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,  2003

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

For the transition period from ____________________ to _______________________

Commission File Number     000-28947.
                         -------------

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


                      Colorado                     84-1374613

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


                  13855 Stowe Drive, Poway, California 92064

                    (Address of principal executive offices)

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

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

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

State  the  number  of  shares  outstanding of each of the  issuer's  classes of
common equity, as of the latest practicable date:  15,341,007 shares of Issuer's
voting  common  stock  were  outstanding  on  July  31,  2003.

<PAGE>

                                 SPACEDEV, INC.
                                   FORM 10-QSB
                       FOR THE QUARTER ENDED JUNE 30, 2003



<TABLE>
<CAPTION>



INDEX                                                                                  PAGE
-------------------------------------------------------------------------------------  ----

PART I   FINANCIAL INFORMATION
<S>                                                                                    <C>
ITEM 1.   Financial Statements (Unaudited). . . . . . . . . . . . . . . . . . . . . .     1
Condensed Consolidated Balance Sheets at June 30, 2003 and 2002 . . . . . . . . . . .     1
Condensed Consolidated Statements of Operations for June 30, 2003 and 2002. . . . . .     3
Condensed Consolidated Statements of Cash Flows for June 30, 2003 and 2002. . . . . .     4
Notes to Condensed Consolidated Financial Statements. . . . . . . . . . . . . . . . .     6

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

ITEM 3. Qualitative and Quantitative Disclosures About Market Risk. . . . . . . . . .    22

ITEM 4. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . .    22

PART II   OTHER INFORMATION

ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    23
ITEM 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .    23
ITEM 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . .    24
ITEM 4. Submission of Matters to Vote of Security Holders . . . . . . . . . . . . . .    24
ITEM 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    25
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . .    26

Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    27

Certifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    28
</TABLE>





<PAGE>

ITEM  1.   FINANCIAL  STATEMENTS


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

<TABLE>
<CAPTION>

<S>                           <C>       <C>
June 30,                          2003        2002
--------------------------------------------------

 ASSETS

 CURRENT ASSETS
      Cash                    $ 80,734  $  135,370
      Accounts receivable      142,759     201,331
--------------------------------------------------
 Total current assets          223,493     336,701

 FIXED ASSETS - NET            127,314   2,130,306

 CAPITALIZED SOFTWARE  COSTS    33,375     172,513

 OTHER ASSETS                   34,502     158,292
--------------------------------------------------
                              $418,684  $2,797,812
==================================================

</TABLE>

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

                                     - 1 -
<PAGE>

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

<TABLE>
<CAPTION>

<S>                                                                        <C>            <C>
 June 30,                                                                          2003           2002
-------------------------------------------------------------------------------------------------------

 LIABILITIES AND STOCKHOLDERSDEFICIT

 CURRENT LIABILITIES
      Current portion of notes payable (Note 3)                            $     52,000   $    218,257
      Current portion of capitalized lease obligations                           26,629         37,604
      Notes payable - related party                                              80,000         80,000
      Convertible debt notes payable (Note 4)                                   332,847              -
      Accounts payable and accrued expenses                                     338,432        226,659
      Accrued payroll, vacation and related taxes                               122,129        145,581
      Customer deposits and deferred revenue                                          -        238,362
      Billing in excess of costs incurred and estimated earnings (Note 2)             -        441,720
      Provision for anticipated loss (Note 2)                                     5,174         47,341
      Income taxes payable                                                        2,526              -
-------------------------------------------------------------------------------------------------------
 Total current liabilities                                                      959,737      1,435,524

 NOTES PAYABLE, LESS CURRENT MATURITIES (NOTE 3)                                 65,260      2,350,797

 CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES                           6,558         23,780

 NOTES PAYABLE - RELATED PARTY, LESS CURRENT MATURITIES                         517,630        568,865

 DEFERRED GAIN - ASSETS HELD FOR SALE                                         1,123,857              -

 DEFERRED REVENUE                                                                 5,000          5,000
-------------------------------------------------------------------------------------------------------
 Total liabilities                                                            2,678,042      4,383,966

 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; 25,000,000 shares authorized, and
           15,338,907 and 14,858,396 shares issued and outstanding,
           respectively                                                           1,533          1,485
      Additional paid-in capital (Note 5)                                     8,728,659      8,224,827
      Additional paid-in capital - stock options                                750,000        750,000
      Deferred compensation                                                    (250,000)      (250,000)
      Accumulated deficit                                                   (11,489,550)   (10,312,466)
-------------------------------------------------------------------------------------------------------
 Total stockholders deficit                                                 (2,259,358)    (1,586,154)
-------------------------------------------------------------------------------------------------------
                                                                           $    418,684   $  2,797,812
=======================================================================================================
</TABLE>

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

                                     - 2 -
<PAGE>

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

<TABLE>
<CAPTION>
<S>                                            <C>                                    <C>
                                               Three-Months Ending                    Six-Months Ending

 Three and Six-Months Ending June 30,          2003     %         2002     %         2003     %         2002     %
---------------------------------------  -----------        -----------        -----------        -----------
<S>                                      <C>          <C>   <C>          <C>   <C>          <C>   <C>          <C>
 NET SALES                                  753,956   100%     862,638   100%   1,286,795   100%   1,812,408   100%


 TOTAL COST OF SALES                        577,874    77%     729,614    85%   1,039,484    81%   1,441,577    80%

 GROSS MARGIN                               176,082    23%     133,024    15%     247,311    19%     370,831    20%
---------------------------------------  -----------  ----  -----------  ----  -----------  ----  -----------  ----

 OPERATING EXPENSES
    Marketing and sales expense             134,005    18%      42,527     5%     199,047    15%      68,772     4%
    Research and development                251,983    33%           -     0%     251,983    20%           -     0%
    General and administrative              155,006    21%     113,241    13%     524,922    41%     298,964    16%
---------------------------------------  -----------  ----  -----------  ----  -----------  ----  -----------  ----

 TOTAL OPERATING EXPENSES                   540,994    72%     155,768    18%     975,952    76%     367,736    20%
---------------------------------------  -----------  ----  -----------  ----  -----------  ----  -----------  ----

 PROFIT (LOSS) FROM OPERATIONS             (364,912)  -48%     (22,744)   -3%    (728,641)  -57%       3,095     0%
---------------------------------------  -----------  ----  -----------  ----  -----------  ----  -----------  ----

 OTHER INCOME (EXPENSE)
 Interest income (expense)                  (14,179)   -2%     (64,852)   -8%     (34,628)   -3%    (120,012)   -7%
 Non-Cash interest income (expense)        (100,453)  -13%           -     0%    (200,908)  -16%           -     0%
            debt discount (Note 5)
 Gain on Building Sale (Note 4(a))           29,318     4%           -     0%      48,863     4%           -     0%
---------------------------------------  -----------  ----  -----------  ----  -----------  ----  -----------  ----

