UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file Number 000-21749
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 95-4257380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3501 Lakewood Boulevard
Long Beach, California 90808
(Address of principal executive offices)
(562) 938-8618
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 [ ]
As of November 11, 1998, the issuer had outstanding 6,999,676 shares of
Class A Common Stock, 1,900,324 shares of Class B Common Stock, 4,000,000 shares
of Class E-1 Common Stock and 4,000,000 shares of Class E-2 Common stock.
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Plan of Operations
PART II. OTHER INFORMATION
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Advanced Aerodynamics & Structures, Inc.
(A Development Stage Enterprise)
Balance Sheet
(unaudited)
<TABLE>
September 30, 1998
-------------------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents $3,378,000
Certificate of deposit 12,000
Short term investments 1,333,000
Prepaid expenses and other current assets 351,000
-------------------------
Total current assets 5,074,000
Restricted cash 11,308,000
Property and equipment, net 1,904,000
Construction in progress 5,942,000
Other assets 595,000
Total assets $24,823,000
==========================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Advanced Aerodynamics & Structures, Inc.
(A Development Stage Enterprise)
Balance Sheet (continued)
(unaudited)
<TABLE>
September 30, 1998
-------------------------
<S> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $463,000
Accrued liabilities 425,000
-------------------------
Total current liabilities 888,000
Long term debt 8,500,000
Deferred revenue 1,150,000
-------------------------
Total liabilities 10,538,000
-------------------------
Stockholders' equity
Preferred Stock, par value $.0001 per share; 5,000,000
shares authorized; no shares issued and outstanding --
Class A Common Stock, par value $.0001 per share;
60,000,000 shares authorized; 6,999,676 shares issued and outstanding 1,000
Class B Common Stock, par value $.0001 per share;
10,000,000 shares authorized; 1,900,324 shares issued and outstanding
Class E-1 Common Stock, par value $.0001 per share; --
4,000,000 shares authorized; 4,000,000 shares issued and outstanding --
Class E-2 Common Stock, par value $.0001 per share;
4,000,000 shares authorized; 4,000,000 shares issued and outstanding --
Warrants to purchase common stock:
Public Warrants 473,000
Class A Warrants 11,290,000
Class B Warrants 4,632,000
Additional paid-in capital 35,652,000
Deficit accumulated during the development stage (37,763,000)
-------------------------
Total stockholders' equity 14,285,000
Total liabilities and stockholders' equity $24,823,000
=========================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Advanced Aerodynamics & Structures, Inc.
(A Development Stage Enterprise)
Statement of Operations
(unaudited)
<TABLE>
Period from
January 26, 1990
Three Months Ended Nine Months Ended (inception) to
September 30, September 30, September 30,
1997 1998 1997 1998 1998
--------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Interest income $243,000 $209,000 $884,000 $799,000 $2,242,000
--------------- --------------- --------------- --------------- ----------------
Other income - 94,000 7,000 187,000 1,002,000
--------------- --------------- --------------- --------------- ----------------
243,000 303,000 891,000 986,000 3,244,000
Costs and expenses
Research and development costs 1,781,000 1,667,000 3,013,000 5,041,000 23,490,000
Preoperating costs - - - - 282,000
General and administrative expense 827,000 795,000 2,014,000 2,491,000 12,525,000
Loss on disposal of assets - - 106,000 - 742,000
Interest expense - 83,000 - 264,000 2,265,000
In-process research and development
acquired - - - - 761,000
--------------- --------------- --------------- --------------- ----------------
2,608,000 2,545,000 5,133,000 7,796,000 40,065,000
--------------- --------------- --------------- --------------- ----------------
Loss before extraordinary item (2,365,000) (2,242,000) (4,242,000) (6,810,000) (36,821,000)
Extraordinary loss on retirement of
Bridge Notes - - - - (942,000)
--------------- --------------- --------------- --------------- ----------------
Net loss (2,365,000) (2,242,000) (4,242,000) (6,810,000) $(37,763,000)
=============== =============== =============== =============== ================
Net loss per common share (0.27) (0.25) (0.48) (0.77)
=============== =============== =============== =============== ================
Weighted average number of shares
outstanding 8,900,000 8,900,000 8,900,000 8,900,000
=============== =============== =============== =============== ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Advanced Aerodynamics & Structure, Inc.
