition of the board of directors, and
mergers  and  other  business  combinations  involving  us. In addition, through
control  of  the board of directors and voting power, our officers and directors
may  be  able  to  control  certain decisions, including decisions regarding the
qualification  and  appointment  of officers, dividend policy, access to capital
(including  borrowing  from  third-party  lenders and the issuance of additional
equity  securities),  and  the  acquisition  or  disposition  of  our assets. In
addition,  the  concentration  of voting power in the hands of those individuals
could  have  the  effect  of  delaying  or preventing a change in control of our
company,  even  if  the  change  in  control  would  benefit our shareholders. A
perception  in  the  investment community of an anti-takeover environment at our
company  could  cause  investors to value our stock lower than in the absence of
such  a  perception.

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

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

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

     Our  current  business  plan  contemplates  the   migration  of  SpaceDev's
technology  from  projects  into  products for microsatellites and hybrid rocket
motors  over the next several years. In the meantime, we are investigating other


                                     PAGE 37


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

     WE  ARE  SUBJECT TO NEW CORPORATE GOVERNANCE AND INTERNAL CONTROL REPORTING
REQUIREMENTS, AND OUR COSTS RELATED TO COMPLIANCE WITH, OR OUR FAILURE TO COMPLY
WITH  EXISTING  AND  FUTURE  REQUIREMENTS  COULD  ADVERSELY AFFECT OUR BUSINESS.

     We  face new corporate governance requirements under the Sarbanes-Oxley Act
of  2002,  as well as new rules and regulations subsequently adopted by the SEC,
the  Public  Company  Accounting Oversight Board and any stock exchange on which
our  stock may be listed in the future. These laws, rules and regulations, which
are already known to be burdensome and costly, continue to evolve and may become
increasingly  stringent  in  the  future.  In particular, we will be required to
include  management and independent registered public accounting firm reports on
internal  controls  as part of our annual report for the year ended December 31,
2007 pursuant to Section 404 of the Sarbanes-Oxley Act. We are in the process of
evaluating  our  control  structure and processes to help ensure that we will be
able  to comply with Section 404 of the Sarbanes-Oxley Act. We cannot assure you
that we will be able to fully comply with these laws, rules and regulations that
address  corporate  governance,  internal control reporting and similar matters.
Failure  to  comply  with  these  laws,  rules  and regulations could materially
adversely  affect  our  reputation,  financial  condition  and  the value of our
securities.

     THE  TERMS  OF  SPACEDEV'S  OUTSTANDING  SHARES OF PREFERRED STOCK, AND ANY
SHARES  OF  PREFERRED  STOCK  ISSUED IN THE FUTURE, MAY REDUCE THE VALUE OF YOUR
COMMON  STOCK.

     SpaceDev  is authorized to issue up to 10,000,000 shares of preferred stock
in  one or more series. SpaceDev currently has outstanding 248,460 shares of its
Series  C  Convertible  Preferred  Stock  and  5,150  shares  of  its Series D-1
Preferred  Stock.  Our  board  of  directors  may  determine the terms of future
preferred  stock  offerings  without  further  action by our shareholders. If we
issue  additional  preferred  stock,  it  could affect your rights or reduce the
value  of  your  common  stock. In particular, specific rights granted to future
holders  of  preferred stock could be used to restrict our ability to merge with
or  sell  our  assets  to  a third party. These terms may include voting rights,
preferences  as  to dividends and liquidation, conversion and redemption rights,
and sinking fund provisions.  SpaceDev's Series C Preferred Stock and Series D-1
Preferred  Stock  rank  senior to the common stock with respect to dividends and
liquidation  and  have  other  important  preferred  rights.

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

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

-    make  a  special  written  suitability  determination  for  the  purchaser;

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

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

                                     PAGE 38


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

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

ITEM  3.     CONTROLS  AND  PROCEDURES

     Mark N. Sirangelo, our chief executive officer, and Richard B. Slansky, our
chief  financial  officer,  after evaluating the effectiveness of our disclosure
controls  and  procedures (as defined in Securities Exchange Act Rule 13a-15(e))
have  concluded  that,  as  of  March  31,  2006,  our  disclosure  controls and
procedures  are  effective.

                          PART II -- OTHER INFORMATION

ITEM  1.     LEGAL  PROCEEDINGS

     None.

ITEM  2.     UNREGISTERED  SALES  OF  EQUITY  SECURITIES  AND  USE  OF  PROCEEDS

     Previously  disclosed.

ITEM  3.     DEFAULTS  UPON  SENIOR  SECURITIES

     None.

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

     On  January  30,  2006,  at  a  special  meeting  of  our shareholders, our
shareholders approved each of the following proposals, as described in the joint
proxy  statement/prospectus  included  as  a  part of the Amendment No. 1 to our
Registration  Statement  on Form S-4 (File No. 333-130244) filed with the SEC on
December  28,  2005:

     Proposal  No. 1 - To adopt and approve the Agreement and Plan of Merger and
Reorganization  dated  as of October 24, 2005, as amended, with Starsys Research
Corporation,  Monoceros  Acquisition  Corp.,  our  wholly-owned  subsidiary, and
certain  other  parties,  and to approve the merger contemplated thereby and the
issuance  and  reservation for issuance of shares of our common stock to Starsys
shareholders  pursuant to the merger agreement.  Of the 24,410,196 shares of our
outstanding  common  stock,  15,720,249  shares (or 64.4%) voted in person or by
proxy  on  this  proposal, with over 99.4% of those shares voted in favor of the
proposal.  The  following  table  provides a breakdown of the actual vote tally.
-------------------------------------------------------------------------------
ISSUE                              FOR            AGAINST     ABSTAIN
Adopt Plan of Merger     Total     15,631,682     69,630      18,937
-------------------------------------------------------------------------------


