FORM 10-QSB

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20429


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

     For  the  quarterly  period  ended  June  30,  2004

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

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

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


                             Colorado     84-1374613

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


                   13855 Stowe Drive, Poway, California 92064

                    (Address of principal executive offices)

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

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

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

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:  19,065,623 shares of Issuer's voting
common  stock  were  outstanding  on  August  2,  2004.


                                      PAGE


                                 SPACEDEV, INC.
                                   FORM 10-QSB
                       FOR THE QUARTER ENDED JUNE 30, 2004

INDEX                                                                       PAGE
-----                                                                       ----
PART  I  --  FINANCIAL  INFORMATION                                            1
--------------------------------------------------------------------------------
     ITEM  1.  FINANCIAL  STATEMENTS                                           1
     --------  -----------------------------------------------------------------
          Consolidated  Balance  Sheets                                        1
          Consolidated  Balance  Sheets                                        2
          Consolidated  Statements  of  Operations                             3
          Consolidated  Statements  of  Cash  Flows                            4
          Notes  to  Consolidated  Financial  Statements                       6
     ---------------------------------------------------------------------------
     ITEM  2.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL CONDITION AND
               RESULTS  OF  OPERATIONS                                        14
     --------  -----------------------------------------------------------------
     ITEM  3.  CONTROLS  AND  PROCEDURES                                      28
     --------  -----------------------------------------------------------------
PART  II  --  OTHER  INFORMATION                                              29
--------------------------------------------------------------------------------
     ITEM  1.  LEGAL  PROCEEDINGS                                             29
     --------  -----------------------------------------------------------------
     ITEM  2.  CHANGES  IN  SECURITIES                                        29
     --------  -----------------------------------------------------------------
     ITEM  3.  DEFAULTS  UPON  SENIOR  SECURITIES                             30
     --------  -----------------------------------------------------------------
     ITEM  4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS            30
     --------  -----------------------------------------------------------------
     ITEM  5.  OTHER  INFORMATION                                             30
     --------  -----------------------------------------------------------------
     ITEM  6.  EXHIBITS  AND  REPORTS  ON  FORM  8-K                          30
     --------  -----------------------------------------------------------------
SIGNATURES                                                                    31
--------------------------------------------------------------------------------

                                      PAGE


                         PART I -- FINANCIAL INFORMATION

ITEM  1.     FINANCIAL  STATEMENTS

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

<TABLE>
<CAPTION>

<S>                           <C>         <C>
At June 30,. . . . . . . . .        2004      2003
----------------------------  ----------  --------

 ASSETS

 CURRENT ASSETS
      Cash . . . . . . . . .  $1,226,529  $ 80,734
      Accounts receivable. .     602,151   142,759
      Work in Progress . . .      10,316         -
----------------------------  ----------  --------
 Total current assets. . . .   1,838,996   223,493
----------------------------  ----------  --------
 FIXED ASSETS - NET. . . . .     184,996   127,314

 CAPITALIZED SOFTWARE  COSTS           -    33,375

 OTHER ASSETS. . . . . . . .      30,574    34,502
----------------------------  ----------  --------
                              $2,054,566  $418,684
----------------------------  ----------  --------
----------------------------  ----------  --------

</TABLE>

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

                                       1
                                      PAGE

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

<TABLE>
<CAPTION>



<S>                                                                       <C>            <C>
 At June 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2004           2003
------------------------------------------------------------------------  -------------  -------------

 LIABILITIES AND STOCKHOLDERS DEFICIT

 CURRENT LIABILITIES
      Current portion of notes payable . . . . . . . . . . . . . . . . .  $     35,778   $     52,000
      Current portion of capitalized lease obligations . . . . . . . . .         4,257         26,629
      Note payable - related party (Note 3(b)) . . . . . . . . . . . . .        80,000         80,000
      Convertible debt notes payable (Note 4). . . . . . . . . . . . . .             -        332,847
      Accounts payable and accrued expenses. . . . . . . . . . . . . . .       202,908        338,432
      Accrued payroll, vacation and related taxes. . . . . . . . . . . .       252,221        122,129
      Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . .        28,400              -
      Provision for anticipated loss (Note 2). . . . . . . . . . . . . .             -          5,174
      Income taxes payable . . . . . . . . . . . . . . . . . . . . . . .             -          2,526
      Revolving credit facility (Note 3(c)). . . . . . . . . . . . . . .       408,003              -
      Other accrued liabilities. . . . . . . . . . . . . . . . . . . . .       141,595              -
------------------------------------------------------------------------  -------------  -------------

 TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . .     1,153,162        959,737
------------------------------------------------------------------------  -------------  -------------
 NOTES PAYABLE, LESS CURRENT MATURITIES (NOTE 3(A)). . . . . . . . . . .        28,021         65,260

 CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES. . . . . . . . .         3,445          6,558

 NOTE PAYABLE - RELATED PARTY, LESS CURRENT MATURITIES . . . . . . . . .       116,445        517,630

 DEFERRED GAIN - ON BUILDING SALE (NOTE 3(A)). . . . . . . . . . . . . .     1,006,585      1,123,857

 DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . .         5,000          5,000
------------------------------------------------------------------------  -------------  -------------
 TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . .     2,312,658      2,678,042
------------------------------------------------------------------------  -------------  -------------
 COMMITMENTS AND CONTINGENCIES

 STOCKHOLDERS DEFICIT
      Convertible preferred stock, $.0001 par value, 10,000,000 shares
           authorized no shares issued or outstanding. . . . . . . . . .             -              -
      Common stock, $.0001 par value; 50,000,000 shares authorized, and
           18,985,285 and 15,338,907 shares issued and outstanding,
           respectively. . . . . . . . . . . . . . . . . . . . . . . . .         1,898          1,533
      Additional paid-in capital (Note 3(c), 4 & 5). . . . . . . . . . .    12,787,202      8,728,659
      Additional paid-in capital - stock options . . . . . . . . . . . .       750,000        750,000
      Deferred compensation (Note 5) . . . . . . . . . . . . . . . . . .      (250,000)      (250,000)
      Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . .   (13,547,192)   (11,489,550)
------------------------------------------------------------------------  -------------  -------------
 TOTAL STOCKHOLDERS DEFICIT . . .. . . . . . . . . . . . . . . . . . . .      (258,092)    (2,259,358)
------------------------------------------------------------------------  -------------  -------------
                                                                          $  2,054,566   $    418,684
------------------------------------------------------------------------  -------------  -------------
------------------------------------------------------------------------  -------------  -------------

</TABLE>

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

                                       2
                                      PAGE

                          SPACEDEV, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

Three and Six Months Ending                          Three-Months Ending                         Six-Months Ending
    June 30, 2004 and 2003                2004         %         2003        %        2004          %       2003        %
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------
<S>                                   <C>            <C>     <C>           <C>     <C>           <C>     <C>          <C>
 NET SALES . . . . . . . . . . . . .  $ 1,200,692    100.0%  $   753,956   100.0%  $ 2,215,443   100.0%  $ 1,286,795  100.0%

 TOTAL COST OF SALES . . . . . . . .      942,116     78.5%      577,874    76.6%    1,749,639    79.0%    1,039,484   80.8%

 GROSS MARGIN. . . . . . . . . . . .      258,576     21.5%      176,082    23.4%      465,804    21.0%      247,311   19.2%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------
 OPERATING EXPENSES
    Marketing and sales expense. . .      116,132      9.7%      134,005    17.8%      215,284     9.7%      199,047   15.5%
    Research and development . . . .       19,500      1.6%      251,983    33.4%       34,804     1.6%      251,983   19.6%
    General and administrative . . .       90,079      7.5%      155,006    20.6%      170,931     7.7%      524,922   40.8%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------
 TOTAL OPERATING EXPENSES. . . . . .      225,711     18.8%      540,994    71.8%      421,019    19.0%      975,952   75.8%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------
 PROFIT (LOSS) FROM OPERATIONS . . .       32,865      2.7%     (364,912)  -48.4%       44,785     2.0%     (728,641) -56.6%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------
 NON-OPERATING EXPENSE (INCOME)
    Interest expense . . . . . . . .       19,736      1.6%       14,179     1.9%       39,524     1.8%       34,628    2.7%
    Non-cash interest expense
      debt discount (Note 4) . . . .            -      0.0%      100,453    13.3%            -     0.0%      200,908   15.6%
    Gain on Building Sale (Note 3(a))     (29,318)    -2.4%      (29,318)   -3.9%      (58,636)   -2.6%      (48,863)  -3.8%
    Non-Cash Loan Fee -
      Equity Conversions (Note 3(c))     1,329,313   110.7%            -     0.0%     1,793,313   80.9%            -    0.0%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------
 TOTAL NON-OPERATING EXPENSE . . . .     1,319,731   109.9%       85,314    11.3%     1,774,201   80.1%      186,673   14.5%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------

 LOSS BEFORE TAXES . . . . . . . . .    (1,286,866) -107.2%     (450,226)  -59.7%   (1,729,416)  -78.1%     (915,314) -71.1%

 INCOME TAX PROVISION. . . . . . . .             -     0.0%      (37,474)   -5.0%            -     0.0%        2,526    0.2%

 NET LOSS. . . . . . . . . . . . . .  $ (1,286,866) -107.2%  $  (412,752)  -54.7%  $(1,729,416)  -78.1%   $ (917,840) -71.3%
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------
 NET LOSS PER SHARE:
      Net loss . . . . . . . . . . .  $    (0.07)            $    (0.03)           $    (0.09)           $    (0.06)
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------
 Weighted-Average Shares Outstanding    17,986,803            15,092,489             17,410,651           15,092,489
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------
------------------------------------- ------------   ------  -----------  -------  ------------  ------  -----------  -------

