<PAGE>
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, 1999
[_] 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)
3205 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 12, 1999, 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.
(A Development Stage Enterprise)
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements(unaudited) 3
Item 2 Plan of Operations 7
PART II OTHER INFORMATION 12
Item 6 Exhibits and Reports on Form 8-K 12
2
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
(unaudited)
September 30,
1999
------------
ASSETS
Current Assets:
Cash and cash equivalents $ 184,000
Short term investments 4,850,000
Prepaid expenses and other current assets 44,000
------------
Total current assets 5,078,000
Property, Plant and equipment, net 11,358,000
Other assets 192,000
------------
Total assets $ 16,628,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 213,000
Capital lease obligation current portion 213,000
Other accrued liabilities 708,000
------------
Total current liabilities 1,134,000
Capital lease obligation, long term 9,945,000
Deferred revenue 1,691,000
------------
Total liabilities 12,770,000
Stockholders' equity
Preferred Stock, par value $.0001 per share; 5,000,000
Shares authorized; no shares issued and outstanding --
Class A common, 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 (48,190,000)
------------
Total stockholders' equity 3,858,000
------------
Total liabilities and stockholders' equity $ 16,628,000
See accompanying notes to financial statements
3
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
<TABLE>
<CAPTION>
Period from
Three Months Ended Nine Months Ended January 26, 1990
September 30 September 30, (Inception) to
------------------------------ ------------------------------- September 30,
1998 1999 1998 1999 1999
------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Interest income $ 209,000 $ 86,000 $ 799,000 $ 299,000 $ 2,669,000
Other income 94,000 4,000 187,000 5,000 1,267,000
------------ ------------ ------------ ----------- -------------
303,000 90,000 986,000 304,000 3,936,000
Cost and expenses:
Research and development costs 1,667,000 1,369,000 5,041,000 3,663,000 28,581,000
Preoperating costs -- -- 282,000
General and administrative expenses 795,000 946,000 2,491,000 2,982,000 17,674,000
Loss on disposal of assets -- -- 755,000
Interest expense 83,000 311,000 264,000 778,000 3,131,000
In-process research and development
Acquired -- -- 761,000
------------ ------------ ------------ ----------- -------------
2,545,000 2,626,000 7,796,000 7,423,000 51,184,000
------------ ------------ ------------ ----------- -------------
Loss before extraordinary item (2,242,000) (2,536,000) (6,810,000) (7,119,000) (47,248,000)
Extraordinary loss on retirement
of Bridge Notes -- -- (942,000)
Net loss and comprehensive loss ($2,242,000) ($2,536,000) ($6,810,000) ($7,119,000) ($48,190,000)
Net loss and comprehensive loss
per common share ($.25) ($.28) ($0.77) ($0.80)
Weighted average number of common
shares outstanding 8,900,000 8,900,000 8,900,000 8,900,000
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Preferred Stock Class A
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Common stock issued at inception $ -- $ --
Common stock issued in exchange for
in-process research and development
Imputed interest on advances from stockholder
Conversion of stockholder advances
Conversion of officer loans
Stock issued in consideration for
services in 1994, 1995, and 1996
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 from inception to December 31, 1996
Balance at December 31, 1996 -- -- 6,900,000 1,000
Adjustment to proceeds from initial public offering
and exercise of overallotment option
Net Loss
Balance at December 31, 1997 -- -- 6,900,000 1,000
Conversion of Class B to A Common Stock 99,676
Net Loss
Balance at December 31, 1998 -- -- 6,999,676 1,000
Net Loss
Balance at September 30, 1999 -- -- 6,999,676 1,000
</TABLE>
<TABLE>
<CAPTION>
Class B Class E-1
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Common stock issued at inception 418,094 $ -- 836,189 $ --
Common stock issued in exchange for
in-process research and development 201,494 -- 402,988 --
Imputed interest on advances from stockholder
Conversion of stockholder advances 598,011 -- 1,196,021 --
Conversion of officer loans 187,118 -- 374,236 --
Stock issued in consideration for
services in 1994, 1995, and 1996 595,283 -- 1,190,566 --
Imputed interest on advances from stockholder -- --
Net proceeds from initial public offering of Units -- --
Net proceeds from exercise of over-allotment option -- --
Warrants issued in connection with issuance of Bridge Notes -- --
Net loss from inception to December 31, 1996
Balance at December 31, 1996 2,000,000 -- 4,000,000 --
Adjustment to proceeds from initial public offering
and exercise of overallotment option -- --
Net Loss
Balance at December 31, 1997 2,000,000 -- 4,000,000 --
Conversion of Class B to A Common Stock (99,676)
Net Loss
Balance at December 31, 1998 1,900,324 -- 4,000,000 --
Net Loss
Balance at September 30, 1999 1,900,324 -- 4,000,000 --
</TABLE>
<TABLE>
<CAPTION>
Class E-2 Public Class A
Shares Amount Warrants Warrants
<S> <C> <C> <C> <C>