     Proposal  No. 2 -  To approve amendments to our 2004 Equity Incentive Plan:
(1)  to  increase  the  number  of authorized shares under the plan by 3,000,000
shares of our common stock; (2) to add per person annual share award limits; and
(3)  to  clarify  the  limitation on the number of shares which may be issued as
incentive  stock  options.  Of  the  24,410,196 shares of our outstanding common
stock,  15,720,249  shares  (or  64.4%)  voted  in  person  or  by proxy on this


                                     PAGE 39


proposal, with over 94.9% of those shares voted in favor of the proposal.    The
following  table  provides  a  breakdown  of  the  actual  vote  tally.
-------------------------------------------------------------------------------
ISSUE                                  FOR            AGAINST      ABSTAIN
Amendment to 2004 Equity
Incentive Plan               Total     14,914,286     776,376      29,587
-------------------------------------------------------------------------------


     Proposal  No. 3 -  To approve an amendment to our articles of incorporation
to  increase  the  number  of  authorized  shares  of common stock by 50,000,000
shares,  to  a  total  of  100,000,000  shares.  Of the 24,410,196 shares of our
outstanding  common  stock,  15,720,252  shares (or 64.4%) voted in person or by
proxy  on  this  proposal, with over 97.4% of those shares voted in favor of the
proposal.    The  following table provides a breakdown of the actual vote tally.
-------------------------------------------------------------------------------
ISSUE                                        FOR          AGAINST     ABSTAIN
Amendment to Articles of
Incorporation 100,000,000 shares   Total     15,317,174   353,348     49,727
-------------------------------------------------------------------------------


     Proposal  No. 4 - To give to our board of directors discretionary authority
to  sell  more  than  20% of our common stock (or securities convertible into or
exercisable  for  common  stock)  in  one  or  more  private financings.  Of the
24,410,196  shares of our outstanding common stock, 15,720,252 shares (or 64.4%)
voted  in  person  or by proxy on this proposal, with over 97.2% of those shares
voted  in  favor of the proposal.    The following table provides a breakdown of
the  actual  vote  tally.
-------------------------------------------------------------------------------
ISSUE                                      FOR            AGAINST     ABSTAIN
Board authority to sell 20% in
private financing                Total     15,285,260     384,897     50,095
-------------------------------------------------------------------------------


ITEM  5.     OTHER  INFORMATION

     None.

ITEM  6.     EXHIBITS

(a)     Exhibits


<TABLE>
<CAPTION>

<S>      <C>                                     <C>        <C>            <C>           <C>               <C>
Exhibit  Description                             Filed      Incorporated   Form          Date Filed        Exhibit
No. . .                                          Herewith       by                       with SEC          No.
                                                            Reference
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
2.3 . .  Amendment No. 2 to the Agreement                        X           8-K          Feb. 6, 2006       2.3
         and Plan of Merger and
         Reorganization dated January 31,
         2006 (Starsys)
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
2.4 . .  Escrow Agreement dated January 31,                      X           8-K          Feb. 6, 2006        2.4
         2006 (Starsys)
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
3.4      Articles of Amendment to Articles of                    X           10-KSB       Mar. 28, 2006
         Incorporation dated February 1,
         2006
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
3.7 . .  Certificate of Designations of Series                   X           8-K          Jan. 17, 2006       3.1
         D-1 Preferred Stock
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
3.8 . .  Certificate of Designations of Series                   X           8-K          Jan. 17, 2006       3.2
         D-2 Preferred Stock
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------


                                     PAGE 40

-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
10.1. .  Securities Purchase Agreement dated                     X           8-K          Jan. 17, 2006      99.1
         January 11, 2006 (Laurus)
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
10.2. .  Registration Rights Agreement dated                     X           8-K          Jan. 17, 2006      99.2
         January 17, 2006 (Laurus)
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
10.3. .  Form of Preferred Stock Warrant                         X           8-K          Jan. 17, 2006      99.3
                                       (Laurus)
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
10.4. .  Form of Common Stock Warrant                            X           8-K          Jan. 17, 2006      99.4
                                       (Laurus)
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
10.5. .  Executive Employment Agreement                          X           8-K          Feb. 6, 2006       99.1
         with Scott Tibbitts dated January 31,
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
10.6. .  Executive Employment Agreement                          X           8-K          Feb. 6, 2006       99.2
         with Robert Vacek dated January 31,
         2006
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
10.7. .  Non-Competition Agreement with                          X           8-K          Feb. 6, 2006       99.3
         Scott Tibbitts dated January 31, 2006
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
10.8. .  Form of Standstill and Lock-up                          X           8-K          Feb. 6, 2006       99.4
         Agreement
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
10.9. .  Amendment No. 2 to the SpaceDev                         X           8-K          Feb. 6, 2006       99.5
         2004 Equity Incentive Plan
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
21.1. .  List of Subsidiaries                                    X           10-KSB       Mar. 28, 2006      21.1
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
31.1. .  Rule 13a-14(a) certification of Chief       X
         Executive Officer
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
31.2. .  Rule 13a-14(a) certification of Chief       X
         Financial Officer
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
32.1. .  Section 1350/Rule 13a-14(b)                 X
         certifications
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
-------  --------------------------------------   --------  ------------   -----------   ---------------   --------
</TABLE>

                                     PAGE 41



                                   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.


Dated:  May  15,  2006                     /s/Mark  N.  Sirangelo
                                           ----------------------
                                           Mark  N.  Sirangelo
                                           Chief  Executive  Officer




Dated:  May  15,  2006                     /s/  Richard  B.  Slansky
                                           -------------------------
                                           Richard  B.  Slansky
                                           President and Chief Financial Officer



                                     PAGE 41