</TABLE>

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

                                       3
                                      PAGE

                          SPACEDEV, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

<S>                                                              <C>           <C>
 For the Six Months Ending June 30, 2004 and 2003 . . . . . . .         2004          2003
---------------------------------------------------------------  ------------  ------------
<S>                                                              <C>           <C>
 CASH FLOWS FROM OPERATING ACTIVITIES
      Net loss. . . . . . . . . . . . . . . . . . . . . . . . .  $(1,729,416)  $  (917,840)
      Adjustments to reconcile net loss to net cash
           used in operating activities:
           Depreciation and amortization. . . . . . . . . . . .       32,487       106,201
           Gain on building sale. . . . . . . . . . . . . . . .      (58,636)      (48,863)
           Non-cash interest expense - convertible debt program            -       200,908
           Non-cash loan fees . . . . . . . . . . . . . . . . .    1,793,313             -
           Change in operating assets and liabilities:. . . . .     (274,410)     (159,009)
---------------------------------------------------------------  ------------  ------------
 NET CASH USED IN OPERATING ACTIVITIES. . . . . . . . . . . . .     (236,662)     (818,603)
---------------------------------------------------------------  ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES
      Proceeds from the sale of building. . . . . . . . . . . .            -     3,150,124
      Purchases of fixed assets . . . . . . . . . . . . . . . .      (79,951)       (3,100)
---------------------------------------------------------------  ------------  ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES . . . . . .      (79,951)    3,147,024
---------------------------------------------------------------  ------------  ------------
 CASH FLOWS FROM FINANCING ACTIVITIES
      Principle payments on notes payable . . . . . . . . . . .      (23,792)   (2,524,537)
      Principal payments on capitalized lease obligations . . .       (7,883)      (16,741)
      Payments on notes payable - related party . . . . . . . .     (415,000)     (159,999)
      Proceeds from issuance of common stock. . . . . . . . . .      978,889       425,942
      Proceeds from revolving credit facility . . . . . . . . .      418,922             -
---------------------------------------------------------------  ------------  ------------
 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES. . . . . .      951,136    (2,275,335)
---------------------------------------------------------------  ------------  ------------
 NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . .      634,523        53,086
---------------------------------------------------------------  ------------  ------------
 CASH AT BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . .      592,006        27,648
---------------------------------------------------------------  ------------  ------------
 CASH AT END OF PERIOD. . . . . . . . . . . . . . . . . . . . .  $ 1,226,529   $    80,734
---------------------------------------------------------------  ------------  ------------
---------------------------------------------------------------  ------------  ------------

</TABLE>

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

                                       4
                                      PAGE

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

<TABLE>
<CAPTION>

<S>                                                  <C>      <C>
 For the Six Months Ending June 30, 2004 and 2003 .     2004     2003
---------------------------------------------------  -------  -------

 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for:
           Interest . . . . . . . . . . . . . . . .  $82,614  $15,494
---------------------------------------------------  -------  -------

</TABLE>


 NONCASH  INVESTING  AND  FINANCING  ACTIVITIES:
--------------------------------------------------------------------------------
During  the  six-months ending June 30, 2004 the Company issued 1,403,182 shares
     of  its  common  stock to the Laurus Master Fund from conversions under its
     revolving  credit  facility, thereby realizing a corresponding reduction in
     current  liabilities  of  approximately  $772,000  The   Company   recorded
     additional non-cash loan fees of approximately $1,178,000 and charged these
     fees  to  expense.
--------------------------------------------------------------------------------

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

                                       5
                                      PAGE

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       BASIS  OF  PRESENTATION

The  accompanying  consolidated  financial  statements  of  SpaceDev, Inc. ("the
Company")  include  the  accounts  of  the  Company and its inactive subsidiary,
SpaceDev,  Inc.,  an  Oklahoma  corporation.  In  the opinion of management, the
consolidated  financial statements reflect all normal and recurring adjustments,
which are necessary for a fair presentation of the Company's financial position,
results  of  operations  and  cash  flows  as  of  the dates and for the periods
presented.  The  consolidated  financial  statements  have  been   prepared   in
accordance  with  generally accepted accounting principles for interim financial
information.  Consequently,  these  statements  do  not  include all disclosures
normally  required  by  generally  accepted  accounting principles of the United
States  of America for annual financial statements nor those normally made in an
Annual  Report  on  Form  10-KSB.  Accordingly,  reference should be made to the
Company's Form 10-KSB filed on April 6, 2004 and other reports the Company filed
with  the  U.S.  Securities  and Exchange Commission for additional disclosures,
including  a  summary  of  the  Company's  accounting  policies,  which have not
materially  changed.  The  consolidated results of operations for the six-months
ending  June  30,  2004  are  not  necessarily indicative of results that may be
expected  for the fiscal year ending December 31, 2004 or any future period, and
the  Company  makes  no  representations  related  thereto.

As  of  June  30,  2004,  management  continues  the  opinion that the Company's
auditors,  PKF,  expressed  in their formal auditors' opinion dated February 11,
2004  (except  for Note 11 as to which the date is April 5, 2004), that in their
opinion,  based  on their audit, the Company's consolidated financial statements
referred  to  herein  present fairly, in all material respects, the consolidated
financial position of SPACEDEV, INC. AND SUBSIDIARY as of December 31, 2003, and
the consolidated results of the Company's operations and cash flows for the year
then  ended,  in conformity with accounting principles generally accepted in the
United States of America.  The accompanying consolidated financial statements as
of  June  30,  2004  have  been prepared assuming the Company will continue as a
going  concern.  During  the first six-months of 2004, the Company had a working
capital balance of $685,834 and incurred a net loss of $1,729,416 as compared to
a  working  capital  deficit of $736,244 and a net loss of $917,840 for the same
six-month  period  in  2003.  On  March  31,  2004,  the  Company  was awarded a
$43,362,271  contract from the Missile Defense Agency.  The first task order was
awarded  on  April  1,  2004.  Management  intends  to obtain new commercial and
government  contracts,  continue  to utilize (and possibly expand) its revolving
credit facility and possibly raise some additional equity capital in a public or
private  offering  or  fund-raising  effort.  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.  Management does believe that, if current contracts remain
on  schedule  and  are  funded  as expected, they will be sufficient to fund the
Company  through  2004.

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.

Beginning  in  the  second  quarter  of 2002, the Company's capitalized software
costs  were  amortized over their estimated useful lives using the straight-line
method.  Periodically  and  at  least annually, management performs a review for
impairment  in  accordance  with SFAS No. 144.  During the six-months ended June
30,  2003,  these  capitalized  software costs were $70,133 leaving a balance of
$33,375,  which  was  fully  amortized  in  2003.

                                       6
                                      PAGE

2.       REVENUE  RECOGNITION

The  Company's  revenues  for  the  six-months  ended June 30, 2004 were derived
primarily  from  United  States  government cost plus fixed fee (CPFF) contracts
compared  to  a predominance of fixed price contracts for the same six-months in
2003.  Revenues from the CPFF contracts during the first six-months of 2004 were
recognized  as  expenses  were  incurred  compared  to revenues from fixed price
contracts  for  the  same  period  in  2003,  which  were  recognized  using the
percentage-of-completion  method.  Estimated  contract  profits  are  taken into
earnings  in  proportion to revenues recorded.  Revenues under certain long-term
fixed  price  contracts, which provide for the delivery of minimal quantities or
require  significant amounts of development effort in relation to total contract
value,  are  recorded  upon  achievement  of performance milestones or using the
cost-to-cost  method of accounting where revenues and profits are recorded based
on the ratio of costs incurred to estimated total costs at completion.  Time and
material  revenues  are recognized as services are preformed and costs incurred.
Losses  on  contracts  are  recognized  when  estimated  costs  are   reasonably
determined.  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 depending on the terms and conditions of
the  specific  contract.  Time  and material revenues are recognized as services
are  performed  and  costs  incurred.

Deferred  revenue  represents  amounts  collected  from  customers for projects,
products  or services to be provided at a future date.  Deferred revenue for the
six-months  ended  June  30, 2004 and 2003 was $33,400 and $5,000, respectively.

In  November  1999,  the  Company  was awarded a turnkey mission contract by the
Space  Sciences  Laboratory  at the University of California at Berkeley ("UCB")
worth,  as  of  December  31, 2003, approximately $7.4 million, including change
orders  worth  approximately  $514,000.  This  contract  represented  14% of the
Company's  revenues  for  the  year  ending  December  31,  2003.  The  contract
concluded  on  December  31,  2003.  The  micro  satellite  developed under this
mission,  called  CHIPSat,  continues to operate successfully and UCB decided to
extend  the  mission.  On  February  25, 2004, a new time and materials purchase
order  arrangement  was initiated, on an as needed basis, between the University
of  California  at  Berkeley  and  the  Company.

3.     NOTES  PAYABLE

a)     Building  and  Settlement  Notes

In  December  2002, the Company entered an agreement to sell its interest in its
facility.  The  transaction  closed  in  January  2003.  The  escrow transaction
included  the  sale  of the land and building.  Net fixed assets were reduced by
approximately  $1.9 million and notes payable were reduced by approximately $2.4
million  while  a deferred gain was recorded.  In conjunction with the sale, the
Company  entered  into  a  lease  agreement  with  the  buyer  to  leaseback its
facilities.  The  Company's Chief Executive Officer provided a guarantee for the
leaseback.  The  gain  on the sale of the facility was deferred and amortized in
proportion to the gross rental charged to expense over the lease term.  Deferred
gain  of  $1,172,720 is being amortized at the rate of $117,272 per year for ten
(10)  years  ending in January 2013.  As of June 30, 2004, the deferred gain was
$1,006,585.  This  amortization  will be included in the Company's occupancy and
facility  expense and totaled $58,636 and $48,863 for the six-months ending June
30,  2004  and  2003,  respectively.

