<PAGE>
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 March 31, 2000
[ ] 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: 13,866,493 SHARES OF ISSUER'S VOTING
COMMON STOCK WERE OUTSTANDING ON MARCH 31, 2000.
<PAGE>
SPACEDEV, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX PAGE
- ----- ----
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)..................................1
Consolidated Balance Sheets at March 31, 1999 and 2000..................1
Consolidated Statements of Operations for March 31, 1999 and 2000.......3
Consolidated Statements of Stockholders' Equity for March 31, 1999
and 2000..............................................................4
Consolidated Statements of Cash Flows for March 31, 1999 and 2000.......6
Notes to Consolidated Financial Statements..............................8
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................13
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings..................................................18
ITEM 2. Changes in Securities..............................................18
ITEM 3. Defaults Upon Senior Securities....................................18
ITEM 4. Submission of Matters to Vote of Security Holders..................18
ITEM 5. Other Information..................................................18
ITEM 6. Exhibits and Reports on Form 8-K...................................19
Signatures....................................................................20
ii
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
MARCH 31, 2000 1999
- ----------------------------------------------------------------------------------------------------
ASSETS (Note 3)
<S> <C> <C>
CURRENT ASSETS
Cash $ 18,546 $ 39,387
Accounts receivable 210,165 1,756,732
Inventory - 240,744
Prepaid assets and other current assets 6,973 185,643
- ----------------------------------------------------------------------------------------------------
Total current assets 235,684 2,222,506
FIXED ASSETS - NET 2,111,160 2,333,105
INTANGIBLE ASSETS - NET 2,005,944 5,258,204
OTHER ASSETS 63,422 117,514
- ----------------------------------------------------------------------------------------------------
$ 4,416,210 $ 9,931,329
====================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
<TABLE>
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONT'D.
(UNAUDITED)
<CAPTION>
MARCH 31, 2000 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft facility $ - $ 470,054
Line of credit (Note 3) 16,000 117,801
Current portion of notes payable (Note 4) 7,200 1,334,626
Current portion of acquisition price payable - 500,000
Current portion of capitalized lease obligations 19,858 31,178
Accounts payable and accrued expenses 429,428 857,971
Billings in excess of costs incurred
and estimated earnings (Note 2) 141,474 -
Customer deposits and deferred revenue - 692,913
Accrued payroll, vacation and related taxes 106,607 274,715
Related party note payable (Note 4(b)) 661,956 422,000
- ----------------------------------------------------------------------------------------------------
Total current liabilities 1,382,523 4,701,258
NOTE PAYABLE, LESS CURRENT MATURITIES (Note 4(a)) 2,281,080 960,000
ACQUISITION PRICE PAYABLE, LESS CURRENT MATURITIES - 500,000
CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES 46,251 28,458
OTHER LIABILITIES 5,000 53,198
- ----------------------------------------------------------------------------------------------------
Total liabilities 3,714,854 6,242,914
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value, 10,000,000
shares authorized and 0 and 82,450 shares issued and
outstanding, respectively - 82
Common stock, $.0001 par value; 25,000,000 shares
authorized, 13,906,493 and 6,078,464 shares issued
and outstanding, respectively 1,391 608
Additional paid-in capital 7,949,107 7,529,826
Deferred compensation (250,000) (250,000)
Accumulated deficit (6,999,142) (3,600,531)
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustments - 8,430
- ----------------------------------------------------------------------------------------------------
Total stockholders' equity 701,356 3,688,415
- ----------------------------------------------------------------------------------------------------
$ 4,416,210 $ 9,931,329
====================================================================================================
</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)
THREE MONTHS ENDED MARCH 31, 2000 1999
- --------------------------------------------------------------------------------
NET SALES $ 1,078,530 $ 1,063,091
Cost of sales 583,562 567,905
- --------------------------------------------------------------------------------
GROSS MARGIN 494,968 495,186
OPERATING EXPENSES
General and administrative 478,858 1,181,175
Research and development - 107,311
- --------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 478,858 1,288,486
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 16,110 (793,300)
- --------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (80,970) (65,765)
Other income - net - 73,167
- --------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (80,970) 7,402
- --------------------------------------------------------------------------------
NET LOSS $ (64,860) $ (785,898)
================================================================================
NET LOSS PER SHARE $ (.00) $ (.13)
- --------------------------------------------------------------------------------
Weighted-Average Shares Outstanding 13,892,260 6,073,079
================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
<TABLE>
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
Redeemable
Preferred Stock Common Stock