Common stock issued at inception 836,189 $ -- $ -- $ --
Common stock issued in exchange for
in-process research and development 402,988 --
Imputed interest on advances from stockholder
Conversion of stockholder advances 1,196,021 --
Conversion of officer loans 374,236
Stock issued in consideration for
services in 1994, 1995, and 1996 1,190,566 --
Imputed interest on advances from stockholder --
Net proceeds from initial public offering of Units -- 9,583,000
Net proceeds from exercise of
over-allotment option -- 1,707,000
Warrants issued in connection with issuance of Bridge Notes -- 473,000
Net loss from inception to December 31, 1996
Balance at December 31, 1996 4,000,000 -- 473,000 11,290,000
Adjustment to proceeds from initial public offering
and exercise of overallotment option --
Net Loss
Balance at December 31, 1997 4,000,000 -- 473,000 11,290,000
Conversion of Class B to A Common Stock
Net Loss
Balance at December 31, 1998 4,000,000 -- 473,000 11,290,000
Net Loss
Balance at September 30, 1999 4,000,000 -- $ 473,000 $11,290,000
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Class B Paid-In Development
Warrants Capital Stage Total
<S> <C> <C> <C> <C>
Common stock issued at inception $ -- $ 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 799,000 799,000
Conversion of stockholder advances 10,728,000 10,728,00
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 4,166,000 12,566,000 26,316,000
Net proceeds from exercise of
over-allotment option 466,000 1,922,000 4,095,000
Warrants issued in connection with
issuance of Bridge Notes 473,000
Net loss from inception to December 31, 1996 24,328,000 24,328,000
Balance at December 31, 1996 4,632,000 35,730,000 (24,328,000) 27,798,000
Adjustment to proceeds from initial public
offering and exercise of overallotment option (78,000) (78,000)
Net Loss (6,625,000) (6,625,000)
Balance at December 31, 1997 4,632,000 35,652,000 (30,953,000) 21,095,000
Conversion of Class B to A Common Stock
Net Loss (10,118,000) (10,118,000)
Balance at December 31, 1998 4,632,000 35,652,000 (41,071,000) 10,977,000
Net Loss (7,119,000) (7,119,000)
Balance at September 30, 1999 $4,632,000 $35,652,000 $(48,190,000) $ 3,858,000
</TABLE>
5
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,810,000) $(7,119,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Noncash stock compensation expense
Noncash interest expense
Cost of in-process research and development acquired
Imputed interest on advances from stockholder
Interest income from restricted cash invested (336,000) (182,000)
Extraordinary loss on retirement of Bridge Note
Depreciation and amortization 323,000 547,000
Loss on disposal of assets
Changes in assets and liabilities:
Prepaid expenses and other current assets 576,000 44,000
Other assets (178,000) (5,000)
Accounts payable (72,000) (1,257,000)
Accrued liabilities 160,000 (346,000)
Deferred revenue 720,000 45,000
Net cash used in operating activities (5,617,000) (8,273,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in construction in progress
Proceeds from insurance claims upon loss of aircraft
Proceeds from disposal of assets 9,800,000
Capital expenditures (511,000) (21,000)
Purchase of certificate of deposit
Proceeds from redemption of certificate of deposit 1,049,000
Purchase of investments (6,034,000)
Proceeds from sale of investments 3,180,000 2,012,000
Decrease in restricted cash 683,000
Restricted cash from long term debt
Net cash provided by (used in) investing activities 3,718,000 6,440,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Adjustment to net proceeds from initial public
offering and exercise of over allotment option
Proceeds from long term debt (8,500,000)
Restricted cash collateral for long term debt 8,500,000
Advances from stockholder
Proceeds from issuance of common stock prior to initial public offering
Net proceeds from initial public offering an exercise of over-allotment option
Net proceeds from bridge financing
Net proceeds from loans from officers
Payment of obligation under Capital Lease Obligations (136,000)
Repayment of bridge financing
Net cash (used in) provided by financing activities (136,000)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,899,000) (1,969,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,277,000 2,153,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,378,000 $ 184,000
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest 264,000 778,000
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Stockholder advances converted to common stock
Loans from officer converted to common stock
Common stock issued for noncash consideration and compensation
Liabilities assumed from ASI
Common stock issued for in-process research and development acquired
Equipment acquired under capital leases 10,047,000
Deposit surrendered as payment for rents due
Construction in progress acquired with restricted cash 5,496,000
</TABLE>
<TABLE>
<CAPTION>
Period from
January 26, 1990
(Inception)
to September 30,
1999
----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(48,190,000)
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 (646,000)
Extraordinary loss on retirement of Bridge Note 942,000
Depreciation and amortization 3,187,000