(A Development Stage Enterprise)
Statement of Stockholders' Equity
(unaudited)
<TABLE>
Common Stock
Preferred Stock Class A Class B Class E-1 Class E-2
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock issued 418,094 $ -- 836,189 $ -- 836,189 $ --
Common stock issued in
exchange for in-
process research and
development 201,494 -- 402,988 -- 402,988 --
Imputed interest on
advances from
stockholder
Net loss from inception
to December 31,1994
----------------------------------------------------------------------------------------------------------
Balance at December 31,
1994 619,588 -- 1,239,177 -- 1,239,177 --
Imputed interest on
advances from
stockholder
Net loss
----------------------------------------------------------------------------------------------------------
Balance at December 31,
1995 619,588 -- 1,239,177 -- 1,239,177 --
Conversion of
stockholder advances 598,011 -- 1,196,021 -- 1,196,021 --
Conversion of officer
loans 187,118 -- 374,236 -- 374,236 --
Stock issued in
consideration for
services in 1994,
1995 and 1996 595,283 -- 1,190,566 -- 1,190,566 --
Imputed interest on
advances from
stockholder
Net proceeds from initial
public offering of Units 6,000,000 $1,000
Net proceeds from
exercise of over-
allotment option 900,000 --
Warrants issued in
connection with
issuance of Bridge Notes
Net loss
---------------------------------------------------------------------------------------------------------
Balance at December
31, 1996 6,900,000 $1,000 2,000,000 -- 4,000,000 -- 4,000,000 --
Adjustment to proceeds
from initial public
offering and exercise
of over-allotment option
Net loss
---------------------------------------------------------------------------------------------------------
Balance at December 31,
1997 6,900,000 $1,000 2,000,000 -- 4,000,000 -- 4,000,000 --
Conversion of Class B to
Class A Common Stock 99,676 -- (99,676) --
Net loss
Balance at September 30,
1998 6,999,676 $1,000 1,900,324 -- 4,000,000 -- 4,000,000 --
=========================================================================================================
</TABLE>
See accompanying notes to financial statements
<PAGE>
Advanced Aerodynamics & Structure, Inc.
(A Development Stage Enterprise)
Statement of Stockholders' Equity (continued)
(unaudited)
<TABLE>
Warrants
Deficit
Bridge Accumulated
Warrants to During the
Purchase Additional Development
Common Stock Class A Class B Paid-in Capital Stage Total
------------------ ------------- ------------ ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued $7,500,000 $7,500,000
Common stock issued in
exchange for in-
process research and
development 361,000 361,000
Imputed interest on
advances from
stockholder 776,000 776,000
Net loss from inception
to December 31,1994 $(19,252,000) (19,252,000)
------------------ ------------- ------------ ---------------- --------------- ---------------
Balance at December 31,
1994 $8,637,000 $(19,252,000) $(10,615,000)
Imputed interest on
advances from
stockholder 23,000 23,000
Net loss (1,688,000) (1,688,000)
------------------ ------------- ------------ ---------------- --------------- ---------------
Balance at December 31,
1995 8,660,000 (20,940,000) (12,280,000)
Conversion of
stockholder advances 10,728,000 10,728,000
Conversion of officer
loans 336,000 336,000
Stock issued in
consideration for
services in 1994,
1995 and 1996 1,507,000 1,507,000
Imputed interest on
advances from
stockholder 11,000 11,000
Net proceeds from initial
public offering of Units $9,583,000 $4,166,000 12,566,000 26,316,000
Net proceeds from
exercise of over-
allotment option 1,707,000 466,000 1,922,000 4,095,000
Warrants issued in
connection with
issuance of Bridge Notes $473,000 473,000
Net loss (3,388,000) (3,388,000)
------------------ ------------- ------------ ---------------- --------------- ---------------
Balance at December
31, 1996 $473,000 $11,290,000 $4,632,000 $35,730,000 $(24,328,000) $27,798,000
Adjustment to proceeds
from initial public
offering and exercise
of over-allotment option (78,000) (78,000)
Net loss (6,625,000) (6,625,000)
------------------ ------------- ------------ ---------------- --------------- ---------------
Balance at December 31,
1997 $473,000 $11,290,000 $4,632,000 $35,652,000 $(30,953,000) $21,095,000
Conversion of Class B to
Class A Common Stock --
Net loss (6,810,000) (6,810,000)
Balance at September 30, 1998 $473,000 $11,290,000 $4,632,000 $35,652,000 $(37,763,000) 14,285,000
================== ============= ============ ================ =============== ===============
</TABLE>
See accompanying notes to financial statements
<PAGE>
Advanced Aerodynamics & Structures, Inc.