 TOTAL OTHER INCOME (EXPENSE)               (85,314)  -11%     (64,852)   -8%    (186,673)  -15%    (120,012)   -7%
---------------------------------------  -----------  ----  -----------  ----  -----------  ----  -----------  ----

 LOSS BEFORE TAXES                         (450,226)  -60%     (87,596)  -10%    (915,314)  -71%    (116,917)   -6%

 INCOME TAX PROVISION                       (37,474)   -5%           -     0%       2,526     0%           -     0%

 NET LOSS                                  (412,752)  -55%     (87,596)  -10%    (917,840)  -71%    (116,917)   -6%
=======================================  ===========  ====  ===========  ====  ===========  ====  ===========  ====

 NET LOSS PER SHARE:
      Net loss                                (0.03)             (0.01)             (0.06)             (0.01)
---------------------------------------  -----------        -----------        -----------        -----------

      Weighted-Average Sh. Outstanding   15,092,489         14,858,396         15,092,489         14,842,070

</TABLE>

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

                                     - 3 -
<PAGE>

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

<TABLE>
<CAPTION>

<S>                                                                       <C>           <C>
 Six-Months Ending June 30,                                                      2003        2002
------------------------------------------------------------------------  ------------  ----------

 CASH FLOWS FROM OPERATING ACTIVITIES
      Net loss                                                            $  (917,840)  $(116,917)
      Adjustments to reconcile net loss to net cash
           provided by (used in) operating activities:
           Depreciation and amortization                                      106,201     134,240
           Contributed assets                                                       -     (16,251)
           (Gain) loss on disposal of assets                                  (48,863)      7,410
           Non-cash interest expense - convertible debt program (Note 4)      200,908           -
           Change in operating assets and liabilities:                       (159,009)    (13,286)
------------------------------------------------------------------------  ------------  ----------
 NET CASH (USED IN) OPERATING ACTIVITIES                                     (818,603)     (4,804)
------------------------------------------------------------------------  ------------  ----------
 CASH FLOWS FROM INVESTING ACTIVITIES
      Sale of assets                                                        3,150,124           -
      Purchases of fixed assets                                                (3,100)          -
------------------------------------------------------------------------  ------------  ----------
 NET CASH PROVIDED BY INVESTING ACTIVITIES                                   3,147,024           -
------------------------------------------------------------------------  ------------  ----------
 CASH FLOWS FROM FINANCING ACTIVITIES
      Principal payments on notes payable                                  (2,524,537)    (34,303)
      Principal payments on capitalized lease obligations                     (16,741)    (17,160)
      Payments on notes payable - related party                              (159,999)    (40,000)
      Proceeds from issuance of common stock                                  425,942      20,000

 NET CASH (USED IN) FINANCING ACTIVITIES                                   (2,275,335)    (71,463)
------------------------------------------------------------------------  ------------  ----------
 Net increase (decrease) in cash                                               53,086     (76,267)
------------------------------------------------------------------------  ------------  ----------
 CASH AT BEGINNING OF PERIOD                                                   27,648     211,637
------------------------------------------------------------------------  ------------  ----------
 CASH AT END OF PERIOD                                                    $    80,734   $ 135,370
========================================================================  ============  ==========

</TABLE>

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

                                     - 4 -
<PAGE>

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

<S>                                                                        <C>      <C>
 Six-Months Ending June 30,                                                 2003      2002
-----------------------------------------------------------------------  -------  --------

 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for:
           Interest                                                      $15,494  $124,012

 NONCASH INVESTING AND FINANCING ACTIVITIES:

      During 2002, the Company issued warrants to purchase 1,229,705 shares of common stock
      under the Company's convertible debt program.  A debt discount of $475,000 was recorded
      related to this convertible debt (See Note 4).  These warrants were valued in accordance
      with SFAS 123 for fair value of approximately $475,000.  As of June 30, 2003, $200,908
      of the $475,000  was amortized to non-cash interest expense.
______________________________________________________________________________________________

</TABLE>

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

                                     - 5 -
<PAGE>

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.       BASIS  OF  PRESENTATION

The  accompanying  condensed consolidated financial statements of SpaceDev, Inc.
("the  Company")  include   the  accounts   of  the  Company  and  its  inactive
subsidiaries,  Integrated  Space  Systems Inc. (ISS), and SpaceDev Oklahoma.  In
the  opinion  of  management,  the  condensed  consolidated financial statements
reflect  all  normal  and  recurring adjustments, which are necessary for a fair
presentation of the Company's financial position, results of operations and cash
flows  as  of  the   dates  and   for  the  periods,  presented.  The  condensed
consolidated  financial  statements  have   been  prepared  in  accordance  with
generally  accepted  accounting  principles  for  interim financial information.
Consequently,  these statements do not include all disclosures normally required
by  generally accepted accounting principles of the United States of America for
annual  financial statements nor those normally made in an Annual Report on Form
10-KSB.  Accordingly,  reference  should  be  made  to the Company's Form 10-KSB
filed  on  March  28,  2003  and  other  reports the Company filed with the U.S.
Securities  and  Exchange  Commission  for  additional  disclosures, including a
summary of the Company's accounting policies, which have not materially changed.
The  consolidated  results  of operations for the six months ended June 30, 2003
are  not  necessarily  indicative of results that may be expected for the fiscal
year  ending  December  31,  2003 or any future period, and the Company makes no
representations  related  thereto.

The accompanying condensed consolidated financial statements as of June 30, 2003
and  2002  have  been  prepared  assuming  the  Company will continue as a going
concern.  Even  though  the Company reduced its working capital deficit with the
sale and leaseback of its facility, the Company had a working capital deficit of
approximately  $700,000  as  of  June  30,  2003,  and  incurred  a  net loss of
approximately  $918,000  for  the six-months then ended.  These conditions raise
substantial  doubt  about  the Company's ability to continue as a going concern.
During  the  first  six months of 2003, management raised approximately $426,000
through a private equity placement, concluded a transaction to sell its facility
and lease it back for a ten (10) year period and arranged for a revolving credit
facility  on  its accounts receivable with Laurus Master Fund, Ltd.   Subsequent
to June 30, 2003, management filed a Form SB-2 related to the Laurus transaction
and  intends  to  obtain  new  commercial  and  government contracts and to seek
additional  financing through a combination of public and private debt or equity
placements,  commercial project financing and government programs to fund future
operations  and  commitments.  There  is  no  assurance  that  new  contracts or
additional  debt or equity financing needed to fund operations will be available
or,  if  obtained, will be in sufficient amounts necessary to meet the Company's
needs.

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

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

Certain  reclassifications  have  been  made  to   the  prior  period  financial
statements  to  conform   to    the    current    period   presentation.   These
reclassifications  had  no  effect  on  reported  total   assets  or  net  loss.

Beginning  in  the second quarter 2002, capitalized software costs are 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.  As  of  June  30, 2003, management believed no impairment
existed,  as  defined  by  SFAS  No.  144.