                                       7
                                      PAGE

Deferred  Gain  consisted  of  the  following:

Six-Months  Ending  June  30,  2004
-------------------------------------
Original Deferred Gain     $1,172,720
Less Amortization 2003      (107,499)
Less Amortization 2004       (58,636)
-------------------------------------
                           $1,006,585
-------------------------------------
-------------------------------------


In  2001, the Company entered into three settlement loan agreements with various
vendors.  The  total  of $171,402 for all three loans called for payment between
24  and 50 months with interest that ranges from 0% to 8%.  At June 30, 2004 and
2003,  the  outstanding  balances  on  these  notes  were  $63,799 and $117,260,
respectively,  with interest expense for the six-months ending June 30, 2004 and
2003  of  $1,847  and  $2,685,  respectively.

Future  minimum  principal  payments  on  settlement  notes  are  as  follows:

Period  Ended  June  30,
----------------------------------
2004                       $35,778
2005                        28,021
2006                             0
----------------------------------
Total Settlement Notes     $63,799
----------------------------------
----------------------------------

b)     Related  Parties

The  Company  has  a  note  payable  to the CEO.  At June 30, 2004 and 2003, the
balances  were  $196,445  and  $597,630, respectively, with interest accruing at
10%.  The  note was amended on March 20, 2000 to call for annual payments of not
less  than  $80,000  per  year  with  interest at 10%.  The Company is currently
making  principal  and  interest  payments  on  the  note.

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

Period  Ending  June  30,
-------------------------
2004              $80,000
2005               80,000
2006               36,445
2007                    0
-------------------------
                 $196,445
-------------------------
-------------------------

Interest  expense on this note was $25,923 and $23,633 for the six-month periods
ending  June  30,  2004  and  2003,  respectively.

                                       8
                                      PAGE

c)     Revolving  Credit  Facility.

On  June  3,  2003,  the  Company  entered  into  a  Security Agreement, Secured
Convertible  Note,  Registration  Rights  Agreement  and  Common  Stock Purchase
Warrant,  with Laurus Master Fund, Ltd. ("Laurus"), which were filed on Form 8-K
dated  June  18,  2003.  Pursuant  to  the agreements, the Company received a $1
million  revolving  credit facility in the form of a three-year Convertible Note
secured  by its assets.  The net proceeds from the Convertible Note are used for
general  working  capital needs.  Advances on the Convertible Note may be repaid
at the Company's option, in cash or through the issuance of the Company's shares
of  common  stock.  The  Convertible  Note carries an interest rate of WSJ Prime
plus  0.75% on any outstanding balance.  In addition, the Company is required to
pay  a  collateral  management  payment  of  0.55%  of  the  average   aggregate
outstanding  balance  during  the month plus an unused line payment of 0.20% per
annum.  Approximately $11,900 in interest and $16,255 in fees were accrued under
the  revolving credit facility in the first six-months of 2004.  The outstanding
balance  on  the  revolving  credit  facility  at  June  30,  2004 was $408,003.

The  Company  filed  Form  SB-2  on  July  25,  2003  in  connection  with  this
transaction.  The  shares  were  registered  with  the  Securities  and Exchange
Commission  ("SEC")  for public resale on August 6, 2003.  Once the market price
exceeded 118% of the fixed conversion price, which occurred on or about July 21,
2003,  the  Company  obtained  the  ability to pay amounts outstanding under the
revolving  credit  facility  in  cash or shares of its common stock at the fixed
conversion  price  of  $0.55  per  share  on  the first $1 million of principal.

The  Convertible  Note  includes  a  right of conversion in favor of Laurus.  If
Laurus  exercises  its  conversion  right at any time or from time to time at or
prior  to maturity, on any outstanding balance at the time, the Convertible Note
is  convertible  into shares of the Company's common stock at a fixed conversion
price,  subject  to adjustments for stock splits, combinations and dividends and
for  shares  of  common  stock  issued  for less than the fixed conversion price
(unless  exempted  pursuant  to  the agreements).  The agreement was modified on
March  31,  2004  to provide for a six-month waiver to us and a fixed conversion
price  to  Laurus  of  $0.85  per share on the first $500,000 after the first $1
million.  Thereafter,  the  fixed  conversion  price  will  be   adjusted  after
conversion  of  the  first $1.5 million to 103% of the then fair market value of
our  common  stock  ("Adjusted  Fixed  Conversion  Price").

Laurus  converted  1,403,182 shares to reduce the Company's debt by $771,750 for
the  six-month  period  ending  June  30,  2004.  Laurus  converted  a  total of
1,818,182  shares  to  reduce  the debt by $1,000,000 since the inception of the
revolving  credit  facility.  For the six-month period ending June 30, 2004, the
Company  expensed $1,177,846 for the non-cash loan fee expense based on the fair
market value of the stock when Laurus converted and approximately $1,304,000 for
the  non-cash  loan  fee  expense  since  the  inception of the revolving credit
facility.  The  fair  market  value  used  in  2003  was established using a 20%
discount  to the closing price on the date of conversion based on the restricted
and  thinly-traded nature of the Company stock in 2003 and the fair market value
used  in  2004 was established using the closing price on the date of conversion
with  no  discount  taken  due  to  the increased volume in the Company's stock.

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

                                       9
                                      PAGE

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,  as  stated  herein.  The  warrant  exercise  price is
computed  as  follows: $0.63 per share for the purchase of up to 125,000 shares;
$0.69  per share for the purchase of an additional 50,000 shares; and  $0.80 per
share  for  the  purchase  of an additional 25,000 shares.  The warrant exercise
price  may  be  paid  in  cash, in shares of the Company's common stock, or by a
combination  of both.  The warrant expiration date is June 3, 2008.  The warrant
exercise  price  and  the number of shares underlying the warrant are subject to
adjustments  for  stock  splits,  combinations  and  dividends.

In  addition  to  the  initial  warrant,  the  Company  is obligated to issue an
additional  five-year warrant to Laurus to purchase one share of common stock at
an exercise price equal to 125% of the Adjusted Fixed Conversion Price for every
ten  dollars  ($10)  in  principal of the Convertible Note converted into common
stock  if  and  when  over  $1  million  is converted under the revolving credit
facility.  The  value  of the warrant will be determined if and when issued, and
will  be  treated  as additional interest expense and will be amortized over the
remaining  term of the Convertible Note, unless sooner terminated.  No more than
an aggregate of 100,000 shares of the Company's common stock may be purchased by
Laurus  under  such  additional  warrants.

The  Company  may  terminate  its  agreements  with Laurus before the end of the
initial  three  year  term  and  Laurus will release its security interests upon
payment  to  Laurus  of all obligations, if the Company has: (i) provided Laurus
with  an  executed  release  of  all claims which the Company may have under the
agreements;  and, (ii) paid to Laurus an early payment fee in an amount equal to
(x)  four percent (4%) of the Capital Availability Amount if such payment occurs
prior  to  the  first  anniversary of the Initial Term (i.e., June 3, 2004); (y)
three  percent  (  3%) of the Capital Availability Amount if such payment occurs
after  the  first anniversary and prior to the second anniversary of the Initial
Term;  and,  (z)  two  percent  (2%)  of the Capital Availability Amount if such
payment  occurs after the second anniversary and prior to the end of the Initial
Term.  The early payment fee is also due and payable by the Company to Laurus if
the  Company  terminates  its  Agreement  after  the  occurrence  of an Event of
Default,  as  define  in  the  agreements.

4.     CONVERTIBLE  DEBT  NOTES  PAYABLE

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

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

                                      10
                                     PAGE

All  debt  discounts are to be amortized as additional interest expense over the
term  of the convertible debenture.  As of June 30, 2003, $475,000 was reflected
as  debt  discount  of which $200,908 was amortized to non-cash interest expense
for  the  six-months  ending  June 30, 2003.  Fair market value of the stock was
determined  by  discounting  the  closing  market  price  on  the  date  of  the
transaction  by 20%, based on the nature of the restricted securities and thinly
traded  stock.

On September 5, 2003, the Company repaid one-half of the convertible notes, with
the condition that the note holders convert the other half. Also, as a condition
of  the partial repayment, the note holders were required to relinquish one-half
of  the previously issued warrants. Finally, as additional consideration for the
transaction,  the  note  holders were offered 5% interest on their notes, rather
than  the  stated  2.03%.  All  of  the  note holders accepted the offer and the
convertible  notes  were  retired.

Balances  as  of  June  30,  2004  were:


<TABLE>
<CAPTION>

<S>                                           <C>            <C>
Convertible debentures - beginning balance .                 $ 475,000
     Total interest expense incurred . . . .  $  20,236
     Accrued interest paid - current year. .  $ (18,161)
     Accrued interest paid - prior year. . .  $  (2,075)
     Convertible debtures paid . . . . . . .  $(237,500)
     Convertible debtures converted. . . . .  $(237,500)
                                              ----------
                                              $(475,000)
                                              ----------
Convertible debentures - ending balance. . .                $       0
--------------------------------------------                ----------

Debt discount (Warrants) - beginning balance                $ 475,000
     Amount forfeited. . . . . . . . . . . .  $(237,500)
     Amount expensed prior year. . . . . . .  $(125,000)
     Amount expensed current year. . . . . .  $(267,879)
     Current year - adjustment . . . . . . .  $ 155,379
                                              ----------
                                              $(475,000)
                                              ----------
Debt discount (Warrants) - ending balance. .                $       0
--------------------------------------------                ----------
</TABLE>

5.     STOCKHOLDERS'  EQUITY  -  COMMON  STOCK  AND  WARRANTS

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

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

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

                                      11
                                     PAGE

The  Company has elected to account for its stock-based compensation plans under
APB  25.  However,  the Company has computed, for pro forma disclosure purposes,
the value of all options granted during the period ending June 30, 2004 and 2003
using  the  minimum  value  method as prescribed by SFAS 123 and amended by SFAS
148.  Under  this  method,  the  Company used the risk-free interest rate at the
date  of  grant,  the  expected  volatility, the expected dividend yield and the
expected  life  of  the  options to determine the fair value of options granted.
The  risk-free  interest rates ranged from 6.0% to 6.5%, expected volatility was
117%,  the  dividend  yield was assumed to be zero, and the expected life of the
options  was  assumed  to  be  three  to five years based on the average vesting
period  of  options  granted.

