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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Pre-Effective Amendment 4
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
SPACEDEV, INC.
Colorado 84-1374613
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13855 Stowe Drive Poway, California 92064
(Address of principal executive office) (Zip Code)
Issuer's telephone number: (858) 375-2030
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None. None.
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
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TABLE OF CONTENTS
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PART I................................................................................................................4
ITEM 1. DESCRIPTION OF BUSINESS.......................................................................................4
BACKGROUND.........................................................................................................4
THE COMPANY........................................................................................................6
BUSINESS PLAN......................................................................................................9
NASA'S "FASTER, BETTER, CHEAPER"CONCEPT.........................................................................11
PRODUCTS AND SERVICES.............................................................................................12
SPACE MISSIONS..................................................................................................12
SPACE PRODUCTS..................................................................................................14
ENGINEERING SERVICES............................................................................................15
MARKET STRATEGIES.................................................................................................16
SPACE MISSIONS..................................................................................................16
SPACE PRODUCTS..................................................................................................17
ENGINEERING SERVICES............................................................................................18
COMPETITION.......................................................................................................19
SPACE MISSIONS..................................................................................................19
SPACE PRODUCTS..................................................................................................20
ENGINEERING SERVICES............................................................................................20
REGULATION........................................................................................................20
EMPLOYEES.........................................................................................................22
INTELLECTUAL PROPERTY.............................................................................................22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...................................................23
OVERVIEW..........................................................................................................23
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED DECEMBER 31, 1999 AND 1998..........................................24
NET SALES.......................................................................................................24
COST OF SALES...................................................................................................25
RESEARCH AND DEVELOPMENT........................................................................................25
GENERAL AND ADMINISTRATIVE......................................................................................25
OTHER INCOME EXPENSE, (NET).....................................................................................26
LIQUIDITY AND CAPITAL RESOURCES...................................................................................26
RECENT DEVELOPMENTS...............................................................................................28
YEAR 2000 COMPLIANCE..............................................................................................29
ITEM 3. DESCRIPTION OF PROPERTY......................................................................................30
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............................................30
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS..............................................31
ITEM 6. EXECUTIVE COMPENSATION.......................................................................................34
REMUNERATION PAID TO EXECUTIVES...................................................................................35
EMPLOYMENT AGREEMENTS.............................................................................................38
EMPLOYEE BENEFITS.................................................................................................39
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................................................40
ITEM 8. DESCRIPTION OF SECURITIES....................................................................................40
COMMON STOCK......................................................................................................40
VOTING RIGHTS...................................................................................................40
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NO PREEMPTIVE RIGHTS............................................................................................40
DIVIDENDS AND DISTRIBUTIONS.....................................................................................40
PREFERRED STOCK...................................................................................................40
PART II..............................................................................................................40
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..............41
MARKET INFORMATION................................................................................................41
HOLDERS...........................................................................................................41
DIVIDENDS.........................................................................................................41
ITEM 2. LEGAL PROCEEDINGS............................................................................................41
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS................................................................41
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES......................................................................42
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS....................................................................45
ITEM 6. FINANCIAL STATEMENTS.........................................................................................46
PART III.............................................................................................................47
ITEM 1. INDEX TO EXHIBITS............................................................................................47
ITEM 2. DESCRIPTION OF EXHIBITS......................................................................................47
SIGNATURES...........................................................................................................48
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
SpaceDev, Inc., consisting of one wholly owned subsidiary and one Division,
was organized under the laws of the State of Colorado on December 23, 1996. It
became a publicly traded company in October 1997 and until March of 2000 was
trading on the Over-The-Counter Bulletin Board exchange under the symbol "SPDV."
At the current time, SpaceDev is trading on the NQB Electronic Quotation System
under the symbol SPDV. When the NASD receives notice from the SEC that the SEC
has no further comments with respect to this Registration Statement, it is
anticipated that SpaceDev trading will return to the OTCBB and trade under the
symbol of SPDV.
SpaceDev's overall vision is to establish itself as a space exploration and
development company operating in "small space" small spacecraft, small space
transportation systems and focused, low-cost mission solutions. SpaceDev
currently intends to follow commercial business practices by submitting
fixed-priced bids , as opposed to government contractors who often submit bids
on cost plus fixed fee or time and materials basis. . The extent to which
SpaceDev will bid contracts on a non-fixed price basis cannot be accurately
determined at this time. SpaceDev intends to primarily submit fixed-priced
proposals to government agencies and non-government or pseudo-government
customers. For example, SpaceDev's CHIPSat project with the University of
California at Berkeley consists of a commercial-type contract with no FAR
clauses, even though NASA funds the University's CHIPS project. SpaceDev
believes this simplified contracting is one reason SpaceDev was able to submit a
low bid, and may have been a factor in winning the contract.
The Company's approach is to provide small spacecraft - approximately 250
kg mass and less - and compatible small space transportation vehicles to a
growing market of commercial and government customers. The small spacecraft
market is supported by the evolution and enabling of micro-electronics.
Reduction of the size and mass of traditional spacecraft electronics (i.e.,
black boxes) has directly resulted in allowing overall spacecraft size, mass,
and volume to be reduced over the past 10 to 15 years. A direct example of the
small spacecraft market is evidenced by smaller, lower cost launch vehicles
(i.e., rockets) that were not available ten years ago - specifically, launch
vehicles such as Pegasus, Taurus, Athena-I, Athena-II, and Minotaur. These
launch vehicles are significantly smaller than traditional Titan, Delta, and
Atlas classes of launch vehicles, and have been developed specifically to
accommodate the smaller spacecraft market (i.e., less than 1,000 kg weight
class).
SpaceDev intends to use common commercial business practices, whenever
possible, rather than the government-driven processes that dominate the space
industry. SpaceDev seeks to avoid "re-inventing the wheel" on each project and
instead intends to rely on existing technologies used in new combinations.
Existing technologies include commodities that are readily available to support
space flight missions, such as catalog-type components, where the vendor offers
a product (or products) which is built to a known specification.
Traditionally, technologies needed to support space missions may have
required significant dollar and time investment, thereby increasing the overall
cost. These technologies are associated with higher risk, higher development
costs, higher maintenance costs, and longer schedule development - whereas use
of existing technologies serves to reduce operational risk since these
technologies are proven and have flown in space before.
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Since its inception, a specific SpaceDev objective has been to be the first
company to successfully define, implement and execute commercial, low-cost
deep-space missions, i.e., missions to the Moon and beyond. All prior deep-space
missions to date - U.S. and foreign - have been government-defined and
relatively expensive. At the beginning of the space age, all satellites were
launched and operated by governments. After the first commercial communications
satellite was put into service, the private sector became actively involved in
designing, launching and operating communications satellites. Following this
trend is the space telecommunications sector that began decades ago and more
recently the space remote-sensing sector.
Remote sensing in the space sector consists of satellites that gather data
about weather, crops, terrain elevations and temperatures, etc., and according
to the 1998 "State of the Space Industry" report by Space Publications, the
sector was expected to grow from $12.5 billion in 1996 to $17.0 billion in 2000,
with the commercial segment growing the fastest from $1.3 billion to $3.0
billion.
Commercial practices have begun to penetrate the deep-space sector -
already a multi-billion-dollar market worldwide. As these commercial practices
take hold and the results of NASA's "faster, better, cheaper" initiatives bear
fruit, total mission costs should continue to decrease. A more detailed
discussion of "faster, better, cheaper" is included elsewhere in this document.
SpaceDev's first entrant in this new arena, the Near Earth Asteroid
Prospector (NEAP) mission, was announced in 1997. At its news conference, held
August 13, 1999 at the second annual Mars Society Conference at the University
of Colorado, SpaceDev announced new commercial products: Mars Probe Carrier and
Lunar Orbiter missions, based on the mission and spacecraft design study
SpaceDev had recently completed for NASA's Jet Propulsion Laboratory. These
missions, being offered as commercial products, are available for sale to
government agencies, private corporations and wealthy individuals. Entities
wishing to acquire unique data produced by deep space missions can purchase a
SpaceDev mission. These missions can be used by the owner to produce streaming
video, science data, educational information and a wide variety of other outputs
for distribution through the Internet, media channels, educational institutions,
etc. SpaceDev has made presentations of such missions, for such purposes, to at
least three large private sector companies, and believes a market for such
commercial deep space missions is forming at this time, driven in part by
proliferating cable channels and web sites need for unique information content.
>From the outset, the Company's strategy has been to rapidly build a growing,
horizontally integrated company that provides low-cost access to space through
profitable, fixed-price commercial sales. This buildup is fueled by in-house
growth and by strategic acquisitions. Selected space-business niches will be
targeted for acquisition and integration.
A prime element of this strategy is a strong focus on small, capable,
low-cost satellites and launch systems addressing the deep space and
Earth-orbiting markets. Small satellites are also a key element of low-cost
Earth-orbiting missions, for which demand is rising. Demand for low cost
earth-orbiting missions is increasing from both the government and commercial
sectors. NASA has several earth orbiting programs, including New Millennium
EO-X, SMEX, ESSP, UNEX, and UNESS. NASA's University-Class Explorer program, or
UNEX are investigations characterized by definition, development, launch
service, and mission operations and data analysis costs not to exceed $13M total
cost to NASA. University-class Explorer missions will be launched by a variety
of low-cost methods. Initially, one launch per year is anticipated. A long term
goal is to achieve multiple launches per year for this class of Explorer
missions with a substantially lower cost per mission. The CHIPSat satellite
being built by SpaceDev is the first in this program. Analogous to the computer
field, such small satellites are often called "microsatellites" or
"micro-spacecraft," with their associated "micromissions."
Another key aspect of SpaceDev's strategy is the hiring of individuals with
world-class experience and skills in the areas above, combined with strategic
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acquisitions of companies successfully engaged in these markets. SpaceDev's core
business is providing small, low-cost space products, and in that context,
SpaceDev uses "world-class experience" in the common sense of the term to mean
people whose experience in the small low-cost spacecraft field is hard to top.
For example, SpaceDev V.P. Jan King has designed, built or managed over a dozen
small, low-cost, volunteer-built satellites. Few people in the world have that
level of experience. Charles Lloyd, SpaceDev CFO and ISS CEO has been a top
level manager in two companies that commercialized military missiles into
commercial launch vehicles and went on to negotiate or sell over $4 billion of
such launch vehicles. Few people in the world equal that experience. Stan Dubyn,
President and COO of SpaceDev has 22 years of experience managing the design and
construction of small spacecraft for both earth orbit and deep-space missions in
addition to being a founder of a highly successful company that built small
spacecraft for over eight years.
The Company intends to gain maximum competitive advantage by developing and
offering a limited yet relevant suite of proprietary, open-standard small
satellites, launch systems and related subsystem components. "Open-standard" is
a term used to describe standard hardware or software and their interfaces such
as found in personal computer boards and operating systems, but applied to small
spacecraft. Open standards often result in less expensive products because,
being "open," they can be produced by a variety of competing sources, as opposed
to proprietary standards that are often available only from limited sources.
This is part of the Company's strategy to avoid re-inventing the wheel on each
project.
THE COMPANY
In February 1998, the Company acquired Integrated Space Systems (ISS, in
San Diego). ISS is now a wholly owned SpaceDev subsidiary. Most ISS employees
are former launch-vehicle engineers and managers who worked for General Dynamics
in San Diego. At ISS they perform aerospace-engineering services and R&D, with a
principal focus on launch-system and propulsion-module products. With the
acquisition of ISS, SpaceDev's employee base increased to 20 employees in
February 1998. This number is expected to increase to approximately 40 over the
next 12 months. The Company is actively investigating further strategic
acquisitions.
In August 1998 SpaceDev also acquired the patents and intellectual property
produced by the former American Rocket Company (AMROC), which specialized in
hybrid rocket technology (solid fuel and liquid or gas oxidizer) for small
sounding rockets and launch vehicles. AMROC's purpose and only focus was to
design, build and test hybrid rocket motors with the intention of producing
hybrid sounding rockets and hybrid launch vehicles. Dozens of hybrid motors were
built, and hundreds of test firings were conducted by AMROC. SpaceDev acquired
from AMROC only intellectual property that was produced by AMROC before AMROC
went out of business in the mid-1990s. The acquisition of such data has not
affected SpaceDev operations other than to provide access to hybrid rocket
documents, designs and test results.
In October 1998 the Company entered into an agreement with Space
Innovations Limited (SIL) in Newbury, England to acquire all of the shares of
SIL in exchange for shares of SpaceDev. By mutual and amicable agreement of both
parties, this transaction was rescinded in December 1999. The primary reason for
the rescission was the difficulties that SpaceDev and SIL encountered in working
with each other due to the new highly restrictive technology-transfer
regulations instituted by the United States.
Technology transfer restrictions related to space products and engineering
created a barrier between SpaceDev and SIL. SpaceDev originally desired to use
SIL expertise in the design and manufacturing of space radios, but because of
restrictions on SpaceDev's ability to communicate its product enhancement ideas
to SIL, an important reason for acquiring SIL was eliminated. Now that SpaceDev
does not own a foreign subsidiary, the impact of these regulations has been
minimized. Because of the same technology transfer restrictions, it would be
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difficult for SpaceDev to specify modifications to space technology purchased in
other countries. This is mitigated by SpaceDev's desire to use standard
off-the-shelf products where possible, because this usually results in lower
costs than custom products. These regulations are discussed in further detail
under the heading "Regulation."
Commercial space missions are defined and offered by SpaceDev's Space
Missions Division, with support from ISS, and selected outside partner
organizations. In August 1998 SpaceDev hired Jan King, an expert in the field of
low-cost spacecraft and space-mission development. Mr. King forms the core
technical leadership of this Division.
By 1998 the core SpaceDev team had refined the definition of the Near Earth
Asteroid Prospector (NEAP), modeled after NASA's current successful Near Earth
Asteroid Rendezvous (NEAR) mission to the degree that NASA formally recognized
it as a "Mission of Opportunity." This was significant because Missions of
Opportunity had never been included in NASA's Discovery program. Missions of
Opportunity are missions to be flown by entities other than NASA on which there
is room for one or more additional experiments. In the past, it had been assumed
by NASA that Missions of Opportunity would be government missions of other
countries.
Established scientists and engineers then began supporting the concept with
scientific-investigation proposals to NASA and commitments from their home
institutions, including three letters of intent for the design and fabrication
of science instruments. In late 1998 SpaceDev began the approximately two-year
process of working with NASA's Jet Propulsion Laboratory (JPL) to secure scarce
Deep Space Network (DSN) tracking time for the mission. The NASA Deep Space
Network - or DSN - is an international network of antennas that supports
interplanetary spacecraft missions and radio and radar astronomy observations
for the exploration of the solar system and the universe. The DSN provides the
vital two-way communications link that guides and controls unmanned spacecraft
and brings back images and new scientific information. The network also supports
selected Earth-orbiting missions. DSN tracking time is scarce because deep space
missions require frequent communications; therefore, the Deep Space Commercial
Complexes (DSCCs) have been located so as to compensate for Earth's daily
rotation by being situated approximately 120 degrees apart in longitude.
However, since there are several active deep space missions at any given time
e.g., currently the DSN is supporting Voyager-1 and Voyager-2 (both still active
since 1977), Galileo, Ulysses, New Millennium Deep Space One, NEAR, Mars Global
Surveyor, Stardust, and Cassini the allocation of DSN time to any one mission is
not possible, and as deep space missions grow in number, less and less DSN time
will be available to each mission. By the summer of 1999, JPL and NASA
Headquarters formally agreed that NASA was technically prepared to support the
NEAP mission with the DSN. Deep space missions require support from NASA for
navigation and communications, but the NASA Deep Space Network has limited
capacity and cannot always accommodate all desired missions. SpaceDev contracted
with JPL to factor NEAP into its planning process, and after that analysis was
completed, SpaceDev was informed that, as originally planned, NEAP would not
conflict with JPL's other scheduled Deep Space Missions and therefore NASA would
be able to provide DSN support for a fee.
For planning purposes, SpaceDev uses DSN prices in the JPL publication
"AMMOS and DSN Support of Earth Orbiting and Deep Space Missions" published by
the Telecommunications and Mission Operations Directorate (TMOD). Standard
published prices for DSN use of the 34-meter dish antennas is $1,524 per hour in
1996 dollars. SpaceDev estimates that its use of the DSN for communications
during a six month deep space mission would be approximately $814,000 in 1996
dollars, and adjusted for inflation approximately $1 million, with the majority
of that expense incurred during 2002, should the mission be flown.
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SpaceDev offers to sell "rides" for science and other packages on its
proposed spacecraft as a means of generating revenue. The term "rides" is used
to refer to the purchase of available cargo space for science and other packages
on the Company's proposed spacecraft as a means of generating revenue. This is
similar to the concept of package delivery whereby a scientist may want to have
a science instrument delivered from earth to a location in space or to another
planetary body where it can collect data for transmission back to earth. The
instrument, or package or "payload" ride is to be paid for by the owner or
"sponsor" of the payload. A firm contract for a ride on NEAP was signed with a
payload sponsor in mid-1999. In July of 1999 Dojin Limited signed a contract
with SpaceDev to purchase a ride on the NEAP spacecraft. In March 2000, the
University of Arizona agreed to furnish a multi-band imaging camera for the NEAP
mission to be built by Mars Pathfinder camera builder Peter Smith.
Launch was planned for late 2001, with a rendezvous at the near-Earth
asteroid Nereus in mid-2002. Due to program delays, the mission is being
reprogrammed to another accessible target asteroid. Multiple back-up targets are
available for this reprogramming which is a part of nominal mission planning to
accommodate schedule slips as a result of launch vehicle readiness, funding
delays, and/or priority changes.
Due to the number of factors involved and the Company's need for commercial
or government revenue, there can be no assurance that NEAP will be launched. In
order to accomplish the launch of NEAP, the Company will require commercial or
government revenue in the form of sales, and there can be no assurance that the
Company will be able to obtain sales sufficient to support the mission.
Also in late 1998, SpaceDev began bidding on and winning
government-sponsored R&D contracts directly relevant to its strategic commercial
space interests. The Company competed with seven other industry teams to perform
a mission and spacecraft feasibility assessment study of proposed 200-kg Mars
micromissions and was one of five firms selected by JPL. The final report was
delivered to JPL in March 1999. A few months later JPL initiated a procurement
action for at least one such spacecraft, to be launched in 2003. The Company
decided not to compete for this NASA contract, but has continued refining its
baseline micromissions concept independent of NASA and JPL, and is now offering
lunar and Mars commercial deep-space missions based on this design. The Company
did not compete for the NASA contract primarily because JPL required specific
experience of contractors that intended to submit a bid. The specific experience
to which we refer was that: 1) the contractor must have successfully built and
flown spacecraft; and 2) the contractor must have previous experience in
building spacecraft missions to Mars. While the first requirement was not too
restrictive, the second requirement was restrictive to the point that only one
contractor could meet the requirement (only Lockheed-Martin had previously built
and flown spacecraft that had gone to Mars). Although SpaceDev has assembled a
team of engineers who have prior experience with such missions, the JPL
requirements for past experience applied to SpaceDev's track record as an
organization rather than to the experience of these individuals. As a result
SpaceDev did not feel it would be successful in bidding for the contract.
In mid-1999 SpaceDev's ISS subsidiary competitively won an R&D contract
from the National Reconnaissance Office of Space Launch to study a family of
very small, hybrid-based "micro" kick-motors for small-satellite orbital
transfer applications. At about the same time, ISS and Lockheed Martin
Astronautics (LMA) agreed to investigate selling packaged commercial launch
services involving two to four small satellites on LMA's Athena launch vehicle.
In November 1999 the Space Missions Division was awarded a $4,995,868
million 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.
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BUSINESS PLAN
SpaceDev's corporate goal is to increase the intrinsic value of the Company
by providing proprietary, reliable, low-cost access to space through innovative
solutions currently lacking in the marketplace. Low-cost space-mission solutions
involving microsatellites (less than 250 kg) and nanosatellites (less than 50
kg).
The Space Missions Division intends to define and market proprietary
missions and spacecraft based on open standards. "Open-standard" is a term used
to describe industry standard hardware or software and their interfaces such as
found in personal computer boards and operating systems, but applied to small
spacecraft. Open standards often result in less expensive products because being
"open" they can be produced by a variety of competing sources, as opposed to
proprietary standards that are often available from limited sources.
ISS continues to market its current products and services to the aerospace
industry as well as expand its offerings. SpaceDev intends to continue
developing new products and services the Company's management believes are
needed in the marketplace.
SpaceDev is successfully implementing a strategic thrust to be perceived
and regarded as an experienced provider of small-satellite launch-integration
services. This allows the Company to identify launch opportunities (whether on
U.S. or foreign launchers), conceive and evaluate small-satellite designs
matched with those opportunities and to support the design, development, test,
integration, launch and operations of these satellites. We intend to offer
small-space customers end-to-end business solutions. This includes providing
launch integration services which are the engineering tasks needed to insure
that the satellite fits on and is technically compatible with the selected
launch vehicle. This is an important part of our small-space strategy.