                                     - 6 -
<PAGE>

1.  BASIS  OF  PRESENTATION  CONT.

The  Company  expenses  research  and development costs as incurred.  During the
period  ending  June  30,  2003,  the  Company  expensed approximately $252,000,
consisting  of  approximately  $171,000  related to its hybrid rocket propulsion
technology  and  approximately  $81,000  related  to  its  satellite  bus design
technology.

2.       REVENUE  RECOGNITION

In  November  1999,  the  Company  was  awarded  a  $4.9 million turnkey mission
contract  by  the Space Sciences Laboratory ("SSL") at University of California,
Berkeley  ("UCB").  The Company was competitively selected by UCB/SSL to design,
build,  integrate,  test  and  operate,  for  one  year,  a small NASA-sponsored
scientific,  Earth-orbiting  spacecraft  called  CHIPSat.  CHIPSat  is the first
mission  of  NASA's low-cost University-Class Explorer ("UNEX") series.  CHIPSat
launched  as  a secondary payload on a Delta-II rocket on January 12, 2003.  The
satellite  achieved  3-axis  stabilization, meaning it was pointing and tracking
properly,  with all individual components and systems successfully operating and
is  continuing to work well in orbit.  In 2000, the Compay reviewed the contract
status  at  year-end and determined that the total estimated costs at the end of
the  program would exceed the likely revenue. As a result, the Company accrued a
loss  of  approximately  $860,000 based on the expected contract modification of
$600,000,  which  was approved on June 15, 2001.  On November 28, 2001, a second
contract  modification  was  signed  with  UCB,  which  added approximately $1.2
million  to  the  contract  as  well  as  an  increase  in contract scope.  This
increased  the  total contract revenue to approximately $6.8 million and reduced
the total expected loss on the contract to approximately $460,000.  During 2002,
an additional contract modification for approximately $400,000 was signed, which
also  increased the contract value and scope to the current value of the CHIPSat
project  of  approximately $7.4 million, changing the total expected loss on the
contract  to  approximately  $514,000, most of which could have been recorded as
research  and development costs associated with the development of the Company's
ongoing  satellite  design  and  development  programs.  As  of  June  30, 2003,
approximately  99%  of  the total contract costs were expended and the remaining
loss  on  the  balance  sheet  at  June  30, 2003  totaled approximately $5,000.
Revenues  for  the  six-months  ending June 30, 2003 and 2002 were approximately
$331,000  and $806,000 respectively.  The Company is currently receiving monthly
payments  on the contract according to a preset payment schedule detailed in the
contract.  The  CHIPSat  contract  is  expected  to  conclude  in  January 2004.

In  September  2001,  the  Company  was  awarded  a  contract  for a proprietary
propulsion  research program valued in excess of $1.0 million.  As a part of the
Company's  proprietary propulsion program, the Company is competing with another
party  to  design a space propulsion system.  The entire contract, which will be
awarded  based  upon  the  submitted  designs,  is  valued at approximately $2.2
million.  Work  on this project generated approximately $1.2 million in revenues
during  2002.  As  of  June  30,  2003, the Company has recognized approximately
$24,000  of  gross  margin  on this contract.  The Company reviewed the contract
status in the fourth quarter of 2002, to evaluate changes to the total estimated
costs  to complete the contract due to schedule delays, as a result, the overall
gross  margin  on  this  contract  was  reduced  from  approximately $388,000 to
approximately  $28,000.

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.  The Company's Chief Executive
Officer  provided  a guarantee for the leaseback.  In conjunction with the sale,
the  Company  entered  into  a  lease agreement with the buyer to lease back its
facilities.

                                     - 7 -
<PAGE>

3.  NOTES  PAYABLE  CONT.

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, 2003, the deferred gain was
$1,123,857.  This  amortization  will be included in the Company's occupancy and
facility  expense  and  totaled $48,863 for the six-months ending June 30, 2003.


Deferred  gain  consisted  of  the  following:

<TABLE>
<CAPTION>

Six-Months Ending June 30, 2003
<S>                              <C>
Deferred Gain                    $1,172,720
Less Amortization to date           (48,863)
-------------------------------  -----------
                                 $1,123,857
</TABLE>

In  2001,  the  Company  entered  into  four (4) settlement loan agreements with
various  vendors.  The  total  of  $171,402  for  all  four (4) loans called for
payments  of  between 24 and 50 months with interest rates that range from 0% to
8%  per  annum.  At  June  30,  2003 and 2002, the outstanding balances on these
notes  were  $117,260  and  $175,390, with future interest expense of $7,100 and
$14,548,  respectively.

Future  minimum  principal payments on notes payable and settlement notes are as
follows:

<TABLE>
<CAPTION>

Period Ending June 30,
<S>                     <C>
2003                     52,000
2004                     35,766
2005                     29,494
----------------------  -------
Total Settlement Notes  117,260
</TABLE>

b)      Related  Parties

The  Company  has  a  note  payable  to the CEO.  At June 30, 2003 and 2002, the
balances were $597,630 and $648,864, respectively, including accrued interest of
10%.  The  note  was  amended  on  March  20,  2000 to call for annual principle
payments  of  not  less  than  $80,000  per  year  with  interest  at  10%.

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

<TABLE>
<CAPTION>

Period Ending June 30,
<S>                     <C>   <C>
                        2004  $ 80,000
                        2005    80,000
                        2006    80,000
                        2007    80,000
                        2008    80,000
Thereafter                     197,630
----------------------        --------
                              $597,630
</TABLE>

Interest  expense  on  these  notes  was  $19,133 and $23,633 for the six-months
ending  June  30,  2003  and  2002,  respectively.

                                     - 8 -
<PAGE>

3.  NOTE  PAYABLE  CONT.

c)     Revolving  Credit  Facility.

On  June  3,  2003,  the  Company  entered  into  a  Security Agreement, Secured
Convertible  Note,  Registration  Rights  Agreement  and  Common  Stock Purchase
Warrant,  with Laurus Master Fund, Ltd. ("Laurus"), which were filed on Form 8-K
dated  June  18,  2003.  Pursuant  to  the agreements, the Company received a $1
million  revolving  credit facility in the form of a three-year Convertible Note
secured by its assets.  The net proceeds from the Convertible Note shall be used
for  general  working  capital  needs.  Advances  on the Convertible Note may be
repaid at the Company's option, in cash or through the issuance of the Company's
shares  of  common  stock.  The Convertible Note carries an interest rate of WSJ
Prime  plus  0.75%  on  any  outstanding  balance.  In  addition, the Company is
required  to  pay  a  collateral  management  payment  of  0.55%  of the average
aggregate  outstanding  balance  during the month plus an unused line payment of
0.20%  per  annum.  There  was  no  outstanding  balance on the revolving credit
facility  at  June  30,  2003.