If  the Company had accounted for these options in accordance with SFAS 123, the
total  value of options granted during the six-month period ending June 30, 2004
and  2003 would be amortized on a pro forma basis over the vesting period of the
options.  Thus,  the Company's consolidated net loss would have been as follows:

Six-Months  Ending  June  30,     2004            2003
-----------------------------     -----------     ------------
Net  loss:
 As  reported                    $(1,729,416)       $(917,840)
 Pro  forma                      $(1,863,048)     $(1,056,426)
-----------------------------     -----------     ------------
Loss  per  Share:
 As  reported                          $(.09)           $(.06)
 Pro  forma                            $(.10)           $(.07)
-----------------------------     -----------     ------------
-----------------------------     -----------     ------------

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

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

<TABLE>
<CAPTION>

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

</TABLE>

All  options  expire  on  July  16,  2010.

                                      12
                                     PAGE

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

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

6.     NEW  ACCOUNTING  PRONOUNCEMENTS

There  were  no  recent Accounting Pronouncements that affect the Company during
the  second  quarter  2004.  For  past pronouncements please refer the Company's
10-KSB  filed  on  April  6,  2004.

                                      13
                                     PAGE

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

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

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

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

OVERVIEW

We  are engaged in the conception, design, development, manufacture, integration
and  operation  of  space  technology  systems,  products  and services.  We are
currently  focused  on the commercial and military development of low cost micro
satellites, nano satellites 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
nano  satellites,  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  micro  satellite and nano satellite products and services in the long-term,
the early adopters of this technology appears to be government military agencies
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.

                                      14
                                     PAGE

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

SELECTION  OF  SIGNIFICANT  CONTRACTS

On  March  31, 2004, we were awarded a five-year, cost-plus-fixed fee indefinite
delivery/indefinite  quantity  contract for up to $43,362,271 to conduct a micro
satellite  distributed  sensing experiment, an option for a laser communications
experiment,  and  other  micro  satellite studies and experiments as required in
support  of  the  Advanced Systems Deputate of the Missile Defense Agency.  This
effort  will  be  accomplished  in  a phased approach, with the first task order
awarded  on April 1, 2004.  The total five-year contract has a ceiling amount of
$43,362,271.  The  principal place of performance will be Poway, California.  We
expect  to  complete  the work under the contract before March 2009.  Government
contract funds will not expire at the end of the current government fiscal year.
The  micro  satellite  distributed  sensing experiment is intended to design and
build  up  to  six  responsive, affordable, high performance micro satellites to
support  national  missile  defense.  The milestone-based, multiyear, multiphase
contract  has  an effective start date of March 1, 2004.  Approximately $557,000
of  revenue  has  been  generated  since the beginning of this contract of which
$62,000  was  accrued  for  work  performed in March 2004 but not invoiced until
April  2004  due to the late execution date of the contract.  The first phase is
expected to be completed this year and will result in detailed mission and micro
satellite  designs.  The  estimated  first  phase  revenue is $1.1 million.  The
overall contract calls for us to analyze, design, develop, fabricate, integrate,
test,  operate  and  support a networked cluster of three formation-flying boost
phase  and  midcourse  tracking  micro  satellites,  with  an  option to design,
develop,  fabricate,  integrate,  test,  operate and support a second cluster of
three formation flying micro satellites to be networked on-orbit with high speed
laser communications technology.  The second phase is anticipated to begin on or
before  October  1,  2004  and  run  through  2005.

On  October 2, 2003, we were awarded an exclusive, follow-on contract to provide
the hybrid rocket motor systems and components for SpaceShipOne.  We provide our
facilities,  resources  and  a  team  of  launch  vehicle  and hybrid propulsion
engineers  and  technical  personnel  in  continued  support of the SpaceShipOne
program.  The  contract  called  for  us  to use our best efforts to satisfy the
requirements of the SpaceShipOne program, based on our experience with the prior
phases.  We are to provide two sets of re-usable flight test hardware, including
a  bulkhead,  commonly  known  as  the SpaceDev bulkhead, machined in the flight
configuration,  a  main  oxidizer  valve  of  the  current design and associated
interfaces  and  plumbing  to  the  SpaceDev  bulkhead,  a motor control system,
igniter  housings, pressure transducers, and thermocouples as required for input
to  the  motor  control  system.  In addition, we will produce and assemble test
motors,  including but not limited to, all expendable or semi-reusable materials
as  defined  by  our  baseline  design  motor.  We  are also required to provide
on-site engineering test support and post-test analysis.  Provisions are made in
the  contract  for  minimum  monthly  payments in the event of customer schedule
slippage  as well as additional levels of support via engineering change orders,
if  required.  The total contract value is estimated at $429,000.  Approximately
$394,000  of  revenue  was realized in the six-months ending June 30, 2004, with
approximately  $98,000 from engineering change orders and the remaining $296,000
from  the  contract.

                                      15
                                     PAGE

On  July  9,  2003,  we  were  awarded  a contract by the Missile Defense Agency
("MDA")  to explore the use of micro satellites in national missile defense.  It
was a precursor contract to the $43 million contract mentioned above.  Our micro
satellites  are  operated  over  the  Internet  and  are capable of pointing and
tracking  targets  in space or on the ground.  This study explored fast response
micro  satellite  launch  and  commissioning;  small, low-power passive sensors;
target  acquisition  and  tracking;  formation  flying and local area networking
within  a cluster of micro satellites; and an extension of our proven use of the
Internet  for  on-orbit  command,  control  and data handling.  The contract was
successfully  concluded  on  February  27,  2004.  The  total contract value was
$800,000 with approximately $318,000 of revenue realized in the six-month period
ending  June  30,  2004.  The total value of our micro satellite studies for MDA
was  over  $1  million  in  2003.  This contract was considered an investigatory
phase  by  MDA.

Also,  on  July  9,  2003,  we  were awarded a Phase I Small Business Innovation
Research  ("SBIR")  contract  by  Air  Force Research Lab ("AFRL") to design and
begin the development of the SpaceDev Streaker(TM) small launch vehicle ("SLV").
SpaceDev Streaker(TM) will be designed to responsively and affordably lift up to
1,000  pounds to Low Earth Orbit. The SpaceDev Streaker(TM) SLV concept is based
on  a  proprietary  combination  of  technologies to increase the performance of
hybrid  rocket motor technology. Hybrid rocket motors are a combination of solid
fuel  and liquid oxidizer, and can be relatively safe, clean, non-explosive, and
storable, and can be throttled, shut down and restarted. This contract is valued
at  approximately  $100,000,  and  is  a fixed price, milestone-based agreement,
which  should  be completed within one year. We believe that this SBIR will move
into  Phase  II  valued  at approximately $750,000 of carry-forward work for us,
plus  an  additional $750,000 of funds provided by Congress based on discussions
with  AFRL technical personnel. This money will be used to develop and test fire
our  large  Common Core Booster for the SpaceDev Streaker(TM) launch vehicle. We
believe  that  there  may  be  some interest by Congress in providing additional
matching  funding to expand and accelerate the scope of the work; however, there
can  be  no  assurance  that  such  work will be awarded to us. Revenues for the
six-month  period  ending  June  30,  2004  were  approximately  $48,000.

Finally,  on  July  9, 2003, we were awarded a Phase I contract to develop micro
and nano satellite bus and subsystem designs. This AFRL SBIR contract, valued at
approximately $100,000, will enable us to explore the further miniaturization of
our unique and innovative micro satellite subsystems.  It will also enable us to
explore  ways  to  reduce  the  time  and cost to build small satellites through
further  standardization  in order to help define de facto standards for payload
hardware  and software interfaces.  The contract is fixed price, milestone-based
and  should  be  completed within one year.  We believe that this SBIR will move
into  Phase  II  valued  at approximately $750,000 of carry-forward work for us;
however,  there  can  be  no  assurance  that  such  work will be awarded to us.
Revenues  for  the  six-month  period  ending  June  30, 2004 were approximately
$32,000.

On  December  18,  2003,  we  were  awarded  a  contract by the Defense Advanced
Research  Projects  Agency  ("DARPA")  for  the  study  of Novel Satcom Microsat
Constellation  Deployment.  The  contract  is  a  milestone-based,  fixed  price
contract  with  total consideration of approximately $200,000.  Revenues for the
six-month period ending June 30, 2004 were approximately $136,000.  We expect to
either expand this award or obtain new awards under this program; however, there
can  be no assurance as to whether such work will be awarded to us or, if it is,
the  amounts  or  terms  of  the  awards.