Our staff and some carefully selected external partners have a combined
experience base with such systems - direct experience in defining, implementing
and operating several dozen small-spacecraft missions - believed to be equal to
any in the industry. We believe our staff is "equal to any" because of the
accomplishments of the staff members. For example, SpaceDev's President and COO
has twenty-two years of space experience gained at Hughes, TRW and Spectrum
Astro by working in management positions on six space vehicles, including three
deep space missions. SpaceDev's CFO has twenty years of experience in the space
field, holding top management positions with General Dynamics and Lockheed
Martin's International Launch Services, where his combined lifetime launch
vehicles sales total over $4 billion, a number few people in the world equal.
SpaceDev's Vice President for Space Engineering has designed built or managed
over a dozen small, inexpensive satellites, and has worked on over six other
science satellites, has held top management positions at Orbital Sciences and
QUALCOMM and held an endowed Chair at the U.S. Air Force Academy while directing
their small satellite program. Another staff member recently graduated cum laude
from Harvard's Electronics Engineering program. Most other staff members have
been involved in space engineering projects since obtaining their degrees,
giving SpaceDev a highly accomplished staff that is perhaps "equal to any."
SpaceDev believes that a majority of its customers are drawn to the Company
because they are being underserved by the traditional aerospace industry. Most
of the companies that have been servicing this market - especially U.S.
companies - have been redirecting their efforts to larger systems, leaving a
relatively unpopulated market niche for SpaceDev to fill just as the demand for
small satellites is blossoming. The Company intends to continue to introduce new
and useful low-cost space products and services designed to meet customers'
needs, all with an aggressive and practical commercial approach.
SpaceDev customers will come from a variety of different markets, but they
will all have the common requirement for a low cost small-space system. That is
the "market niche" that SpaceDev intends to fill. Customer requirements will
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emanate from various needs. Some customers, such as entertainment or Internet
content companies, may want a small satellite to deliver pictures from outer
space that can be integrated into theme parks or Internet sites. Some customers,
such as foreign countries, may want to buy small satellites commercially to be a
delivery system for their science instruments as they explore the inner solar
system. Some customers, such as NASA may want to buy small satellites as a part
of their traditional programs or perhaps buy data from the satellites on a
commercial basis. Some customers, such as universities may want to buy
satellites as a delivery system for experiments designed by students and
faculty. Some customers, such as the Air Force or the National Reconnaissance
Office may want to buy our products to test new technologies in space--sometimes
procured in a traditional manner and sometimes commercially. At the present
time, one customer, the University of California, Berkeley, is forecasted to
account for about 40% of our expected 2000 revenue. The Company's preferred
space-mission implementation approach has the following attributes:
o SpaceDev-defines products and services from a catalog, rather than
designs responding to government-supplied specifications
o SpaceDev focuses on "Small Space," involving turnkey mission solutions
and application of proven commercial business practices such as
offering launch and mission space insurance options through SpaceDev's
space insurance broker of record, International Space Brokers,
competitive pricing and creative billing arrangements as part of our
commercial space mission packages
o SpaceDev uses relatively simple and elegant (elegant meaning meeting or
exceeding the technical requirements with less complexity) programmatic
and technical solutions, rather than complex and bulky
The Company believes that this business model emphasizing smaller
satellites, commercial approaches, technological simplicity, architectural and
interface standardization and horizontal integration ("whole product") provides
the following advantages:
o Enables small-space customers to contract for end-to-end mission
solutions, reducing the need for and complexity of finding other
contractors for different project tasks
o Creates an easy and convenient way for customers to contract for space
missions and/or spacecraft subsystems
o Lowers total project costs and therefore provides greater value and
increases return on investment for SpaceDev and its customers
o Creates barriers to entry and competition from competitors
Though the Company prefers to define and execute complete space missions
for clients, it also offers customers space-delivery services (for
customer-supplied science or technology demonstration payloads);
science-instrument or technology-demonstration data-set products (from
SpaceDev-supplied payloads); integration and launch services (for a
customer-supplied spacecraft); and space hardware from commercial price lists
(for customer spacecraft). Data-sets are end-item products (e.g., data,
photographs) that consist of the results of a science experiment or technology
demonstration, and are used to generate new scientific knowledge or to describe
performance results when new technology is being tested in space. These features
of the Company's business approach thus place it more into the template that
existed during the early days of the microcomputer technical revolution rather
than into the classical patterns of the existing government-dominated,
limited-profit margin, aerospace industry.
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NASA'S "FASTER, BETTER, CHEAPER" CONCEPT
Since the arrival of the Honorable Daniel S. Goldin as NASA Administrator
almost eight years ago, the phrase "faster, better, cheaper" has become
something of a mantra for the space agency, after suffering the very expensive
loss of the billion-dollar Mars Observer spacecraft in 1993, shortly after the
Administrator took the office as a political appointee of the president. The
meaning, no matter how one phrased it, was clear: do more with less.
However, only in the past five years has the application of this phrase,
and this method of doing things, paid dividends, most publicly with Mars
Pathfinder in 1997. A mission with a budget only about one-twelfth of the
previous American Mars landing mission, Viking, and one-fourth the budget of the
last American Mars mission altogether (Mars Observer), which failed before even
reaching the planet, succeeded in safely landing on the planet and returning
data which already is reshaping the way we understand the Red Planet. NASA's
concept of "faster, better, cheaper" rests on the interconnection of decreased
mission costs and increased risk. To be able to do significant missions with
less money, NASA has gone on record as being committed to be willing to accept
increased risk through the use of untried or otherwise risky techniques or
equipment that promise to do more for less money. For the normally risk-adverse
space agency to accept increased risk, the stakes must be lower: tens or hundred
of millions of dollars, not billions, must be on the line.
Pushing NASA in this direction were the twin forces of very expensive and
very embarrassing failures and budget cuts. By the fall of 1993, less than 18
months into Mr. Goldin's tenure at NASA, he had seen a $1-billion spacecraft,
Mars Observer, lost due to what turned out to be a simple failure of a
propellant system that could have been easily corrected before launch had
engineers thought about the problem more carefully. At this same time NASA has
also all but written off any chance of opening the high-gain antenna on the
Galileo spacecraft (mission to explore Jupiter and its moons), another
multi-billion dollar mission, due to a few stuck ribs (similar to that of an
umbrella). Use of the low-gain antenna and other tricks would ensure that some
data would return, but the torrent of images expected from the mission would not
happen. In the fall of 1993 the repair of the optically-flawed Hubble Space
Telescope was still in the near future. Moreover Space Station Freedom was
undergoing the pains of another reorganization, including bringing Russia into
the program, and the fate of the multi-billion station in Congress was very
uncertain. NASA had shown that risk in expensive programs could not be
eliminated, and when failures or problems happened, the stakes were much higher.
As NASA's budget was slowly trimmed over the next few years in Congress's
zeal to balance the budget, it was clear that the era of billion-dollar
"mega-projects" was, at least temporarily, at an end. To keep space sciences
alive between the budget pressures of the space station and the space shuttle,
NASA needed less expensive projects. To get those smaller missions to do good
science, the space agency needed to embrace something it had avoided for years:
risk.
NASA Administrator Dan Goldin, in his 1998 statement before the Senate
Appropriations Committee, said "Faster, better, cheaper is not a slogan - it is
routine. The FY 1994 budget included funding for 11 Space Science missions; the
FY 1999 budget request contains funding for 28 missions...The current EOS
program encompasses many much smaller missions at a significantly lower cost.
This will enable the infusion of new technology development and is responsive to
emerging scientific discoveries."
One of the flagship programs of the "faster, better, cheaper" philosophy is
NASA's Discovery program. The goal of the program is simple: fly frequent, small
missions throughout the solar system. Each mission had to cost less than $150
million in 1992 dollars (about $182 million in 1997) and be ready to fly within
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a few years of selection. The first two programs selected for the Discovery
program were NEAR (Near Earth Asteroid Rendezvous), a mission to rendezvous with
and study a near-Earth asteroid; and Mars Pathfinder.
To achieve the goals of the Mars Pathfinder mission within the tight
budgetary constraints of the Discovery program, project officials were willing
to embrace new technologies and techniques, such as an airbag-cushioned landing
instead of the more traditional, and more expensive, landing legs and
retrorockets. They also used new ways of working together, putting project
personnel together in the same work space to allow more communication and
interaction between team members, so they could find ways of improving the
spacecraft and decrease its costs.
The risks, for now, seemed to have paid off for Pathfinder, Goldin, and
the space agency. Pathfinder performed beyond the expectations of project
officials. Combined with the recent successful flyby of the asteroids Mathilde
and Eros by NEAR, the Discovery program has shown that smaller, lower cost,
higher risk missions can do good science. The verification of the "faster,
better, cheaper" paradigm has allowed Mr. Goldin to continue to spread it
throughout the space agency, cutting costs for the space shuttle and keeping the
International Space Station in line.
There are no plans to discontinue "faster, better, cheaper" applications
within NASA, although, as a result of the recent failures of two "faster,
better, cheaper" missions - the Mars Climate Orbiter, and Mars Polar Lander -
the paradigm is being re-evaluated for applicability on a case-by-case and
mission-by-mission basis.
PRODUCTS AND SERVICES
SpaceDev's products and services are grouped into three business areas:
Space Missions, Space Products and Engineering Services. Its business is not
seasonal to any significant extent; however, because it is a commercial
business, it follows normal industry trends such as increased demand during
bullish economic periods, or slow-downs in demand during recessionary periods.
SPACE MISSIONS
The Company's Space Missions Division offers commercial, standards-based
turnkey space missions for sale as products to a variety of customer bases
(government agencies, other countries, universities, corporations, consortia,
individuals, etc.). It is this product line for which SpaceDev was originally
formed, particularly in the deep-space arena.
Space missions consist of the overall effort including the design of the
mission and its science, commerce or technology demonstration goals, the design
of an appropriate space vehicle (satellite or spacecraft), construction and
testing of the spacecraft, integration of one or more payloads (instruments,
experiments or technologies) into the spacecraft, integration of the spacecraft
onto the launch vehicle (rocket), the launch, and the mission control and
operations during the life of the mission. Missions can orbit the earth, travel
to another planetary body, or cruise through space taking measurements.
DEEP-SPACE MISSIONS. SpaceDev defined the Near Earth Asteroid Prospector
(NEAP) mission in 1997-99 and has been in the process of taking the necessary
steps for project implementation. NEAP can be thought of as a "space utility
van" that can be used to carry packages from one destination to another, for
example a science experiment (instrument) from earth to lunar orbit, much like
NASA's recent Lunar Prospector. The instrument is offered the opportunity for
accommodation (i.e., the "ride") to enable fulfillment of its mission goals.
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In 1998 NASA Headquarters recognized the project as a valid commercial
"Mission of Opportunity" for both its Discovery Program of solar-system
exploration missions and Mid-class Explorer ("MIDEX") program of space-science
missions. This opened the door for space scientists to submit proposals to NASA
for science-instrument development funding and for coverage of the fee that
SpaceDev would charge the scientist for an instrument ride on NEAP (i.e., cost
of hosting a science payload on NEAP). Three proposals were submitted (two to
Discovery and one to MIDEX) in 1998, but none were selected nor funded.
In December 1998, SpaceDev funded JPL to evaluate the feasibility of
supporting the NEAP mission with NASA's DSN, and in October 1999 JPL and NASA
headquarters concurred that such technical support was feasible. From the
mission-operations standpoint, NASA now treats NEAP as a valid mission (an
"Advanced Planning" mission). NEAP is the first proposed commercial deep-space
mission to be granted this status. So far as Registrant is aware, NEAP is the
only proposed deep-space mission to be granted an "Advanced Planning" status by
NASA. There are other planned DSN missions, however, and Registrant cannot say
with authority that NASA has not recognized any of those missions in a similar
manner.
In December 1998, approximately fifteen months after SpaceDev announced the
feasibility of deep space missions costing less than $50 million, a SpaceDev-led
team was awarded a contract by JPL to assess the feasibility of sending
"micromissions" to Mars for less than $50M total mission cost each.
Micromissions are generally in the few hundred kilogram mass range, and were
popularized by NASA studies in their search for ways to comply with NASA
headquarters' admonitions for missions to be "faster, better and cheaper." One
such micromission is being considered for development in the Mars micromission
and weighs approximately 220 kg. These missions would cost approximately
one-third to one-fifth of recent Mars-mission costs. An extensive final report
was submitted by SpaceDev to JPL the following March. This work formed the basis
for redefining the NEAP mission to be significantly smaller and lower cost than
the previous baseline and also prompted SpaceDev to offer low-cost commercial
lunar orbiter and Mars probe-carrier missions employing a similar design. The
Company began to market its commercial micromissions concept during the summer
of 1999. The Company has continued to market these missions to a number of
possible customers.
On February 1, 2000 the Company announced that it had teamed with The
Boeing Company to investigate opportunities of mutual interest in the commercial
deep-space arena. The purpose of the agreement is to investigate a variety of
small, low-cost, deep-space mission initiatives formulated by SpaceDev that are
based on the commercial micromission concept. During 2000, technical and
corporate staff from Boeing and SpaceDev will further refine and advance
SpaceDev's concept of commercial missions to the Moon, Mars and near-Earth
asteriods, involving micro-spacecraft of 250 kg mass. The effort also includes a
global assessment of the market potential for such missions, and a technical and
programmatic assessment of lower cost launch-vehicle options for such missions.
EARTH-ORBITING MISSIONS. A natural byproduct of the Company's focus on
small, low-cost spacecraft for commercial deep-space mission applications is the
in-house capability to design, build, market and sell similar concepts for
Earth-orbiting applications.
In November 1999 the Space Missions Division was awarded a turnkey mission
contract by the Space Sciences Laboratory (SSL) at University of California,
Berkeley (UCB). SpaceDev was competitively selected by UCB/SSL's Dr. Michael
Hurwitz to design, build, integrate, test and operate a small spacecraft called
CHIPSat. The 85-kg microspacecraft will carry one science instrument, the Cosmic
Hot Interstellar Plasma Spectrometer, or CHIPS. CHIPS facilitates the
observation and diagnosis of the astrophysical environment in the void outside
our solar system and between the nearby stars in our galaxy. Dr. Hurwitz, the
CHIPS Principal Investigator, and his team are responsible for the overall
CHIPSat mission, designing and building the CHIPS instrument, and performing the
science-data analysis.
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CHIPSat is the first mission of NASA's low-cost University-Class Explorer
(UNEX) series to be approved for the implementation phase. SpaceDev started its
work on the CHIPSat project in November 1999 under the $4,995,868 commercial,
fixed-price contract with UCB. Initial integration and testing of the
spacecraft's components are planned at the Company's headquarters in Poway in
late 2000. Launch at the Cape Canaveral Air Station on a Boeing Delta II is
expected in early 2002, followed by one year of mission operations to be
controlled at SpaceDev's Mission Control Center in Poway, California.
SpaceDev believes that the CHIPSat contract establishes the Company as a
significant competitor in the small-satellite arena, and it expects this
perception to spread rapidly among NASA, DoD, university/R&D, and foreign and
commercial customer bases during the next several months. The CHIPSat mission
was awarded in the first round of NASA's smallest and least expensive missions
ever - the University Explorer (UNEX) program. NASA caps these missions at about
$13 million total. This was the largest and first significant competition
SpaceDev had participated in at the time, and as a result of winning the
competition to design the mission and spacecraft, build, test and conduct the
mission, SpaceDev believes this win helped establish SpaceDev's credentials as
being able to successfully compete with older and larger companies. Winning the
UNEX mission has helped to create a market `niche' for SpaceDev and demonstrates
NASA's confidence in SpaceDev to take on the responsibility for design and
development of low cost science missions.
Work is progressing on the CHIPSat contract. There will be a Confirmation
Review with the customer in early May 2000, at which time a review of the
technical progress to date will be conducted and a decision will be made to
commit to full scale development.
SPACE PRODUCTS
SpaceDev's space-products business currently includes spacecraft and
related space systems; launch vehicles and propulsion modules.
SPACECRAFT AND RELATED SPACE SYSTEMS. The Company is presently bidding on
several programs to supply spacecraft buses (i.e., instrument platforms) that
would utilize the basic elements of the CHIPSat and other proprietary spacecraft
designs.
The CHIPSat satellite being designed and built by SpaceDev has a
requirement for a radio transmitter and receiver (transceiver). The transceiver
is required to send commands to the satellite and to receive data from the
satellite concerning such things as the operational status of the satellite, and
the data collected by the science experiment. In order to meet this requirement,
SpaceDev, in April of 2000, entered into a joint development project with
Wireless Future, a local San Diego company. SpaceDev specified the detailed
performance requirements for the radio. Wireless Future will design and build
the radio to those specifications. SpaceDev will pay for the development of the
radio, and Wireless Future has agreed to jointly market the radio after
completion of the first unit.
LAUNCH VEHICLES AND PROPULSION MODULES. Currently, SpaceDev's ISS
subsidiary is performing design analyses and computer simulations of various
sounding rockets and launch vehicles that primarily use hybrid-propulsion
technology (based on the AMROC intellectual property). Hybrid rocket technology
represents a mating of solid and liquid rocket technologies. In a hybrid rocket,
an oxidizer is passed through a hollow cylinder of solid hydrocarbon fuel,
uniting the densely packed power of a solid rocket with the precision of a
liquid engine. While there are disadvantages to hybrid technology for launching
large satellites, it may be well suited for the launch of small
satellites--which is the market that ISS is looking to focus upon. The hybrid
rocket is cheaper and simpler to design, and safer to store and transport than a
liquid rocket. It is cheaper, safer, more environmentally benign than solid
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fueled rocket. It is also throttle-able and restartable, characteristics that no
solid rocket can accomplish. Throttle-able means that the hybrid rocket allows
for variance in the rate and mass of the propellant being burned, by giving it
the ability to change the rate of the velocity of the host article to which the
motor is attached - much like the throttle on an automobile. This technology can
be used for both small launch vehicles--that get the payload off the ground--and
orbital transfer vehicles--that can maneuver payloads into a final orbit once
they have been placed into a preliminary orbit by a launch vehicle. The Company
anticipates the possible spin-off of this activity from ISS once specific
product lines are defined and developed. Currently, however, no action has been
taken to accomplish such a spin-off.
In mid-1999 ISS competitively won an R&D contract from the National
Reconnaissance Office of Space Launch to study the feasibility of building
small, hybrid-based "micro" kick-motors for small-satellite applications. The
Secondary Payload Orbital Transfer Vehicle (SPOTV) family, which utilizes
micro-kick motor concepts, has a multitude of possible on-orbit uses and is now
being marketed by SpaceDev as a part of its growing product line.
This contract has been successfully completed. SpaceDev submitted published
reports to the customer along with a presentation in the customer's Virginia
office in March of 2000. As a result of the study, three variations of the
technology were defined with the least complex version being a simple kick-motor
to boost microsatellites into more desirable orbits after being released from
the launch vehicle, up to the most complex version which can be described as a
highly capable satellite with a relatively large restartable motor for orbital
maneuvers. The kick motor is the primary element of the SPOTV, which also
consists of components to support attitude control, power and communications.
The Company is in the process of bidding several proposals to the U.S.
government for the continuation and expansion of design studies and motor tests
for this product.
On March 22, 2000, SpaceDev received notification from the California
Spaceport Authority and the California Space and Technology Alliance that
SpaceDev has been awarded a grant of $105,000 to be used for test firing
SpaceDev hybrid rocket motors.
ENGINEERING SERVICES
SpaceDev corporate-level staff and staff in SMD and ISS are available for
supplying aerospace-related technical services to a variety of clients. ISS is
currently most actively engaged in such services. ISS has provided launch-site
design, launch vehicle design, analysis, test and operations support for both
commercial (Atlas, Delta and Kistler) and U.S. government funded launch
programs.
Most ISS employees are former launch systems engineers and managers at
General Dynamics in San Diego; many have extensive experience with the Atlas
family of launch vehicles and other large-scale rockets and launch facilities.
The ISS staff has core competencies in engineering design and analysis; system
modeling and simulation; instrumentation and testing; launch-site operations and
range safety; launch environments and transport; and mission and trajectory
design. Other skills include project planning and development; systems
engineering and pre-design engineering (e.g., definition of engineering
processes and methods); and systems integration.
ISS has recently performed launch-vehicle design and testing support
services for the Atlas launcher program, Titan/Centaur program and the Kistler
Aerospace launcher development program. ISS has also provided launch-site
design, analysis, test and operations support for various U.S. launcher programs
and launch sites. Various U.S. governments and commercially funded launcher
programs and launch site engineering services have been supplied to over a dozen
unmanned spacecraft, manned spacecraft and Remotely Piloted Vehicles (RPVs).
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MARKET STRATEGIES
SPACE MISSIONS
The Company intends through its commercial deep-space and Earth-orbiting
missions to prove its viability and establish itself as the premier commercial
space-exploration and development company. Once it has established its
capabilities for insured, high-quality, fast turnaround and low-cost systems and
missions, the Company believes it will be able to effectively compete, develop
new markets and expand existing markets for space exploration and other
applications.