The  Company  filed  Form  SB-2  on  July  25,  2003  in  connection  with  this
transaction.  Once  the  shares  are registered with the Securities and Exchange
Commission  ("SEC")  for public resale and the then current market price is 118%
of  the  fixed  conversion price, the Company will have an option to pay amounts
outstanding under the revolving credit facility in 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
will  be  convertible  into  shares  of  the  Company's  common stock at a fixed
conversion  price,  subject  to  adjustments  for stock splits, combinations and
dividends  and  for  shares  of  common  stock  issued  for  less than the fixed
conversion  price  (unless  exempted  pursuant  to  the  agreements).  The fixed
conversion  price  will  be adjusted after conversion of the first $1 million to
103%  of  the  then  fair  market  value  of  our  common stock ("Adjusted Fixed
Conversion  Price").

Availability  of  funds under the revolving credit facility will be based on our
accounts  receivables.  The  revolving credit facility will be secured by all of
the  Company's assets, except for an initial three (3) month period during which
Laurus will permit a credit advance up to $300,000, which amount might otherwise
exceed  eligible  accounts  receivable  during  the  period.

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

                                     - 9 -
<PAGE>

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 director's and officers
of  the  Company.  The  total  funding  was completed on November 14, 2002.  The
convertible  debentures  entitle  the holder to convert the principal and unpaid
accrued  interest  into  the  Company's common stock when the note matures.  The
maturity on the notes was six (6) months from issue date.  On March 25, 2003, an
amendment  was  executed  which extend these notes an additional six (6) months.
The convertible debentures are 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 debentures were issued, or the initial conversion
price.

Concurrent  with  the issuance of the convertible debentures, the Company issued
warrants  to  purchase  up  to  1,229,705  shares  of  our  common  stock to the
subscribers.  These  warrants  are exercisable for three (3) years from the date
of  issuance  at the initial exercise price which is equal to the 20-day average
ask price less 10% which was established when the debentures were issued, or the
initial  conversion price of the debentures.  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.

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 has been
reflected  as debt discount of which $200,908 was amortized to non-cash interest
expense  for  the  first  six-months  ending  June  30,  2003.

<TABLE>
<CAPTION>

<S>                                            <C>        <C>
Convertible debentures                                    $ 475,000
Accrued interest                                              6,938
Less debt discount
     Total                                      475,000
     Amount amortized to expense               (325,909)   (149,091)
---------------------------------------------  ---------  ----------
Net convertible debt payable at June 30, 2003             $ 332,847
</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.

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

                                    - 10 -
<PAGE>

5.     STOCKHOLDERS'  EQUITY  -  COMMON  STOCK  AND  WARRANTS  CONT.

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 $426,000 for the Units sold under the PPO during the first quarter
2003.  The  Company, in total, sold 1,196,079 Units under the PPO and received a
total  of  approximately  $646,000  under  the  PPO.

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, 2003 and 2002
using  the  minimum  value  method as prescribed by SFAS 123, as 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 of
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 period ending June 30, 2003 and 2002
would  be amortized on a pro forma basis over the vesting period of the options.
Thus,  the  Company's  consolidated  net  loss  would  have  been  as  follows:

<TABLE>
<CAPTION>

<S>                         <C>          <C>           <C>
Six-Months Ending June 30,                      2003        2002
Net loss:
                            As reported    ($917,840)  ($116,917)
                            Pro forma    ($1,056,426)  ($206,876)
Loss per Share:
                            As reported       ($0.06)     ($0.01)
                            Pro forma         ($0.07)     ($0.01)
</TABLE>

6.     NEW  ACCOUNTING  PRONOUNCEMENTS

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

                                    - 11 -
<PAGE>

6.     NEW  ACCOUNTING  PRONOUNCEMENTS  CONT.

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

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

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

7.     SUBSEQUENT  EVENTS

On May 17, 2002, the Company entered into an "at-will" employment agreement with
Mr. Schaffer.  The agreement provided for Mr. Schaffer's compensation of salary,
benefits  and  options  to purchase up to 450,000 shares of the Company's common
stock.  The  agreement  also  provided  for  severance under certain termination
provisions.  Due  to  a  shift in the Company's short-term focus toward projects
rather  than  products,  Mr.  Schaffer signed a Separation Agreement and General
Release  on  July  2, 2003.  Mr. Schaffer will receive salary and benefits until
August  8,  2003  and  will  remain  on the Company's Board of Directors without
further  board  compensation  for  a  one-year period.  Mr. Schaffer will retain
certain exercise rights on his vested options of 90,000 shares until the earlier
of  (i)  eighteen  (18) months from his resignation as a member of the Company's
Board of Directors or other subsequent consulting relationship with the Company,
or  (ii)  July  19,  2008.

                                    - 12 -
<PAGE>

7.     SUBSEQUENT  EVENTS  CONT.

On  July  9,  2003, the Company was awarded a Phase I contract to develop micro-
and   nano-satellite  bus  and  subsystem  designs.  This  AFRL  Small  Business
Innovation  Research  (SBIR)  contract,  valued  at approximately $100,000, will
enable  us  to  explore  the further miniaturization of the Company's unique and
innovative microsat subsystems.  It will also enable the Company 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  (1)  year.

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

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

On  July  24,  2003,  the  Company was awarded a contract by Lunar Enterprise of
California  (LEC)  for  a  first  phase project to begin developing a conceptual
mission  and  spacecraft design for a lunar lander program. The unmanned mission
will  be  designed  to put a small dish antenna near the south pole of the Moon.
From  that  location  it  will  be  in  near-constant  sunlight  for solar power
generation,  and  should  be  able  to  perform multi-wavelength astronomy while
communicating  with  ground  stations on Earth.  The Company will analyze launch
opportunities,  spacecraft  design,  trajectory possibilities, potential landing
areas,  available  technologies   for   a  small  radio  astronomy  system,  and
communications  and  data  handling  requirements.  This  contract  is valued at
$100,000, is a fixed price, milestone-based agreement, which should be completed
by  November  20,  2003.

                                    - 13 -
<PAGE>

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

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

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

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

OVERVIEW

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

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

                                    - 14 -
<PAGE>

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

In  November  1999,  we won a $4.9 million turnkey mission contract by the Space
Sciences  Laboratory  ("SSL")  at University of California, Berkeley ("UCB"). We
were  competitively  selected  by  UCB/SSL to design, build, integrate, test and
operate,  for  one  year,  a  small  NASA-sponsored  scientific,  Earth-orbiting
spacecraft  called  CHIPSat.  CHIPSat  is  the  first mission of NASA's low-cost
University-Class  Explorer  ("UNEX")  series.  CHIPSat  launched  as a secondary
payload on a Delta-II rocket on January 12, 2003.  The satellite achieved 3-axis
stabilization,  meaning   it  was  pointing  and  tracking  properly,  with  all
individual  components  and  systems successfully operating and is continuing to
work  well  in  orbit.  In 2000, we reviewed the contract status at year-end and
determined that the total estimated costs at the end of the program would exceed
the  likely  revenue.  As  a result, we accrued a loss of approximately $860,000
based  on  the expected contract modification of $600,000, which was approved on
June  15,  2001. On November 28, 2001, a second contract modification was signed
with  UCB,  which added approximately $1.2 million to the contract as well as an
increase  in  contract  scope.  This  increased  the  total  contract revenue to
approximately  $6.8  million and reduced the total expected loss on the contract
to  approximately $460,000. During 2002, an additional contract modification for
approximately  $400,000  was signed, which also increased the contract value and
scope to the current value of the CHIPSat project of approximately $7.4 million,
changing the total expected loss on the contract to approximately $514,000, most
of  which  could have been recorded as research and development costs associated
with  the  development of our ongoing satellite design and development programs.
As of June 30, 2003, approximately 99% of the total contract costs were expended
and  the  remaining  loss  on  the  balance  sheet  at  June  30,  2003  totaled
approximately $5,000.  Revenues for the six-months ending June 30, 2003 and 2002
were approximately $331,000 and $806,000 respectively.  The Company is currently
receiving  monthly  payments  on  the  contract  according  to  a preset payment
schedule detailed in the contract.  The CHIPSat contract is expected to conclude
in  January  2004.