--------------------------------- --------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 82,450 $ 82 6,047,743 $ 605
Shares issued for cash - - 30,000 3
Shares issued for services - - 721 -
Comprehensive Income (Loss):
Net loss - - - -
Foreign currency translation adjustment - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1999 82,450 $ 82 6,078,464 $ 608
===================================================================================================================================
BALANCE AT JANUARY 1, 2000 - $ - 13,879,945 $ 1,388
Shares issued for services - - 26,548 3
Comprehensive Income (Loss):
Net loss - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2000 - $ - 13,906,493 $ 1,391
===================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
</TABLE>
<PAGE>
<TABLE>
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONT'D
(UNAUDITED)
<CAPTION>
Accumulated
Additional Other
Paid-In Deferred Accumulated Comprehensive
Capital Compensation Deficit Income Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 $7,463,229 $ (250,000) $ (2,814,633) $ 7,323 $ 4,406,606
Shares issued for cash 64,931 - - - 64,934
Shares issued for services 1,666 - - - 1,666
Comprehensive Income (Loss):
Net loss - - (785,898) - (785,898)
Foreign currency translation
adjustment - - 1,107 1,107
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) - (784,791)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1999 $7,529,829 $ (250,000) $ (3,600,531) $ 8,430 $ 3,688,415
===============================================================================================================================
BALANCE AT JANUARY 1, 2000 $7,905,077 $ (250,000) $ (6,934,282) $ - $ 722,183
Comprehensive Income (Loss):
Net loss - - (64,860) - (64,860)
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) - - (64,860) - (64,860)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2000 $7,949,107 $ (250,000) $ (6,999,142) $ - $ 701,356
===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
</TABLE>
<PAGE>
<TABLE>
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (64,860) $ (785,898)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 209,762 472,433
Debt issued for loan fees - 35,903
Common stock issued for compensation and services 44,033 1,666
Change in operating assets and liabilities 36,211 (105,303)
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 225,146 (381,199)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets (2,881) (26,343)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) from bank lines of credit (225,415) 17,801
Proceeds (payments) from notes payable - related party (56,046) 185,000
Payments on note payables (23,720) (16,037)
Payments on capitalized lease obligations (1,425) (12,381)
Proceeds from notes payable - 108,750
Proceeds from issuance of common stock - 64,934
Decrease in bank overdraft facility - (7,244)
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (306,606) 340,823
- -----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash - (433)
- -----------------------------------------------------------------------------------------------------
Net decrease in cash (84,341) (67,152)
- -----------------------------------------------------------------------------------------------------
CASH AT BEGINNING OF PERIOD 102,887 106,539
- -----------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 18,546 $ 39,387
=====================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D.
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 2000 1999
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH INFORMATION:
Cash paid during the period for:
Interest $ 73,942 $ 56,215
NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31, 2000 and 1999, the Company issued 26,548
and 721 shares of stock for expense of $44,033 and $1,666, respectively.
During the three months ended March 31, 1999, the Company financed $317,000 of
additions to construction in progress with a long-term loan.
=====================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
7
</TABLE>
<PAGE>
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D.
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of SPACEDEV, INC.
("the Company") include the accounts of the Company and its wholly-owned
subsidiaries. The Company disposed of its interest in Space Innovations Limited
on December 17, 1999. All significant intercompany transactions and balances
have been eliminated in consolidation. 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 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 filed on
April 28, 2000 and other reports the Company filed with the 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 three months ended March 31, 2000 and
1999 are not necessarily indicative of results that may be expected for the
fiscal year ending December 31, 2000 or any future period, and the Company makes
no representations related thereto.
The accompanying condensed consolidated financial statements as of March 31,
2000 and 1999 have been prepared assuming the Company will continue as a going
concern. However, the Company had working capital deficits of $1,146,839 and
$2,478,752 as of March 31, 2000 and 1999, respectively, and incurred net loss of
$64,860 and $785,898 for the three months then ended, respectively. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Subsequent to March 2000, management intends to raise additional
financing through a combination of public and private equity placements,
commercial project financing and government program funding to fund future
operations and commitments. There is no assurance that additional debt and
equity financing needed to fund operations will be consummated or obtained 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.