                                      16
                                     PAGE

On  April  30,  2002,  we  were  awarded  Phase  I  of  a  contract to develop a
Shuttle-compatible  propulsion  module for AFRL.  We received an award for Phase
II of the contract on March 28, 2003, and will use the project to further expand
our  product  line  to  satisfy  commercial  and government space transportation
requirements.  The  first  two  phases  of the contract (including an additional
add-on option) are worth up to approximately $2.5 million, of which $100,000 was
awarded  for  Phase  I, and approximately $1.4 million was awarded for Phase II.
AFRL  Phase  II  is  a  cost-plus fixed fee contract.  In order to complete AFRL
Phase  II, we requested and were granted approximately four months of additional
time  and  approximately  $240,000  of  additional  funding,  memorialized  by a
contract  amendment  executed  on  July 7, 2004.  In addition to the Phase I and
Phase  II  awards,  there  is  an option worth approximately $800,000, which was
initiated on May 3, 2004.  The additional funding to complete AFRL Phase II came
in  part  from  the  original  $1 million option; thereby reducing the option to
approximately  $800,000.  Revenues for the six-month period ending June 30, 2004
were  approximately  $663,000 for AFRL Phase II, including the exercised option.

In  November  1999,  we won a $4.9 million turnkey mission contract by the Space
Sciences Laboratory ("SSL") at UCB. We were competitively selected by UCB/SSL to
design, build, integrate, test and operate, for one year, a small NASA-sponsored
scientific,  Earth-orbiting  spacecraft called CHIPSat. CHIPSat is the first and
only  successful  mission  of NASA's low-cost University-Class Explorer ("UNEX")
series  to date. CHIPSat launched as a secondary payload on a Delta-II rocket on
January  12,  2003.  The satellite achieved 3-axis stabilization, meaning it was
pointing  and  tracking  properly,  with  all  individual components and systems
successfully  operating, and is continuing to work well in orbit after one year.
In  2000,  we  reviewed  the contract status at year-end and determined that the
total estimated costs at the end of the program would exceed the likely revenue.
As  a  result, we accrued a loss of approximately $860,000 based on the expected
contract  modification  of  $600,000,  which  was  approved on June 15, 2001. On
November  28,  2001,  a  second contract modification was signed with UCB, which
added  approximately  $1.2  million  to  the  contract as well as an increase in
contract  scope. This increased the total contract revenue to approximately $6.8
million  and  reduced  the  total expected loss on the contract to approximately
$460,000.  During  2002,  an  additional contract modification for approximately
$400,000  was  signed, which also increased the contract value and increased the
scope  of  the  contract  to  the  current  value  of  the  CHIPSat  project  of
approximately  $7.4  million,  thereby  increasing  the  total  expected loss to
approximately $514,000. In retrospect, some of the CHIPSat expenses creating the
loss  could have been recorded as research and development costs associated with
our  ongoing satellite design and development programs. As of December 31, 2003,
the  total  contract  costs  were  expended,  mainly  as cost of goods sold. The
original  support  contract  expired  on  December  31,  2003.  CHIPSat is still
operating  successfully  and  providing  UCB  with new and interesting data. UCB
requested  to  extend  the  program  and  we negotiated a new time and materials
contract  in  the first quarter of 2004 in the form of a purchase order with UCB
for  continuing  support  of  this project. The contract will continue until UCB
decides  that  no  further  relevant  information  is  forthcoming or funding is
terminated, at which time the use of the micro satellite will revert to NASA and
then  to  us.  Revenues  for the six-month periods ending June 30, 2004 and 2003
were  approximately  $22,000  and  $331,000,  respectively.

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.

                                      17
                                     PAGE

      Six-Months Ending June 30, 2004 -vs.- Six-Months Ending June 30, 2003

During  the  six-months  ending June 30, 2004, we had net sales of approximately
$2,215,000  as  compared  to  net sales of approximately $1,287,000 for the same
six-month period in 2003, an increase of over 65%. Sales increased primarily due
to  the addition and expansion of government contacts, e.g., AFRL and MDA, which
created  new  revenue  opportunities  for  us.  Revenues in the six-month period
ending  June  30,  2004 were comprised of approximately $663,000 from AFRL Phase
II,  $557,000  from  MDA  Phase  I, $318,000 from the MDA Phase 0, $394,000 from
SpaceShipOne,  $136,000  from  our  DARPA  contract,  $80,000  from the two SBIR
contracts  listed  above  and  $66,000  from all other programs. During the same
period  of  2003,  sales  were   comprised  of   approximately   $397,000   from
SpaceShipOne,  $250,000 from the MDA project, $331,000 from the CHIPSat program,
$242,000 from Phase I and Phase II of the AFRL project and approximately $67,000
from  all  other  programs.

For the six-month period ending June 30, 2004, we had costs of sales (direct and
allocated  costs  associated   with  individual   contracts)  of   approximately
$1,749,000,  or  79.0% of net sales, as compared to approximately $1,039,000, or
80.8%  of  net  sales,  during  the same period in 2003. The increase in cost of
sales  was  primarily  due  to higher revenues since the majority of our current
contracts  are  cost  plus  fixed fee contracts. We continue to focus efforts on
developing  project management skills and reports to assist in the efficient and
effective  management  of  our  projects.  The  gross  margin percentage for the
six-month  period  ending  June  30, 2004 was 21.0% of net sales, an increase of
1.8%  of  net  sales,  as  compared to 19.2% of net sales for the same six-month
period  in  2003.

We  experienced  a decrease of approximately $555,000 in operating expenses from
approximately  $976,000,  or 75.8% of net sales, for the six-month period ending
June 30, 2003 to approximately $421,000 or 19.0% of net sales, for the six-month
period  ending  June  30,  2004.   Operating  expenses   include   general   and
administrative  expenses  ("G&A"), marketing and sales expenses and research and
development  expenses  as  well  as  stock  and  stock option based compensation
expenses.  Fluctuations  in  operating expenses for 2004 from 2003 are primarily
attributable  to  the  following:

     -  Marketing  and  sales  expenses increased during the first six-months of
     2004  compared  to  the  same period in 2003. The increase in marketing and
     sales  expense, from approximately $199,000, or 15.5% of net sales, for the
     six-month  period  ending June 30, 2003, to approximately $215,000, or 9.7%
     of  net  sales, during the same period in 2004, are mainly due to personnel
     expenses  related  to  our  decision  to  expand  the  marketing  and sales
     department.

     -  Research  and  development  ("R&D")  expenses decreased during the first
     six-months  of  2004  from  approximately $252,000 or 19.6% of net sales in
     2003 to approximately $35,000 or 1.6% of net sales for the six-month period
     ending  June  30,  2004,  mainly  due  to our decision to focus our limited
     resources  on billable projects and develop new technologies under existing
     contracts.

     - The decrease of approximately $354,000 in G&A expenses from approximately
     $525,000  for  the  six-month  period ending June 30, 2003 to approximately
     $171,000  for  the  same  six  month  period  in  2004 was primarily due to
     software  amortization  expense  of  $69,000, which is no longer present in
     2004  as  well  as  refinement  of  our  allocation  model to appropriately
     classify  certain  expenses  as  cost  of  goods  sold  rather  than  G&A.

Non-operating  expense  (income)  consists  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.

                                      18
                                     PAGE

     -  Interest  expense for the six-month period ending June 30, 2004 and 2003
     was  approximately  $39,500,  or 1.8% of net sales, and $34,600, or 2.7% of
     net sales, respectively. The slight increase was due to accrued interest on
     our revolving credit facility. Interest expense is comprised of interest on
     our  note to our CEO, interest on our revolving credit facility/convertible
     debt and interest on our settlement notes/capital leases. For the six-month
     period  ending  June 30, 2004 and 2003, interest expense on our note to our
     CEO  was approximately $25,900 and $24,000, respectively. For the six-month
     period  ending  June  30,  2004 and 2003, interest expense on our revolving
     credit  facility/convertible debt was $11,900 and $4,900, respectively. And
     interest  expense  on our settlement notes/capital leases for the six-month
     period  ending June 30, 2004 and 2003 were approximately $1,800 and $2,700,
     respectively.

     -  We  recognized approximately $58,600 and $48,900 of the deferred gain on
     the  sale of the building during the six-month periods ending June 30, 2004
     and  2003,  respectively,  and  we  will continue to amortize the remaining
     deferred  gain  of  approximately $1,006,600 into non-operating income over
     the  remainder  of  the  lease.  In relation to the gain we received on the
     building,  we  also accrued an income tax payable expense of $2,526 at June
     30,  2003 of which none remained at December 31, 2003. The reduction of the
     income  tax  payable  was  due to a change in estimate based on the loss we
     experienced  during  the  year.

     -  During  the  six-month  period  ending  June  30,  2003,  we expensed in
     conjunction  with  our  convertible notes, part of the existing convertible
     debt  discount  related  to  warrants that accompanied the convertible debt
     issue  in  2002  of approximately $475,000, of which approximately $201,000
     was  expensed  during  the  six-months  ended  June  30,  2003  and paid or
     converted  in  September  2003.  There  was  no debt discount for the first
     six-months  of  2004.

     -  -  We realized $1,793,000 in loan fees of which approximately $1,178,000
     was related to our revolving credit facility and approximately $615,000 was
     related  to the conversion of notes to common stock below fair market value
     for  the  six-month  period  ending June 30, 2004. We accrued approximately
     $11,900  of  interest  for  the  six-month  period ending June 30, 2004. We
     anticipate  additional  expenses  related  to  similar   note   to   equity
     conversions.

During  the  six-month  period  ending  June 30, 2004, we incurred a net loss of
approximately  $1,729,000,  or  78.1%  of  net  sales, compared to a net loss of
approximately  $918,000, or 71.3% of net sales, for the same six-month period in
2003.  During  the  six-month period ending June 30, 2004, we incurred an EBITDA
(earnings  before interest taxes depreciation and amortization) of approximately
$77,000,  or  3.5%  of  net  sales,  compared to an EBITDA loss of approximately
<$622,000>,  or  <48.4> % of net sales, for the six-month period ending June 30,
2003.