The Company believes that its low-cost commercial missions can provide
unique information content (i.e., not limited to science and/or technology data)
to unconventional (i.e., non-traditional) space-mission customers such as
entertainment media, e-commerce organizations, larger aerospace companies that
endeavor to enter the commercial space market, and a few wealthy individuals who
can privately fund entire space missions. The unique information that SpaceDev
provides is the ability to host payloads and instruments that are geared for
producing data for the purposes of generating advertising revenue and public
appeal, as opposed to science data. In particular, the Company is actively
seeking potential strategic partners and customers who share SpaceDev's vision
of the convergence of commercial deep-space activities with selected Internet,
media, entertainment and education activities.
DEEP-SPACE MISSIONS. Since all deep-space missions to date world-wide have
been defined and executed by various government agencies, SpaceDev's plan for
defining and executing such missions as a commercial venture places the Company
at the forefront of a new way of doing business in this arena. Under such
conditions, questions naturally arise within the space community about whether
the Company and its partners are capable of successfully performing in this
arena. The Company's approach is two-fold: (1) Selectively compete for
deep-space related work (R&D studies and development efforts as well as
missions) against established space-systems companies, and (2) Define, develop
and execute space missions independently of government agencies. Inherent to the
latter approach is a concerted effort to define and cultivate alternative
sponsors for these missions, such as other commercial companies, research and
technology consortia, non-U.S. space interests, etc.
SpaceDev's win of the JPL-funded Mars Micromissions study in 1998 is
representative of approach (1) above, while its efforts to define and promote
the NEAP and Lunar Orbiter streaming video missions fit approach (2) above.
EARTH-ORBITING MISSIONS. The market situation in this arena has
similarities to the deep-space arena, but there are more competitors and a wider
variety and greater number of missions to consider as marketing targets. The
challenge here, as in the deep-space arena, is for the Company to rapidly
establish credibility by selectively competing for and winning R&D studies and
development efforts as well as missions.
The Company's commercial focus works more easily with government-funded
efforts if it performs the work on a commercial basis for a Principal
Investigator (PI) or Task manager. The PI is the central person in charge of
each mission with full responsibility for its scientific integrity. A task
manager interfaces directly with the government sponsor(s). NASA rules permit
the PI to use his/her own management methods to the fullest extent possible to
accomplish the goals of the scientific investigation.
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For non-governmental sponsors, the Company prefers to deal directly with
the customer(s). Currently, our biggest customer (in terms of dollar revenue) is
a non-government customer: the University of California Berkeley, which is an
academic institution. UC Berkeley provides the Principal Investigator (Dr. Mark
Hurwitz), who has been given a contract by the NASA Explorer Office to provide
the CHIPSat mission data set. Dr. Hurwitz, as the PI for this mission, exercised
his power as the PI to contract separately with SpaceDev to provide for the
spacecraft bus and mission operations services.
SPACE PRODUCTS
SPACECRAFT AND RELATED SPACE SYSTEMS. In general, the Company believes
that any market target in the space-missions segment discussed above also
represents a potential customer for its space products (vs. turnkey missions).
This includes both the earth-orbiting and deep space markets. Technically, a
spacecraft bus is the host platform that provides all housekeeping, control,
stability, thermal protection, communications and power to the payload and/or
instrument.
LAUNCH VEHICLES AND PROPULSION MODULES. SpaceDev addresses this market
segment with its ISS subsidiary. Small spacecraft are produced by government
agencies, universities and commercial companies throughout the United States,
Europe and Japan. These spacecraft represent significant science and
technology-demonstration opportunities that require exposure to the space
environment to fulfill their mission objectives. Annual launch rates for such
spacecraft are limited principally by the high cost of current launch vehicles.
These conditions result in many valuable experiments and payloads being left on
the ground.
Recognizing this problem, government and commercial industry have been
performing research and development in an attempt to reduce the cost per
kilogram (or pound) to orbit for small spacecraft. Paul Coleman, president of
the Universities Space Research Association (USRA), has challenged the space
industry with launch-cost targets priced between $2.0M and $3.5M for a 300-kg
spacecraft. Clearly, today's commonly used launch-vehicle technologies cannot
achieve this goal. Launch service users have pinned their future hopes on
reusable launch vehicles, which appear to be ten years or more away from
day-to-day use, to lower launch costs.
In the near term the only real hope for low cost launches for small
spacecraft is to find an alternative path to space using a secondary ride system
such as the Ariane Structure for Auxiliary Payloads (ASAP) or a low-cost launch
system yet to be developed. ISS retained key personnel critical in the
development of General Dynamics' Atlas Centaur launch vehicle. Management
believes that this level of experience is critical to the small launch-vehicle
market. ISS has also obtained the rights to the patents and intellectual
property produced by the former American Rocket Company (AMROC), which
specialized in hybrid rocket technology (solid fuel and liquid or gas oxidizer)
in the design of sounding rockets and launch vehicles.
The ISS approach of combining large-vehicle expertise with the lower cost
inherent in hybrid rocket technology could give small payload customers new and
valuable capabilities at small-business savings. SpaceDev research has indicated
a very large university and government market, starving for cost-effective
access to space. ISS intends to put that expertise to work building a family of
orbital transfer vehicles and small launch vehicles using hybrid rocket
technology. SpaceDev has prepared business plans for the development of both a
family of small hybrid launch vehicles and a family of small hybrid orbital
transfer vehicles. To date, the funding for the development of the small launch
vehicle has been provided from general corporate funds. Funding for the small
orbital transfer vehicle has been partially funded by the U.S. government. To
fully develop the family of orbital transfer vehicles would require over $5
million. To fully develop the small launch vehicle would require over $15
million. The funds need to fully develop this family of vehicles have not yet
been secured and there is no guarantee that these funds can be raised.
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ENGINEERING SERVICES
SpaceDev addresses this market segment principally with its ISS subsidiary,
though the SMD staff can be applied selectively to provide such services. The
current business base lies principally within the aerospace- engineering and
test-services market. ISS can be distinguished from its competitors by its
highly experienced personnel, who gained their knowledge and know-how during
years of employment with major aerospace companies (General Dynamics Space
Systems in particular).
The personnel that came to ISS from General Dynamics worked on the
Commercial Atlas Launch Vehicle program which is one of the largest commercial
launch programs in the history of the aerospace industry. These employees
include engineers, program managers and senior level finance and marketing
people. In most cases, the commercial small launch industry has not generally
been composed of people that benefited from the combination of participation
with such a high level large commercial program and a determination to bring
that experience to a small low cost launcher. An example of this is the Lockheed
Launch Vehicle, now the Lockheed Martin Athena. The people that worked on that
program came out of the Lockheed government based ballistic missile program and
did not have the benefit of developing a commercially based launch vehicle.
Recent space-market analysis conducted by A. T. Kearney in the 1998 and
1999 editions of the State of the Space Industry from Space Publications and a
study conducted by the Teal Group in "The Military Satellite Market" from the
June 1999 edition of Aerospace America indicates an overall trend toward
shrinking budgets. This could result in smaller spacecraft, rapid turn-ons,
shorter schedules and smaller project budgets. ISS is being groomed to work
within this environment. ISS intends to exploit its technologies, low-cost
focus, rapid turn-on (i.e., shorter acquisition times) capabilities and
small-business assets to form teaming arrangements, solicit business and win
contracts.
"Rapid turn-on" is used by NASA in the context of supporting the overall
trend of shrinking space budgets. One of several reasons for the traditionally
high cost of fielding space systems is due to the long (sometimes on the order
of 12 months) acquisition period, consisting of several phases: 1) draft Request
for Proposal (RFP); 2) questions and answers in response to the draft RFP; 3)
formal RFP release; 4) proposal evaluation period; 5) clarifications and
questions to proposers; 6) Best and Final Offers (BAFOs); 7) contractor
selection; 8) pre-negotiations/fact finding; 9) formal negotiations; and 10)
issuance of a formal contract. The acquisition phase is a part of the total Life
Cycle Cost (LCC) of a program, and since dollars = people x time, the cost of
the acquisition has traditionally been a major cost element in the overall LCC
of a program. By reducing the procurement acquisition time, significant cost
savings can result. NASA's "rapid turn-on" includes reducing the procurement
acquisition time, which allows a customer to allocate funding to flight systems
development instead of procurement acquisition. There are several recent
examples of NASA spacecraft procurements that have been done on the order of
four to six weeks. Such examples are: 1) New Millennium Deep Space-1 (NASA JPL);
2) ICESAT (NASA Goddard Space Flight Center); 3) QuikScat (NASA Goddard Space
Flight Center); 4) QuikTOMS (NASA Goddard Space Flight Center); 5) Coriolis
(NASA Goddard Space Flight Center); and 6) New Millennium ST-3 (NASA JPL).
SpaceDev and ISS offer fixed-price standard products as opposed to customized
products. SpaceDev can help the customer reduce the procurement acquisition time
(and associated cost) by providing existing products that meet the customer's
overall requirements. Significant cost and procurement time can be reduced as a
result of procuring standard off-the-shelf products.
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COMPETITION
SpaceDev believes that competition for sales of its products and services
is based on price, performance and other technical features, contracting
approach, reliability, scheduling, customization, and in some situations,
geography.
SPACE MISSIONS
The primary domestic competition for space missions in the targeted
SpaceDev markets comes from such companies as Orbital Sciences Corporation, Ball
Aerospace and Technology Corporation, Inc., Space Dynamics Laboratory and
AeroAstro. In addition to private companies there are certain universities in
the United States that have the capability to produce reasonably simple
satellites. Within the industry it is generally known which companies
participate in what kinds of projects, both by dollar range and type of mission.
SpaceDev believes that it has made substantial and significant progress in
defining business models and in pursuing sales in the small, emerging commercial
deep-space and Earth-orbiting markets. Over the past two and a half years
SpaceDev employees and principals have participated in dozens of space
conferences both as members of the audience and in a majority of cases as
presenters. These conferences are well-established and well-attended annual
small satellite conferences where industry representatives present talks and
papers on a wide variety of topics including small, inexpensive satellites and
deep space missions.
At these conferences and in many private conversations with space industry
colleagues, space customers, and senior space officials, SpaceDev does not know
of any established companies such as TRW, Lockheed, etc., which have expressed
corporate goals to design and build inexpensive microspacecraft for commercial
deep space missions or for any other missions which would be in direct
competition with SpaceDev.
By way of example, NASA's University Explorer program funds NASA's smallest
and least expensive space missions. SpaceDev is the first and only company to be
awarded a contract to design and conduct such a mission. The other UNEX mission
selected by NASA has not been awarded a contract, and the spacecraft integrator
is a university and not a company, leaving SpaceDev as the sole commercial
company engaged in building this category of spacecraft. Additionally, SpaceDev
believes it is the only company that has publicly declared the availability of
commercial deep space missions as products. The clear competitor in the
international arena is Surrey Satellite Technology Limited in the UK. Swedish
Space Corporation is also able to compete in the small-satellite arena; they
were named in November 1999 as the prime contractor for the European Space
Agency's (ESA) SMART-1 technology-demonstration spacecraft to the Moon.
The Company is not aware of any current direct and credible competition in
the field of commercial space exploration and development. Firms such as those
mentioned above and other R&D laboratories (e.g., JPL, Applied Physics
Laboratory, ISAS in Japan) have the technical knowledge and experience to design
and execute missions similar to NEAP and CHIPSat, but they are primarily
government agencies or contractors. SpaceDev management believes that federal
procurement regulations and accounting systems make it difficult for these
companies and labs to compete on price with the Company.
Governments and government programs like those in NASA, ESA and the
Japanese space agencies (NASDA and ISAS) have executed many missions over a
period of many years, but all of these are characterized by long lead times,
high expense, little flexibility, and generally uninsured payloads. It is
SpaceDev's opinion that NASA Administrator Dan Goldin has done an excellent job
in lowering the cost of NASA missions, but the cost has declined from billions
of dollars to hundreds of millions of dollars, whereas SpaceDev is targeting
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missions costing tens of millions. With the overhead and culture of such
agencies and their defense contractors, it may be difficult for the
government-defined and managed programs to lower costs much more.
The Company believes that government-driven programs pose only a small
threat of competing on the basis of price, although governments have
considerably greater experience, and substantially greater financial, workforce
and facilities resources. The Company also believes that governments and their
legislatures will increasingly encourage and support private, routine commercial
space exploration due to budgetary pressures, private-sector job creation and
tax-revenue considerations.
SPACE PRODUCTS
The trend in some sectors of the space industry to smaller, lower cost
spacecraft is creating a new market for smaller, cheaper, launch-on-demand space
systems. With respect to SpaceDev's initiatives into low-cost launch systems,
several competitors have already entered the top end of this small-satellite
market, including Lockheed Martin with its Athena launch vehicle and Orbital
Sciences Corporation with its Pegasus and Taurus. The launch costs of these
vehicles, beginning at approximately $16 million per launch, are considered by
many to be too expensive for university-class and micro-spacecraft missions,
resulting in low launch rates for these launch systems. Although these companies
have been operating longer than SpaceDev, the Company believes that it may be
able to effectively compete against them in the area of launching small
satellites for under $10 million. This, combined with what is perceived as the
rapid growth in the demand for mini and micro-satellites, has left the market
open for a low-cost, reliable, rapidly deployed family of launch vehicles.
EXPENDABLE LAUNCH VEHICLES. Today's launch mainstays in the large
launch-vehicle class are the United States' Titan, European Ariane and Russian
Proton and Zenit. In the medium launch-vehicle class the United States' Atlas
and Delta rockets face heavy competition from around the world from the European
Space Agency, former Soviet States and more recently from Japan, China and
India. In the small launch-vehicle class the United States' Athena, Taurus and
Pegasus are dominant. Microcosm, Inc. has been working on the development of a
low-cost family of expendables called Scorpius, with first orbital launch not
expected before 2002. A common thread in the existing medium and small
launch-vehicle classes is that the United States' launch systems are
consistently more expensive than their foreign counterparts. SpaceDev believes
there is a great need for a low-cost (less than $10 million) U.S. built and
controlled micro launch system. SpaceDev has not formally initiated a launch
vehicle program and might not in the future.
RE-USABLE LAUNCH VEHICLES. There is only one partially re-usable launch
vehicle currently in use: the Space Shuttle (the "Space Transportation System,"
or STS). Over the past five years, a multitude of companies have been working on
a variety of designs to capture this market. The most notable attempts at
developing re-usable vehicles are the NASA co-sponsored X-33/Venture Star (with
a Lockheed Martin-led consortium), the X-34 (with an Orbital-led consortium) and
the X-38 (led by Boeing). Other commercial firms such as Kistler, Kelly, Roton,
and Pioneer Rocketplane are attempting to develop conceptually similar systems.
ENGINEERING SERVICES
There are a number of small to very large companies that supply engineering
services in the space arena. SpaceDev offers one unique capability in that it
has co-located in one area both launch and spacecraft engineers. This allows the
Company to provide efficient and coordinated responses to design issues that
almost always have both spacecraft and launch considerations.
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REGULATION
The Company's business activities are regulated by various agencies and
departments of the U.S. government and, in certain circumstances, the
governments of other countries. Several government agencies, including NASA and
the U.S. Air Force, maintain Export Control Offices to ensure that any
disclosure of scientific and technical information (STI) complies with the
Export Administration Regulations and the International Traffic in Arms
Regulations (ITAR). Exports of the Company's products, services, and technical
information require either Technical Assistance Agreements (TAAs) or licenses
from the U.S. Department of State depending on the level of technology being
transferred. This includes recently published regulations restricting the
ability of U.S. based companies to complete off-shore launches, or to export
certain satellite components and technical data to any country outside the
United States. The export of information with respect to ground-based sensors,
detectors, high-speed computers, and national security and missile technology
items are controlled by the Department of Commerce. The government is very
strict with respect to compliance and has served notice that failure to comply
with the ITAR and/or the Commerce Department regulations may subject guilty
parties to fines of up to $1 million and/or up to 10 years imprisonment per
violation. The failure of the Company to comply with any of the above mentioned
regulations could have serious adverse effects as dictated by the rules
associated with compliance to the ITAR regulations. SpaceDev's conservative
position is to consider any material beyond standard marketing material to be
regulated by ITAR regulations.
In addition to the standard local, state and national government
regulations that all businesses must adhere to, the space industry has specific
regulations. Command and telemetry frequency assignments for space missions are
regulated internationally by the International Telecommunications Union (ITU)
and in the U.S. by the Federal Communications Commission (FCC) and National
Telecommunications Information Agency (NTIA). All launch vehicles that are
launched from a launch site in the United States must pass certain launch range
safety regulations that are administered by the U.S. Air Force. In addition, all
commercial space launches that the company would perform require a license from
DOT. Satellites that are launched must obtain approvals for command and
frequency assignments. For international approvals, the FCC and NTIA obtain
these approvals from the ITU. These regulations have been in place for a number
of years to cover the large number of non-government commercial space missions
that have been launched and put into orbit in the last 15 to 20 years. Any
commercial deep space mission that the company would perform would be subject to
these regulations. These regulations are well understood by the Company. At the
present time, the Company is not aware of any additional or unique government
regulations related to commercial deep space missions.
The Company is required to obtain permits, licenses, and other
authorizations under federal, state, local and foreign statutes, laws or
regulations or other governmental restrictions relating to the environment or to
emissions, discharges or releases of pollutants, contaminants, petroleum or
petroleum products, chemicals or industrial, toxic or hazardous substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, petroleum or petroleum products, chemicals
or industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof. At the present time the Company does not have a requirement
to obtain any special environmental licenses or permits.
It is anticipated that the Company will need to utilize the Deep Space
Network (DSN) on some of its missions. The DSN is an international network of
antennas that supports interplanetary spacecraft missions and radio and radar
astronomy observations for the exploration of the solar system and the universe.
The network also supports selected Earth-orbiting missions. The DSN currently
consists of three deep-space communications facilities placed approximately 120
degrees apart around the world: at GOLDSTONE [http://gts.gdscc.nasa.gov/], in
California's Mojave Desert; near Madrid, Spain; and near CANBERRA
[http://tid.cdscc.nasa.gov/], Australia. This strategic placement permits
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constant observation of spacecraft as the Earth rotates, and helps to make the
DSN the largest and most sensitive scientific telecommunications system in the
world. The network is a facility of NASA, and is managed and operated for NASA
by the Jet Propulsion Laboratory. The Telecommunications and Mission Operations
Directorate (TMOD) manages the program within JPL. Coordination for the use of
this facility is arranged with the Telecommunications and Mission Operations
Command (TMOC).
The failure of the Company to comply with any of the above mentioned
regulations could have serious adverse effects.
EMPLOYEES
As of the date of this registration statement, the Company, together with
ISS, employs approximately 25 persons full and part-time, of which most are
aerospace, mechanical and electrical engineers. The Company expects to hire
other personnel as necessary for product development, quality assurance, sales
and marketing and administration.
SpaceDev does not have any collective bargaining agreements with its
employees and believes its employee relations are good. An employee
stock-incentive program and an employee stock-purchase program were approved at
the 1999 annual shareholders meeting and have been implemented.
INTELLECTUAL PROPERTY
SpaceDev relies in part on patents, trade secrets and know-how to develop
and maintain its competitive position and technological advantage. The Company
intends to protect its intellectual property through a combination of license
agreements, trademark, service mark, copyright, trade secret laws and other
methods of restricting disclosure and transferring title. There is no guarantee
that such applications will be granted. The Company has and intends to continue
entering into confidentiality agreements with its employees, consultants and
vendors; entering into license agreements with third parties; and generally
seeking to control access to and distribution of its intellectual property.
In August 1998, SpaceDev acquired license to intellectual property
(including patents and trade secrets) from an individual who had acquired them
from the former American Rocket Company (AMROC), which specialized in hybrid
rocket technology. The Company issued warrants to this individual to purchase a
minimum of 100,000 and a maximum of 3,000,000 shares of its Common Stock over
the next 10 years, depending on the Company's annual revenues related to sales
of hybrid technology-based products.
In 1999 the Company began preparing a new patent application addressing a
technological need in the accommodation and deployment of secondary payloads on
launch vehicles. This patent application specifically addresses a need to enable
lower cost, more frequent access to space on existing or planned (i.e.,
government funded) launch vehicles. It expects to submit the application in
2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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
risk factors discussed elsewhere in this submittal.
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OVERVIEW
During 1997 operating activities consisted largely of developing the
preliminary designs and mission analysis for the NEAP mission.
During 1998, SpaceDev acquired ISS and 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 Integrated Space Systems, Inc.
("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 in excess 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 Space
Innovations Limited ("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.
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.
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In November 1999 SpaceDev was awarded a $4,995,868 million 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 contact 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.
The Release Agreement resulted in the retirement of the 1,000,000 shares of
the Company 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 remains 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 is paid in full. Once the loan has been paid in
full, the loan agreement will 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. See Note 4.
Subsequent to year end, the amount of the line guaranteed by the Company was
paid down to approximately $27,000.