8
<PAGE>
1. BASIS OF PRESENTATION, cont'd
Net loss per common share has been computed on the basis of the weighted average
number of shares outstanding, according to the rules of Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Diluted net loss per share
has not been presented as the computation would result in anti-dilution.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
2. REVENUE RECOGNITION
The Company's revenues are derived primarily from fixed price contracts and are
recognized using the percentage-of-completion method of contract accounting
based on the ratio of incurred costs to total estimated costs. Losses on
contracts are recognized when they become known and reasonably estimable. 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 either 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. At March 31,
2000, billings in excess of costs incurred and estimated earnings were $141,474.
3. LINE OF CREDIT
In November 1998, the Company (through ISS) obtained a bank line of credit in
the amount of $250,000 which matured in November 1999 and was renewed for one
year. At March 31, 2000 and 1999, $16,000 and $117,801, respectively, was
outstanding on the line of credit.
The line of credit was secured by all of the assets of ISS. The line is also
guaranteed by the Company and a major stockholder. The interest rate under the
line of credit is prime (8.75% at March 31, 2000) plus 2.0%.
4. NOTES PAYABLE
(a) BUILDING NOTES
On December 21, 1998, the Company borrowed $1,300,000 from a lender to finance
the purchase of its facility in Poway, California. The note called for monthly
payments and a balloon payment on December 21, 1999. The note accrued interest
at 13%. At March 31, 1999, the outstanding balance on this loan was $1,300,000.
Upon its maturity, the note continued on a month-to-month basis until it was
paid in full on February 23, 2000.
9
<PAGE>
(a) BUILDING NOTES, CONT'D
On February 23, 2000, the Company signed a $1,330,000 note with a new lender to
refinance the aforementioned debt. The note calls for 300 monthly payments of
$12,091, which include principal and interest at the bank's prime rate (8.75% at
March 31, 2000) plus 1.5%. The note matures on March 1, 2025. The outstanding
balance on this loan was $1,330,000.
In December 1998, the CEO of the Company entered into a $500,000 loan agreement
with another lender to finance additional costs of its new facility. This
liability was assigned to the Company and called for 59 monthly interest
payments at 12.23% and a balloon payment of $505,000, including interest, on
December 17, 2003. At March 31, 2000 and 1999, the outstanding balance on this
loan was $299,671 and $500,000, respectively.
In 1999, the Company entered into a second loan agreement with this lender. The
$460,000 loan called for 59 monthly interest payments at 10.5% and a balloon
payment of $464,000, including interest, in March 2004. At December 31, 1999,
the outstanding balance on this loan was $458,609.
(b) RELATED PARTIES
The Company had notes payable to the CEO and a former key employee. At March 31,
2000 and 1999, the balances were $661,956 and $422,000 respectively, with
interest between 4% and 10%. The notes, due in March 1999, were converted to
demand notes. As part of a February 2000 Separation and Release Agreement with
the former key employee, $70,000 of principal and accrued interest will be paid
in monthly installments through July 2000.
Future minimum principal payments on all notes payable are as follows:
YEAR ENDED MARCH 31,
--------------------------------------------------------
2000 $ 669,156
2001 12,736
2002 14,111
2003 515,634
2004 475,861
Thereafter 1,262,738
--------------------------------------------------------
$2,950,236
========================================================
5. OPERATING SEGMENTS
The Company's operating structure included two operating segments for 2000 and
three operating segments for 1999.
10
<PAGE>
(a) SEGMENT PRODUCTS AND SERVICES
The Company has the following reportable segments: Space Missions Division
(SMD), ISS and SIL. SMD is in the process of developing deep space science
exploration satellites. ISS provides engineering services, launch integration
services and space vehicle integration services. SIL developed low-cost
satellites and satellite subsystems for use in space. The Company disposed of
SIL on December 17, 1999.
<TABLE>
The following is a summary of operating results and assets by segment.