Loss on disposal of assets 755,000
Changes in assets and liabilities:
Prepaid expenses and other current assets 129,000
Other assets (192,000)
Accounts payable (994,000)
Accrued liabilities 1,815,000
Deferred revenue 1,385,000
Net cash used in operating activities (38,695,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in construction in progress (446,000)
Proceeds from insurance claims upon loss of aircraft 30,000
Proceeds from disposal of assets 9,803,000
Capital expenditures (5,753,000)
Purchase of certificate of deposit (1,061,000)
Proceeds from redemption of certificate of deposit 1,061,000
Purchase of investments (17,692,000)
Proceeds from sale of investments 12,842,000
Decrease in restricted cash 683,000
Restricted cash from long term debt (8,500,000)
Net cash provided by (used in) investing activities (9,033,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Adjustment to net proceeds from initial public (78,000)
offering and exercise of over allotment option
Proceeds from long term debt --
Restricted cash collateral for long term debt --
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 an exercise of over-allotment option 30,411,000
Net proceeds from bridge financing 6,195,000
Net proceeds from loans from officers 336,000
Payment of obligation under Capital Lease Obligations (180,000)
Repayment of bridge financing (7,000,000)
Net cash (used in) provided by financing activities 47,912,000
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 184,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD --
CASH AND CASH EQUIVALENTS AT END OF PERIOD 184,000
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest 1,949,000
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 10,087,000
Deposit surrendered as payment for rents due 80,000
Construction in progress acquired with restricted cash 8,291,000
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(unaudited)
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, 1999 and the results of operations and cash flows for
the nine months ended September 30, 1999 and September 30, 1998 respectively and
for the period from January 26, 1990 to September 30, 1999. 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, 1998 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
periods ended September 30, 1999 and 1998 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. SALE AND LEASEBACK TRANSACTION
Pursuant to an Agreement dated May 19, 1999, the Company sold to AP-Long Beach
Airport LLC its leasehold interest in real property located at 3205 Lakewood
Boulevard, Long Beach, California, together with the manufacturing hangar
facility (approximately 205,000 square feet) and finished office space
(approximately 22,000 square feet) owned by the Company (collectively, the
"Property"). The cash purchase price was $9,800,000.
7
<PAGE>
As part of this transaction, the Company and AP-Long Beach Airport LLC have
entered into an agreement pursuant to which AP-Long Beach Airport LLC has:
subleased the land to the Company subject to the terms at the original land
lease agreement which was assigned to AP Long Beach Airport LLC and leased the
manufacturing hangar facility and finished office space to the Company for an
original term of 18 years. The monthly rent under this facility lease is
approximately $106,000. The Company has an option to extend the original term
for an additional ten years. The monthly rent payable during this additional ten
year term would be the market rental value, as agreed by the parties or as
determined by a third party appraiser or broker. The $306,000 gain on the sale
of the facility, which was deferred, is being amortized over the 18-year lease
term.
4. 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 had 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 was secured by $8,500,000 of Company restricted
cash. The Company had used the proceeds from the IDBs to finance the
construction and installation of the 200,000 square foot manufacturing facility
and related manufacturing equipment.
On June 1, 1999, the Company retired all the industrial development bonds using
the restricted cash previously held as security for the IDB.
5. 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 a decrease in the
number of outstanding shares of Class B Common Stock to 1,900,324. This
transaction had no impact on earnings per share, as both classes of shares are
included in the calculation of weighted average number of common stock
outstanding.
6. ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is effective for fiscal years beginning after June 15, 2000,
as amended. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments. The statement requires that every derivative instruments
be recorded in the balance sheet as either an asset or liability measured at its
fair value, and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Management believes that the adoption of SFAS No. 133 will not have a material
effect on the Company's financial statements.
8
<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
to 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, 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 $5,000,000. 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.