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED DECEMBER 31, 1999 AND 1998
NET SALES
Net sales, for the twelve months ended December 31, 1999, consisted
primarily of the sales for engineering technical services to various aerospace
customers and satellite structures and satellite subsystems. Net sales were
$4,877,931 for the twelve months ended December 31, 1999 compared with sales of
$2,093,254 for the same period in 1998--an increase of $2,784,677 or 133%. The
increase is primarily the result of including almost a full year of SIL sales in
1999 versus three months in 1998--an increase of $3,033,338. This increase was
partially offset by a reduction in sales of technical services that was a direct
result of Integrated Space Systems' move from the Small Disadvantage Business
classification after being acquired. This reclassification resulted in lost
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contract opportunities of approximately $500,000. However, during this period,
contracts with seven new customers were initiated and partially offset the
reduction.
In 1999 the Australian government's Cooperative Research Center for
Satellite Systems accounted for approximately $1,130,000 of revenues (23% of
consolidated revenue). In 1998 Lockheed Martin accounted for approximately
$1,142,000 of revenues (55% of consolidated revenue).
Net sales are generated through either fixed price contracts or time and
material contracts. Sales recognition for time and material contracts is
recognized at time of work, while fixed price contracts are based on a percent
completion basis.
On November 1, 1999, SpaceDev entered into a $4,995,868 firm fixed price
contract with the University of California at Berkeley. In 1999, its recognized
revenue for this contract totaled $83,395 (1.7% of revenues). It is anticipated
that total net revenues will increase in the year 2000 with this contract award.
COST OF SALES
Cost of sales primarily represents all costs directly associated with
individual contracts. Included in this category are direct labor and associated
fringe benefits, direct material and subcontracts, and direct travel. Cost of
sales for the twelve months ended December 31, 1999 was $2,445,304 (50.1% of net
sales) compared to $1,152,813 (55.1 % of net sales) for the twelve months ended
December 31, 1998. The reduction in cost of sales from 1998 to 1999 was
primarily the result of a higher percentage of commercial and commercially bid
business performed in 1999 versus 1998. The use of contractual terms and
conditions and use of commercial practices allowed the company to earn a higher
gross margin on sales.
RESEARCH AND DEVELOPMENT
Research and development expense for the twelve months ended December 31,
1999 was $568,318 compared to $700,921 for the twelve months ended December 31,
1998. The 1999 expenses were incurred in the continued development of the
MiniSil satellite family and the NEAP project. The decrease in these expenses in
1999 can be attributed to winning and performing R&D contracts from the U.S.
government and to redirecting company resources to the University of California
at Berkeley contract. The Company expenses research and development costs as
they are incurred.
GENERAL AND ADMINISTRATIVE
General and administrative expense consists primarily of salaries for
administrative personnel, fees for outside consultants, goodwill amortization of
acquisition costs, depreciation, facilities related costs, insurance, legal and
accounting fees, and other overhead. General and administrative expense (G&A)
for the twelve months ended December 31, 1999 was $5,568,338 (114 % of net
sales) compared to $2,143,088 (102% of net sales) for the twelve months ended
December 31, 1998. The increase in the G&A reflects close to a full year of G&A
and amortization expenses related to the SIL acquisition, increased professional
fees, additional staff and expenses related to the occupation of the building by
the Company in May 1999. Amortization expenses associated with the acquisition
of Integrated Space Systems, SIL and the hybrid rocket technology for the twelve
months ended December 31, 1999 totaled $1,701,163 compared to $894,688 in the
same period in 1998. SpaceDev anticipates that overall general and
administrative expense will increase in the foreseeable future; however, G&A
expense as a percentage of net sales may fluctuate depending on the level of
future net sales and the timing of additional investments in general and
administrative infrastructure.
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OTHER INCOME EXPENSE, (NET)
Net interest expense was $412,284 for the twelve months ended December 31,
1999 as compared to $47,494 interest expense in 1998. The increase was primarily
due to interest payments on the building loans ($280,000) and interest on the
loan to the related party ($67,331). There was miscellaneous other net income of
$41,420 in 1998.
The Company has three mortgage loans totaling $2,258,921 for the building
and, capital leases totaling $29,107. In 1998, the Company had two mortgage
loans totaling $1,800,000 for the building and, capital leases totaling $72,017.
The increase in the mortgage debt is attributable to the company securing
financing to fund building improvements. The decrease in capital lease liability
is primarily attributable to the recession of the SIL acquisition.
LIQUIDITY AND CAPITAL RESOURCES
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.
On December 31, 1999 the Company's audited financials show current assets
were $473,776. The outstanding receivables were $363,915 other assets totaled
$6,974 and the balances in the cash accounts totaled $102,887. On December 31,
1999 the Company's audited financials show the accounts payable totaled $377,213
of which $40,147 was over 120 days, $18,592 at 90 days, $9,727 at 60 days,
$13,825 at 30 days and $294,922 was current.
On January 31, 2000 the Company's current assets were $495,578. The
outstanding receivables were $341,326 and the balances in the cash accounts
totaled $154,252. On January 31, 2000 the Company's accounts payable totaled
$158,517 of which $14,679 was over 120 days, $0 at 90 days, $0 at 60 days,
$34,854 at 30 days and $108,984 was current.
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
below) 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.
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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 decided
to raise the aggregate offering price in order to allow it to obtain funding
during preparation of this 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 issued 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.
On November 1, 1999, the Company signed an agreement with the Regents of
the University of California Berkeley for the CHIPSat project discussed above.
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.
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The Company's auditors have expressed a formal opinion that because of the
Company's prior financial results it "raises substantial doubt about its ability
to continue as a going concern." The Company's opportunity to continue as a
going concern depends upon our 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 the end of 1999, the Company's backlog of business was over $5.5
million. Through the first three months of 2000, we have won $500,000 of
additional business and obtained $105,000 in California grant funds. We
currently have an additional $2.4 million in outstanding commercial proposals
and are preparing to submit an additional $3.0 million by the end of April 2000.
We have outstanding grant proposals of $135,000 and will be submitting another
grant proposal for $250,000 in early May.
The Company's ability to execute a public offering or otherwise obtain
funds, however, 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.
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.
RECENT DEVELOPMENTS
In November 1999 SpaceDev hired Charles Lloyd, a leader in the commercial
launch systems field, to be CEO of ISS and CFO for SpaceDev. Mr. Lloyd brings to
the Company extensive experience in corporate finance and strategic planning as
well as direct, recent experience with the development and implementation of a
global marketing and sales organization for commercial launch systems.
In December 1999 the Company completed negotiations with SIL to rescind the
1998 Share Acquisition Agreement between the parties and to arrange a more
mutually beneficial trading relationship between SIL and the Company. As stated
earlier, recent regulations of the Department of State restrict exports and
imports of technology, including space products and engineering. The Company
originally intended to use SIL's expertise in designing and manufacturing space
radios. However, the new restrictions impeded the Company's ability to
communicate its technical product enhancement requirements to SIL, eliminating
an important reason for acquiring that company. For these reasons, management of
the Company felt that doing business with SIL as a subsidiary created a
liability under the new regulations, and rescission of the acquisition agreement
has minimized the impact of the restrictions on the Company. The divestiture of
SIL allows us to be more flexible in our decisions regarding competition and
selection for space system products and services, including communications
equipment and electronics. The flexibility allows us to make better business
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decisions based on capabilities and price versus buying from SIL simply because
it is part of SpaceDev. Management believed rescission of the agreement would
allow the Company more flexibility in its relationship with SIL. Although the
long-term financial effects of the rescission on the Company are unclear,
management anticipates that, initially, the rescission will have a positive net
effect on the Company's balance sheet.
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.
Pursuant to the continuing implementation of the OTC Bulletin Board(R)
Eligibility Rule implementation, the Company received notice on or about March
10, 2000 that the fifth character "E," which denotes delinquency in SEC
reporting requirements, was added to its trading symbol pending SEC clearance of
this Registration Statement. The NASD has indicated that the symbol will be
removed when it has received notice from the SEC to the effect that the
Commission has no further comments with respect to the Registration Statement.
Since this Registration Statement was not cleared by the SEC by April 5, 2000,
the Company's symbol was delisted from the OTCBB. The Company continues trading
on the NQB system. The Company has been informed by the NASD that it will be
able to relist its common stock upon clearance of this Registration Statement
and filing of Form 211 with the NASD by one or more of the Company's market
makers. At the current time, SpaceDev is trading on the NQB Electronic Quotation
System. When the NASD receives notice from the SEC that the SEC has no further
comments with respect to this Registration Statement, it is anticipated that
SpaceDev trading will return to the OTCBB and trade under the symbol of SPDV.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications, and other control devices
use only two digits to identify a year in the date field, without considering
the impact of the recent change in the century. Others do not correctly process
"leap year" dates. The Company has not experienced any technical difficulties as
a result of this problem, however, systems and applications could fail or create
erroneous results during the next six months. While the Company has evaluated
its products for year 2000 compliance and believes that each is substantially
year 2000 compliant, there can be no assurance that the Company's products are
or will ultimately be year 2000 compliant. In addition, the Company believes
that it is not possible to determine whether all of its customers' products into
which the Company's products are incorporated are year 2000 compliant because
the Company has little or no control over the design production and testing of
its customers' products.
The Company relies on its systems, applications and devices in operating
and monitoring all major aspects of its business, including financial systems
(such as general ledger, accounts payable and payroll modules), customer
services, infrastructure, embedded computer chips, networks and
telecommunications equipment and end products. The Company could be affected
through disruptions in the operation of the enterprises with which the Company
interacts or from general widespread problems or an economic crisis resulting
from non-compliant year 2000 systems. Despite the Company's efforts to address
the year 2000 impact on its internal systems and business operations, there can
be no assurance that such impact will not result in a material disruption of its
business or have a material adverse effect on the Company's business, financial
condition or results of operations. Contingency plans include alternative
vendors and procedures. Remediation costs associated with the Year 2000 have
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been minimal for the Company. SpaceDev believes such costs will continue to be
nominal through the next six months.
ITEM 3. DESCRIPTION OF PROPERTY
SpaceDev owns over 25,000 square feet of office, engineering and
manufacturing space in Poway, CA. In December 1998 the Company purchased its
headquarters facility in the Poway Industrial Park complex and proceeded to
invest $300,000 in modifications and improvements before moving in mid-May
(SpaceDev corporate and ISS). Key uses of the Poway facility are program and
project conferences and meetings, engineering design, engineering analysis,
spacecraft assembly, avionics labs and software labs and media outreach. By late
1999 the Company had defined plans for outfitting the building with a 1,800
square foot clean room facility to support spacecraft integration and additional
space for testing, an avionics test area, machine shop and shipping/receiving
area. Completion of these improvements is expected in 2000.
We have not yet started the build-out of the clean room facility. The
build-out will consist of the addition of upgraded air-handling equipment, new
doors and new floor coverings. The space for the clean room is already a part of
the existing structure that SpaceDev owns. The facility is required to be in
place by January 2001. The total cost of the facility is estimated to be less
than $80,000.
The Company also has plans for a Mission Control Center in the Poway
building and expects this to be completed in 2001 prior to the CHIPSat launch in
2002. Avionics systems may be built up from components and undergo system-level
tests at this location prior to shipment to other facilities. Because these
improvements depend on the Company obtaining adequate funding, there can be no
assurance that they will be completed as scheduled.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as of December 31, 1999 concerning
the beneficial ownership of the Company's common stock by (i) each director,
(ii) each named executive officer, (iii) each shareholder known by the Company
to be the beneficial owner of more than 10% of its outstanding Common Stock, and
(iv) the directors and officers as a group. Except as otherwise indicated, the
persons named in the table have sole voting and investing power with respect to
all shares of Common Stock owned by them.
30
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------ ----------------------------------- ---------------------------- --------------------
Name and Address of Beneficial Amount and Nature of Percent of Class(4)
Title of Class Owner(2) Beneficial Ownership
- ------------------------------ ----------------------------------- ---------------------------- --------------------
<S> <C> <C> <C>
$.0001 par value common stock James W. Benson, CEO and 9,628,413(2)(3) 73%(1)
Susan Benson, Secretary
13855 Stowe Drive
Poway, California 92064
$.0001 par value common stock Philip E. Smith 213,335 1.5%
Chief Operating Officer
13855 Stowe Drive
Poway, California 92064
$.0001 par value common stock Jan A. King, Vice President 5,000 <0.1%
13855 Stowe Drive
Poway, California 92064
$.0001 par value common stock Wesley T. Huntress Jr., Director 8,868 <0.1%
13855 Stowe Drive
Poway, California 92064
$.0001 par value common stock Officers and Directors as a group 9,855,616 71%(1)
</TABLE>
(1) Where persons listed on this table have the right to obtain additional
shares of Common Stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days from
December 31, 1999, these additional shares are deemed to be outstanding for
the purpose of computing the percentage of Common Stock owned by such
persons, but are not deemed outstanding for the purpose of computing the
percentage owned by any other person. Percentages are based on 13,866,493
shares outstanding on March 31, 2000.
(2) Does not include options to purchase 500,000 shares of common stock
currently exercisable.
(3) Represents 236,000 shares held directly by James W. Benson; 8,895,000
shares held by SD Holdings, LLC, an entity controlled by James W. Benson;
and 497,413 shares recently transferred from SD Holdings, LLC to Space
Development Institute, a 501(c)(3) corporation.
(4) The table does not reflect options to purchase 500,000 shares issued to
Charles H. Lloyd during fiscal year 1999.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The management and directors of the Company's business activities are under
the control of its Board of Directors. Its Chief Operating Officer, Stanley W.
Dubyn, manages the Company's daily operations. The Company currently has four
directors. Below are the executive officers and directors of the Company.
NAME POSITION HELD
- ---- -------------
James W. Benson Chief Executive Officer,
13855 Stowe Drive Director, Chairman of the Board
Poway, California 92064
Stanley W. Dubyn*** Director, President and Chief Operating Officer
13855 Stowe Drive
Poway, California 92064
31
<PAGE>
Charles H. Lloyd** Director, Chief Financial Officer
13855 Stowe Drive
Poway, California 92064
Susan Benson Secretary
13855 Stowe Drive
Poway, California 92064
Jan King Vice-President, Space Engineering
13855 Stowe Drive
Poway, California 92064
Wesley T. Huntress* Director
13855 Stowe Drive
Poway, California 92064
* Denotes Independent Director
** Thomas W. Brown resigned as the Company's Chief Financial Officer on
November 3, 1999. Mr. Lloyd has been appointed Chief Financial
Officer of SpaceDev.
*** Philip E. Smith resigned as a Director of the Company in November 1999.
The Board of Directors has appointed Charles H. Lloyd and Stanley W.
Dubyn to act as interim directors until the next annual shareholders'
meeting.
The following is a summary of the business experience of the officers and
directors of the Company as well as other key employees.
JAMES W. BENSON, age 54, is the founder, Chairman and Chief Executive
Officer of the Company. Mr. Benson served as SpaceDev President until he
resigned from that position on February 4, 2000. Mr. Benson is also a Director
of the Company, a position he has held since October 1997. In 1984, Mr. Benson
founded Compusearch Corporation (later renamed Compusearch Software Systems), in
McLean, Virginia. The company was based on use of personal computers to create
full text indexes of massive government procurement regulations and to provide
fast full text searches for any word or phrase; the first instance of large
scale, commercial implementation of PC-based full text searching, which later
grew to encompass such systems as worldwide web search engines. Seeing related
opportunities in document and image management, Mr. Benson started the
award-winning ImageFast Software Systems in 1989, which later merged with
Compusearch. ImageFast was awarded PC Magazine's Editor's Choice in 1994. In
1995, Mr. Benson sold Compusearch and ImageFast, and retired at age fifty. After
months of research, Mr. Benson started SpaceDev LLC, which was acquired by the
Company in October 1997. Mr. Benson holds a Bachelor of Science degree in
Geology from the University of Missouri. He founded the non-profit Space
Development Institute and introduced the $5,000 Benson Prize for Amateur
Discovery of Near Earth Objects. He is also Vice-Chairman and private sector
representative on NASA's national Space Grant Review Panel and a member of the
American Society of Civil Engineers subcommittee on Near Earth Object Impact
Prevention and Mitigation.
STANLEY W. DUBYN, age 43, has been appointed as an interim director of the
Company, a position he has held since February 4, 2000, and has been appointed
as President and Chief Operating Officer for the Company. Mr. Dubyn was formerly
Senior Vice-President and Chief Operating Officer for Spectrum Astro, Inc. in
Manhattan Beach, California, a position he held since October 1990 and which he
resigned prior to becoming an officer of the Registrant. In that capacity, Mr.
32
<PAGE>
Dubyn was responsible for overall cost, schedule and technical management and
oversight of company business activities with NASA, USAF, BMDO DARPA, classified
and government customers, and managed over $75 million in prime contract revenue
associated with spacecraft design, development, manufacturing, integration,
test, launch and on-orbit operation. He was directly responsible for proposal
management and winning a $1.5 billion NASA Goddard Space Flight Center contract.
Mr. Dubyn has managed subcontracts and suppliers totaling over $34 million, many
with new development technologies on compressed delivery schedules, and has
functioned as director of new business and marketing for all classified, defense
and NASA programs for Spectrum Astro. Concurrently with his employment for
Spectrum Astro, Mr. Dubyn has acted as program manager on the following
projects: New Millennium Deep Space One (October 1995-February 1997), Mars-98
Orbiter & Lander (February 1995 - October 1995), MSTI-3 (May 1994 - February
1995), MSTI-2 (November 1992 - May 1994), MSTI -1, where he also acted as Chief
Systems Engineer (November 1991 - November 1992) and DSP Evolution Study
(October 1991 - November 1992). Prior to going to work with Spectrum Astro, Mr.
Dubyn worked for TRW Space & Technology Group from June 1982 to October 1990,
where he worked on a variety of classified projects in a myriad of capacities,
including Program Manager and Director of STS Training for the Defense Projects
Division. From May 1978 to June 1982, Mr. Dubyn worked for Hughes Aircraft
Company, Space & Communications Group in El Segundo, California as a Mission and
Systems Analyst, STS Integration Engineer and Preliminary Design Engineer, and,
from July 1977 to September 1997, Mr. Dubyn worked for Rockwell International,
B-1 Division s a Stuctural Analyst. Mr. Dubyn received his Master of Science
Degree, Aerospace Engineering in 1981, and a Bachelor of Science Degree in
Aerospace Engineering in 1978 from the University of Southern California. He has
been honored throughout his career with awards for recognition and achievement,
including the Hughes Aircraft Co. Masters Fellowship Award in 1980 and American
Institute of Aeronautics and Astronautics Judging Awards in 1986, 1987 and 1988.
In 1990, Mr. Dubyn received the TRW Chairman's Award for Innovation.
CHARLES H. LLOYD, age 49, has been retained as the Company's Chief
Financial Officer following resignation of that position by Thomas W. Brown on
November 3, 1999. Mr. Lloyd has also been named the CEO of the Company's ISS
subsidiary. Mr. Lloyd was formerly the CEO and President of International Launch
Services (ILS), a joint venture of Lockheed Martin Corporation, Khrunichev State
Research and Production Space Center and RSC Energia. Mr. Lloyd was employed by
ILS and its predecessor joint venture LKE from 1993 to 1998. During his tenure
at ILS, he was responsible for the development, expansion, and ongoing operation
of the joint venture. Lloyd aggressively marketed product lines globally, not
only by overcoming cultural barriers, but also by structuring the organization
to support multiple product and management requirements. He is credited with
developing strategic international relationships between the United States and
Russia, and with setting the industry standard for strict controls in the
transfer of technology. Lloyd and his team at ILS generated over a billion
dollars in new contracts and developed competitive markets in Asia, Europe, and
North America, all of which have provided increased revenues. Mr. Lloyd has
close to 20 years of senior management experience in high technology,
international service and manufacturing environments, with most of that time in
positions focused on operations management, marketing and finance and
administration. Prior to his employment with Lockheed and ILS, Mr. Lloyd held
several management positions at General Dynamics (GD). He was Vice President and
Managing Director, and responsible for the management and operations of General
Dynamics Commercial Launch Services. Prior to that, he was Vice President of
Finance and Controller of GD Space Systems, and Vice President of Finance and
Administration of GD Services Company. Mr. Lloyd began his career as a Senior
Financial Planning Analyst at Ford Motor Company in 1975. Mr. Lloyd holds a
Masters of Business Administration from the University of Michigan and earned
his Bachelor of Arts Degree in Finance from Virginia Polytechnic Institute and
State University.
SUSAN BENSON, age 54, has served as the Company's Secretary since its
inception. She is the wife of James W. Benson. Ms. Benson was the Customer
Support Manager for Compusearch Software Systems in McLean, Virginia from 1986
through 1995.
33
<PAGE>
JAN KING, age 52, has served as Vice-President of the Company since August
1998. With more than 30 years experience in the field, Mr. King has a
distinguished record within the small satellite and launch vehicle communities.