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 2000
------------------------------------ -------------------------------------------
(IN THOUSANDS) SMD ISS Total
------------------------------------ -------------------------------------------
<S> <C> <C> <C>
Net revenue from external
customers $ 606 $ 473 $ 1,079
Depreciation and
amortization expense $ (183) $ (27) $ (210)
Segment loss $ (58) $ (7) $ (65)
===========================================
Total segment assets $ 2,441 $ 2,139 $ 4,580
Less intersegment assets (164) - (164)
-------------------------------------------
Net segment assets $ 2,277 $ 2,139 $ 4,416
===========================================
Geographic Information:
Revenue
------------------------------------ -------------------------------------------
United States $ 606 $ 473 $ 1,079
Europe - - -
-------------------------------------------
$ 606 $ 473 $ 1,079
===========================================
Long-lived Assets
------------------------------------ -------------------------------------------
United States $ 2,132 $ 2,048 $ 4,180
Europe - - -
-------------------------------------------
$ 2,132 $ 2,048 $ 4,180
===========================================
</TABLE>
11
<PAGE>
<TABLE>
(a) SEGMENT PRODUCTS AND SERVICES, CONT'D
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1999
---------------------------------------------------------------------------------------
(IN THOUSANDS) SMD ISS SIL Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue from external
customers $ - $ 309 $ 754 $ 1,063
Depreciation and
amortization expense $ (450) $ (11) $ (18) $ (479)
Segment profit (loss) $ (824) $ 3 $ 35 $ (786)
==================================================
Total segment assets $ 2,256 $ 3,299 $ 4,813 $ 10,368
Less intersegment assets (96) (341) - (437)
--------------------------------------------------
Net segment assets $ 2,160 $ 2,958 $ 4,813 $ 9,931
==================================================
Geographic Information:
Revenue
---------------------------------------------------------------------------------------
United States $ - $ 309 $ 144 $ 453
Europe - - 610 610
--------------------------------------------------
$ - $ 309 $ 754 $ 1,063
==================================================
Long-lived Assets
---------------------------------------------------------------------------------------
United States $ 2,034 $ 2,398 $ - $ 4,432
Europe - - 2,915 2,915
--------------------------------------------------
$ 2,034 $ 2,398 $ 2,915 $ 7,347
==================================================
</TABLE>
6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). The
new standard requires companies to record derivatives on the balance sheet as
assets or liabilities measured at fair value. Gains or losses resulting from
changes in the values of those derivatives will be reported in the statement of
operations or as a deferred item, depending on the use of the derivatives and
whether they qualify for hedge accounting. The key criterion for hedge
accounting is that the derivative must be highly effective in achieving
offsetting changes in fair value or cash flows of the hedged items during the
term of the hedge. The Company is required to adopt FAS 133 in 2001 and has not
yet determined the impact, if any, that the adoption of FAS 133 will have on the
consolidated financial statements.
In December 1999 the Securities and Exchange Commission issued Staff Accounting
Bulletin no. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB
101 is effective no later than the quarter ended December 31, 2000. The Company
is in the process of determining the impact that adoption of SAB 101 will have
on the consolidated financial statements.
12
<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 financial statements and the notes thereto and the other financial
information appearing elsewhere in this document. In addition to historical
information, the following discussion and other parts of this document contain
forward-looking information that involves risks and uncertainties. Actual
results could differ materially from those anticipated by such forward-looking
information due to a number of factors beyond the Company's control.
OVERVIEW
During 1998, SpaceDev acquired Integrated Space System (ISS) and Space
Innovation Limited (SIL). On February 7, 1998, the Company issued 2,000,000
shares of restricted common stock and acquired all of the outstanding shares of
common stock of ISS. ISS provides engineering and technical services related to
space-based systems, primarily launch vehicle integration. The fair value of the
shares issued was $1.8125 per share, calculated using the average daily closing
prices for a period surrounding the acquisition date. The acquisition price was
not reduced for the Rule 144 restrictions on the shares of common stock. The
total purchase price was valued at $3,625,000. The excess of the calculated
purchase price of the approximately $164,000 of net assets acquired was
capitalized as goodwill and is being amortized over sixty months.
On October 1, 1998, the Company issued 1,000,000 shares of restricted
common stock and acquired all of the outstanding shares of common stock of SIL.
SIL develops low-cost satellites and satellite subsystems for use in space. The
fair value of the shares issued was $1.75 per share and was calculated using the
average daily closing prices for a period surrounding the acquisition date. The
acquisition price was not reduced for the Rule 144 restrictions on the shares of
common stock. The total purchase price was valued at $3,182,000, including
approximately $432,000 of liabilities in excess of the value of assets acquired.
Also included in the total goodwill was an acquisition price payable of
$1,000,000. To satisfy the payable, the Company was to issue $1,000,000 of
restricted common stock to the former shareholders of SIL in four equal
semi-annual installments. The fair market value of the common stock at specified
dates would be used to determine the number of shares to be issued. The
resulting goodwill amount of $3,182,000 is being amortized over sixty months.