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

In  September  2001,  we  were  awarded  a contract for a proprietary propulsion
research program valued in excess of $1.0 million. As a part of that program, we
are competing with another party to design a space propulsion system. The entire
contract,  which  will be awarded based upon the submitted designs, is valued at
approximately  $2.2 million. We expect this contract to generate revenue in 2003
of  approximately  $240,000.  Work  on this project generated approximately $1.2
million  in  revenues  during  2002.  As  of  June  30,  2003 we have recognized
approximately $24,000 of gross margin on this contract. We reviewed the contract
status in the fourth quarter of 2002, to evaluate changes to the total estimated
costs to complete the contract due to schedule delays. Further discussion of the
impacts of the contract delay is included under "Liquidity and Capital Resources
-  Forward  Looking  Statements  and  Risk  Analysis"  below.

                                    - 15 -
<PAGE>

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

On  July  9,  2003,  we  were  awarded  a Phase I contract to develop micro- and
nanosatellite  bus  and  subsystem designs.  This AFRL Small Business Innovation
Research  ("SBIR") contract, valued at approximately $100,000, will enable us to
explore  the  further  miniaturization  of  our  unique  and innovative microsat
subsystems.  It  will also enable us to explore ways to reduce the time and cost
to  build  small  satellites  through  further  standardization in order to help
define  de  facto  standards  for payload hardware and software interfaces.  The
contract  is  fixed  price,  milestone-based  and should be completed within one
year.

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

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

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

                                    - 16 -
<PAGE>

RESULTS  OF  OPERATIONS

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

      Six-Months Ending June 30, 2003 -vs.- Six-Months Ending June 30, 2002

During  the  six-months  ending June 30, 2003, we had net sales of approximately
$1,287,000  as  compared  to  net sales of approximately $1,812,000 for the same
six-month  period  in  2002.  Sales  in  2003  were  comprised  of approximately
$397,000  from  the  proprietary  propulsion contract, $331,000 from the CHIPSat
program,  $250,000  from  the MDA project, $242,000 from Phase I and Phase II of
the  AFRL  project  and  approximately  $67,000 from all other programs.  In the
first  six-months  of  2002, sales were comprised of approximately $806,000 from
the  CHIPSat  program,  $807,000  from  the  proprietary propulsion contract and
$199,000  from  all  other  programs.

For  the  six-months  ending  June  30,  2003, we had costs of sales (direct and
allocated  costs   associated  with   individual   contracts)  of  approximately
$1,039,000, or 81% of net sales, as compared to approximately $1,442,000, or 80%
of  net  sales,  during  the  same  period  in  2002.   Although  proportionally
consistent, this decrease in amount was primarily due to an overall reduction of
direct  costs on current projects and to delays and schedule slips on additional
projects.  The  gross  margin percentage for the six-months ending June 30, 2003
remained  at  approximately the same level as the same six-month period in 2002.

We experienced an increase in operating expenses from approximately $368,000, or
20%  of  net  sales,  in  the  six-months  ending June 30, 2002 to approximately
$976,000,  or  76%  of  net  sales,  for  the  six-months  ending June 30, 2003.
Operating  expenses  include  general   and   administrative  expenses  ("G&A"),
marketing  and  sales  expenses  as  well  as research and development expenses.
Marketing  and sales expenses increased from approximately $69,000, or 4% of net
sales,  for  the  first six-months of 2002, to approximately $199,000, or 15% of
net  sales,  during  the  same period in 2003, due to our decision to expand our
marketing  department  and  add  a  Vice  President  of  Marketing  and  Product
Development.  We  began  incurring  research and development ("R&D") expenses of
approximately   $252, 000,   during   the   six-months  ending  June  30,  2003.
Approximately  $171,000  of  R&D  was  in  connection  with  our  hybrid  rocket
propulsion design and the remaining $81,000 was part of our satellite bus design
and  development.  The  increase  in  G&A expenses of approximately $226,000 was
primarily  due  to certain new expenses including rent of approximately $130,000
(we  owned  the  building in 2002 and incurred interest expense on loans but not
rental  payments),  amortization  of  previously capitalized technology costs of
approximately  $35,000,  which amortization began in the second quarter of 2002,
and  fees  related  our  new  Laurus  revolving credit facility of approximately
$42,000,  which  credit  facility  began  on  June  3,  2003.

Interest  expense  for  the  six-months  ending  June  30,  2003  and  2002  was
approximately  $35,000,  3%  of  net  sales,  and  $120,000,  7%  of  net sales,
respectively.  The  decrease  was  due to the building sale on January 31, 2003,
which  reduced  overall  interest on the notes associated with the building.  We
continue to pay interest expense on certain capital leases and settlement notes.
In  addition,  we accrued interest expense related to our related party note and
convertible  debentures.  In  the  six-months ending June 30, 2003 and 2002, the
accrued  interest  on  our  related  party   note   was   $19,133  and  $23,633,
respectively.  We  also accrued  $4,863 of interest on our convertible notes for
the  six-months  ending  June 30, 2003.  In conjunction to our convertible notes
there  is  an  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 ending June 30,
2003.  The remainder will be amortized over the remaining life of the notes.  We
recognized  approximately  $49,000  of  the  deferred  gain  on  the sale of the
building  during  the  six-months  ending  June 30, 2003 and we will continue to
amortize  the  remaining  deferred  gain  of  $1,123,857  into  income  over the
remainder of the lease.  In relation to the gain we received on the building, we
also accrued an income tax payable expense of $40,000 at March 31, 2003 of which
only  $2,526 remained at June 30, 2003.  The reduction of the income tax payable
was  due  to  a  change  in estimate based on the loss we experienced during the
first  six-months  of  2003.

                                    - 17 -
<PAGE>

During  the  six-months  ending  June  30,  2003,  we  incurred  a  net  loss of
approximately  $918,000,  or  71%  of  net  sales,  compared  to  a  net loss of
approximately  $117,000,  or  6% of net sales, for the same six-months ending in
2002.  The  increase  in  the net loss was due to our reduction in revenues with
the  substantial completion of CHIPSat and to an increase in operating expenses,
as  discussed  above.