During this time he has been associated with the design and development of 17
small spacecraft and 9 larger spacecraft, as well as one launch vehicle. He has
also provided technical advice and consulting support to other corporations and
organizations regarding small satellite system technology. Some of his previous
positions include: Schriever Chair Professor (endowed chair), Dept. of
Astronautics, United States Air Force Academy (1997 - 1998); Vice President,
Technology, Qualcomm, Inc., Boulder, Colorado (1995 - 1997); Vice President of
Boulder Operations, Orbital Sciences Corporation (1989 - 1995); Vice President
for Space Technology, Member BOD and Founder, Skylink Corporation; Aerospace
Technologist, NASA/GSFC; Vice President for Engineering, Member of the BOD,
Co-founder of the Radio Amateur Satellite Corp., Washington, D.C. Mr. King
received a Bachelor of Science degree in Physics from Oakland University in 1968
and a Master of Science degree in Electrical Engineering from Catholic
University of America in 1973.
WESLEY T. HUNTRESS, age 57, was elected to the Company's Board of
Directors as an Independent Director at the Company's annual shareholder meeting
held June 30, 1999. Dr. Huntress is currently Director of the Geophysical
Laboratory at the Carnegie Institution of Washington in Washington, DC, where he
leads an interdisciplinary group of scientists in the fields of high-pressure
science, astrobiology, petrology and biogeochemistry. Prior to his appointment
at Carnegie, Dr. Huntress served the Nation's space program as the Associate
Administrator for Space Science at NASA from October 1993 through September 1998
where he was responsible for NASA's programs in astrophysics, planetary
exploration, and space physics. During his tenure, NASA space science produced
numerous major discoveries, and greatly increased the launch rate of missions.
These discoveries include the discovery of possible ancient microbial life in a
Mars meteorite; a possible subsurface ocean on Jupiter's moon Europa; the
finding that gamma ray bursts originate at vast distances from the Milky Way and
are extraordinarily powerful; discovery of massive rivers of plasma inside the
Sun; and a wealth of announcements and images from the Hubble Space Telescope,
which have revolutionized astronomy as well as increased public interest in the
cosmos. Dr. Huntress also served as a Director of NASA's Solar System
Exploration Division from 1990 to 1993, and as special assistant to NASA's
Director of the Earth Science and Applications from 1988 to 1990. Dr. Huntress
came to NASA Headquarters from Caltech's Jet Propulsion Laboratory (JPL). Dr.
Huntress joined JPL as a National Research Council resident associate after
receiving is B.S. in Chemistry from Brown University in 1964 and his Ph.D. in
Chemical Physics from Stanford in 1968. He became a permanent research scientist
at JPL in 1969. He and his JPL team gained an international reputation for their
pioneering studies of chemical evolution in interstellar clouds, comets and
planetary atmospheres. At JPL Dr. Huntress served as co-investigator for the ion
mass spectrometer experiment in the Giotto Halley's Comet mission, and as an
interdisciplinary scientist for the Upper Atmosphere Research Satellite and
Cassini missions. He also assumed a number of line and research program
management assignments while at JPL, and spent a year as a visiting professor in
the Department of Planetary Science and Geophysics at Caltech.
ITEM 6. EXECUTIVE COMPENSATION
REMUNERATION PAID TO EXECUTIVES
The following table sets forth the remuneration to the Company's executive
officers for the past three fiscal years:
34
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
-------------------------------------- ---------------------------------------
Annual Compensation Awards Payouts
-------------------------------------- -------------------------- ------------
Other Restricted Securities All Other
Name and Annual Stock Under-lying LTIP Compen-
Principal Compensation Award(s) Options/ Payouts sation
Position Year(3) Salary ($) Bonus ($) ($) ($) SARs (#) ($) ($)
- --------------- --------- ------------ ------------ ----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James W. 1997 - - - 2,500,000 - -
Benson, CEO(4) 1998 - - - - 100,000 - -
1999 0 - - - - - -
0
Charles H. 1997 - - - - - -
Lloyd, CFO(1) 1998 - - - - - - -
1999 - - - - 450,000 - -
8,077
Philip E. 1997 - - - - - - -
Smith, COO(6) 1998 61,060 - - - 100,000 - -
1999 43,388 - - - - - -
Thomas Brown, 1997 - - - - - - -
CFO(1) (5)(8) 1998 59,246 - - - 100,000 - -
1999 68,454 - - - - - -
Susan Benson, 1997 - - - - - -
Secretary 1998 - - - - - - -
1999 0 - - - - - -
0
Jan King, 1997 - - - - - - -
V.P.(7) 1998 43,154 - - 10,000 - - 5,500(2)
1999 134,133 - - - - - -
</TABLE>
(1) Thomas W. Brown resigned as the Company's Chief Financial Officer on
November 3, 1999. Charles H. Lloyd was appointed Chief Executive Officer
upon Mr. Brown's resignation.
(2) Represents a relocation allowance paid upon execution of Mr. King's
employment agreement.
(3) Figures for 1999 represent actual compensation and represent true year-end
compensation.
(4) James W. Benson purchased 100,000 shares for $.50 per share in October
1998.
(5) Certain of the employees listed above have earned compensation in excess of
the actual amount paid during fiscal year ended 1999, pursuant to the terms
of their various employment agreements, as discussed below. In 1999, Thomas
Brown was paid $68,454. This amount is less than the amount due to him
under the provisions of his employment agreement. In order to compensate
Mr. Brown for the deficiency, the Company has entered into an Amendment to
his employment agreement whereby the amount of compensation due has been
revised to reflect the actual amount paid, and the Company agrees to issue
10,000 shares of its common stock to Mr. Brown.
(6) On February 5, 2000, the Company negotiated a Separation and Release
Agreement with Philip E. Smith, then Chief Operating Officer of ISS.
Pursuant to the Separation and Release Agreement, 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
of $90,000 for the period from January 29, 1999 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 have been
released, including claims to back-salary and authorized but unissued stock
options under the Company's 1999 Employee Stock Option Plan. On March 4,
35
<PAGE>
2000, Stanley W. Dubyn became President and Chief Operating Officer of the
Company.
(7) Pursuant to his employment agreement with the Company, Mr. King may receive
an additional 50,000 plus shares of common stock in the Company upon
reaching certain milestones as follows: 5,000 shares per year following his
first year of employment; 10,000 shares upon successful completion of the
Company's first lunar or deep-space spacecraft; 15,000 shares upon
successful launch of the Company's first lunar or deep-space spacecraft;
and 25,000 shares for successful completion of the Company's first lunar or
deep-space mission.
(8) On April 5, 2000, the Company negotiated a Separation and Release Agreement
with Thomas Brown. Pursuant to the Separation and Release Agreement, the
Company agreed to pay Mr. Brown an early termination penalty at the rate of
$60,000 (Termination Rate) in seven installments. As additional
consideration Mr. Brown will be granted 5,000 shares of restricted SpaceDev
stock issued on April 28, 2000 and held in escrow until January 15, 2001.
All other claims of Mr. Brown have been released, including authorized but
unissued stock options under the Company's 1999 Employee Stock Option Plan.
During the last fiscal year and as of December 31, 1999, the Company
granted stock options to executive officers as set forth in the following table:
OPTION/SAR GRANTS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Individual Grants
- -------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise of Base
Name Granted (#) Fiscal Year Price ($/Sh) Expiration Date
- ---- ----------- ----------- ---------------- ---------------
<S> <C> <C> <C> <C>
James W. Benson _ - - -
Charles H. Lloyd 450,000 100% $1.34 11/01/09
Philip E. Smith - - - -
Thomas W. Brown - - - -
Susan Benson - - - -
Jan King - - - -
</TABLE>
The following table is intended to provide information as to the number of
stock options exercised by each of the executive officers listed above, the
value realized upon exercise of such options, and the number and value of any
unexercised options still held by such individuals.
36
<PAGE>
<TABLE>
<CAPTION>
Number of
Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options/SARs at
Options/SARs at FY-End ($)
FY-End (#)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
- -------------------------- ---------------------- --------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
James W. Benson(1) 0 0 500,000/ $500,000/
2,000,000 0
Charles H. Lloyd 0 0 0/450,000 0/0
Philip E. Smith(3) 0 0 0/100,000 0/0
Thomas W. Brown(3) 0 0 0/100,000 0/0
Susan Benson 0 0 0 0
Jan King 0 0 0 0
</TABLE>
(1) Mr. Benson owns options to purchase 2,500,000 shares of the Company's
Common Stock as follows:
500,000 Shares at $1.00 currently vested
500,000 Shares at $1.50 vesting upon the Company obtaining $6,500,000
additional equity capital
500,000 Shares at $2.00 vesting upon the financing and execution of
definitive space launch agreement
500,000 Shares at $2.50 vesting upon launch of first lunar or deep-space
mission
500,000 Shares at $3.00 vesting upon successful completion of first lunar
or deep-space mission
(2) Under the terms of Mr. Lloyd's employment agreement with ISS, SpaceDev, as
the parent corporation, agreed to grant Mr. Lloyd stock options to purchase
250,000 shares of the Company's common stock pursuant to the Company's Stock
Option Plan upon execution of the employment agreement. These options begin
vesting three (3) months after the date of grant. On February 1, 2000, the
Company issued options to purchase an additional 250,000 shares of common stock
to Mr. Lloyd at a per share price of $1.44 (the then fair market value) pursuant
to the agreement. Mr. Lloyd will receive an additional options to purchase
500,000 stock options shares at a rate of 250,000 per quarter during the
remainder of his first year of employment with ISS. Additionally, the Company
agreed to issue Mr. Lloyd non-qualified stock options to purchase up to 200,000
common shares, which will vest upon ISS raising and acquiring a minimum equity
financing of $3,000,000 within the first nine (9) months of his employment.
These options will be issued on a sliding scale based on a maximum equity
financing of $10,000,000, with options to purchase 20,000 common shares for each
$1,000,000 of equity financing obtained. All options will be exercisable at the
fair market value of the common stock on the date the option was granted.
(3) Pursuant to employment agreements with Philip E. Smith and Thomas W. Brown,
the Company issued performance-based options to purchase 100,000 shares of
common stock to each of those individuals. The options held by Philip E. Smith
and Thomas Brown were canceled pursuant to their Release and Separation
Agreements with the Company.
REMUNERATION PAID TO DIRECTORS
The following table sets forth the remuneration paid to the Company's
directors during its fiscal year ended December 31, 1999.
37
<PAGE>
<TABLE>
<CAPTION>
Cash Compensation Security Grants
------------------------------------------------------ -------------------------------------
Number of
Securities
Annual Retainer Consulting Number of Underlying
Name Fees Meeting Fees Fees/Other Fees Shares Options/SARs
- ----------------------- ----------------- ----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
James W. Benson - - - - -
Charles H. Lloyd(1) - - - - -
Wesley T. Huntress(2) - - - 4,444 -
Thomas W. Brown(3) - - - - -
Susan Benson (3) - - - - -
Philip E. Smith(1) - - - - -
</TABLE>
(1) Philip E. Smith resigned as a director of the Company in November 1999.
The Board has elected Charles H. Lloyd and Stanley W. Dubyn to serve as
interim directors until the next annual shareholders' meeting.
(2) Wesley T. Huntress Jr. was elected to the Board at the 1999 Annual
Shareholders' Meeting. Pursuant to an agreement with the Company, Mr.
Huntress will receive a total of $10,000 in the Company's common stock
as compensation for his services as a director in two separate
issuances during the first two years of his directorship. The table
reflects the first issuance of 4,444 shares pursuant to that agreement.
Mr. Huntress has recently received the second issuance of 4,424 shares.
Additionally, Mr. Huntress will receive options to purchase a total of
$10,000 shares. Mr. Huntress was recently issued an option to purchase
4,425 shares at a per share price of $1.13, the fair market value on
January 1, 2000, when the options were due to be issued pursuant to the
agreement.
(3) Thomas B. Brown and Susan Benson resigned their positions on the Board
by not running for re-election at the 1999 Annual Shareholders'
Meeting.
EMPLOYMENT AGREEMENTS
On November 21, 1997, the Company entered into a five-year employment
agreement with its President, James W. Benson. This agreement provides for
compensation of salary and stock as well as stock options. This agreement also
prohibits Mr. Benson from competing with the Company, disclosing any
confidential information, or soliciting any employees or customers of the
Company for one year after termination of employment.
On February 7, 1998, the Company, through ISS, entered into three-year
employment agreements with its (then) Chief Operating Officer, Philip E. Smith,
its Manager of Business Development, Jack A. Rubidoux, and its (then) Chief
Financial Officer, Thomas W. Brown. These agreements provide for compensation of
salary and stock to the employees. The agreements also prohibit the employees
from competing with the Company, disclosing any confidential information, or
soliciting any employees or customers of the Company for three years after
termination of employment.
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 has agreed to pay his base salary for
38
<PAGE>
the period from January 29, 1999 to February 11, 2000, a total of $70,000. 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 of $90,000 for the period from
January 29, 1999 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 1999
Employee Stock Option Plan.
On August 3, 1998, the Company entered into a one-year employment agreement
with its Vice President of Space Engineering, Jan King. This contract will
automatically renew for one-year periods unless either party gives the other
written notice and provides for compensation of salary and stock to the
employee. Mr. King agreed to assign his interest in all inventions and
intellectual property developed by him in conjunction with his employment to the
Company. The agreement also prohibits Mr. King from competing with the Company,
disclosing any confidential information, or soliciting any employees or
customers of the Company for one year after termination of employment.
On November 1, 1999, the Company, through ISS, entered into an employment
agreement with its Chief Financial Officer, Charles H. Lloyd. The agreement
automatically renews for one-year periods until terminated by written notice of
either Mr. Lloyd or the Company. This agreement provides for compensation of
salary and options to the employee. The agreement also prohibits the employee
from competing with the Company for one year after termination of employment.
On February 4, 2000, the Company entered into an employment agreement with
its President and Chief Operating Officer, Stanley W. Dubyn. The agreement
automatically renews for one-year periods until terminated by written notice of
either Mr. Dubyn or the Company. This agreement provides for compensation of
salary and options to the employee. The agreement also prohibits the employee
from competing with the Company for one year after termination of employment.
Pursuant to that agreement, Mr. Dubyn will receive 50,000 shares and options to
purchase an additional 50,000 shares of the Company's common stock upon
successful completion of his first year of employment.
On April 5, 2000, the Company negotiated Separation and Release Agreements
with Thomas 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.
EMPLOYEE BENEFITS
The Company has adopted, at its 1999 Annual Stockholder Meeting, an
Incentive Employee Stock Option Plan under which its Board of Directors may
grant employees, directors and affiliates of the Company opportunities to
purchase Incentive Stock Options, Supplemental Stock Options and to receive
stock bonuses or rights to purchase restricted stock of the Company. Incentive
Stock Options will only be available to employees, including officers, and
affiliates of the Company; they will not be available to non-employee directors.
The exercise price of the Incentive Stock Options shall not be less than 100% of
the fair market value of the stock subject to the option on the date the option
is granted. The exercise price for the Supplemental Stock Options will not be
39
<PAGE>
less than 85% of the fair market value of the stock subject to the option on the
date the option is granted. The Company will be required to reserve an amount of
common shares equal to the number of shares which may be purchased as a result
of such stock awards.
The Company also offers a variety of health, dental, vision and life
insurance benefits to its employees. The Company also offers a 401(k) program to
its employees.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
James W. Benson, the Company's Chief Executive Officer and Chairman of the
Board of Directors, and Susan Benson, the Company's Secretary, are husband and
wife.
James W. Benson has personally guaranteed the letters of credit of the
Company's subsidiary, Integrated Space Systems in the amount of $250,000. Mr.
Benson also personally guaranteed two loans for the purchase of the Company's
new headquarters; the loans are in the amount of $1,800,000.
There is a note payable to James and Susan Benson in the amount of $655,992
as of the end of 1999. This note represents a combination of a number of smaller
notes that were executed over the last several years. The funds from these loans
were used for general Corporate purposes and carry an interest rate of 10%. At
the present time the notes are being paid off at the rate of $6,000 per month.
Additionally, the Company has recorded a note payable of $62,010 to Philip
E. Smith in 1998. The note was released pursuant to the Separation and Release
Agreement signed by Mr. Smith on February 5, 2000. Pursuant to the terms of the
release, the Company has given a new note to Mr. Smith in the total amount of
$70,000, including principal and interest. See "Employment Agreements" above.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 50,000,000 shares of its $.0001
par value common stock, of which 13,866,493 shares are issued and outstanding as
of March 31, 2000. The Board of Directors may issue additional shares of Common
Stock without the consent of the holders of Common Stock.
VOTING RIGHTS
Each outstanding share of Common Stock is entitled to one vote. The
holders of Common Stock do not have cumulative voting rights, which means that
the holders of more than 50% of such outstanding shares voting for the election
of directors can elect all of the directors of the Company to be elected, if
they so choose.
NO PREEMPTIVE RIGHTS
Holders of Common Stock are not entitled to any preemptive rights.
DIVIDENDS AND DISTRIBUTIONS
Holders of Common Stock are entitled to receive such dividends as may be
declared by the directors out of funds legally available therefore and to share
pro rata in any distributions to holders of Common Stock upon liquidation or
otherwise. However, the Company has not paid cash dividends on its Common Stock,
and does not expect to pay such dividends in the foreseeable future.
40
<PAGE>
PREFERRED STOCK
The Articles of Incorporation authorize the Board of Directors to issue, by
resolution, 10,000,000 shares of preferred stock, in classes or series, having
such designations, powers, preferences, rights, and limitations as the Board of
Directors may from time to time determine. The conversion ratio is subject to
certain anti-dilution adjustments, and the holder of each share of preferred
stock is entitled to one vote for each share of common stock into which it would
convert. In 1997, 82,450 shares of Series B Convertible Preferred Stock were
issued at $3.64 per share and each was convertible at the option of the holder
into 100 shares of common stock. As of the date of this filing, all of the
Series B Convertible Preferred Stock has been converted, and there are no
preferred shares outstanding.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock traded on the Over the Counter Bulletin Board
from August 1998 to April 6, 2000 under the symbol "SPDV." The following table
sets forth the trading history of the Common Stock on the Over the Counter
Bulletin Board for each quarter as reported by Tradeline. The quotations reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not
represent actual transactions.
END DATE HIGH LOW CLOSE
- -------- ---- --- -----
03/31/99 2 1/2 1 7/8 2 1/4
06/30/99 2 3/8 1 1/2 2 1/4
09/30/99 2 3/8 1 1/8 1 3/8
12/31/99 1 7/8 7/8 1 1/8
3/31/00 2 25/32 1 3/4
HOLDERS
As of March 31, 2000, there were approximately 151 holders of record of
the Company's common stock.
41
<PAGE>
DIVIDENDS
The Company has never paid a cash dividend on its Common Stock. Payment of
dividends is at the discretion of the Board of Directors. The Board of Directors
plans to retain earnings, if any, for operations and does not intend to pay
dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
On August 6, 1998, the Securities and Exchange Commission ("SEC") issued a
Cease-and-Desist Order against the Company and James W. Benson for violation of
Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities
Exchange Act of 1934. Without admitting or denying the allegations, the Company
and Mr. Benson submitted offers of settlement to the SEC, which were accepted on
April 13, 1999. No sanctions were issued against either the Company or Mr.
Benson. The resulting order requires the Company and Mr. Benson from committing
or causing violations of those provisions in the future.
Currently, there is no litigation pending or, to the Company's knowledge,
threatened, against the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
During its last fiscal year and as of the date of this Registration
Statement, the Company has had no changes in or disagreements with its principal
independent accountant regarding any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, nor
has the Company's principal accounting firm resigned or declined to stand for
re-election.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During 1997, the Company entered into a five-year employment agreement with
its president. As part of the employment agreement, the Company granted options
to the president to purchase up to 2,500,000 shares of the Company's $.0001 par
value restricted Common Stock. In accordance with APB 25, the Company recognized
$500,000 of compensation expense and $250,000 of deferred compensation. The
options are subject to vesting conditions and have exercise prices between $1.50
and $3.00 per share.
On October 22, 1997, the Company entered into agreements with three
individual investors, Tuscan Capital Ltd., Robert Beaton and Allen Gelbard, to
grant options to purchase common stock restricted under Securities Exchange
Commission Rule 144 in consideration for consulting services. The options were
granted for a total of 573,150 shares of the Company's $.0001 par value common
stock with an exercise price of $.066 per share. All of the options were
exercisable at December 31, 1997 and each option was to expire on October 21,
2002. Based on the use of the Black-Scholes option-pricing model, the fair value
of the stock options issued for these services was $211,333. As a result, the
Company recognized $211,333 in consulting expenses in 1997 related to the
issuance of Common Stock options. All of these options were exercised in 1998.
The options were issued pursuant to Rule 701 of the Securities Act. Also, during
1998, the Company issued 573,150 shares of Common Stock upon the exercise of
stock options pursuant to Rule 504.
On February 7, 1998, the Company entered into a Share Acquisition Agreement
with ISS, pursuant to which it issued 2,000,000 shares of its Common Stock under
Section 4(2) of the Securities Act in exchange for the outstanding shares of ISS
(then a privately held company). ISS is now a wholly owned subsidiary of the
Company. In addition to the issuance of shares, the ISS shareholders also
received two seats on the Board of Directors of the Company, and former
employees of ISS became employees of the Company; such employees to receive
performance options for up to an additional 300,000 shares.