In 1998, operating activities included engineering technical services
work for aerospace customers and continued development of NEAP preliminary
designs and mission analysis. During 1999, operating activities included
preliminary design and conceptual studies for the CHIPSat program, engineering
technical services and continued work on the NEAP mission. SpaceDev's employee
base increased with the acquisition of ISS to 20 employees in February 1998.
In 1998, SpaceDev entered into a fixed price contract with the Jet
Propulsion Laboratory (JPL) to provide mission support for the Deep Space
Tracking Network. JPL's main task was to coordinate the NEAP mission trajectory
analysis into their Deep Space Network Plan. SpaceDev paid JPL $10,000 for this
phase of work. The nature of the contract is highly technical. Quoting from the
statement of work: "Supported work will focus on NEAP telecommunications system
analysis and Deep Space Network/Advanced Multi-Mission Operations System
(DSN/AMMOS) mission support assessment." In plain English, this means JPL will
work to understand NEAP communications needs in relation to other missions which
might be flying at the same time, relative to the Deep Space Network capacity to
handle multiple missions simultaneously. This is a standard study performed in
advance of all proposed deep space missions.
13
<PAGE>
On November 20, 1998 SpaceDev initiated its DSN support contract with
JPL. The total cost of the effort was agreed to be $35,000. Approximately
one-third of the work has been performed to-date at a cost to SpaceDev of
$10,000. As additional planning work is required to be performed by JPL under
the contract, to stay current with the NASA and JPL planning process as it moves
forward, more of the agreed upon tasks will be performed by JPL. SpaceDev will
pay the remaining balance of $25,000 as those tasks are completed by JPL. This
period could cover through the end of 2001.
On June 23, 1999, the Company filed for a registration statement with
the State of Colorado for units consisting of one share of $.0001 par value
common stock and one re-pricing warrant to purchase one share of common stock.
The primary purpose of the offering was to raise $350,000 under Rule 504 of the
Securities Act of 1933 to finance development of a hybrid rocket. That
registration statement was made effective by the State of Colorado on August 26,
1999, providing for a per unit price of $1.50 per share. Due to fluctuations in
the market price of the Company's common stock, the Company was forced to
negotiate a per unit price based on the five-day trading average, less thirty
percent. The entire offering of $350,000 was sold to a single investor in
Colorado at a price of $0.91 per unit. Following that sale, the Company
determined to raise the aggregate offering price in order to allow it to obtain
funding during preparation of its Form 10-SB Registration Statement. The
registration statement was amended for a total aggregate offering price of
$730,000, with a per unit price based on the negotiated amount paid by the
initial investor, and was made effective by the State of Colorado on October 13,
1999. Following effectiveness of the post-effective amendment, the Company sold
an additional $10,000 in units under the offering at a price of $0.83 per unit.
The repricing warrants were convertible into common stock of the
Company if the market price of the Company's common stock dropped below the
price paid per unit in the offering during the 150 days immediately following
issuance. The conversion formula was to be based on a minimum market price of
$1.25 per share. If the 150-day average closing bid price of the common stock
exceeded the unit price in the offering, the warrants would automatically
expire. Since the units were issued to investors at a discount, the warrants are
not convertible under the conversion formula, which uses a minimum market price
of $1.25, since any calculation under the formula results in a negative number.
As a result, no further shares will be issued as a result of the issuance of the
re-pricing warrants.
In November 1999 SpaceDev was awarded a $4,995,868 turnkey
mission contract by the Space Sciences Laboratory (SSL) at University of
California, Berkeley (UCB). SpaceDev was competitively selected by UCB/SSL to
design, build, integrate, test and operate for one year a small scientific,
Earth-orbiting spacecraft called CHIPSat. The CHIPSat contract will
conclude on December 31, 2003. Revenues for 2000, 2001 and 2002 are expected to
be approximately, $2.0 million, $ 1.4 million and $1.1 million. The payments on
the contract are made on a monthly basis according to a preset payment schedule.
This is the Company's first production contract. As a result, the
Company is taking a conservative approach to accounting for the contract
and will not be taking any profit on the contract in 2000. The Company
will review this position on a quarterly basis and will adjust its position when
it has a better assessment of the costs related to the project.
On December 17, 1999, the Company's Board of Directors entered into a
Mutual Release and Rescission of Agreement ("Release Agreement") to rescind the
original acquisition of SIL, effective October 1, 1998. Subsequent to SIL's
acquisition and prior to December 17, 1999, the accounts of SIL were included in
the consolidated financial statements of the Company.