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

During  the three-months ending June 30, 2003, we had net sales of approximately
$754,000  as  compared  to  net  sales  of  approximately  $863,000 for the same
three-month  period  in 2002.  Sales in second quarter of 2003 were comprised of
approximately  $160,000  from the proprietary propulsion contract, $265,000 from
the  CHIPSat  program,  $92,000  from the MDA project, $222,000 from Phase I and
Phase  II of the AFRL project and approximately $14,000 from all other programs.
In  the  three-months  ended June 30 2002, sales were comprised of approximately
$325,000  from  the  CHIPSat  program,  $441,000 from the proprietary propulsion
contract  and  $97,000  from  all  other  programs.

For  the  three-months  ending  June 30, 2003, we had costs of sales (direct and
allocated costs associated with individual contracts) of approximately $578,000,
or 77% of net sales, as compared to approximately $730,000, or 85% of net sales,
during  the  same  three-month  period  in 2002.  This improvement was primarily
attributable to an effort to separate investments in technology development from
direct  costs  on  current  projects.  Beginning  in the second quarter of 2003,
specifically  identified  developmental  efforts  that  are  expected to provide
general  added  value  to  many  projects  will  be  recorded  as  research  and
development expense, rather than cost of sales to a specific project.  The gross
margin  percentage for the three-months ending June 30, 2003 increased to 23% as
compared  to  15%  for  the  same  three-month period in 2002, due to a shift in
business  from  fixed  price  to  cost-plus projects, with the beginning of AFRL
Phase  II  during  the  three-months  ending June 30, 2003.  AFRL Phase II  is a
cost-plus  program.

We experienced an increase in operating expenses from approximately $156,000, or
18%  of  net  sales,  in  the three-months ending June 30, 2002 to approximately
$541,000,  or  72%  of  net  sales,  for  the three-months ending June 30, 2003.
Operating  expenses  include  general   and   administrative  expenses  ("G&A"),
marketing  and  sales  expenses  as  well  as research and development expenses.
Marketing  and sales expenses increased from approximately $43,000, or 5% of net
sales,  for the three-months ending June 30, 2002, to approximately $134,000, or
18%  of net sales, during the same period in 2003, due to our decision to expand
our  marketing  department  and  add  a  Vice President of Marketing and Product
Development.  We  had  R&D  expenses  of  approximately  $171,000 related to our
hybrid  rocket  propulsion  design  and  R&D  expenses  of approximately $81,000
related  to  our  satellite  bus  design and development, totaling approximately
$252,000,  or  33%  of  net sales, during the three-months ending June 30, 2003.
G&A  expenses  consist  primarily of salaries for administrative personnel, fees
for  outside  consultants,  rent, insurance, legal and accounting fees and other
overhead  expenses.  The increase in total G&A expenses of approximately $42,000
was  primarily  due  to  new  rent  expenses  in 2003.  There were only interest
expenses  in  2002,  as  we  owned  the  building  in  2002.

Interest  expense  for  the  three-months  ending  June  30,  2003  and 2002 was
approximately  $14,000,  or  2%  of  net sales, and $65,000, or 8% of net sales,
respectively.  The  decrease  was  due to the building sale on January 31, 2003,
which  reduced  overall  interest on the notes associated with the building.  We
continue to pay interest expense on certain capital leases and settlement notes.
In  addition,  we accrued interest expense related to our related party note and
convertible  debentures.  In the three-months ending June 30, 2003 and 2002, the
accrued interest on our related party note was $9,266 and $11,566, respectively.
We  also   accrued  $2,738  of   interest  on  our  convertible  notes  for  the
three-months  ending  June  30, 2003.  In conjunction with our convertible notes
there  is  an  existing  convertible  debt  discount  related  to  warrants that
accompanied  the  convertible  debt  issue in 2002 of approximately $475,000, of
which  approximately  $100,000  was expensed during the three-months ending June
30, 2003.  The remainder will be amortized over the remaining life of the notes.
We  recognized  approximately  $29,000  of  the deferred gain on the sale of the
building  during  the  three-months ending June 30, 2003 and we will continue to
amortize  the  remaining  deferred  gain  of  $1,123,857  into  income  over the
remainder  of  the lease.   In relation to the gain we received on the building,
we  also  credited  the accrued income tax payable expense by ($37,474) due to a
change  in  accrual  estimate during the first quarter of 2003 and a larger loss
than  anticipated  for  the  three-months  ending  June  30,  2003.

                                    - 18 -
<PAGE>

During  the  three-months  ended  June  30,  2003,  we  incurred  a  net loss of
approximately  $413,000,  or  55%  of  net  sales,  compared  to  a  net loss of
approximately  $88,000,  or 10% of net sales, for the same three months ended in
2002.  The  increase in the net loss was due to our reduction in revenues and to
an  increase  in  operating  expenses,  as  discussed  above.

LIQUIDITY  AND  CAPITAL  RESOURCES

  Cash Position For Six-Months Ending June 30, 2003 -vs.- Six-Months Ending June
                                    30, 2002

Net  increase  in  cash  during  the   six-months   ending  June  30,  2003  was
approximately $53,000, compared to a net decrease of approximately ($76,000) for
the  same  six-months  in  2002.  Net  cash used in operating activities totaled
approximately ($819,000) for the six-months ending June 30, 2003, an increase of
approximately  $814,000  as compared to approximately ($5,000) used in operating
activities  during  the same six-months in 2002. This is attributable in part to
the increase in our research and development projects of approximately $253,000.
The increase can also be attributed to our overall increase in G&A expenses, the
reduction  of  our revenues, an increase in marketing and sales expenses and the
decrease in accounts payable for the six-months ending June 30, 2003 compared to
those  positions  during  the  same  period  in  2002.

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

Net cash used in financing activities totaled approximately ($2,275,000) for the
six-months ending June 30, 2003, which is a decrease of approximately $2,204,000
from  the  approximately  ($71,000) used in financing activities during the same
six-month  period  2002.  This  is  primarily  attributable  to paying off notes
payable  associated  with  the  building  sale.

At  June 30, 2003, our cash, which includes cash reserves and cash available for
investment,  was approximately $81,000, as compared to approximately $135,000 at
June  30,  2002,  a  decrease  of  approximately $54,000.  At June 30, 2003, our
working  capital  ratio  remained at 0.23 for the six-months ended June 30, 2003
and  2002.

As  of  June  30,  2003,  our  backlog  of  funded  and  non-funded business was
approximately  $3.2 million, as opposed to approximately $2.6 million as of June
30,  2002.  During the six-months ending June 30, 2003, we won the AFRL Phase II
contract worth approximately $1.4 million, negotiated increases of approximately
$1.0  million  to  the  AFRL  Phase II Contract as a deferred option still open,
continued  the  proprietary propulsion project, completed significant milestones
on CHIPSat, completed MDA's Phase I project and obtained a purchase order for an
$800,000  project,  obtained  two  AFRL  SBIR  Phase I grants and were awarded a
$100,000  contract  by  Lunar  Enterprises.