(A Development Stage Enterprise)
Statement of Cash Flows
(unaudited)
<TABLE>
Period from
January 26,
Nine Months Ended 1990 (inception) to
September 30, September 30,
1997 1998 1998
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss (4,242,000) (6,810,000) (37,763,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Noncash stock compensation expense 1,207,000
Noncash interest expense 336,000
Cost of in-process research and development acquired 761,000
Imputed interest on advances from stockholder 810,000
Interest income from restricted cash invested (336,000) (472,000)
Extraordinary loss on retirement of Bridge Notes 942,000
Depreciation and amortization 272,000 323,000 2,523,000
Loss on disposal of assets 106,000 742,000
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses and
other current assets (290,000) 576,000 317,000
(Increase) decrease in other assets (689,000) (178,000) (595,000)
Increase (decrease) in accounts payable (34,000) (72,000) 463,000
Increase (decrease) in accrued liabilities 285,000 160,000 325,000
Increase in deferred revenue 370,000 720,000 1,150,000
Net cash used in operating activities (4,222,000) (5,617,000) (29,254,000)
--------------------- --------------------- --------------------
Cash flows from investing activities:
Restricted cash from long term debt (8,500,000) (8,500,000)
Increase in construction in progress (446,000)
Proceeds from insurance claims upon loss of aircraft 30,000
Proceeds from disposal of assets 3,000 3,000
Capital expenditures (787,000) (511,000) (5,162,000)
Purchase of certificate of deposit (1,000,000) (1,061,000)
Proceeds from redemption of certificate of deposit 1,049,000 1,049,000
Purchase of marketable securities (6,212,000) (8,637,000)
Proceeds from sale of marketable securities 3,326,000 3,180,000 7,304,000
Net cash (used in) provided by investing activities (13,170,000) 3,718,000 (15,420,000)
--------------------- --------------------- --------------------
Cash flows from financing activities:
Adjustment to net proceeds from initial public offering and
exercise of over-allotment option (78,000) (78,000)
Proceeds from long term debt 170,000 8,500,000
Restricted cash collateral for long term debt (8,500,000)
Advances from stockholder 10,728,000
Proceeds from issuance of common stock prior to
initial public offering 7,500,000
Net proceeds from initial public offering and exercise
of over-allotment option 30,411,000
Net proceeds from bridge financing 6,195,000
Repayment of bridge financing (7,000,000)
Repayment of obligation under capital leases (40,000)
Proceeds from loans from officer 336,000
Repayment of bank notes --
Repayment of loans from SIDA Corporation --
Repayment of other short-term loans --
Net cash provided by financing activities 92,000 -- 48,052,000
--------------------- --------------------- --------------------
Net (decrease) increase in cash and cash equivalents (17,300,000) (1,899,000) 3,378,000
Cash and cash equivalents at beginning of period 24,222,000 5,277,000 --
Cash and cash equivalents at end of period 6,922,000 3,378,000 3,378,000
===================== ===================== ====================
</TABLE>
<PAGE>
Advanced Aerodynamics & Structures, Inc.
(A Development Stage Enterprise)
Statement of Cash Flows (continued)
(unaudited)
<TABLE>
<S> <C> <C>
Supplemental cash flow information:
Cash paid for interest $264,000 $1,119,000
Supplemental disclosure of noncash investing and
financing activities:
Stockholder advances converted to common stock $ 10,728,000
Loans from officer converted to common stock $ 336,000
Common stock issued for noncash
consideration and compensation $ 1,507,000
Liabilities assumed from ASI $ 400,000
Common stock issued for in-process research
and development acquired $ 361,000
Equipment acquired under capital leases $ 40,000
Deposit surrendered as payment for rents due $ 80,000
Construction in progress acquired with restricted cash $5,496,000 $5,942,000
</TABLE>
See accompanying notes to financial statements
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
1. General
In the opinion of the Company's management, the accompanying unaudited
financial statements include all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of the financial
position of the Company at September 30, 1998 and the results of operations
and cash flows for the nine months ended September 30, 1998 and September
30, 1997 respectively. Although the Company believes that the disclosures
in these financial statements are adequate to make the information
presented not misleading, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. Results of operations for interim periods are not necessarily
indicative of results of operations to be expected for any other interim
period or the full year.