14
<PAGE>
The Release Agreement resulted in the retirement of the 1,000,000
shares of the Company's common stock which had been issued to the former
shareholders of SIL, the cancellation of all outstanding options for Company
stock and the cancellation of the acquisition price payable. The transaction was
recorded as a purchase of treasury stock. In accordance with Accounting
Principles Board Opinion No. 29, "Accounting for Non-monetary Transactions," the
transaction was recorded as a decrease to stockholders' equity. Therefore,
$423,345 was recorded as a decrease in the Company's additional paid-in-capital
on December 17, 1999.
The significant components of the amount recorded in 1999 as a
reduction to additional paid-in capital are as follows:
Loss on unamortized goodwill $ (1,929,000)
Gain on extinguishment of acquisition price payable 1,000,000
Net liabilities disposed of from SIL 506,000
$ (423,000)
The Company was previously a guarantor on a bank line of credit used to
finance SIL's operations. Under terms of the Release Agreement, SIL agreed to
apply 25 percent of the proceeds from each payment received on a specific
contract until the bank loan was paid in full. Once the loan had been paid in
full, the loan agreement was to be terminated, releasing the Company's guarantor
obligation. At December 31, 1999, the outstanding balance on the bank line of
credit was approximately $386,000, maturing on January 18, 2001 with interest at
the bank's prime (8.5% at December 31, 1999) plus 1.25 percent. Subsequent to
year-end, the amount of the line guaranteed by the Company was paid down to $0
and the loan agreement has been terminated.
RESULTS OF OPERATIONS
Numbers reflected in the following discussion have been rounded to the
nearest one thousandth. Please refer to the financial statements which are a
part of this report for further information regarding the results of operations
of the Company.
THREE MONTH PERIOD ENDED MARCH 31, 1999 COMPARED TO MARCH 1,2000
During the three months ended March 31, 2000, the Company had net sales
of $1.1 million as compared to net sales of $1.1 million for the same three
months in 1999. Sales in 2000 were comprised of $540,000 from CHIPSat, $325,000
from the Office of Space Launch (OSL), $55,000 from Lockheed Martin and $158,000
for all other programs. In 1999, $725,000 of sales was from the SIL subsidiary,
which was not a part of the company in the first quarter of 2000. The remainder
of 1999 sales--$338,000--was from a contract with the Jet Propulsion Laboratory
($145,000) and other projects.
During the three months ended March 31, 2000, the Company had cost of
sales (direct and allocated costs associated with individual contracts) of
$584,000, an increase of $16,000 versus $568,000 in the same period in 1999.
This increase was due to higher CHIPSat and other project sales volume
($130,000) and a reclassification of certain overhead costs (such as building
expense, equipment depreciation, utilities and operating supplies) to cost of
goods sold ($288,000). The increase was largely offset by a $402,000 reduction
in cost of goods sold due to the SIL rescission.
During the three months ended March 31, 2000, the Company had a net
loss of $65,000, compared to a net loss of $786,000 for the same period in 1999.
The reduction in the net loss was due to the rescission of the SIL agreement,
which reduced the loss by $325,000, and an increase in the volume of sales from
the CHIPSat program and the Office of Space Launch, which absorbed a significant
portion of the company's overhead costs.
15
<PAGE>
The Company experienced a decrease in general and administrative
expenses from $1.2 million for the three months ended March 31, 1999 to $479,000
for the same period ended March 31, 2000. General and administrative expenses
consisted primarily of salaries for administrative personnel, fees for outside
consultants, goodwill amortization of acquisition costs, insurance, legal and
accounting fees and other overhead. The reduction was primarily attributable to
the SIL rescission ($465,000), a reclassification of certain overhead costs to
costs of goods sold ($288,000), partially offset by increased legal and
accounting expenses of $40,000 related to the preparation and filing of the
Company's registration statement on Form 10-SB and other cost increases of
$11,000.
Research and development expense decreased from $107,000 for the period
ended March 31, 1999 to $0 for the period ended March 31, 2000. For 2000, all of
the Company's research and development efforts have been paid through contracts
with various customers.
LIQUIDITY AND CAPITAL RESOURCES
Numbers reflected in the following discussion have been rounded to the
nearest one thousandth. Please refer to the financial statements which are a
part of this report for further information regarding the liquidity and capital
resources of the Company.