The  following  table  reconciles  EBITDA  to  net loss for the six-month period
ending  June  30,  2004  and  2003,  respectively:

<TABLE>
<CAPTION>


FOR THE SIX-MONTHS ENDING               JUNE 30, 2004   June 30, 2003
                                         (UNAUDITED)     (Unaudited)
<S>                                     <C>             <C>
NET LOSS (INCOME). . . . . . . . . . .     (1,729,416)       (917,840)
--------------------------------------  --------------  --------------

Interest Expense . . . . . . . . . . .         39,524          34,628
Non-Cash Interest exp. (Debt Discount)              -         200,908
Gain on Building Sale. . . . . . . . .        (58,636)        (48,863)
 Loan Fee - Equity Conversion. . . . .      1,793,313               0
Provision for income taxes . . . . . .              -           2,526
Depreciation and Amortization. . . . .         32,487         106,201
--------------------------------------  --------------  --------------
EBITDA . . . . . . . . . . . . . . . .         77,272        (622,440)
--------------------------------------  --------------  --------------
--------------------------------------  --------------  --------------
</TABLE>

                                      19
                                     PAGE

EBITDA  should  not be considered as an alternative to net income or loss (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.

    Three-Months Ending June 30, 2004 -vs.- Three-Months Ending June 30, 2003

We  recorded  our  sixth  consecutive  quarter  of  revenue  growth.  During the
three-month  period  ending  June  30,  2004,  we had net sales of approximately
$1,201,000  as  compared  to  net  sales  of approximately $754,000 for the same
three-month period in 2003, an increase of over 59.3%. Sales increased primarily
due  to  the addition and expansion of our contracts such as AFRL and MDA, which
created  new  revenue  opportunities  for us. Revenues in the three-month period
ending  June 30, 2004 were comprised of approximately $557,000 from MDA Phase I,
$250,000  from AFRL Phase II, $288,000 from SpaceShipOne, $45,000 from our DARPA
contract,  $36,000 from the two SBIR contracts listed above and $25,000 from all
other  programs.  During  the  same  period  of  2003,  sales  were comprised of
approximately $160,000 from SpaceShipOne, $92,000 from the MDA project, $265,000
from the CHIPSat program, $222,000 from Phase I and Phase II of the AFRL project
and  approximately  $15,000  from  all  other  programs.

For  the  three-month period ending June 30, 2004, we had costs of sales (direct
and  allocated  costs  associated  with  individual  contracts) of approximately
$942,000  or  78.5% of net sales, as compared to approximately $578,000 or 76.6%
of net sales, during the same period in 2003.  The increase in cost of sales was
primarily due to higher revenues since the majority of our current contracts are
cost  plus  fixed  fee  contracts.  We  continue  to focus efforts on developing
project  management  skills and reports to assist in the efficient and effective
management  of  our  projects.  The  gross margin percentage for the three-month
period  ending  June  30, 2004 was 21.5% of net sales, a decrease of 1.9% of net
sales,  as  compared  to  23.4%  of net sales for the same three-month period in
2003.

We  recorded  our  second  consecutive  quarter  of  profit  from operation.  We
experienced  a  decrease  of  approximately  $315,000 in operating expenses from
approximately $541,000, or 71.8% of net sales, for the three-month period ending
June  30,  2003  to  approximately  $226,000,  or  18.8%  of  net sales, for the
three-month period ending June 30, 2004.  Operating expenses include general and
administrative  expenses  ("G&A"), marketing and sales expenses and research and
development  expenses  as  well  as  stock  and  stock option based compensation
expenses.  Fluctuations  in  operating expenses for 2004 from 2003 are primarily
attributable  to  the  following:

     -  Marketing  and  sales  expenses  decreased during the three-month period
     ending  June  30, 2004 compared to the same period in 2003. The decrease in
     marketing  and  sales expense, from approximately $134,000, or 17.8% of net
     sales,  for  the  three-months  ending  June  30,  2003,  to  approximately
     $116,000,  or 9.7% of net sales, during the same period in 2004, was mainly
     due to the departure of our Vice President of Engineering in March 2004 and
     our  decision to have our Vice President of New Business Development expand
     his  duties to include engineering; thereby allocating some of his expenses
     out  of  marketing  and  sales  and  into  cost  of  sales.

     -  Research  and  development  ("R&D")   expenses   decreased  during   the
     three-month  period  ending  June  30, 2004 from approximately $252,000, or
     33.4%  of  net  sales  in  2003,  to  $19,500, or 1.6% of net sales for the
     three-month  period  ending  June  30,  2004, mainly due to our decision to
     focus  our  limited  resources  on  billable  projects   and  develop   new
     technologies  under  existing  contracts.

     -  The decrease of approximately $65,000 in G&A expenses from approximately
     $155,000  for  the three-month period ending June 30, 2003 to approximately
     $90,000  for  the  same  three-month  period in 2004 was primarily due to a
     refinement  of  our  allocation  model  to  appropriately  classify certain
     expenses  as  cost  of  goods  sold  rather  than  G&A.

                                      20
                                     PAGE

Non-operating  expense  (income)  consists  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.

     -  Interest  expense  for  the three-month periods ending June 30, 2004 and
     2003  was approximately $19,700, or 1.6% of net sales, and $14,000, or 1.9%
     of net sales, respectively. The slight increase was due to accrued interest
     on our revolving credit facility. Interest expense is comprised of interest
     on  our   note   to   our   CEO,   interest   on   our   revolving   credit
     facility/convertible  debt  and  interest  on  our settlement notes/capital
     leases.  For the three-month period ending June 30, 2004 and 2003, interest
     expense  on  our  note  to  our  CEO  was approximately $11,300 and $9,300,
     respectively.  For  the  three-month  period ending June 30, 2004 and 2003,
     interest  expense  on  our  revolving  credit facility/convertible debt was
     $7,800  and  $2,500,  respectively.  And interest expense on our settlement
     notes/capital  leases  for the three-month periods ending June 30, 2004 and
     2003  were  approximately  $600  and  $2,200  respectively.

     -  We  recognized approximately $29,300 and $29,300 of the deferred gain on
     the  sale  of  the  building during the six-months ending June 30, 2004 and
     2003, respectively, and we will continue to amortize the remaining deferred
     gain  of  approximately  $1,006,600  into  non-operating  income  over  the
     remainder  of  the  lease.  In  relation  to  the  gain  we received on the
     building,  we  also  credited  our  accrued  income  tax payable expense by
     ($37,474) during the three-month period ending June 30, 2003, of which none
     remained  at December 31, 2003. The reduction of the income tax payable was
     due  to  a  change  in estimate based on the loss we experienced during the
     year.

     -  During  the  three-month  period  ending  June  30, 2003, we expensed in
     conjunction  with  our  convertible notes, part of the existing convertible
     debt  discount  related  to  warrants that accompanied the convertible debt
     issue  in  2002  of approximately $475,000, of which approximately $100,400
     was expensed during the three-month period ending June 30, 2003 and paid or
     converted in September 2003. There was no debt discount for the same period
     of  2004.

     -  We realized $1,329,000 in loan fees of which $714,000 was related to our
     revolving  credit  facility  and approximately $ 615,000 was related to the
     conversion  of  notes  to  common  stock  below  fair  market value for the
     three-month  period ending June 30, 2004. We anticipate additional expenses
     related  to  similar  note  to  equity  conversions.

During  the  three-month  period ending June 30, 2004, we incurred a net loss of
approximately  $1,287,000  or  107.2%  of  net  sales, compared to a net loss of
approximately  $413,000,  or 54.7% of net sales, for the same three-month period
in  2003.  During  the  three-month  period ending June 30, 2004, we incurred an
EBITDA  (earnings  before  interest  taxes  depreciation  and  amortization)  of
approximately  $49,000,  or  4.1%  of  net  sales, compared to an EBITDA loss of
approximately  <$316,000>, or <42.0> % of net sales, for the three-months ending
June  30,  2003.

The  following  table  reconciles EBITDA to net loss for the three-months ending
June  30,  2004  and  2003,  respectively:

<TABLE>
<CAPTION>

FOR THE THREE-MONTHS ENDING             JUNE 30, 2004   June 30, 2003
                                         (UNAUDITED)     (Unaudited)
<S>                                     <C>             <C>
NET LOSS (INCOME). . . . . . . . . . .     (1,286,866)       (412,752)
--------------------------------------  --------------  --------------

Interest Expense . . . . . . . . . . .         19,736          14,179
Non-Cash Interest exp. (Debt Discount)              -         100,453
Gain on Building Sale. . . . . . . . .        (29,318)        (29,318)
 Loan Fee - Equity Conversion. . . . .      1,329,313               0
Provision for income taxes . . . . . .              -         (37,474)
Depreciation and Amortization. . . . .         16,533          48,505
--------------------------------------  --------------  --------------
EBITDA . . . . . . . . . . . . . . . .         49,398        (316,407)
--------------------------------------  --------------  --------------
</TABLE>

                                      21
                                     PAGE

EBITDA  should  not be considered as an alternative to net income or loss (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.
LIQUIDITY  AND  CAPITAL  RESOURCES

  CASH POSITION FOR SIX-MONTHS ENDING JUNE 30, 2004 -VS.- SIX-MONTHS ENDING JUNE
                                    30, 2003

Net  cash  increased during the six-months ending June 30, 2004 by approximately
$634,500  to  $1,226,500,  compared  to  an increase of approximately $53,000 to
$80,700  for  the  same  six-month  period  in 2003.  Net cash used in operating
activities  totaled  approximately  $237,000  for the six-months ending June 30,
2004, a decrease of approximately $582,000 as compared to approximately $819,000
used  in  operating  activities during the same six-month period in 2003, mainly
due  to  the  decrease  in  operating  expenses for the first six-months of 2004
compared  to  the  same  period  in  2003.