The financial information in this quarterly report should be read in
conjunction with the audited December 31, 1997 financial statements and
notes thereto included in the Company's annual report filed on Form 10-KSB.
The Company is a development stage enterprise. On December 3, 1996, the
Company successfully completed an initial public offering to finance the
continued development, manufacture and marketing of its product to achieve
commercial viability. The net proceeds of the offering were and will be
used to amend its Federal Aviation Administration ("FAA") Type Certificate
for technical revisions to its product, to obtain a FAA Production
Certificate for its product, to repay borrowings under a bridge loan, to
expand the Company's sales and marketing efforts, to establish a new
manufacturing facility, and to acquire production materials and additional
tooling and equipment.
2. Net Loss Per Common Share
The Company's net loss per common share was computed based on the weighted
average number of shares of common stock outstanding during the nine month
period ended September 30, 1998 and 1997 and excludes all outstanding
shares of Class E-1 and Class E-2 Common Stock because the conditions for
the lapse of restrictions on such shares have not been satisfied. There is
no difference between the loss per common share amounts computed for basic
and dilutive purposes because the impact of options and warrants
outstanding are anti-dilutive.
3. Industrial Development Bonds
On August 5, 1997, the Company entered into a loan agreement in connection
with industrial development bonds (IDB) issued by the California Economic
Development Financing Authority. The Company has established in the
trustee's favor a bank letter of credit for the principle amount of
$8,500,000, plus 45 days accrued interest on the bonds, which is secured by
$8,500,000 of Company restricted cash. The bonds mature August 1, 2027 at
which time all outstanding amounts become due and payable. The Company is
using the proceeds from the IDBs to finance the construction and
installation of a 200,000 square foot manufacturing facility and related
manufacturing equipment.
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
4. Land Lease for Manufacturing and Headquarters Facility
On October 17, 1997 the Company entered into an agreement with the City of
Long Beach for approximately 10 acres of land located on the Long Beach
Airport. The purpose of the lease is to effectuate the construction of an
approximately 200,000 square foot manufacturing and headquarters facility
(the "New Facility"). The Lease term commenced on January 14, 1998 and has
a term of 30 years with an option to renew for an additional 10 years. The
lease also contains options to lease other airport properties. The monthly
rent under the lease is $4,500, which escalates to $15,600 after 5 years.
5. Contract to Construct a Manufacturing and Headquarters Facility
The Company entered into an agreement with Commercial Developments
International/West (Design/Builder) whereby Design/Builder shall design and
build an approximately 200,000 square foot manufacturing and headquarters
facility. The contract sum for this project is "Cost plus Fixed Fees" with
a Guaranteed Maximum Price of $6,300,000, subject to the cost of change
orders, if any. Any savings realized upon completion and acceptance of the
project will be shared by the Design/Builder and the Company. The Company
believes that the project will be completed and occupied on November 16,
1998.
6. Conversion of Shares
In February of 1998 a shareholder of the Company converted 99,676 shares of
Class B Common Stock to 99,676 shares of Class A Common Stock. The
conversion resulted in an increase in Class A Common Stock to 6,999,676 and
a decrease in the number of outstanding shares of Class B Common Stock to
1,900,324. This transaction had no impact on losses per common share as
both classes of shares are included in the calculation of weighted average
number of common stock outstanding.
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Item 2. Plan of Operations
Certain statements contained in this report, including statements
concerning the Company's future cash and financing requirements, the
Company's ability to obtain market acceptance of its aircraft, the
Company's ability to obtain regulatory approval for its aircraft, and the
competitive market for sales of small business aircraft and other
statements contained herein regarding matters that are not historical
facts, are forward looking statements; actual results may differ materially
from those set forth in the forward looking statements, which statements
involve risks and uncertainties, including without limitation those risks
and uncertainties set forth in the Company's Registration Statement on Form
SB-2 (No. 333-12273) under the heading "Risk Factors."