During the balance of 1999, the Company intends to focus its efforts in the
following areas:
. Completion of the development of the JETCRUZER 500, including, among other
things, pressurization, environmental systems, de-icing capability and
autopilot certification.
. Obtaining an amendment to its Type Certificate to include the JETCRUZER 500,
including the manufacture of FAA conformed models of the JETCRUZER 500 and
static and flight-testing.
. Establishing a production line and acquiring production inventory and
additional items of equipment, tooling and computer hardware and software
systems.
. Obtaining a production certificate from the FAA and commencing commercial
production of the JETCRUZER 500.
. Increasing its engineering, manufacturing and administrative staff in
anticipation of increased development and production activities.
The Company believes that the remaining net proceeds from its December 1996
initial public offering ("IPO"), and the proceeds of the sale and lease back of
the New Facility, will be sufficient to finance its plan of operations for at
least the next nine months, based upon the current status of its business
operations, its current plans and current economic and industry conditions. If
the Company's estimates prove to be incorrect, then during such period the
Company may have to seek additional sources of financing, reduce operating costs
and/or curtail growth plans.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had working capital of $3,944,000 and
stockholders' equity of $3,858,000. Since its inception in January 1990, the
Company has experienced continuing negative cash flow from operations, which,
prior to the December 1996 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 and debt and its December 1996 IPO.
Prior to mid-1994, the activities of the Company were financed primarily by
(i) equity contributions from Mr. Song Gen Yeh and members of his immediate
family, who were at that time directors and principal stockholders of the
Company, in the aggregate amount of $7,280,000 and (ii) loans in the aggregate
amount of $10,728,000 from Mr. Yeh. The loans made by Mr. Yeh were repaid
through the issuance of 598,011 shares of Class B Common Stock, 1,196,021 shares
of Class E-1 Common Stock, and 1,196,021 shares of Class E-2 Common Stock of the
Company in June 1996. Additionally, in October 1993, the Company received a loan
of $60,000, bearing interest at a rate of 12%, from SIDA Corporation ("SIDA"), a
corporation then affiliated with Dr. Carl Chen, the President and Chief
Executive Officer and a Director of the Company; and, in February and July 1994,
the Company received loans in an aggregate amount of $565,000, bearing interest
at a rate of 12%, from four individuals who were at the time not affiliated with
the Company. One of such persons, C.M. Cheng, became a Director of the Company
in June 1996. These loans were repaid in September 1996 with the proceeds of the
Bridge Financing described below.
In the second half of 1994, the Company's expenditures decreased because
capital constraints required a reduction of the Company's development
activities. The Company's capital requirements during that period were satisfied
primarily by a loan from General Bank in the principal amount of approximately
$550,000, bearing interest at the prime rate plus 1 1/2%, which loan was
guaranteed by the Small Business Administration, the California Export Finance
Office and Dr. Chen and secured by substantially all of the Company's assets.
The Company also received an additional $50,000 loan from SIDA.
During 1995 and 1996, the Company's capital requirements were met by
additional advances of $350,000 pursuant to the bank loan described above and
loans by Dr. Chen, bearing interest at a rate of 12%, in the aggregate principal
amount of $562,000. In June 1996, $336,000 of indebtedness owed by the Company
to Dr. Chen was converted into 187,118 shares of Class B Common Stock, 374,236
shares of Class E-1 Common Stock, and 374,236 shares of Class E-2 Common Stock.
In September 1996, the bank loan, in the aggregate principal amount of
$900,000 plus $15,000 in accrued interest, $226,000 of the principal amount owed
to Dr. Chen, together with interest thereon of $36,000, and the loan from SIDA
in the aggregate principal amount of $110,000 plus $31,000 in accrued interest,
were repaid with the proceeds of the Bridge Financing described below.
In August 1996, the Company completed the Bridge Financing of $7,000,000
principal amount of Bridge Notes and 3,500,000 Bridge Warrants (which were
automatically converted to Class A Warrants upon completion of the IPO). The net
proceeds of the Bridge Financing were approximately $6,195,000 after deducting
commissions and a non-accountable expense allowance aggregating $805,000 paid to
the placement agent and other expenses of the Bridge Financing. The net proceeds
of the Bridge Financing were used to repay bank and other outstanding
indebtedness, loans from officers and directors, accrued compensation and past
due accounts payable and as working capital. The Company used a portion of the
net proceeds of the IPO to repay the Bridge Notes. Additionally, in 1996, the
Company recognized an extraordinary loss of approximately $942,000, representing
the combined unamortized debt discount and issuance costs arising from the
Bridge Financing, in the quarter in which the Bridge Notes were repaid.