Net  cash  used  in  investing  activities totaled approximately $80,000 for the
six-months  ending  June  30, 2004, compared to $3,147,000 provided by investing
activities  during  the  same  six-month  period  in 2003.  The decrease in cash
provided  by investing activities is attributable to the sale of the building on
January  31,  2003  and  no  comparable  transaction  in 2004.  During the first
six-month  period  in  2004,  we  invested  approximately $80,000 in specialized
software  and  certain  upgrades  to computer hardware for our engineering team.

Net cash provided by financing activities totaled approximately $951,000 for the
six-month  period  ending  June  30, 2004, which is an increase of approximately
$3,226,000 from the approximately $2,275,000 used in financing activities during
the  same  period  in  2003.  This is primarily attributable to the repayment of
notes  payable  associated  with  the building sale in 2003, payments on related
party notes in 2004, conversions under our revolving credit facility in 2004, as
well  as  an  increase  in  issuance  of common stock from the exercise of stock
options  and  warrants.

                                      22
                                     PAGE

At  June  30,  2004,  our  cash  was  approximately  $1,227,000,  as compared to
approximately $81,000 at June 30, 2003, an increase of approximately $1,146,000,
mainly  due  to conversions under our revolving credit facility and the exercise
of  stock  options  and  warrants.

As  of  June  30,  2004,  our  backlog  of  funded  and  non-funded business was
approximately  $44 million due to the follow-on, five-year contract from MDA for
up  to  $43,362,271.  We expect approximately $2 million in revenue from the MDA
program in 2004.  Although the MDA contract was awarded to us and the first task
order  was  issued  to  us  on April 1, 2004, there can be no assurance that the
contract  will  be  continued through all phases, and if continued, that it will
generate the amounts anticipated.  Backlog as of June 30, 2003 was $3.2 million.

Deferred  income  taxes  are  provided  for temporary differences in recognizing
certain  income and expense items for financial and tax reporting purposes.  The
deferred  tax  asset  of  approximately $2,808,000 and $2,190,000 as of June 30,
2004  and December 31, 2003, respectively, consisted primarily of the income tax
benefits from net operating loss and capital loss carryforwards, amortization of
goodwill  and  research and development credits.  A valuation allowance has been
recorded  to  fully  offset the deferred tax asset as it is more likely than not
that  the  assets  will  not  be  utilized.  The  valuation  allowance  increase
approximately  $665,000  in  2004  from  $2,190,000  at  December  31,  2003  to
$2,855,000  at  June  30,  2004.

At  June  30,  2004, we had federal and state tax net operating loss and capital
loss  carryforwards  of  approximately  $5,973,000 and $3,651,000, respectively.
The  federal  and  state  tax  loss  carryforwards will expire in 2023 and 2013,
respectively, unless previously utilized.  The State of California has suspended
the  utilization  of  net  operating  loss  for  2002,  2003  and  2004.

CRITICAL  ACCOUNTING  STANDARDS

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

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

                                      23
                                     PAGE

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

CASH  POSITION  AND  REMOVAL  OF  GOING  CONCERN

As of June 30, 2004, we believe that the opinion our auditors expressed in their
formal auditors' opinion dated February 11, 2004 (except for Note 11 as to which
the date is April 5, 2004) is still accurate. PKF stated, that in their opinion,
based  on  their audit, our consolidated financial statements referred to herein
present fairly, in all material respects, the consolidated financial position of
the  Company  and  its  subsidiary as of December 31, 2003, and our consolidated
results  of  operations and cash flows for the year then ended are in conformity
with  accounting  principles generally accepted in the United States of America.
Our  ability  to  continue  as  a  going  concern  depends  upon  our ability to
ultimately implement our plan, which includes (but is not limited to) generation
of  substantial new revenue from MDA, by successfully performing under the newly
awarded  contract  and  continuing  to  attract  and successfully complete other
government  and  commercial  contracts,  development  of  a  project  management
expertise  to  profitably execute on new business contracts and reduction of the
working  capital  deficit  by  raising  additional  capital. We are working with
Laurus,  our  revolving  credit  facility   provider,  and   investigating   the
possibility  of  raising additional capital to further support operations as new
contracts  and  business  opportunities materialize. The prospective funding, as
well  as  new  business  opportunities,  can  come  from  a  variety of sources,
including  public  or  private  equity  markets,  state  and  federal grants and
government  and  commercial  customer  program funding. However, there can be no
assurance that we will be able to obtain such funding or contracts as needed or,
if  such  funding  or  contracts are available, that we can obtain them on terms
favorable  to  us.  The likelihood of our success must be considered in light of
the  expenses, difficulties and delays frequently encountered in connection with
the  developing  businesses,  those  historically  encountered  by  us,  and the
competitive  environment  and  industry  in  which  we  operate.

On  January  31,  2003,  we  closed escrow on the sale of our facility in Poway,
California  and  entered  into  a  ten-year leaseback.  The selling price of the
facility  was  $3.2  million.  The total debt repayment from the transaction was
approximately $2.4 million.  The net proceeds to us for working capital purposes
was  approximately  $636,000.

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

                                      24
                                     PAGE

During  the  six-month  period  ending  June  30,  2003, we raised approximately
$426,000  from accredited investors by selling 861,267 units of our common stock
and common stock purchase warrants under in a private placement offering ("PPO")
made  under  Section  4(2)  of  the  Securities  Act  of  1933, and Rule 506, to
accredited  investors  only.  We  subsequently  closed  the  PPO.

We have sustained ourselves over the last few years with a mixture of government
and  commercial  contracts  and  capital  raised  in  the  private   market.  In
particular,  we anticipated and received an award for AFRL Phase II on March 28,
2003  and  MDA  on  March  31,  2004.  The  AFRL and MDA contracts are cost-plus
contracts,  which  have required us to incur certain costs in advance of regular
contract  reimbursements  from  our customers. Although we have needed a certain
amount of cash to fund advance payments on the contracts, we have been entitled,
as  a  small  business  concern,  to  recover our costs on a weekly basis and we
established  the  Laurus Master Fund revolving credit facility at the end of the
second  quarter  of  2003,  in  part,  to  support  our  advance  payment needs.

On  March  31,  2004, we negotiated an amendment to our Secured Convertible Note
dated  June  3, 2003 with the Laurus Master Fund to add a fixed conversion price
at  $0.85  per  share for the next $500,000 converted under the revolving credit
facility,  after  the  initial  $1  million  conversion.  In  exchange  for  the
amendment,  Laurus  granted  us a six-month waiver to utilize the full revolving
credit  facility  in advance of eligible accounts.  At June 30, 2004, Laurus had
converted  1,403,182  shares  under  the  revolving   credit   facility,   which
represented  approximately  $772,000  of  debt  converted  to  equity.

We  recorded our third consecutive quarter of positive cash flow.  We realized a
small  positive  cash flow from operations during the fourth quarter of 2003 and
the  first and second quarters of 2004.  Our improving EBITDA is an indicator of
our  financial  performance.  We expect to continue realizing positive cash flow
as  well  as  net losses in 2004.  The continued net losses are primarily due to
non-cash  interest  expense  and  other  fees  related  to  our revolving credit
facility  and  debt  related  warrant  conversion.  While  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 by using EBITDA as a
measure  of  performance,  we  can  illustrate the improving results of our core
business,  despite the net losses derived from financing activities.  Our EBITDA
was  approximately  $77,000  for  the  six-month  period  ending  June 30, 2004,
compared  to  a  negative  EBITDA  of  $622,000  for the same period in 2003, an
improvement  of  approximately  $699,000.

We  recorded our second consecutive quarter of profit from operation, which is a
significant indicator of our improving financial performance.  Operating results
are an important measure of the performance of our core business.  We recorded a
profit  from  operations  of approximately $12,000 in the first quarter of 2004,
compared to a loss from operations of $364,000 in the first quarter of 2003.  We
recorded a profit from operations of approximately $33,000 in the second quarter
of 2004, compared to a loss from operations of $365,000 in the second quarter of
2003.  Profits or losses from operations are derived from all expenses excluding
interest,  taxes, non-cash expenses related to our revolving credit facility and
other  non-cash  financing  activities.

We  expect  to  continue  showing  a  positive  trend in cash flow and operating
profits  in 2004.  We anticipate that with the projected increase in revenue and
backorders  from  near  term  contracts,  combined with our fiscally responsible
budget  and project controls and borrowings under our revolving credit facility,
that  net  positive  cash  flow  from operations will be sufficient to fund both
operations  and  capital  expenditures in 2004.  There is no assurance, however,
that  we  will achieve or sustain any positive cash flow or profitability now or
thereafter.

RECENT  ACCOUNTING  PRONOUNCEMENTS

There  were  no  recent Accounting Pronouncements that affect the Company during
the  second quarter of 2004.  For past pronouncements please refer the company's
10-KSB  filed  on  April  6,  2004.

                                      25
                                     PAGE

FORWARD-LOOKING  STATEMENTS  AND  RISK  ANALYSIS

During  the  first  six-months  of  2004,  we  submitted two bids for government
programs,  continued  our work with the US Congress to identify directed funding
for  our programs and are actively working to win several significant commercial
programs.  We  believe  that  we  will  win  some of these programs, which would
enable  us to continue to grow and broaden our business base, although there can
be  no  assurance  that  these  contracts  will  be  awarded  to  us.