The Company is a development stage enterprise organized to design, develop,
manufacture and market propjet and jet aircraft intended primarily for
business use. Since its inception, the Company has been engaged principally
in research and development of its proposed aircraft. In March 1990, the
Company made application to the FAA for a Type Certificate for the
JETCRUZER 450, which Certificate was ultimately granted in June 1994. The
Company has not generated any operating revenues to date and has incurred
losses from such activities. The Company believes it will continue to
experience losses until such time as it commences the sale of aircraft on a
commercial scale.
Prior to commencing commercial sales of the JETCRUZER 500, the Company will
need to, among other things, complete the development of the aircraft,
obtain the requisite regulatory approvals, establish an appropriate
manufacturing facility, hire additional engineering and manufacturing
personnel and expand its sales and marketing efforts. The Company estimates
that the cost to complete development of the JETCRUZER 500 and obtain an
amendment of its FAA Type Certificate will be approximately $6,500,000.
This amount includes the cost of equipment and tooling, static and flight
testing of the aircraft and the employment of the necessary personnel to
build and test the aircraft.
The Company expects to receive progress payments during the construction of
aircraft and final payments upon the delivery of aircraft. However, the
Company believes it will continue to experience losses until such time as
it commences the sale of aircraft on a commercial scale.
Through the end of 1998 and first half of 1999, the Company intends to
focus its efforts in the following areas:
* Completing the development of the JETCRUZER 500,
including, among other things, adding a larger engine, a
larger propeller, pressurization, environmental systems,
de-icing capability and autopilot certification, as well as
lengthening its fuselage.
* Obtaining an amendment to JETCRUZER 450's Type
Certificate to include the JETCRUZER 500, including the
manufacture of FAA conformed models of the JETCRUZER 500 and
static and flight testing.
* Completing an appropriate manufacturing facility
("New Facility") capable of producing the JETCRUZER 500 on a
commercial scale, including the establishment of a production
line in such facility, and the acquisition of production
inventory and additional equipment, tooling and computer
hardware and software systems.
* Obtaining a production certificate from the FAA and
commence commercial production of the JETCRUZER 500.
Based upon the current status of the Company's business operations, its
current plans and current economic and industry conditions, the Company
believes that the net proceeds from the Company's initial public offering
("December IPO") of stock in December 1996, along with a new credit
agreement which is currently being negotiated by the Company (to be secured
by the New Facility), will be sufficient to finance its efforts in
obtaining
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
an amendment to its Type Certificate through 1999. If the Company's
estimates prove to be incorrect or it is unable to successfully negotiate a
new credit facility, then during such period the Company may have to seek
alternative sources of financing, reduce operating costs and/or curtail its
growth plan.
Year 2000 Compliance
The Company has selected a new software and hardware vendor and has entered
into an agreement for the purchase of a new hardware and software package.
The Company has received assurances from such vendors that the hardware and
software is Year 2000 compliant. Although the Company does not perceive any
problems withs its new computer system, the failure of the new hardware and
software package to be Year 2000 compliant may result in significant
unexpected costs which may have a material adverse effect on the Company's
results of operations. The Company is currently assessing vendors to
utilize when production of the JETCRUZER 500 begins. The process of
evaluation includes both the significance of the vendor to the Company's
operation and their exposure to the Year 2000 problem.
Liquidity and Capital Resources
At September 30, the Company had working capital of $4,186,000 and
stockholders' equity of $14,285,000. Since its inception in January 1990,
the Company has experienced continuing negative cash flow from operations,
which, prior to the December IPO, resulted in the Company's inability to
pay certain existing liabilities in a timely manner. The Company has
financed its operations through private funding of equity, debt and the
December IPO.
The Company also expects to continue to incur losses until such time, if
ever, as it obtains regulatory approval for the JETCRUZER 500 and related
production processes and market acceptance for its proposed aircraft at
selling prices and volumes which provide adequate gross profit to cover
operating costs and generate positive cash flow. The Company's working
capital requirements will depend upon numerous factors, including the level
of resources devoted by the Company to the scale-up of manufacturing and
the establishment of sales and marketing capabilities and the progress of
the Company's research and development program for the JETCRUZER 500.