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

                                    - 19 -
<PAGE>

Critical  Accounting  Standards
-------------------------------

Our  revenues  are  transitioning  from  primarily  fixed  price contracts where
revenues  are  recognized  using the percentage-of-completion method of contract
accounting  based  on the ratio of total costs incurred to total estimated costs
to  cost  plus contracts where revenues are recognized as costs are incurred and
services  are  performed.  Losses  on  contracts are recognized when they become
known  and  reasonably  estimable  (see  Notes  to  the  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.  Billings in excess of costs incurred and
estimated earnings represent the excess of amounts billed in accordance with the
contractual  billing  terms.  Deferred revenue represents amounts collected from
customers  for  services  to  be   provided  at  a  future  date.  Research  and
development  costs  are  expensed  as  incurred.

In  October  1995,  the  FASB  issued  SFAS No. 123, "Accounting for Stock-Based
Compensation."  We  adopted  FAS  123  in  1997.  We  have  elected  to  measure
compensation  expense  for our stock-based employee compensation plans using the
intrinsic  value  method  prescribed  by  APB  Opinion 25, "Accounting for Stock
Issued  to  Employees"  and  have  provided pro forma disclosures as if the fair
value  based  method  prescribed  SFAS  123 has been utilized.  See Notes to the
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.

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

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

                                    - 20 -
<PAGE>

CASH  POSITION  AND  GOING  CONCERN

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

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

At  the  end  of  2002,  we  raised  $475,000  from certain of our directors and
officers  by  issuing  2.03% convertible debentures.  The convertible debentures
entitle the holder to convert the principal and unpaid accrued interest into our
common  stock when the note matures.  The original maturity on the notes was six
(6)  months  from  issue date; however, on March 19, 2003, the maturity date was
extended  to twelve (12) months from issue date.  The convertible debentures are
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 which equals
to  the  20-day average asking price less 10% as established when the debentures
were issued, or the initial conversion price on the debentures.  There can be no
assurance  that additional funds will be raised or, if raised, will be under the
same  or  more  favorable  terms  than  the  convertible  debentures.

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

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

                                    - 21 -
<PAGE>

We  can  continue  to  grow  and  execute  certain parts of our strategy without
additional equity funding by identifying, bidding and winning new commercial and
government  funded  programs.  We expect to obtain new commercial and government
contracts;  however,  depending on the timing of those contracts, we may need to
seek additional and possibly immediate financing through a combination of public
and  private  debt  or  equity  placements,  commercial  project  financing  and
government   programs  to  fund  future  operations  and  commitments.  We  were
successful  in obtaining a revolving credit facility from Laurus Master Fund, as
described  herein;  however,  there  is  no  assurance  that  new  contracts  or
additional  debt or equity financing needed to fund operations will be available
or obtained in sufficient amounts necessary to meet our needs. The likelihood of
our success must be considered in light of the expenses, difficulties and delays
frequently  encountered  in  connection  with  the  developing businesses, those
historically  encountered  by  us,  and  the competitive environment in which we
operate.

ITEM  3.   QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

Our  market  risks  relate  primarily  to  changes in interest rates.  We borrow
money,  when  necessary,  on  a revolving basis under our $1.0 million revolving
credit  facility  to  fund capital expenditures and other working capital needs.
Our  revolving credit facility carries a variable interest rate pegged to market
indices  and,  therefore, our statements of operations and our cash flows may be
impacted by changes in interest rates.  As of June 30, 2003, there was no amount
outstanding  under  the  revolving  credit  facility.

ITEM  4:  CONTROLS  AND  PROCEDURES

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

                                    - 22 -
<PAGE>

                            PART II OTHER INFORMATION

ITEM  1.  LEGAL  PROCEEDINGS

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

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

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

ITEM  2.    CHANGES  IN  SECURITIES

Pursuant  to  its  independent  director  compensation plan, adopted January 16,
2000,  the  Company  granted  options  to purchase 10,000 shares each to J. Mark
Grosvenor  and  5,000  shares  each to Curt Dean Blake, Robert Walker, Howell M.
Estes,  III,  Scott  McClendon  and  Wesley T. Huntress for their attendance and
participation  at  the  Board  of  Directors meeting held on May 6, 2003.  These
options  were  issued  with  an exercise price of $0.46 per share, (based on the
closing  price  of  our  common  stock on the date of grant), will vest over two
years  and  will  expire on the five-year anniversary date of the date of grant.

On  June  3, 2003, we issued warrants to purchase 200,000 shares of common stock
to  Laurus  Master  Fund Ltd.  The warrants were issued at three different price
levels: warrants on 125,000 shares of common stock at an exercise price of $0.63
per  share;  warrants  on  50,000 shares of common stock at an exercise price of
$0.69  per  share;  and warrants on 25,000 shares of common stock at an exercise
price  of  $0.80  per  share.

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

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

                                    - 23 -
<PAGE>

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

ITEM  3.    DEFAULTS  UPON  SENIOR  SECURITIES

     None.

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

The annual meeting of the shareholders of SpaceDev, Inc. was held at 13855 Stowe
Drive,  Poway, California 92064, on July 18, 2003, at 11:00 A.M.  Out of a total
of  15,338,907  shares  outstanding on the date of record, 13,896,380 shares, or
approximately  90.6%, were voted in person or by proxy.  The following proposals
were  presented  and  passed  by  the  amounts  indicated  below:

<TABLE>
<CAPTION>

PROPOSAL 1:  To elect eight directors to hold office until the 2003 Annual Meeting of Stockholders:
<S>                                                                        <C>         <C>      <C>
                                                                       FOR         AGAINST  ABSTAIN
James W. Benson                                                        13,871,287    9,975   15,118
Scott McClendon                                                        13,873,462    7,800   15,118
Curt Dean Blake                                                        13,873,462    7,800   15,118
Gen. Howell M. Estes, III                                              13,873,462    7,800   15,118
Robert S. Walker                                                       13,873,462    7,800   15,118
Wesley T. Huntress                                                     13,873,462    7,800   15,118
Stuart E. Schaffer                                                     13,812,129   69,133   15,118
J. Mark Grosvenor                                                      13,873,462    7,800   15,118

PROPOSAL 2:  To approve the appointment of PKF, Certified Public Accountants, as our independent
public accountants for the fiscal year ending December 31, 2003:

                                                                       FOR         AGAINST  ABSTAIN
                                                                       13,875,288   10,213   10,879

PROPOSAL 3:  To approve an amendment of our Articles of Incorporation to increase the number of
authorized shares of our Common Stock from 25,000,000 shares to 50,000,000 shares:

                                                                       FOR         AGAINST  ABSTAIN
                                                                       13,573,244  309,991   13,145
</TABLE>