THREE MONTHS ENDED MARCH 31, 2000 -VS- THREE MONTHS ENDED MARCH 31, 1999
Net decrease in cash during the three months ending March 31, 2000 was
$84,000, compared to a net decrease of $67,000 for the three months ended March
31, 1999. Net cash provided by operating activities totaled $225,000 for the
three months ended March 31, 2000, an increase of $606,000 as compared to
$381,000 used by operating activities during the three months ended March 31,
1999. This improvement is attributable primarily to increased sales volume
generated by the CHIPSat program, sales to the Office of Space Launch as well as
the elimination of negative operating cash flows generated by the SIL
subsidiary.
Net cash used in investing activities totaled $3,000 during the three
months ended March 31, 2000, compared to $26,000 used during the three months
ended March 31, 1999, a decrease in cash used of $23,000. This difference is
attributable to a reduction in the purchase of fixed assets.
Net cash used in financing activities totaled $307,000 for the
three-month period ending March 31, 2000, a decrease of $648,000 from the
$341,000 provided by financing activities during the three-month period ending
March 31, 1999. This decrease is attributable to a difference of $243,000 in the
use of the bank line of credit, a difference of $241,000 in funds provided by
related parties, a reduction of $109,000 in proceeds from notes payable and a
difference of $55,000 in all other financing activities.
At March 31, 2000, the Company's cash, which includes cash reserves and
cash available for investment, was $19,000 as compared to $39,000 at March 31,
1999, a decrease of $20,000. At March 31, 2000, the Company has accounts
receivable of $210,000 and accounts payable of $429,000.
YEAR 2000
The Company has not experienced any year 2000 problems as a result of the year
change to 2000.
16
<PAGE>
FORWARD-LOOKING STATEMENTS
The Company's business strategy requires significant capital
expenditures. The Company will incur a substantial portion of these expenditures
before it generates significant sales. Combined with operating expenses, these
capital expenditures will result in a negative cash flow until the Company
establishes an adequate revenue-generating customer base. The Company expects
losses through 2000 and does not expect to generate net positive cash flow from
operations sufficient to fund both operations and capital expenditures until the
launch of its first commercial spacecraft or launch vehicle. There is no
assurance that the Company will achieve or sustain any positive cash flow or
profitability thereafter.
During the years ended December 31, 1999 and December 31, 1998, the
Company raised $1,076,934 (including proceeds from the 504 Colorado offering
described above) through private sales of stock. To execute the Company's total
strategy of small, capable, low-cost satellites and launch systems, the Company
requires significant funding. The current estimate is over $20 million which
could come from a combination of private or public equity placements, commercial
project financing and government program funding. At this time, the Company does
not have a commitment from any placement agent or underwriter to implement any
additional public offering or from any government agency to obtain significant
additional program funding for its products.
On November 1, 1999, the Company signed an agreement with the Regents
of the University of California Berkeley for the CHIPSat project. During the
term of the agreement, the Company will receive fixed compensation for the
above-referenced services in a total amount of $4,995,868, of which about $2.0
million is expected to be generated in 2000. The fixed price will be paid in
increments over the term of the contract.
The Company's opportunity to continue as a going concern depends upon
its ability to consummate additional funding. This funding can come from a
variety of sources, including public or private equity markets, state and
federal grants and government and commercial customer program funding. As of
March 31, 2000, the Company's backlog of business was approximately $4.9
million. During the first three months of 2000, the Company has won $500,000 of
additional business and obtained $105,000 in California grant funds. It
currently has over $20 million in outstanding commercial and government
proposals and is preparing to submit an additional $3.0 million by the end of
May 2000. The Company has outstanding grant proposals of $135,000 and will be
submitting another grant proposal for $250,000 in May 2000.
The Company may also need to raise additional capital if, for
example,(i) significant delays occur in deploying its first deep-space mission
due to technical difficulties, launch, or satellite failure, or other reasons;
(ii) the Company does not enter into agreements with customers on the terms the
Company anticipates; (iii) the Company's net operating deficit increases because
it incurs significant unanticipated expenses; or (iv) the Company incurs
additional costs from modifying all or part of NEAP or its proposed
hybrid-related systems to meet changed or unanticipated market, regulatory, or
technical requirements. If these or other events occur, there is no assurance
that the Company could raise additional capital on favorable terms, on a timely
basis or at all. A substantial shortfall in funding would delay or prevent
deployment of NEAP and/or the hybrid-related systems.