42
<PAGE>
In August 1998, the Company secured intellectual property, including
patents and trade secrets, from a former shareholder of American Rocket Company
(AMROC), Alan M. Voorhees, who had acquired them from AMROC. AMROC was an
aerospace company active during the late 1980s and early 1990s. The
consideration for the intellectual property was warrants to purchase a minimum
of 100,000 and a maximum of 3,000,000 shares of the Company's Common Stock over
the following 10-year period, depending on the Company's annual revenues
received from the license, sale, use or other disposition of the intellectual
property as follows: (1) the Company issued warrants to purchase 25,000 shares
of Common Stock at 50% of their fair market value on the date of execution of
the agreement, (2) the Company issued additional warrants to purchase 25,000
shares issued for the second year of the agreement; and (3) the Company will
issue warrants to purchase either an additional 25,000 shares or one share for
each $125 in revenues generated by the technology on the third anniversary date
of the agreement. Commencing with the fourth year and extending through the
tenth anniversary date of the Agreement, Mr. Voorhees will receive revenue-based
warrants only on the basis of one share for each $125 in revenues generated by
the technology. Mr. Voorhees will receive warrants to purchase a maximum of
3,000,000 shares or shares valued at $6,000,000 based on the recognized value of
the Common Stock. For purposes of the agreement with Mr. Voorhees, the
"recognized value" of the Company's Common Stock means the sum of (1) the
cumulative difference between the market price on the date of issuance and the
strike price for each warrant then owned by Mr. Voorhees and (2) the cumulative
difference between the market price on the date of exercise and the strike price
for each warrant previously exercised by Mr. Voorhees. The "market price" is the
10-day average closing price of the common stock immediately prior to
determination of recognized value. The warrants issued to Mr. Voorhees were
issued pursuant to the private offering exemption in Section 4(2) of the
Securities Act.
On October 1, 1998 the Company entered into a Common Stock Exchange
Agreement with SIL pursuant to Section 4(2) of the Securities Act. Upon
execution of the Agreement, the Company obtained all outstanding shares of SIL
(then a privately held company) and issued 1,000,000 shares of the Company's
Common Stock to the SIL shareholders. The Company also agreed to issue
additional shares of Common Stock valued at $1,000,000 to the SIL shareholders
in installments, with the final installment due on July 15, 2000. SIL
shareholders also received incentive stock options for 500,000 additional
shares. SIL became a wholly owned subsidiary as a result of this Agreement. In
December 1999, the Company and SIL negotiated a rescission of the Share
Acquisition Agreement, pursuant to which the shares were returned and the
options were canceled.
In four separate transactions between September 2, 1998 and October 16,
1998, the Company's Chief Executive Officer, James W. Benson, purchased a total
of 348,000 shares of the Company's common stock at a per share price of $0.50
pursuant to Section 4(2) of the Securities Act, 60,000 of which are held by his
three children. The sale was made at a time when the company had little credit
and no collateral with which to obtain outside financing and was left with the
option of either borrowing funds or selling restricted stock to members of
management. Due to the resale restrictions on the stock, the shares were issued
at a discount from market rate since they are inherently less valuable than the
company's free trading stock. There was no set method for determining the
percentage discount from the closing price of the company's common shares on the
OTC. During 1998, the Company recorded approximately $126,000 of compensation
expense related to the 348,000 shares of Common Stock issued to the president at
less than fair market value.
As part of an employment agreement with Jan King, the Company issued 5,000
shares of Common Stock as a signing bonus and recorded $8,750 of compensation
expense, based on the five-day trading average for the five days immediately
preceding and the five days immediately following the date of the transaction.
The agreement renews annually and can be canceled by either party under
provisions of the agreement. Upon renewal of the agreement, Mr. King will
receive 5,000 shares of Common Stock annually for two years.
43
<PAGE>
In conjunction with the Common Stock Exchange Agreement between the Company
and ISS, the Company granted options to three key employees to purchase up to
350,000 shares of restricted Common Stock with exercise prices between $1.50 and
$3.50 per share. The vesting of these options is contingent on several future
events. Should these events not occur, no options would vest. These options were
to be issued pursuant to Rule 701 of the Securities Act. Effective February 5,
2000, as part of separation agreements with two of these individuals, 200,000 of
these options were canceled.
During 1999 and 2000, the Company issued a total of 39,926 shares of
restricted stock to its former employee, Rex Ridenoure, to perform services for
the Company. Mr. Ridenoure received the number of shares equal in value to the
number of hours worked and reimbursement of expenses incurred during each
bi-monthly pay period, based on the average trading price for the Company's
common shares on the OTC for each such period. Mr. Ridenoure worked at
competitive hourly rates, and kept meticulous records of his time and expenses.
All of the above referenced securities are restricted by Rule 144 of the
Securities Act of 1933.
During 1998 and 1999, the Company issued shares in a series of transactions
pursuant Rule 504 and Section 4(2) including 92,140 shares issued to sales and
public relations firms in 1998, as follows:
The first of these transactions took place as a result of the exercise of
options held by Tuscan Capital, Ltd., Robert Beaton (February 1998), and Allen
Gelbard (December 1998), as discussed in more detail above. The options were
exercised at a per share price of $0.066 per share for a total of 573,150
shares. The shares were issued pursuant to Rule 504.
In May 1998, the Company issued 53,400 shares of restricted common stock as
compensation for services rendered in the design of the NEAP mission under
Section 4(2). This transaction resulted from an arms-length transaction in which
the value of the services was determined first, with the Company offering shares
of common stock in lieu of cash payment. The parties negotiated the number of
shares to be issued without a set per share price. Due to the resale
restrictions on the shares to be issued, they were not valued at the trading
price of the Company's common stock on the OTC.
In June 1998, JP Carey, Inc. placed 261,903 shares of the Company's common
stock at 75% of the average closing bid price of the common stock for the
preceding day, with an average per share price of $1.34. J.P. Carey had signed a
letter agreement with the Company to place up to $890,000 in shares pursuant to
Rule 504 in exchange for a fee equal to 10% of the aggregate price of all shares
placed in the offering plus a 1% non-accountable expense allowance.
From October to December 1998, the Company entered into separate
transactions with De Jong & Associates and The Hayley Sumner Company, Inc., a
public relations firm and publicist respectively, pursuant to which the Company
issued shares in exchange for services. A total of 28,750 shares were issued to
De Jong & Associates in three transactions at per share prices of $2.50, $2.01
and $2.30, respectively, based on the average bid and ask prices for the common
stock at the time the shares were issued. A total of 3,334 shares were issued to
The Hayley Sumner Company, Inc. in two separate transactions of 1,667 shares
each, at per share prices of $0.81 and $1.94, respectively. In 1999, the Company
issued additional common shares to The Hayley Sumner Company, Inc. in two
separate transactions for services rendered on February 7, 1999 (721 shares) and
April 28, 1999 (2,390 shares). The per share value in each of these transactions
was based on the average bid and ask prices for the common stock at the time the
shares were issued. These shares were issued in reliance on the exemption from
registration provided by Rule 504 under Section 3(b) of the Securities Act.
44
<PAGE>
From November to December 1998, the Company issued a total of 3,000 common
shares to Scott Mathews and Gary Whitman (1,500 shares to each) at a per share
price of $2.50 per share, based on the average bid and asked prices preceding
the transaction. The shares were issued in exchange for consulting services
pursuant to Section 4(2) of the Act, and are restricted.
Between December 1998 and January 1999, the Company issued a total of
50,000 shares to Proactive Solution in two separate transactions under Rule 504:
the first for 20,000 shares at $2.50 per share and the second for 30,000 shares
at $2.25 pre share, based on the average bid and ask prices for the common stock
at the time the shares were issued.
In September 1999, the Company issued 2,630 common shares to Fortune Eight
Aerospace Industries, Inc. pursuant to Section 4(6) of the Act at a rate of
$1.56 per share. The transaction was a non-cash sale at the then average trading
price of the Company's common stock.
In December 1999, the Company issued 10,000 restricted common shares to
Alex Duncan for consulting services rendered to the Company at a per share value
of $1.46 per share, based on the averaged bid and asked prices of the Company's
common stock on the OTC.
This sale was made pursuant to Section 4(2) of the Act.
In April 1999, the Company issued 85,000 shares of common stock to three
individuals employed by its outside counsel in a cash transaction at $1.00 per
share pursuant to Section 4(2) of the Securities Act. Due to the resale
restrictions on the stock, the shares were issued at a discount from market rate
since they are inherently less valuable than the Company's free trading stock.
There was no set method for determining the percentage discount from the closing
price of the Company's common shares on the OTC.
On May 7, 1999, the Company issued a total of 70,113 shares through
Sovereign Capital Advisors, LLC pursuant to a letter agreement dated December 8,
1998, under Section 504. The shares were sold at 85% of the average five-day
closing bid price of the Company's common stock on the OTC. As compensation for
the placement, Sovereign Capital was paid a fee equal to 10% of the aggregate
price of the stock sold and was given warrants to purchase shares for an
additional 10% of the aggregate price of the shares it placed.
On August 26, 1999, the Colorado Securities Division made effective the
Company's registration statement on Form U-7 for offers and sales to Colorado
residents. The offering was for an aggregate amount of $350,000 in units of the
Company's $.0001 par value common stock and re-pricing warrants. Following
closing on the first $350,000 in units, the Company filed a post-effective
amendment to the Form U-7 registration statement to raise the aggregate amount
of the offering to $730,000. The post-effective amendment was made effective on
October 13, 1999. The Company sold $10,000 in units pursuant to the
post-effective amendment for an approximate price of $0.83 per share. The
Company made a decision to close this offering in December 1999.
In exchange for services as the Company's outside director, the Company has
issued a total of 8,868 common shares to Wesley T. Huntress in two transactions
of 4,444 (September 22, 1999) and 4,424 (March 6, 2000), respectively. Also, in
September 1999 and January 2000, Dr. Huntress was issued non-qualified stock
options under the Company's Employee Stock Option Plan to purchase 2,222 and
4,425 shares of common stock at $2.25 and $1.13 per share, respectively, the
then fair market value based on the closing price on the date of grant. These
shares and options were issued to Dr. Huntress pursuant to a letter agreement
with the Company, whereby he will be issued up to $10,000 in common shares and
$10,000 in options during the first two years of services as a director. The
shares were issued pursuant to Section 4(2) of the Act, while the options were
issued under Rule 701.
45
<PAGE>
In February 2000, the Company issued a total of 2,114 shares of restricted
common stock to Eric Reitman, a former employee pursuant to his agreement with
the Company, the terms of which provided that the employee was to receive 96.1
shares of common stock for each week of employment with the Company.
In February 2000, the Company made a cash sale of 355 shares of common
stock to Juliana C. Sanger Yee for services valued at $585, based on the closing
price for the Company's common stock on date of the transaction.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation contain a provision which, in
accordance with Colorado law, eliminates or limits the personal liability of
directors and officers of the Company for monetary damages for certain breaches
of their duty of care or other duty if he or she acted in good faith and in a
manner they believed to be in, or not opposed to, the best interests of the
Company, except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his or her duty to the
Company unless otherwise determined by the court before which such action was
brought. The Company believes this provision is essential to maintain and
improve its ability to attract and retain competent directors. These
indemnification provisions do not reduce the exposure of directors and officers
to liability under federal and state securities laws, nor do they limit the
shareholders' ability to obtain injunctive relief or other equitable remedies
for a violation of a director's or officer's duty to the Company or its
shareholders, although such equitable remedies may not be an effective remedy in
certain circumstances.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company is informed that it is
the opinion of the Securities and Exchange Commission that such indemnification
is against public policy and therefore unenforceable.
ITEM 6. FINANCIAL STATEMENTS
Please see the Company financial statements attached hereto.
46
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
ITEM EXH. NO.
- ----- ---------
<S> <C>
Registrant's Articles of Incorporation 2.1*
Registrant's Articles of Amendment to Articles of Incorporation dated November 4, 1997 2.2*
Authorizing Series B Preferred Stock
Registrant's Articles of Amendment to Articles of Incorporation dated December 17, 1997 2.3*
Changing Name to SpaceDev, Inc.
Registrant's Bylaws 2.4*
Form of Common Stock Certificate 3.1*
Form of Non-Qualified Stock Option 3.2*
Form of Incentive Stock Option 3.3*
Form of Re-Pricing Warrant 3.4*
Form of Warrant 3.5*
Common Stock Exchange Agreement Between Registrant and SIL 6.1*
Mutual Rescission and Release of Share Acquisition Agreement 6.2*
Share Exchange Agreement Between Registrant and ISS 6.3*
Agreement of License and Purchase of Technology Between Registrant and AMROC 6.4*
Firm Fixed Price Agreement Number 108252 Between Registrant and Regents of the University of California 6.5*
1999 Stock Option Plan 6.6*
1999 Employee Stock Purchase Plan 6.7*
Employment Agreement of James W. Benson 6.8*
Employment Agreement between ISS and Thomas W. Brown 6.9*
Employment Agreement between ISS and Philip E. Smith 6.10*
Employment Agreement of Jan A. King 6.11*
Employment Agreement between ISS and Charles H. Lloyd 6.12*
Philip Smith Separation and Release Agreement 6.13**
First Amendment to Employment Agreement of Thomas Brown 6.14**
Employment Agreement between SpaceDev and Stan Dubyn 6.15**
First Amendment to Employment Agreement of James W. Benson 6.16**
First Amendment to Employment Agreement of Jan A. King 6.17**
Launch and Integration Services Agreement By and Between SpaceDev, Inc. and Dojin Limited 6.18**
Lockheed Martin ILS Contract 6.19**
Lockheed Martin Engineering Services Contract 6.20**
Collaborative Agreement between University of Arizona and SpaceDev 6.21**
National Reconnaissance Office - SPOTV 6.22**
Tom Brown Separation and Release Agreement 6.23***
Letter Subcontract SMD-002-021 - Wireless Future 6.24***
California Space and Technology Award Letter 6.25***
</TABLE>
* Previously filed with 10SB12G filed January 18, 2000.
** Previously filed with 10SB12G/A filed March 27, 2000.
*** Previously filed with 10SB12G/A filed April 13, 2000.
47
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS
As appropriate, the Registrant has attached those documents required to be
filed as Exhibit Numbers 2, 3, 5, 6 and 7 of Part III of Form 1-A.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
SPACEDEV, INC.
Date: April 27, 2000 By: /s/ James W. Benson
--------------- -----------------------------------------
James W. Benson, Chairman and CEO
Date: April 27, 2000 By: /s/ Charles H. Lloyd
--------------- -----------------------------------------
Charles H. Lloyd, Chief Financial Officer
48
<PAGE>
Index to Financial Statements
SPACEDEV, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998.......................................F-2
INDEPENDENT AUDITORS' REPORT...............................................F-4
CONSOLIDATED BALANCE SHEETS................................................F-5
CONSOLIDATED STATEMENTS OF OPERATIONS......................................F-7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY............................F-8
CONSOLIDATED STATEMENTS OF CASH FLOWS.....................................F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................F-13
SPACE INNOVATIONS LIMITED DIRECTORS' REPORT AND ACCOUNTS YEAR ENDED
31 DECEMBER 1998............................................................F-36
COMPANY INFORMATION.......................................................F-37
AUDITORS' REPORT..........................................................F-42
PROFIT AND LOSS ACCOUNT...................................................F-43
BALANCE SHEET.............................................................F-44
CASH FLOW STATEMENT.......................................................F-45
NOTES TO THE ACCOUNTS.....................................................F-46
F-1
<PAGE>
SPACEDEV, INC. AND
SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
F-2
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
CONTENTS
================================================================================
INDEPENDENT AUDITORS' REPORT F-4
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-5 to F-6
Consolidated Statements of Operations F-7
Consolidated Statements of Stockholders' Equity F-8 to F-10
Consolidated Statements of Cash Flows F-11 to F-12
Notes to Consolidated Financial Statements F-13 to F-34
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
SPACEDEV, INC.
We have audited the accompanying consolidated balance sheets of SPACEDEV, INC.