                                    - 24 -
<PAGE>

ITEM  5.    OTHER  INFORMATION

The Sarbanes-Oxley Act of 2002 ("Act") established the Public Company Accounting
Oversight  Board  ("PCAOB") and charged it with the responsibility of overseeing
the  audits of public companies that are subject to the federal securities laws.
Under  the  Act,  the PCAOB's duties include the establishment of a registration
system  for  public  accounting  firms.  The  PCAOB  has  proposed rules for the
registration  process,  which  will  require  approval  of  the  U.S. Securities
Commission ("SEC") prior to enforcement. Within 180 days after SEC approval, all
public accounting firms will be required to register with the PCAOB if they wish
to  prepare  or  issue  audit  reports  on  U.S.  public companies, or to play a
substantial  role  in  the   preparation  or  issuance  of  such  reports.  Once
registered,  public  accounting  firms will be required to file periodic reports
with  the  PCAOB.  At  this  time,  the  cost of compliance with these new rules
cannot  be  determined,  and, as a result of the recent legislation, the cost of
professional  liability  insurance  for public accounting firms has dramatically
increased.  We  were  informed  by  our independent auditor, Nation Smith Hermes
Diamond,  Accountants  and Consultants, P.C. ("Nation Smith"), that it would not
register  with  the PCAOB and, as a result, would not be able to continue to act
as  our  independent auditor once the rules were in effect. Nation Smith did not
resign  its  position  as a result of any disagreements with us on accounting or
financial  disclosure  issues.

Effective  June  2,  2003,  we  confirmed with our auditors, Nation Smith Hermes
Diamond,  P.C.,  "Nation  Smith"),  that   Nation   Smith  would  no  longer  be
representing  us  as  our accountants, except to provide consent herein.   As of
that  date,  we  informed Nation Smith that we were engaging a new audit firm as
our  accountants.

Nation  Smith  last reported on Registrant's financial statements as of February
13,  2003.  The  report,  which  covered the two fiscal years ended December 31,
2002,  was an unqualified report modified for going concern.  While Nation Smith
expressed  concern  as  to  the  Registrant's ability to remain a going concern,
neither  the  report  nor the financial statements for the periods contained any
other  adverse  opinion  or  disclaimer of opinion, nor were they modified as to
audit  scope  or  accounting  principles.

Our Board of Directors ratified the change of independent accountants on June 3,
2003.

During  our  fiscal year 2002 and the subsequent interim period through July 25,
2003,  there were no disagreements with Nation Smith on any matter of accounting
principles  or  practices,  financial statement disclosure, or auditing scope or
procedure,  which,  if  not resolved, to Nation Smith's satisfaction, would have
caused  it  to  make  reference  to  the  subject  matter of the disagreement in
connection  with  its  report.

During fiscal year 2002 and the subsequent interim period through July 25, 2003,
there  have  been  no  reportable  events  (as  defined  in  Regulation S-B Item
304(a)(1)(v)).

During fiscal year 2002 and the subsequent interim period through July 25, 2003,
Nation  Smith  did  not advise us that the internal controls necessary for us to
develop  reliable  financial  statements  do  not  exist.

During fiscal year 2002 and the subsequent interim period through July 25, 2003,
Nation  Smith did not advise us that any information had come to their attention
which  had led them to no longer be able to rely on management's representation,
or  that  had  made  Nation  Smith unwilling to be associated with the financial
statements  prepared  by  management.

During fiscal year 2002 and the subsequent interim period through July 25, 2003,
Nation Smith did not advise us that the scope of any audit needed to be expanded
significantly  or  that  more  investigation  was  necessary.

                                    - 25 -
<PAGE>

During fiscal year 2002 and the subsequent interim period through July 25, 2003,
Nation  Smith  did  not  advise  us  that  there  was  any information which the
accountants  concluded  would  materially impact the fairness and reliability of
either  (i)  a  previously  issued  audit  report  or  the  underlying financial
statements,  or  (ii)  the  financial statements issued or to be issued covering
the  fiscal  period(s)  subsequent  to  the  date  of  the most recent financial
statements  covered  by  an  audit  report  (including  information that, unless
resolved  to  the  accountant's satisfaction, would prevent it from rendering an
unqualified  audit  report  on  those  financial  statements.

We  requested  that  Nation  Smith furnish us with a letter addressed to the SEC
stating  whether  or  not  it  agrees with the above statements.  A copy of such
letter,  dated June 4, 2003, was filed as Exhibit 16.1 to our Form 8-K filing of
the  same  date.

We  engaged  PKF,  Certified  Public  Accountants,  A  Professional  Corporation
("PKF"),  as our new independent accountants on June 2, 2003 for the fiscal year
ending  December  31, 2003, and to review our quarterly financial statements for
the periods ending June 30, 2003 and September 30, 2003.  Prior to June 2, 2003,
we  had  not  consulted  with  PKF  regarding  (i) the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of  audit  opinion  that  might  be rendered on our financial statements, and no
written  report or oral advice was provided to us by PKF concluding there was an
important  factor  to  be  considered  by  us  in  reaching  a decision as to an
accounting,  auditing  or financial reporting issue; or (ii) any matter that was
either  the  subject  of  a  disagreement,  as  that  term  is  defined  in Item
304(a)(1)(iv)  of  Regulation  S-B  and  the related instructions to Item 304 of
Regulation  S-B,  or  a  reportable  event,  as  that  term  is  defined in Item
304(a)(1)(iv)  of  Regulation  S-B.

ITEM  6.  EXHIBITS  AND  REPORTS  ON  FORM  8-K

(a)     Exhibits

Certificate  of  James W. Benson Pursuant to Section 1350 of Chapter 63 of Title
18  U.S.  Code     99.1
Certificate  of  Richard  B.  Slansky  Pursuant to Section 1350 of Chapter 63 of
Title  18  U.S.  Code     99.2


(b)     Reports  on  Form  8-K

A  Current Report on Form 8-K/A filed June 9, 2003 was filed with the Commission
under  Item  4  (Changes  in  Registrant's Certifying Accountant), regarding the
replacement  of  Nation  Smith  Hermes  Diamond  P.C. with PKF, Certified Public
Accountants,  as  our  accountants.

A  Current  Report on Form 8-K filed June 18, 2003 was filed with the Commission
under  Item  5  (Other  Events  and  Regulation  FD  Disclosure),  regarding the
revolving  credit  facility  with  Laurus  Master  Fund,  Ltd.

                                    - 26 -
<PAGE>

                                  SIGNATURES

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

SPACEDEV,  INC.
Registrant



Dated:  August  13,  2003

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



Dated:  August  13,  2003

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

                                    - 27 -
<PAGE>



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

                            Section 302 Certification

I,  James  W.  Benson,  certify  that:

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

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

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

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

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

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

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

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

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

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

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

Date:  August  13,  2003

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


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

                            Section 302 Certification

I,  Richard  B.  Slansky,  certify  that:

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

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

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

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

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

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

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

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

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

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

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


Date:  August  13,  2003

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


<PAGE>