The Company's ability to execute a public offering or otherwise obtain
funds is subject to numerous factors beyond the Company's control, including,
without limitation, a receptive securities market and appropriate governmental
clearances. No assurances can be given that the Company will be profitable, or
that any additional public offering will occur, that the Company will be
successful in obtaining additional funds from any source or that the Company
will be successful in implementing an acceptable exit strategy on behalf of its
investors. Moreover, additional funds, if obtainable at all, may not be
available on terms acceptable to the Company when the Company needs such funds
or may be on terms which are significantly adverse to the Company's current
shareholders. The unavailability of funds when needed would have a material
adverse effect on the Company.
17
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of the date of this Report, there is no material litigation,
threatened or pending, against the Company. The Company's management is not
aware of any disagreements, disputes or other matters which may lead to the
filing of legal proceedings involving the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
In February 2000, the Company received approval from a financial
institution to refinance the $1.3 million first mortgage on the company's office
building. This refinancing changes the first mortgage from a one-year term loan
to a 25-year term loan and reduces the interest expense from 13% to 10%.
In March 2000 SpaceDev hired Stanley W. Dubyn, a leader in the small
satellite field, to be President and Chief Operating Officer of SpaceDev.
Mr.Dubyn brings to the Company extensive experience in satellite design and
manufacturing as well as government and commercial marketing, strategic planning
and executive management.
On February 5, 2000, the Company negotiated Separation and Release
Agreements with Philip E. Smith, then Chief Operating Officer of ISS, and Jack
Rubidoux, an employee of ISS, with whom ISS had employment agreements binding
these individuals to ISS and the Company. Pursuant to the Separation and Release
Agreement with Jack Rubidoux, the Company agreed to pay his base salary for the
period from January 29, 2000 to February 11, 2000, at a rate of $70,000 per
year. Mr. Rubidoux has agreed to be available to the Company for a period of six
months from the date of the agreement. Pursuant to the Separation and Release
Agreement with Philip E. Smith, the Company has agreed to pay off a promissory
note previously issued to Mr. Smith in six monthly installments, for a total of
$70,000, and to pay Mr. Smith his base salary at a rate of $90,000 per year for
the period from January 29, 2000 to February 11, 2000. Mr. Smith has agreed to
make himself available for meetings, introductions, review sessions, strategy
meetings and to otherwise assist the Company and ISS for a period of six months.
All other claims of Mr. Smith and Mr. Rubidoux have been released, including
claims to back-salary and authorized but unissued stock options under the
Company's 1999Employee Stock Option Plan.
18
<PAGE>
On April 5, 2000, the Company negotiated Separation and Release
Agreement with Thomas W. Brown. Pursuant to the Separation and Release
Agreement, the Company agreed to pay Mr. Brown an early termination penalty at
the rate of $60,000 (Termination Rate) in seven installments. As additional
consideration Mr. Brown will be granted 5,000 shares of restricted SpaceDev
stock issued on April 28, 2000 and held in escrow until January 15, 2001. All
other claims of Mr. Brown have been released, including authorized but unissued
stock options under the Company's 1999 Employee Stock Option Plan.
On May 2, 2000, the Company was informed by the U.S. Securities &
Exchange Commission that its Form 10-SB registration statement had cleared
comments. The Company's common stock, which is currently being traded on the NQB
Electronic Quotation System, is now eligible for listing on the Nasdaq OTCBB
under NASD Eligibility Rule 6530. It is anticipated that the Company's common
stock will be re-listed on the Over-The-Counter Bulletin Board exchange via
filing of Form 211 by one of its market makers.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No.
- -----------
27.0 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed two reports on Form 8-K during the three months
ending March 31, 2000. On February 23, 2000, the Company reported the
resignation of its former Chief Operating Officer and Director, Philip E. Smith,
pursuant to the terms of the Separation and Release Agreement discussed in Item
5 above, and the appointment of Stanley W. Dubyn to those positions.
On March 31, 2000, the Company reported the resignation of Rex
Ridenoure, previously reported as a key employee of the Company. In addition,
the Company reported at that time that its trading symbol on the OTCBB had
changed from "SPDV" to "SPDVE," the fifth mark denoting delinquency in SEC
reporting requirements under the NASD Eligibility Rule.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPACEDEV, INC.
Registrant
Dated: May 8, 2000 /S/ James W. Benson
----------------------------
James W. Benson
Chief Executive Officer
Dated: May 8, 2000 /S/ Charles H. Lloyd
----------------------------
Charles H. Lloyd
Chief Financial Officer
20
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
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