The Company expects that the net proceeds of the December IPO, along with a
new credit agreement which is currently being negotiated by the Company (to
be secured by the New Facility), will enable it to meet its liquidity and
capital requirements at least through the end of 1999, by which time the
Company expects to have received a type certificate and a production
certificate for the JETCRUZER 500 and commenced commercial production and
sale of the JETCRUZER 500. Such proceeds are being, and will be used
primarily for, amendment of the Type Certificate, the establishment of a
manufacturing facility, and sales and marketing. The Company's capital
requirements are subject to numerous contingencies associated with
development stage companies. Specifically, if further delays are
encountered in amending the current Type Certificate, the time and cost of
obtaining such certification may be substantial, which may render it
impossible for the Company to complete such new or amended certification
and may therefore have a material and adverse effect on the Company's
operations. Further, if the Company has not completed the development of
the JETCRUZER 500 or received the required regulatory approvals and
successfully commenced commercial sales of its aircraft by the end of 1999,
the Company may require additional funding to fully implement its proposed
business plan. Although the Company is negotiating a new credit agreement,
it has no commitments from any third parties for any future funding, and
there can be no assurance that the Company will be able to obtain the new
credit agreement or obtain financing in the future from bank borrowings,
debt or equity financing or other sources on terms acceptable to the
Company or at all. In the event necessary financing are not obtained, the
Company would be materially and adversely affected and might have to cease
or substantially reduce operations.
The Company had no other material capital commitments at September 30, 1998
other than as discussed in this report. Upon the granting of the Amended
Type Certificate, the Company intends to hire a number of additional
employees, which will require substantial capital resources. The Company
anticipates that it will hire approximately 150 employees over the next
twelve months necessary to produce its aircraft.
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Charge to Income in the Event of Conversion of Performance Shares
In the event the Company attains certain earnings thresholds or the
Company's Class A Common Stock meets certain minimum bid price levels, the
Class E Common Stock will be converted into Class B Common Stock. In the
event any such converted Class E Common Stock is held by officers,
directors, employees or consultants, the maximum compensation expense
recorded for financial reporting purposes will be an amount equal to the
fair value of the shares converted at the time of such conversion which
value cannot be predicted at this time. Therefore, in the event the Company
attains such earnings thresholds or stock price levels, the Company will
recognize a substantial charge to earnings during the period in which such
conversion occurs, which would have the effect of increasing the Company's
loss or reducing or eliminating its earnings, if any, at that time. In the
event the Company does not attain these earnings thresholds or minimum bid
price levels, and no conversion occurs, no compensation expense will be
recorded for financial reporting purposes.
Financing of Manufacturing and Headquarters Facility
The Company is in the process of constructing an approximately 200,000
square foot manufacturing and headquarters facility (the "New Facility").
The Company intends to move into, and be operational in the New Facility on
November 16, 1998. The primary financing for this project is the Company's
obligation under a loan agreement related to proceeds received from the
$8,500,000 issuance of industrial development bonds ("IDBs") by the
California Economic Development Financing Authority. The Company was
required to provide cash collateral to The Sumitomo Bank, Limited (the
"Bank") in the amount of $8,500,000 for a stand by letter of credit in
favor of the holders of the IDBs which expires on August 5, 2002, if not
terminated by the Company or the Bank.