AND SUBSIDIARIES (the "Company") (see Note 1(c) to the consolidated financial
statements) as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We did not audit
the 1998 financial statements of SPACE INNOVATIONS LIMITED (SIL), a wholly-owned
subsidiary (see Note 1(c)), as of December 31, 1998 and for the three-month
period then ended, whose statements reflect total assets constituting 20% of
consolidated assets as of December 31, 1998, and net sales constituting 36% of
consolidated net sales for the three-month period then ended. Those statements
were audited by BDO Stoy Hayward, Reading, UK, whose report has been furnished
to us, and our opinion, insofar as it related to the amounts included for SIL is
based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits and
the report of BDO Stoy Hayward provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of BDO Stoy Haward, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of SPACEDEV, INC. AND
SUBSIDIARIES as of December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1(b) to
the consolidated financial statements, the Company incurred net losses of
$4,119,648 and $1,909,642 for the years ended December 31, 1999 and 1998,
respectively, and had working capital deficits of $1,291,411 and $2,383,061 as
of December 31, 1999 and 1998, respectively, that raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 1(b). The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Nation, Smith, Hermes, Diamond
San Diego, California
February 23, 2000
F-4
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
DECEMBER 31, 1999 1998
- ------------ ------------ ------------
ASSETS (Note 4)
CURRENT ASSETS
Cash (Note 10(a)) $ 102,887 $ 106,539
Accounts receivable 363,915 1,392,336
Inventory (Note 1(e)) - 165,283
Other current assets 6,974 125,709
------------ ------------
Total current assets 473,776 1,789,867
FIXED ASSETS - Net (Notes 1(g) and 2) 2,103,326 2,031,240
INTANGIBLE ASSETS - NET (Notes 1(g) and 3) 2,182,232 5,777,812
OTHER ASSETS 2,730 150,704
------------ ------------
$ 4,762,064 $ 9,744,623
============ ============
F-5
<PAGE>
<TABLE>
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
============================================================================================================
<CAPTION>
DECEMBER 31, 1999 1998
- ------------ ------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ - $ 477,298
Line of credit (Note 4) 241,415 100,000
Current portion of notes payable (Note 5(a)) 7,200 1,350,663
Current portion of acquisition price payable (Note 3(c)) - 500,000
Current portion of capitalized lease obligations (Note 9) 11,135 43,666
Accounts payable and accrued expenses 377,213 617,395
Accrued payroll, vacation and related taxes 116,136 282,170
Customer deposits and deferred revenue (Note 1(f)) 19,166 564,736
Billing in excess of costs incurred and estimated earnings (Note 1(f)) 274,920 -
Notes payable - related party (Note 5(b)) 718,002 237,000
------------ ------------
Total current liabilities 1,765,184 4,172,928
NOTES PAYABLE, LESS CURRENT MATURITIES (Note 5(a)) 2,251,721 500,000
CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES (Note 9) 17,972 28,351
DEFERRED REVENUE (Note 1(f)) 5,000 54,738
ACQUISITION PRICE PAYABLE, LESS CURRENT MATURITIES (Note 3(c)) - 500,000
------------ ------------
Total liabilities 4,039,880 5,256,017
COMMITMENTS AND CONTINGENCIES (Notes 3(c) and 9)
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par value, 10,000,000 shares authorized 0
shares and 82,450 shares issued and outstanding,
respectively (Note 8(a)) - 82
Common stock, $.0001 par value; 50,000,000 and 25,000,000
shares authorized, and 13,879,945 and 6,047,743 shares issued
and outstanding, respectively (Note 8(b)) 1,388 605
Additional paid-in capital 7,155,077 6,795,229
Additional paid-in capital - stock options (Note 8(d)) 750,000 750,000
Deferred compensation (Note 8(d)) (250,000) (250,000)
Accumulated deficit (6,934,281) (2,814,633)
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustment - 7,323
------------ ------------
Total stockholders' equity 722,184 4,488,606
------------ ------------
$ 4,762,064 $ 9,744,623
=========== ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
YEARS ENDED DECEMBER 31, 1999 1998
- ------------------------ ------------ ------------
NET SALES $ 4,877,931 $ 2,093,254
Cost of sales 2,445,304 1,152,813
------------ ------------
GROSS MARGIN 2,432,627 940,441
------------ ------------
OPERATING EXPENSES
General and administrative (including
stock-based compensation of $178,810
and $324,081, respectively)(Notes 1(l)
and 8 (b)) 5,568,338 2,143,088
Research and development (Note 1(h)) 568,318 700,921
------------ ------------
TOTAL OPERATING EXPENSES 6,136,656 2,844,009
------------ ------------
LOSS FROM OPERATIONS (3,704,029) (1,903,568)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (412,284) (47,494)
Other expense - net - 41,420
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (412,284) (6,074)
------------ ------------
LOSS BEFORE INCOME TAXES (4,116,313) (1,909,642)
INCOME TAX PROVISION (Notes 1(j) and 6) 3,335 -
------------ ------------
NET LOSS $(4,119,648) $(1,909,642)
============ ============
NET LOSS PER SHARE:
Net loss $ (.39) $ (.47)
------------ ------------
Weighted-Average Shares Outstanding 10,629,483 4,095,975
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
<TABLE>
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
============================================================================================================
<CAPTION>
Convertible
Preferred Stock Common Stock
-------------------------- --------------------------
Shares Amount Shares Amount
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 82,450 $ 82 1,755,000 $ 176
Common stock issued for cash (Note 8(b)) - - 274,403 27
Common stock issued to the CEO (Note 8(b)and
services (Note 8(b)) - - 348,000 35
Warrants issued for acquisition of intangible
assets (Notes 1(g) and 3(b)) - - - -
Common stock issued for compensation
(Notes 1(m) and 8(b)) - - 5,000 1
Common stock issued for business acquisition
of subsidiary - SIL (Notes 1(g) and 3(c)) - - 1,000,000 100
Common stock issued for business acquisition
of subsidiary - ISS (Notes 1(g) and 3(a)) - - 2,000,000 200
Common stock issued for services (Notes 1(m)
and 8(b)) - - 92,190 9
Common stock issued for exercise of options
(Note 8(d)) - - 573,150 57
Comprehensive income (loss):
Net loss - - - -
Foreign currency translation adjustment - - - -
------------ ------------ ----------- ------------
Comprehensive income (loss) - - - -
------------ ------------ ----------- ------------
BALANCE AT DECEMBER 31, 1998 82,450 82 6,047,743 605
Preferred stock converted to common stock
(Note 8(a)) (82,450) (82) 8,245,000 825
Common stock issued for cash (Note 8(b)) - - 546,546 54
Common stock issued for services (Note 8(b)) - - 40,656 4
Rescission of SIL acquisition (Notes 1(g)
and 3(c)) - - (1,000,000) (100)
Warrants issued for acquisition of
intangible assets (Note 3(b)) - - - -
Comprehensive income (loss):
Net loss - - - -
Foreign currency translation adjustment - - - -
------------ ------------ ----------- ------------
Comprehensive income (loss) - - - -
------------ ------------ ----------- ------------
BALANCE AT DECEMBER 31, 1999 - $ - 13,879,945 $ 1,388
============ ============ =========== ============
</TABLE>
F-8
<PAGE>
<TABLE>
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
====================================================================================================
<CAPTION>
Additional
Additional Paid-In
Paid-In Capital - Deferred
Capital Stock Options Compensation
-------------- -------------- --------------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 $ 300,974 $ 971,333 $ (250,000)
Common stock issued for cash (Note 8(b)) 363,973 - -
Common stock issued to the CEO (Note 8(b))and
services (Note 8(b)) 273,715 - -
Warrants issued for acquisition of intangible
assets (Notes 1(g) and 3(b)) 24,500 - -
Common stock issued for compensation
(Notes 1(m) and 8(b)) 8,749 - -
Common stock issued for business acquisition
of subsidiary - SIL (Notes 1(g) and 3(c)) 1,749,900 - -
Common stock issued for business acquisition
of subsidiary - ISS (Notes 1(g) and 3(a)) 3,624,800 - -
Common stock issued for services (Notes 1(m)
and 8(b)) 189,572 - -
Common stock issued for exercise of options
(Note 8(d)) 259,046 (221,333) -
Comprehensive income (loss):
Net loss - - -
Foreign currency translation adjustment - - -
-------------- -------------- --------------
Comprehensive income (loss) - - -
-------------- -------------- --------------
BALANCE AT DECEMBER 31, 1998 6,795,229 750,000 (250,000)
Preferred stock converted to common stock
(Note 8(a)) (743) - -
Common stock issued for cash (Note 8(b)) 564,880 - -
Common stock issued for services (Note 8(b)) 178,806 - -
Rescission of SIL acquisition (Notes 1(g)
and 3(c)) (423,345) - -
Warrants issued for acquisition of
intangible assets (Note 3(b)) 40,250 - -
Comprehensive income (loss):
Net loss - - -
Foreign currency translation adjustment - - -
-------------- -------------- --------------
Comprehensive income (loss) - - -
-------------- -------------- --------------
BALANCE AT DECEMBER 31, 1999 $ 7,155,077 $ 750,000 $ (250,000)
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
<TABLE>
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
====================================================================================================
<CAPTION>
Accumulated
Other
Accumulated Comprehensive
Deficit Income Total
-------------- -------------- --------------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 $ (904,991) $ - $ 117,574
Common stock issued for cash (Note 8(b)) - - 364,000
Common stock issued to the CEO (Note 8(b))an
services (Note 8(b)) - - 273,750
Warrants issued for acquisition of intangible
assets (Notes 1(g) and 3(b)) - - 24,500
Common stock issued for compensation
(Notes 1(m) and 8(b)) - - 8,750
Common stock issued for business acquisition
of subsidiary - SIL (Notes 1(g) and 3(c)) - - 1,750,000
Common stock issued for business acquisition
of subsidiary - ISS (Notes 1(g) and 3(a)) - - 3,625,000
Common stock issued for services (Notes 1(m)
and 8(b)) - - 189,581
Common stock issued for exercise of options
(Note 8(d)) - - 37,770
Comprehensive income (loss):
Net loss (1,909,642) - (1,909,642)
Foreign currency translation adjustment - 7,323 7,323
-------------- -------------- --------------
Comprehensive income (loss) (1,909,642) 7,323 (1,902,319)
-------------- -------------- --------------
BALANCE AT DECEMBER 31, 1998 (2,814,633) 7,323 4,488,606
Preferred stock converted to common stock
(Note 8(a)) - - -
Common stock issued for cash (Note 8(b)) - - 564,934
Common stock issued for services (Note 8(b)) - - 178,810
Rescission of SIL acquisition (Notes 1(g) and 3(c)) - - (423,445)
Warrants issued for acquisition of
intangible assets (Note 3(b)) - - 40,250
Comprehensive income (loss):
Net loss (4,119,648) - (4,119,648)
Foreign currency translation adjustment - (7,323) (7,323)
-------------- -------------- --------------
Comprehensive income (loss) (4,119,648) (7,323) (4,126,971)
-------------- -------------- --------------
BALANCE AT DECEMBER 31, 1999 $ (6,934,281) $ - $ 722,184
============== ============== ==============
</TABLE>
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
YEARS ENDED DECEMBER 31, 1999 1998
- ------------------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,119,648) $(1,909,642)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,945,937 956,015
Common stock issued for compensation
and services 178,810 324,081
Change in operating assets and liabilities:
Accounts receivable 954,604 (391,032)
Inventory (250,065) (51,198)
Prepaid and other current assets 118,736 (52,411)
Other assets 14,010 (20,474)
Accounts payable and accrued expenses 682,453 52,080
Accrued payroll, vacation and related taxes 43,938 75,172
Customer deposits and deferred revenue (385,336) (33,909)
Billings in excess of costs incurred and
estimated earnings 274,920 -
Other liabilities - (31,476)
------------ ------------
Net cash used in operating activities (541,641) (1,082,794)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired in purchase (disposal)
of subsidiaries (113,420) 31,427
Purchases of fixed assets (103,092) (61,826)
------------ ------------
Net cash used in investing activities (216,512) (30,399)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related party 591,002 175,000
Proceeds from issuance of common stock 564,934 512,000
Increase (decrease) in bank overdraft (477,298) 302,749
Proceeds from notes payable 141,921 -
Proceeds from bank lines of credit 141,415 75,000
Payments on notes payable - related party (110,000) -
Principal payments on capital lease obligations (52,632) (29,383)
Payments on notes payable (50,663) (10,544)
Proceeds from exercise of stock options - 37,700
------------ ------------
Net cash provided by financing activities 748,679 1,062,522
------------ ------------
Effect of exchange rate changes on cash 5,822 9,115
------------ ------------
Net decrease in cash (3,652) (41,556)
CASH AT BEGINNING OF YEAR 106,539 148,095
------------ ------------
CASH AT END OF YEAR $ 102,887 $ 106,539
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
================================================================================
DECEMBER 31, 1999 (Note 1) 1998
- ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION:
Cash paid during the year for:
Interest $ 356,041 $ 32,954
NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1999 and 1998, the Company acquired $29,660 and $6,300 of fixed assets
under capital lease agreements, respectively.
During 1999 and 1998, the Company issued 40,656 and 92,190 shares of restricted
common stock for consulting services with a fair value of approximately $179,000
and $190,000, respectively. The fair value of the shares was calculated using
the average closing price surrounding the issuance dates. See Note 8(b).
From September 2, 1998 to October 16, 1998, the Company sold 348,000 shares of
restricted common stock to the CEO at a per share price of $.50 pursuant to
Section 4(2) of the Securities Act. The fair value of the shares was $273,750
and was calculated using the average closing price surrounding the issuance
dates, resulting in compensation expense of approximately $126,000. Cash
proceeds from the sale were $148,000. See Note 8(b).
On August 3, 1998, the Company issued 5,000 shares of restricted common stock as
a bonus related to employment agreement. The fair value of the shares was $8,750
and was calculated using the average closing price surrounding the issuance
dates. See Note 8(b).
On August 14, 1998, the Company issued warrants to purchase 25,000 shares of
restricted common stock to acquire certain technology. On August 14, 1999, the
Company issued warrants to purchase 25,000 shares of restricted common stock in
accordance with the acquisition agreement. These warrants were valued in
accordance with SFAS 123 at $24,500 and $40,250 respectively. See Note 3(b).
On February 7, 1998, the Company issued 2,000,000 shares of restricted common
stock to acquire ISS. Total goodwill from the acquisition was $3,461,000. See
Note 3(a).
On October 1, 1998, the Company issued 1,000,000 shares of restricted common
stock to acquire SIL. Total goodwill from the acquisition was $3,100,000. See
Note 3(c).
Acquisition of: ISS SIL
------------ ------------
Working capital other than cash $ 69,000 $ (546,000)
Fixed assets 94,000 242,000
Intangibles and other assets 1,000 -
Long-term debt assumed - (128,000)
------------ ------------
Net assets acquired 164,000 (432,000)
------------ ------------
Fair value of common stock issued 3,625,000 1,750,000
Acquisition price payable - 1,000,000
------------ ------------
Total consideration 3,625,000 2,750,000
------------ ------------
Goodwill acquired $ 3,461,000 $ 3,182,000
============ ============
During 1999, the Company financed $317,000 of building improvements with a note
payable.
During 1998, the Company financed its Poway facility and related costs with
$1,800,000 of notes payable.
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial statements
follows. As discussed in Note 3(c), the Company disposed of its interest in SIL
on December 17, 1999. In 1998, the Company left the development stage.
(a) NATURE OF OPERATIONS
SPACEDEV, INC. (the "Company") was incorporated under the laws of Colorado on
December 23, 1996 as Pegasus Development Group, Inc. (PDGI). The Company,
through its three business segments, is engaged in the commercial development of
low-cost satellites and their subsystems, as well as providing engineering
technical services to major aerospace companies. The principal geographic
markets of the Company are the United States and Europe. See Note 11(a).
PDGI was originally formed for the purpose of entering the real estate industry.
SpaceDev, LLC of Colorado was originally formed in 1997 for commercial space
exploration and was the sole owner of shares of common stock of SpaceDev (a
Nevada corporation) ("SpaceDev"). On October 22, 1997, PDGI issued 8,245,000 of
its $.0001 par value common stock for 100 percent (1,000,000 shares) of
SpaceDev's common stock owned by SpaceDev, LLC. Upon the acquisition of the
SpaceDev stock, SpaceDev was merged into PDGI and, on December 17,1997, PDGI
changed its name to SPACEDEV, INC. After the merger, SpaceDev, LLC, which
changed its name to SD Holdings, LLC on December 17, 1997. See Notes 8(a) and
8(b).
For accounting purposes, the transaction was accounted for as a reverse merger
with the Company as the acquirer. Since SpaceDev had minimal assets prior to the
merger, the transaction was accounted for as the sale of Company's common stock
for net assets of $1,232.
(b) LIQUIDITY/GOING CONCERN
The accompanying consolidated financial statements as of December 31, 1999 have
been prepared assuming the Company will continue as a going concern. However,
the Company had working capital deficits of $1,291,411 and $2,383,061 as of
December 31, 1999 and 1998, respectively, and incurred net loss of $4,119,648
and $1,909,642 for the years ended December 31, 1999 and 1998, respectively.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Subsequent to December 1999, 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 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.
F-13
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(c) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Integrated Space Systems, Inc. (ISS) (a
California corporation) and Space Innovations Limited (SIL) (a United Kingdom
entity). As discussed in Note 3(c), the Company disposed of its interest in SIL
on December 17, 1999. All significant intercompany balances and transactions
have been eliminated in the consolidation.
(d) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Although management believes that the estimates and
assumptions used in preparing the accompanying consolidated financial statements
and related notes are reasonable in light of known facts and circumstances,
actual results could differ from those estimates.
(e) INVENTORY
At December 31, 1998, inventory was held by SIL and consisted mainly of raw
materials and is stated at the lower of cost (first-in, first-out) or market.
(f) 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 December
31, 1999, billings in excess of costs incurred and estimated earnings was
$274,920.
Deferred revenue represents amounts collected from customers for services to be
provided at a future date.
(g) DEPRECIATION AND AMORTIZATION
Fixed assets are depreciated over their estimated useful lives of
three-to-thirty years using the straight-line method of accounting.
F-14
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(g) DEPRECIATION AND AMORTIZATION, CONT'D
Goodwill and other intangible assets were created upon the acquisition of the
Company's subsidiaries. Intangible assets are amortized over their assets'
estimated future useful lives on a straight-line basis over three to five years.
Goodwill and other intangibles are periodically reviewed for impairment based on
an assessment of future operations to ensure they are appropriately valued in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of."
As a result of the disposal of SIL, the goodwill associated with the original
acquisition became impaired on December 17, 1999. The loss of approximately
$1,929,000 from the impairment represented the net unamortized goodwill at
December 17, 1999, and was recorded as a reduction to additional paid-in
capital. See Note 3(c).
(h) RESEARCH AND DEVELOPMENT
The Company is actively engaged in new product development efforts. Research and
development expenditures relating to possible future products are expensed as
incurred. Research and development expenses were as follows:
YEARS ENDED DECEMBER 31, 1999 1998
------------------------ ------------ ------------
SpaceDev $ 61,615 $ 322,269
SIL 506,703 378,652
------------ ------------
$ 568,318 $ 700,921
============ ============
(i) ADVERTISING
The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising expenses were approximately $9,500 and $1,500 for 1999
and 1998, respectively.
(j) INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future years of
the differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the years in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the combination of the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
(k) NEW ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
was adopted by the Company in 1998. In accordance with the Statement,
comprehensive income is presented in the consolidated statements of
stockholders' equity. (k) New accounting standards, cont'd Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives Instrument
and Hedging Activities," established accounting and reporting standards for
derivative instruments. The Company has not in the past, nor does it anticipate
that it will, engage in transactions involving derivative instruments which will
impact the consolidated financial statements.
F-15
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(l) STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). The Company adopted SFAS 123 in 1997. The Company has
elected to measure compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by APB Opinion
25, "Accounting for Stock Issued to Employees" (APB 25) and has provided pro
forma disclosures as if the fair value based method prescribed SFAS 123 has been
utilized. See Note 8(d).
(m) COMMON STOCK AND STOCK OPTIONS TO NON-EMPLOYEES
The Company has valued its stock and stock options issued to non-employees at
fair value in accordance with the accounting prescribed in SFAS 123, which
states that all transactions in which goods or services are received for the
issuance of equity instruments shall be accounted for based on the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable.
(n) NET LOSS PER COMMON SHARE
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.
(o) FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable and notes payable. These financial instruments are stated at their
respective carrying values, which approximate their fair values.
(p) FOREIGN CURRENCY
For the foreign subsidiary, assets and liabilities were translated at the
current year end exchange rate, equity at the historical rate and income
statement items at the weighted average exchange rate for the period. Resulting
translation adjustments were made directly to a separate component of
stockholders' equity.
F-16
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(q) SEGMENT REPORTING
The Company is managed through three reportable segments: Space Missions
Division (SMD), ISS and SIL. The Space Missions Division is in the process of
developing deep space science exploration satellites. Through December 31, 1998,
this Division had no revenue with outside customers. 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. See Note 3(c). The Company follows
the requirement of Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131").
2. FIXED ASSETS
Fixed assets consisted of the following:
DECEMBER 31, 1999 1998
----------- ------------ ------------
Building and improvements $ 2,071,437 $ -
Computer equipment 167,650 151,890
Leasehold improvements 68,197 36,769
Furniture and fixtures 18,442 222,073
------------ ------------
2,325,726 410,732
Less accumulated depreciation
and amortization (222,400) (239,964)
------------ ------------
2,103,326 170,768
Construction in progress - 1,860,472
------------ ------------
$ 2,103,326 $ 2,031,240
============ ============
Depreciation and amortization expense was $110,810 and $60,807 for the 1999 and
1998, respectively.
3. ACQUISITIONS
All acquisitions have been accounted for using the purchase method of accounting
and intangible assets are being amortized using the straight-line method.
Initial purchase price includes stock issued at the date of acquisition, direct
acquisition costs and any guaranteed future consideration.
(a) ISS
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 Integrated
Space Systems, Inc. ("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 calculated
purchase price in excess of the approximately $164,000 of net assets acquired
was capitalized as goodwill and will be amortized over sixty months.
F-17
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(a) ISS, CONT'D
Goodwill from the ISS acquisition consisted of the following:
DECEMBER 31, 1999 1998
------------ ------------ ------------
Goodwill $ 3,461,000 $ 3,461,000
Less accumulated amortization (1,326,717) (634,517)
------------ ------------
$ 2,134,283 $ 2,826,483
============ ============
Amortization expense was $692,200 and $634,517 for 1999 and 1998, respectively.
(b) AMROC
On August 14, 1998, the Company entered the Agreement for License and Purchase
of Technology (AMROC) with an unrelated individual. The technology acquired was
hybrid rocket technology that will be used in the future operations of the
Company. Upon execution of the Agreement, the Company issued the seller a
warrant to purchase 25,000 shares of restricted common stock at a strike price
equal to 50 percent of the market price of the common stock on the issuance
date.
For the three years following the Agreement date, the seller will receive
warrants to purchase the greater of 25,000 shares of restricted common stock or
a number of shares to be determined based on revenue generated from the acquired
technology as defined below. In the fourth through tenth year following the
Agreement date, the seller will receive a warrant to purchase a number of shares
based on the amount of revenue generated from the acquired technology. All
revenue based are earned at a rate of one share per $125 of revenue generated
from the technology acquired. Under the terms of the Agreement, the minimum
number shares to be issued is 100,000 and the maximum consideration shall not
exceed warrants to purchase 3,000,000 shares of common stock or $6,000,000 in
recognized value. Recognized value is the sum of (a) the cumulative difference
between the market price of the common stock and the strike price and (b) the
cumulative difference between the market price on the date of exercise and the
strike price for each warrant previously exercised.
The Company valued the warrants using the fair value method as prescribed by
SFAS 123. Under this method, the Company used the risk-free interest rate at the
date of grant, the expected volatility of the stock, the expected dividend yield
on the stock and the expected life of the warrants to determine the fair value
of the warrants. The risk-free rate of interest used to value the initial
issuance was 5.4 percent, a zero percent dividend yield was assumed and the
expected life of the warrants was five years from the date of issuance. This
calculation resulted in a fair value of $24,500 and was used as the value of the
intangible assets acquired. On August 14, 1999, the Company issued warrants to
purchase 25,000 shares of restricted common stock with fair value of $40,250
using the same valuation method. This amount was capitalized as an additional
acquisition of intangible assets and will be amortized over the remaining four
years of the estimated useful life of the assets. All warrants are immediately
exercisable after issuance and expire on the fifth anniversary of their
issuance. No value is given to the future issuance of warrants as the strike
price is unknown at this time.
F-18
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) AMROC, CONT'D
Other intangible assets consisted of the following:
DECEMBER 31, 1999 1998
------------ ------------ ------------
Other intangibles $ 64,750 $ 24,500
Less accumulated amortization (16,801) (1,838)
------------ ------------
$ 47,949 $ 22,662
============ ============
Amortization expense was $14,963 and $1,838 for 1999 and 1998, respectively.
(c) SIL
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 Space
Innovations Limited ("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 was to be amortized over sixty months.
Goodwill from the SIL acquisition consisted of the following:
DECEMBER 31, 1999 1998
------------ ------------ ------------
Goodwill $ - $ 3,182,000
Less accumulated amortization - (258,333)
------------ ------------
$ - $ 2,923,667
============ ============
Amortization expense was $994,000 and $258,333 for 1999 and 1998, respectively.
Included in the acquisition agreement and under the Company's Revenue and Profit
Incentive Stock Option Plan and the Profit Sharing Stock Issuance Plan, the
former stockholders of SIL also received options to purchase up to 500,000
additional shares of the Company's common stock at a price to be determined in
the year of grant should certain future events occur in each of the next three
years. During 1998, 100,000 options expired as the qualifying events did not
occur. Effective December 17, 1999, all remaining unexpired options were
cancelled.
F-19
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company and its subsidiaries, ISS and SIL, as if
the acquisitions had occurred on January 1, 1998, with pro forma adjustments to
give effect to amortization of goodwill and other intangible assets and certain
other adjustments:
(IN THOUSANDS, EXCEPT EARNING PER SHARE AMOUNTS)
--------------------------------------------------------
PERIOD ENDED DECEMBER 31, 1998
--------------------------------------------------------
Net sales $ 3,765
Net losses $ (3,282)
Net loss per share $ (.69)
============
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.