The Company 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 and other proposed aircraft.
10
<PAGE>
The Company expects that the remaining net proceeds of the December 1996 IPO,
and the proceeds of the sale and lease back of the New Facility will enable it
to meet its liquidity and capital requirements for at least the next nine
months, by which time the Company expects to have commenced commercial
production, started collection of customer progress payments and increased sales
of the JETCRUZER 500. Such proceeds will be used and have been used primarily
for amendment of the Type Certificate, the purchase of equipment and tooling and
sales and marketing. The Company's capital requirements are subject to numerous
contingencies associated with development stage companies. Specifically if
delays are encountered in amending the current Type Certificate, the time and
cost of obtaining such certification may be substantial, may render it
impossible for the Company to complete such 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,
received the required regulatory approvals and successfully commenced commercial
production of its aircraft by the third quarter of 2000, the Company may require
additional funding to fully implement its proposed business plan. The Company
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 financing in the future
from bank borrowings, debt or equity financings or other sources on terms
acceptable to the Company or at all. In the event necessary financing was not
obtained, the Company would be materially and adversely affected and might have
to substantially reduce operations.
The Company's 200,000 square foot manufacturing and headquarters facility (the
"New Facility") was sold for $9,800,000 on May 19, 1999 and subsequently leased
back for a term of 18 years, with an option to extend for a additional 10 years.
The primary financing for the construction of the facility was the Company's
obligation under a loan agreement related to proceeds received from $8,500,000
in the issuance of Industrial Development Bonds (IDB) by the California Economic
Development Financing Authority (the "Authority"). The Company was required to
provide cash collateral to 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.
On June 1, 1999, the Company retired all the industrial development bonds,
using the restricted cash previously held as security for the IDB.
As part of the sale-leaseback transaction described in Note 3 of the Financial
Statements, the Company assigned to AP-Long Beach Airport LLC its lease for
approximately 10 acres of land located on the Long Beach Airport in Long Beach,
California. This lease commenced on January 14, 1998, was for a term of 30
years, with an option to renew for an additional 10 years, and also contained
options to lease other airport properties. Also as part of the sale-leaseback
transaction, the Company entered into a sublease with AP-Long Beach Airport LLC
on the same terms as the assigned lease. The monthly rent under the sublease is
currently $7,400. The sublease contains incremental increases that escalate the
monthly rent to approximately $15,600 after 5 years.
The Company has purchased a new integrated manufacturing, production and cost
control computer system, to support future Company growth and production
requirements. The system has been certified as Year 2000 compliant. Management
expects to have the new system installed and running during second half of 2000
and estimates the associated costs to be immaterial to the Company's operations.
The Company had no material capital commitments at September 30, 1999, other
than discussed in this report. The Company intends to hire a number of
additional employees, which will require substantial capital resources. The
Company anticipates that it will hire up to 200 employees over the next twelve
months, including engineers and manufacturing technicians necessary to produce
its aircraft.
11
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
YEAR 2000 COMPLIANCE
Management believes it has an effective program in place to resolve the Year
2000 issue in a timely manner. As noted below, the Company has not yet completed
all necessary phases of the Year 2000 program.
In May 1998, the Company signed a contract with Baan Business Systems of
California for license and implementation of the Baan ERP system. The Company
has received assurances from Baan that the hardware and software is Year 2000
compliant. Training and implementation began in the 3rd quarter of 1998 and is
scheduled to be completed in the 2nd half of 2000. Although the Company does not
perceive any problems with its new computer system, the failure of the new
hardware and software package to be Year 2000 compliant might result in
significant unexpected costs, which would have a material adverse effect on the
Company's results of operations. The Company has completed its assessment of its
major vendors and has concluded there is no significant Year 2000 problem with
such vendors or their products.
The Company is currently assessing various other vendors, which it plans to
utilize when production of the JETCRUZER 500 begins. The process of evaluation
includes both the significance of the vendors to the Company's operation and
their exposure to the Year 2000 problem. The Company does not anticipate any
material costs in completing its Year 2000 program.
The Company currently has no contingency plans in place in the event it does
not complete all phases of the Year 2000 program. The Company plan is currently
to evaluate the status of completion and will determine whether such a plan is
necessary.
12
<PAGE>
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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
13
<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.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By: /s/ Carl L. Chen
------------------
Carl L. Chen, President
By: /s/ Dave Turner
-----------------
Dave Turner, Chief Financial Officer
Dated: November 10, 1999
14
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