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
- -------------------------------------------------------------------------------
* Certificate of Incorporation
** 3.2 Bylaws
* 3.3 Amendment to Certificate of Incorporation
* 4.1 Specimen Certificate of Class A Common Stock
* 4.2 Warrant Agreement (including form of Class A and
Class B Warrant Certificates * 4.3 Form of Underwriter's Unit
Purchase Option
* 10.1 Form of Indemnification Agreement
** 10.2 Amended 1996 Stock Option Plan
* 10.3 Employment Agreement dated as of May 1, 1996
between the Company and Dr. Carl L. Chen
* 10.4 Agreement of Merger dated July 16, 1996 between
Advanced Aerodynamics and Structures, Inc.,
California corporation, and Advanced Aerodynamics
& Structures, Inc., a Delaware corporation
** 10.5 Lease dated December 19, 1996 between Olen Properties
Corp., a Florida corporation, and the Company
*** 10.6 Standard Sublease dated June 27, 1997 with Budget
Rent-a-Car of Southern California
*** 10.7 Standard Sublease dated July 16, 1997 with Budget
Rent-a-Car of Southern California
*** 10.8 Standard Industrial/Commercial Multi-Tenant Lease-Gross
dated March 12, 1997 with the Golgolab Family Trust
***** 10.9 Loan Agreement dated as of August 1, 1997 between the
Company and the California Economic Development Authority
***** 10.10 Indenture of Trust dated as of August 1, 1997 between
the California Economic Development Authority and First Trust
of California, National Association
**** 10.11 Official Statement dated August 5, 1997
*****10.12 Letter of Credit issued by The Sumitomo Bank, Limited
*****10.13 Reimbursement Agreement dated as of August 1, 1997
between the Company and The Sumitomo Bank, Limited
*****10.14 Purchase Contract dated August 1, 1997 by and among
Rauscher Pierce Refnes, Inc., the California Economic
Development Authority and the Treasurer of the State
of California, and approved by the Company
*****10.15 Remarketing Agreement dated as of August 1,1997 between
the Company and Rauscher Pierce Refnes, Inc.
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
***** 10.16 Blanket Letters of Representations of the California
Economic Development Authority and First Trust of
California, National Association
***** 10.17 Tax Regulatory Agreement dated as of August 1, 1997 by
and among the California Economic Development Authority, the
Company and First Trust of California, National Association
***** 10.18 Custody, Pledge and Security Agreement dated as of
August 1, 1997 between the Company and The Sumitomo Bank,
Limited
***** 10.19 Investment Agreement dated August 5, 1997 by and
between the Company and The Sumitomo Bank, Limited
***** 10.20 Specimen Direct Obligation Note between the Company
and The Sumitomo Bank, Limited
**** 10.21 Lease Agreement dated October 17, 1997 between the
Company and the City of Long Beach
**** 10.22 Construction Agreement dated October 29,1997 between the
Company and Commercial Developments International/West
******10.23 Standard Sublease between Q.E.P. Company, Inc. and the
Company
27 Financial Data Schedule
* Incorporated by reference to the Company's Registration Statement on Form
SB-2 (333-12273) declared effective by the Securities and Exchange
Commission on December 3, 1996.
** Incorporated by reference to the Company's Report on Form 10-KSB filed
with the Securities and Exchange Commission on March 31, 1997.
*** Incorporated by reference by the Company's Post-Effective Amendment No. 1
to Form SB-2 Registration Statement filed with the Securities and Exchange
Commission on August 5, 1997.
**** Filed by paper pursuant to the Company's request for a temporary hardship
exemption relating to its report on Form 10-QSB filed with the Securities
and Exchange Commission on November 14, 1997.
***** Incorporated by reference to the Company's Report on Form 10-QSB filed
with the Securities and Exchange Commission on November 14, 1997.
******Incorporated by reference to the Company's Report on Form 10-QSB filed
with the Securities and Exchange Commission on August 14, 1998.
Reports on Form 8-K:
(b) None
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: November 13, 1998 ADVANCED AERODYNAMICS & STRUCTURES,
INC.
By:_______________________________________
Carl L. Chen, President
By:_______________________________________
Dave Turner, Chief Financial Officer
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 3,378,000
<SECURITIES> 1,333,000
<RECEIVABLES> 0
<ALLOWANCES> 0
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<CURRENT-ASSETS> 5,074,000
<PP&E> 7,846,000
<DEPRECIATION> 323,000
<TOTAL-ASSETS> 24,823,000
<CURRENT-LIABILITIES> 888,000
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 14,284,000
<TOTAL-LIABILITY-AND-EQUITY> 24,823,000
<SALES> 0
<TOTAL-REVENUES> 986,000
<CGS> 0
<TOTAL-COSTS> 7,796,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 264,000
<INCOME-PRETAX> (6,810,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,810,000)
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<NET-INCOME> (6,810,000)
<EPS-PRIMARY> (.77)
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