To  date,  we  have  maintained a mix of government and commercial business.  In
2003,  we  had about 82% government or government-related work.  In 2002, we had
about  64% government and government-related work.  In 2004, we expect the ratio
to  be  about 90% government or government-related work.  We will continue to do
both  government  and  commercial  business and anticipate the mix of government
revenues  to  continue to be above 70% for the next several years as we increase
our  government  and commercial marketing efforts for both of our product lines.
Currently,  we  are  focusing  on  the domestic U.S. government market, which we
believe  is  only  about  one-half  of  the  global  government  market  for our
technology,  products  and  services.  Although  we  are interested in exploring
international  revenue  and  contract opportunities, we are restricted by export
control  regulations,  e.g., International Traffic in Arms Regulations ("ITAR"),
which  may  limit our ability to develop market opportunities outside the United
States  and  we have chosen to focus our effort on the United States marketplace
for  the  near  term.

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

We  believe that we will experience an accelerated growth in sales over the next
few  years.  At  this  time, over 90% of the forecasted sales for 2004 are under
contract  or  near  contract  award.  There  is no guarantee and there can be no
assurance  that  we  will win enough new business to achieve our targeted growth
projection  or to maintain our positive cash flow position.  Additionally, there
is  no  guarantee that awarded contracts will not be altered or terminated prior
to  us  recognizing  our projected revenue from them.  Many contracts have "exit
ramps,"  i.e., provides the customer the right to terminate the contract for any
of a variety of reasons, including but not limited to non-performance by us.  We
do  not  believe  that  any  of our contracts will be terminated early; however,
there  can be no assurance that they will not be terminated early in the future.
Finally,  we  do  not  believe  that  significant  capital  expenditures will be
required  to achieve this increase in sales; however, additional capital will be
required  to  support  and  sustain  our  growth.

During  the  six-month  period  ending  June  30,  2004, we raised approximately
$1,751,000 through a combination of conversions on our revolving credit facility
(approximately $772,000), exercises of warrants previously issued (approximately
$276,000),  from participants in our employee stock purchase plan (approximately
$6,000) and from exercises of employee stock options, mainly from Mr. Lloyd, our
former  Chief Financial Officer (approximately $697,000).  During the year ended
December  31,  2003,  we  raised approximately $654,000 through a combination of
private  sales  of  our  stock  (approximately  $426,000) and conversions on our
revolving  credit  facility  (approximately  $228,000).  During  the  year ended
December  31,  2002,  we raised approximately $475,000 from our convertible debt
offering,  of  which  $237,500 plus interest was repaid in 2003.  To execute our
strategy  of  growing  our  Company with small, capable, low-cost micro and nano
satellites,  hybrid  propulsion  products and new commercial revenue sources, we
require  additional  funding  and/or  the win of both significant government and
commercial  programs.  We  believe  investor  or  customer  funding of $5 to $15
million  may  be required, which could come from a combination of private and/or
public  equity  placements  or  government  and  commercial  customers.

                                      26
                                     PAGE

The amount of capital we need to raise is dependent upon many factors, e.g., the
need  for  additional  capital  will  be  greater  if  (i)  we do not enter into
agreements with our customers on the terms we anticipate; (ii) our net operating
deficit  increases because we incur significant unanticipated expenses; or (iii)
we  incur  additional  costs  from modifying our micro satellite products or our
hybrid-related  propulsion  systems  to  meet  changed  or unanticipated market,
regulatory, or technical requirements.  If these or other events occur, there is
no  assurance  that  we  could raise additional capital on favorable terms, on a
timely  basis  or  at all.  If additional capital is not raised, it could have a
significant  negative effect on our business operations and financial condition.

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

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

                                      27
                                     PAGE

ITEM  3.  CONTROLS  AND  PROCEDURES

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

                                      28
                                     PAGE

                          PART II -- OTHER INFORMATION

ITEM  1.     LEGAL  PROCEEDINGS

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

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

Because collection of the attorney and arbitration fees award is not assured, we
expensed  all  of our fees related to this matter.  Any recovery of fees will be
recorded  as  income in the period they are received.  The return of the 500,000
shares,  as  provided in the interim award issued on July 17, 2002, was recorded
in  the  third  quarter  of 2002 as a reversal of the original expense recorded.
See  "Results  of  Operations."  In  June 2003, we ceased efforts to recover the
awarded  fees,  as it was determined that the cost to pursue collection exceeded
the  likelihood  of  collection.

ITEM  2.     CHANGES  IN  SECURITIES

On  April  1,  2004,  we  issued  250,000  shares of our common stock to Laurus,
pursuant  to  our  Security  Agreement,  Secured  Convertible Note, Registration
Rights  Agreement  and  Common  Stock Purchase Warrant with Laurus dated June 3,
2003,  for  a corresponding $137,500 reduction in our revolving credit facility.
As  part  of the transaction, the shares were registered with the Securities and
Exchange  Commission  ("SEC")  for  public  resale  on  August  6,  2003.

On  April  20,  2004,  we  issued  300,000 shares of our common stock to Laurus,
pursuant  to  our  Security  Agreement,  Secured  Convertible Note, Registration
Rights  Agreement  and  Common  Stock Purchase Warrant with Laurus dated June 3,
2003,  for  a corresponding $165,000 reduction in our revolving credit facility.
As  part  of the transaction, the shares were registered with the Securities and
Exchange  Commission  ("SEC")  for  public  resale  on  August  6,  2003.

Pursuant to our independent director compensation plan, adopted January 16, 2000
and modified March 25, 2004, we granted options to purchase 5,000 shares each to
Curt Dean Blake, Wesley T. Huntress and Scott McClendon for their attendance and
participation at the Audit Committee Meeting held on May 4, 2004.  These options
were  issued  with  an  exercise price of $1.20 per share, (based on the closing
price  of  our  common stock on the date of grant), will vest over two-years and
will  expire  on  the  three-year  anniversary  date  of  the  date  of  grant.

Pursuant to our independent director compensation plan, adopted January 16, 2000
and modified March 25, 2004, we granted options to purchase 6,000 shares each to
Curt  Dean  Blake, Howell M. Estes, III, Wesley T. Huntress, Scott McClendon and
Robert  Walker  for their attendance and participation at the Board of Directors
meeting  held  on May 6, 2004.  These options were issued with an exercise price
of  $1.18 per share, (based on the closing price of our common stock on the date
of  grant),  will  vest  over  two  years  and  will  expire  on  the three-year
anniversary  date  of  the  date  of  grant.

                                      29
                                     PAGE

On  May  17,  2004,  we  issued  353,182  shares  of our common stock to Laurus,
pursuant  to  our  Security  Agreement,  Secured  Convertible Note, Registration
Rights  Agreement  and  Common  Stock Purchase Warrant with Laurus dated June 3,
2003,  for  a corresponding $194,250 reduction in our revolving credit facility.
As  part  of the transaction, the shares were registered with the Securities and
Exchange  Commission  ("SEC")  for  public  resale  on  August  6,  2003.

On  July  12,  2004,  we  issued  41,876  shares  of our common stock to Laurus,
pursuant  to  our  Security  Agreement,  Secured  Convertible Note, Registration
Rights  Agreement  and  Common  Stock Purchase Warrant with Laurus dated June 3,
2003,  for  a  corresponding $35,595 reduction in our revolving credit facility.
As  part  of the transaction, the shares were registered with the Securities and
Exchange  Commission  ("SEC")  for  public  resale  on  July  1,  2004.

ITEM  3.     DEFAULTS  UPON  SENIOR  SECURITIES
None.

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

ITEM  5.     OTHER  INFORMATION

On  January 21, 2000, we entered into an "at-will" employment agreement with Mr.
Jeffrey  Janicik  which  outlined  both  salary  compensation and benefits.  Mr.
Janicik  was  originally  hired  as  manager  of our micro satellite project for
NASA's  University  Explorer  Program  in  conjunction  with  the  University of
California at Berkeley and later served as our director of satellite systems and
director of engineering.  Mr. Janicik tendered his resignation to the Company on
June  18,  2004.  Mr.  Janicik  has agreed to provide transitional support as an
independent  consultant until at least October 1, 2004, the details of which are
outlined  in a Separation Agreement and General Release dated June 18, 2004.  In
exchange  for  his  transitional  support  and  a general release of claims, the
Company  agreed to an extension of certain exercise rights on his vested options
of  77,494  shares  until  the  earlier  of  (i)  eighteen  (18) months from his
resignation as a consultant to the Company, or (ii) the original expiration date
of  the  options,  subject  to  certain  conditions.

ITEM  6.     EXHIBITS  AND  REPORTS  ON  FORM  8-K

(a)     Exhibits

Separation  Agreement  and  General Release, by and between SpaceDev
     and Jeffrey Janicik dated  June  18,  2004                             10.1
Modification  to     Small  Shuttle  Compatible  Propulsion Module
     contract with AFRL dated  July  7,  2004                               10.2
Lunar  Enterprises  of  California  contract  with  SpaceDev
     dated July 20, 2004                                                    10.3
Certificate  of  James W. Benson Pursuant to Section 1350
     of Chapter 63 of Title 18  U.S.  Code                                  31.1
Certificate  of  Richard  B.  Slansky  Pursuant to Section 1350
     of Chapter 63 of Title  18  U.S.  Code                                 31.2

(b)     Reports  on  Form  8-K

None.


                                      30
                                     PAGE


                                   SIGNATURES


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

                                                                 SPACEDEV,  INC.
                                                                      Registrant


Dated:  August  9,  2004                                     /s/ James W. Benson
        ----------------                                    --------------------
                                                               James  W.  Benson
                                                       Chief  Executive  Officer




Dated:  August  9,  2004                                  /s/ Richard B. Slansky
        ----------------                                  ----------------------
                                                            Richard  B.  Slansky
                                                       Chief  Financial  Officer


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