The Release Agreement resulted in the retirement of the 1,000,000 shares of the
Company 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. 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 amoun
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 remains 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 is paid in full. Once the loan has been paid in full, the loan agreement
will 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 January 18, 2001 with interest at the bank's prime (8.5% at
December 31, 1999) plus 1.25 percent. See Note 4. Subsequent to year end, the
amount of the line guaranteed by the Company was paid down to approximately
$27,000.
F-20
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
4. 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 December 31, 1999 and 1998, $241,415 and $100,000, 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 (8.5 percent at December 31, 1999) plus 2.0 percent.
5. 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 percent. At December 31, 1999 and 1998, the outstanding balance on this
loan was $1,298,921 and $1,300,000, respectively. Upon its maturity, the note
continued on a month-to-month basis until it was paid in full on February 23,
2000.
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
February 23, 2000) plus 1.5 percent. The note matures on March 1, 2025.
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 percent and a balloon payment of $505,000, including interest,
on December 17, 2003. At December 31, 1999 and 1998, the outstanding balance on
this loan was $500,000.
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 percent and a
balloon payment of $464,000, including interest, in March 2004. At December 31,
1999, the outstanding balance on this loan was $460,000.
(b) RELATED PARTIES
The Company had notes payable to the CEO and a former key employee. At December
31, 1999 and 1998, the balances were $718,002 and $237,000, respectively, with
interest between 4 percent and 12 percent. The notes, due in March 1999, were
converted to demand notes. As part of a 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.
Interest expense on these notes was $67,331 and $5,152 for 1999 and 1998,
respectively.
F-21
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) RELATED PARTIES, CONT'D
Future minimum principal payments on all notes payable are as follows:
YEAR ENDED DECEMBER 31,
------------------------
2000 $ 725,202
2001 12,736
2002 14,111
2003 515,634
2004 475,861
Thereafter 1,233,379
------------
$ 2,976,923
============
6. INCOME TAXES
Deferred income taxes are provided for temporary differences in recognizing
certain income and expense items for financial and tax reporting purposes. The
deferred tax asset of $1,892,000 and $950,000 as of December 31, 1999 and 1998,
respectively, consisted primarily of the income tax benefits from net operating
loss carryforwards, amortization of goodwill and research and development
credits. A valuation allowance has been recorded to fully offset the deferred
tax asset as it is more likely than not that the assets will not be utilized.
The valuation allowance increased approximately $942,000 in the 1999 from
$950,000 at December 31, 1998 to $1,892,000 at December 31, 1999.
At December 31, 1999, the Company has federal and state tax net operating loss
carryforwards of approximately $3,700,000 and $1,850,000, respectively. The
federal and state tax loss carryforwards will expire through 2019, unless
previously utilized.
A reconciliation of the statutory income tax
rates and the Company's effective tax rate is as
follows:
YEARS ENDED DECEMBER 31, 1999 1998
------------------------ ------------ ------------
Statutory U.S. federal rate 34% 34%
State income taxes - net of federal
benefit 5% 5%
Net operating loss for which no tax
benefit is currently available (39%) (39%)
------------ ------------
- -
============ ============
F-22
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
6. INCOME TAXES, cont'd
The tax effects of temporary differences and carryforwards that give
rise to deferred tax assets and liabilities consist of the following:
DECEMBER 31, 1999 1998
------------ ------------ ------------
Deferred tax assets:
Net operating loss carryforwards $ 1,425,000 $ 688,000
Temporary differences 425,000 220,000
Research and development credits 42,000 42,000
------------ ------------
Gross deferred tax assets 1,892,000 950,000
Valuation allowance (1,892,000) (950,000)
------------ ------------
$ - $ -
============ ============
7. EMPLOYEE BENEFIT PLAN
(a) PROFIT SHARING 401(K) PLAN
During 1997, the Company adopted a 401(k) retirement savings plan for its U.S.
employees which allows each eligible employee to voluntarily make pre-tax salary
contributions up to 15 percent of their compensation. The Company may elect to
make a matching contribution. The total Company contribution and participant
salary reduction may not exceed 25 percent of the compensation of eligible
participants. During 1999 and 1998, the Company did not contribute to the Plan.
(b) INCENTIVE STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
At its 1999 Annual Stockholder Meeting, the Company adopted an Incentive
Employee Stock Option Plan under which the Board of Directors may grant
employees, directors and affiliates of the Company opportunities to purchase
Incentive Stock Options, Supplemental Stock Options and to receive stock bonuses
or rights to purchase restricted stock of the Company. Incentive Stock Options
will only be available to employees, including officers, and affiliates of the
Company; they will not be available to non-employee directors. The exercise
price of the Incentive Stock Options shall not be less than 100% of the fair
market value of the stock subject to the option on the date the option is
granted. The exercise price for the Supplemental Stock Options will not be less
than 85% of the fair market value of the stock subject to the option on the date
the option is granted. The Company will be required to reserve an amount of
common shares equal to the number of shares which may be purchased as a result
of such stock awards. See Note 8(d).
F-23
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
8. STOCKHOLDERS' EQUITY
(a) CONVERTIBLE PREFERRED STOCK
On November 4, 1997, 82,450 shares of $.001 par value convertible preferred
stock were issued to SD Holdings, LLC in exchange for 8,245,000 common shares of
the Company that were issued on October 22, 1997 (see Notes 1(a) and 8(b)). Each
share of convertible preferred stock was convertible, at the option of the
holder, into 100 shares of common stock. The conversion ratio was subject to
certain anti-dilution adjustments, and the holder of each share of preferred
stock was entitled to one vote for each share of common stock into which it
would convert. These shares were converted into 8,245,000 shares of common stock
on May 11, 1999.
(b) COMMON STOCK
On October 22, 1997, PDGI issued 8,245,000 of its $.0001 par value common stock
for 100 percent (1,000,000 shares) of SpaceDev's common stock owned by SpaceDev,
LLC. Upon the acquisition of the SpaceDev stock, SPACEDEV was merged into PDGI
and, on December 17,1997, the name of the Company was changed to SPACEDEV, INC.
On November 4, 1997, these common shares were exchanged for 82,450 shares of
convertible preferred stock. See Note 8(a). On May 11, 1999, the Company issued
8,245,000 shares of common stock upon the conversion of the preferred shares.
In four different transactions between September 2, 1998 and October 16, 1998,
the Company's CEO purchased 348,000 shares of the Company's common stock at a
per share price of $0.50 pursuant to Section 4(2) of the Securities Act. The
Company recorded compensation expense of $126,000 in the consolidated statement
of operations. The fair value of the shares issued was calculated using the
average closing price surrounding the issuance dates. Cash proceeds totaled
$148,000.
The Company entered into agreements with legal sales, investor relations and
public relations firms to perform services for the Company. In connection with
these agreements, the Company issued 40,656 and 92,190 shares of its common
stock and recorded expense of approximately $179,000 and $190,000 for 1999 and
1998, respectively. The fair value of the shares issued was calculated using the
average closing price surrounding the issuance dates.
On August 3, 1998, the Company entered into a one-year employment agreement with
a key employee. The agreement automatically renews until terminated in
accordance with the agreement As part of the employment agreement, the Company
approved additional compensation through the issuance of shares of common stock
up to 60,000 shares of the Company's $.0001 par value restricted common stock.
F-24
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) COMMON STOCK, CONT'D
On August 3, 1998, the Company issued 5,000 shares to an employee as a signing
bonus. The fair value of $8,750 was recorded as compensation expense. The fair
value of the shares issued was calculated using the average closing price
surrounding the issuance date.
Additional shares to be issued to the employee
are subject to the following conditions as
amended on January 20, 2000:
Number
of shares Issuing Conditions
--------------- ------------------------------------------------------
5,000 Currently issued
5,000 Per year commencing at the end of the second year of
employment and 5,000 for each additional year of
employment
10,000 Successful completion of first lunar or deep-space
craft
15,000 Launching of first lunar or deep-space mission
25,000 Successful completion of first lunar or deep-space
mission
--------------- ------------------------------------------------------
During 1998, the Company issued 622,403 shares of its common stock for cash,
priced at an average of $1.02 per share for a total amount of $637,750.
During 1999, the Company issued 546,546 shares of its common stock for cash,
priced at an average of $1.03 per share for a total amount of $564,934.
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 decided to raise the
aggregate offering price in order to allow it to obtain funding during
preparation of this 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.
F-25
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) COMMON STOCK, CONT'D
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 issued 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.
(c) WARRANTS
On August 14, 1999 and 1998, the Company issued warrants to purchase 25,000
shares of common stock at 50 percent of their fair market value on the date of
issuance, in return for the exclusive royalty-free right to use, sell and apply
patents and other technology developed by an individual (see Note 3(b)). The
individual will receive warrants to purchase a minimum of 50,000 additional
shares and a maximum of 3,000,000 shares of common stock at 50 percent of their
fair market value on the date of issuance. The number of shares varies with
revenue generated by the technology on specific dates. At December 31, 1999, the
unissued warrants were not recorded as the future strike price of the warrants
cannot be estimated.
F-26
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(d) STOCK OPTIONS
On October 22, 1997, the Company entered into three agreements to grant options
to purchase common stock restricted under Securities Exchange Commission Rule
144 in consideration for consulting services. Options were granted for 573,150
shares of the Company's $.0001 par value common stock with an exercise price of
$.07 per share. All of the options were exercisable at December 31, 1997 and
each option was to expire on October 21, 2002. Based on the use of the
Black-Scholes option pricing model, the fair value of the stock options issued
was $221,333. As a result, the Company recognized $221,333 of consulting expense
in 1997 related to the issuance of the common stock options. All of the options
were exercised in 1998.
On November 21, 1997, the Company entered into a five-year employment agreement
with its CEO. As part of the employment agreement, the Company granted options
to the CEO to purchase up to 2,500,000 shares of the Company's $.0001 par value
restricted common stock. The options are subject to the following vesting
conditions which were amended on January 21, 2000 at the exercise prices set
forth:
Exercise
Number price per
of shares Vesting Conditions share
- ------------ ----------------------------------------- -----------
500,000 Currently vested $ 1.00
500,000 Obtaining $5,500,000 additional equity
capital $ 1.50
500,000 Financing and executing a definitive
space launch agreement $ 2.00
500,000 Launching of first lunar or deep-space
mission $ 2.50
500,000 Successful completion of first lunar
or deep-space mission $ 3.00
============ ===========
All options expire 60 months from date of amendment.
In accordance with APB 25, the Company recognized $500,000 of compensation
expense and $250,000 of deferred compensation in 1997. The options are subject
to vesting conditions and have exercise prices between $1.00 and $3.00 per
share.
During 1998, the Company granted options to three key employees to purchase up
to 300,000 shares of restricted common stock with exercise prices between $1.00
and $3.50 per share.
Exercise
Number price per
of shares Vesting Conditions share
- ------------ ----------------------------------------- -------------
60,000 Successful completion of the first space
craft $ 1.00
60,000 Upon ISS generating $750,000 in pre-tax
profits $ 1.50
60,000 Upon launch of the first space craft $ 2.00
60,000 Upon rendezvous of space craft with
NEAP target $ 2.50
60,000 Upon reaching 17% profit for two years $ 3.00
============ =============
F-27
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(d) STOCK OPTIONS, CONT'D
All options expire 60 months from the date of issuance.
Subsequent to December 31, 1999, as part of separation agreements with these
three individuals, all of these options were canceled.
On November 1, 1999, the Company (through ISS) entered into an employment
agreement with its Chief Financial Officer (the "CFO"). The agreement
automatically renews for one-year periods until terminated by written notice of
either the Company or the CFO. In addition to annual salary levels, the
agreement allows the CFO to participate in the Company's Incentive Stock Option
Plan (the "ISO Plan") and qualify for stock option bonuses based on certain
events occurring.
Under the terms of the employment agreement with ISS, the Company, as the parent
corporation, agreed to grant stock options to purchase 250,000 shares of the
Company's common stock pursuant to the Company's Stock Option Plan upon
execution of the employment agreement. These options began vesting three months
after the date of grant. On February 1, 2000, the Company issued options to
purchase an additional 250,000 shares of common stock at a per share price of
$1.44 (the then fair market value) pursuant to the agreement. The CFO will
receive additional options to purchase 500,000 stock options shares at a rate of
250,000 per quarter during the remainder of his first year of employment with
ISS. Additionally, the Company agreed to issue non-qualified stock options to
purchase up to 200,000 common shares, which will vest upon ISS raising and
acquiring a minimum equity financing of $10,000,000, with options to purchase
20,000 common shares for each $1,000,000 of equity financing obtained. All
options will be exercisable at the fair market value of the common stock on the
date the option was granted.
The following summarizes stock option activity related to all of the
option plans:
Weighted
Options Average
Outstanding Exercise Prices
------------------------------ --------------- ---------------
Balance at January 1, 1998 3,073,150 $1.64
Granted 800,000 $1.88
Exercised (573,150) $0.07
Expired (100,000) $1.50
----------------------------- -------------- ---------------
Balance at December 31, 1998 3,200,000 $1.98
Granted 452,222 $1.34
Exercised - -
Expired (400,000) $1.50
----------------------------- --------------- ---------------
Balance at December 31, 1999 3,252,222 $1.95
----------------------------- --------------- ---------------
F-28
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(d) STOCK OPTIONS, CONT'D
The weighted average fair value of options granted to employees under the plan
during 1999 and 1998 was $1.34 and $1.88, respectively. At December 31, 1999 and
1998, there were 500,000 options exercisable at a weighted average exercise
price of $1.29 per share. The weighted average remaining life of outstanding
options under the plan at December 31, 1999 was 3.31 years.
There were 500,000 exercisable options outstanding at both December
31, 1999 and 1998.
Weighted-Average
Remaining Weighted-Average
Range of Number of Contractual Life Number of Exercisable
Exercise Shares of Shares Shares Price
Price Outstanding Outstanding Exercisable
- ----------- ------------ ------------------- ------------- ----------------
$1.00-1.99 1,510,000 3.64 years 500,000 $1.29
$2.00-2.99 1,122,222 3.11 years - $2.25
$3.00-3.50 620,000 3.19 years - $3.05
- ----------- ------------ ------------------- ------------- ----------------
$1.34 3,252,222 3.31 years 500,000 $1.95
=========== ============ =================== ============= ================
As of December 31, 1999, the Company had warrants outstanding that allow the
holder to purchase up to 25,000 shares of common stock at $0.88 per share and
25,000 at $0.94 per share. The warrants may be exercised any time within five
years of issuance.
The Company has elected to account for its stock-based compensation plans under
APB 25. However, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during 1999 and 1998 using the minimum value
method as prescribed by SFAS 123. Under this method, the Company used the
risk-free interest rate at date of grant, the expected volatility, the expected
dividend yield and the expected life of the options to determine the fair value
of options granted. The risk-free interest rates ranged from 5.4 percent to 6.0
percent; expected volatility of 118% and the dividend yield was assumed to be
zero, and the expected life of the options was assumed to be three to five years
based on the average vesting period of options granted.
If the Company had accounted for these options in accordance with SFAS
123, the total value of options granted during 1999 and 1998 would be
amortized on a pro forma basis over the vesting period of the options.
Thus, the Company's consolidated net loss would have been as follows:
YEARS ENDED DECEMBER 31, 1999 1998
------------------------- ------------ ------------
Net loss:
As reported $(4,119,648) $(1,909,642)
Pro forma $(4,124,648) $(1,909,642)
------------ ------------
Loss per share $ (.39) $ (.47)
============ ============
F-29
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
9. COMMITMENTS AND CONTINGENCIES
CAPITAL LEASES
The Company leases certain equipment under non-cancelable capital
leases, which are included in fixed assets as follows:
DECEMBER 31, 1999 1998
------------ ------------ ------------
Computer equipment $ 68,197 $ 39,000
Less accumulated depreciation (34,572) (29,000)
------------ ------------
$ 33,625 $ 10,000
============ ============
Future minimum lease payments are as follows:
YEAR ENDING DECEMBER 31,
------------------------
2000 $ 14,649
2001 12,541
2002 8,777
------------
Total minimum lease payments 35,967
Amount representing interest (6,860)
------------
Present value of minimum lease payments $ 29,107
============
Total obligation $ 29,107
Less current portion (11,135)
------------
Long-term portion $ 17,972
============
10. CONCENTRATIONS
(a) CREDIT RISK
The Company maintains cash balances at various financial institutions primarily
located in San Diego. Accounts at these institutions are secured by the Federal
Deposit Insurance Corporation up to $100,000. The Company has not experienced
any losses in such accounts. Management believes that the Company is not exposed
to any significant credit risk on cash.
(b) CUSTOMER
During 1999 and 1998, the Company had major customers that accounted for sales
of approximately $1,130,000 and $1,142,000 or 23% and 55% of consolidated
revenue, respectively. At December 31, 1999 and 1998, the amount receivable from
these customers was approximately $0 and $122,000, respectively.
F-30
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(c) CONTRACT
In November 1999, the Space Missions Division was awarded a turnkey mission
contract by the Space Sciences Laboratory (SSL) at University of California,
Berkeley (UCB) worth approximately $5 million. This contract represented 8
percent of the Company's revenue in 1999. The 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, respectively. The payments on the
contract are made on a monthly basis according to a preset payment schedule. No
profit is anticipated on this contract and excess costs will be charged to
operations as incurred.
11. OPERATING SEGMENTS
The Company's operating structure included three operating segments for 1999 and
1998.
(a) SEGMENT PRODUCTS AND SERVICES
The Company has three reportable segments: Space Missions Division (SMD), ISS
and SIL. The Space Missions Division is in the process of developing deep space
science exploration satellites. Through December 31, 1998, this Division had no
revenue with outside customers. 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. See Note 3(c).
The following is a summary of operating results and assets by segment.
FOR THE YEAR ENDED DECEMBER 31, 1999
-------------------------------------
(IN THOUSANDS) ISS SIL SMD Total
-------------------------- --------- --------- --------- ---------
Net revenue from external
customers $ 1,008 $ 3,787 $ 83 $ 4,878
Intersegment revenues 71 - 33 104
Depreciation and
amortization expense (731) (1,044) (86) (1,861)
Segment loss $ (805) $ (2,493) $ (822) $ (4,120)
========= ========= ========= =========
Total segment assets $ 2,787 $ - $ 2,317 $ 5,104
Less intersegment assets (178) - (164) (342)
--------- --------- --------- ---------
Net segment assets $ 2,609 $ - $ 2,153 $ 4,762
========= ========= ========= =========
F-31
<PAGE>
(a) SEGMENT PRODUCTS AND SERVICES, CONT'D
FOR THE YEAR ENDED DECEMBER 31, 1999
-------------------------------------
(IN THOUSANDS) ISS SIL SMD Total
--------------------------- --------- --------- --------- ---------
Geographic Information:
Revenue
United States $ 1,008 $ - $ 83 $ 1,091
Europe - 3,787 - 3,787
--------- --------- --------- ---------
$ 1,008 $ 3,787 $ 83 $ 4,878
========= ========= ========= =========
Long-lived Assets
---------------------------
United States $ 2,111 $ - $ 2,177 $ 4,288
Europe - - - -
--------- --------- --------- ---------
$ 2,111 $ - $ 2,177 $ 4,288
========= ========= ========= =========
FOR THE YEAR ENDED DECEMBER 31, 1999
-------------------------------------
(IN THOUSANDS) ISS SIL SMD Total
--------------------------- --------- --------- --------- ---------
Net revenue from external
customers $ 1,340 $ 753 $ - $ 2,093
Intersegment revenues 198 - - 198
Depreciation and
amortization expense (679) (258) (4) (941)
Segment profit (loss) $ (595) $ (171) $ (1,144) $ (1,910)
========= ========= ========= =========
Total segment assets $ 3,778 $ 4,689 $ 1,631 $ 10,098
Less intersegment assets (273) - (80) (353)
--------- --------- --------- ---------
Net segment assets $ 3,505 $ 4,689 $ 1,551 $ 9,745
========= ========= ========= =========
FOR THE YEAR ENDED DECEMBER 31, 1999
-------------------------------------
(IN THOUSANDS) ISS SIL SMD Total
--------------------------- --------- --------- --------- ---------
Geographic Information:
Revenue
United States $ 1,340 $ - $ - $ 1,340
Europe - 753 - 753
--------- --------- --------- ---------
$ 1,340 $ 753 $ - $ 2,093
========= ========= ========= =========
Long-lived Assets
---------------------------
United States $ 2,922 $ - $ 1,860 $ 4,782
Europe - 3,173 - 3,173
--------- --------- --------- ---------
$ 2,922 $ 3,173 $ 1,860 $ 7,955
========= ========= ========= =========
F-32
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) METHOD OF DETERMINING SEGMENT PROFIT OR LOSS
Management evaluates the performance of its operating segments separately to
individually monitor the different factors affecting financial performance.
Segment profit or loss includes substantially all of the segment's costs of
production, distribution and administration. The Company manages income taxes on
a global basis. Thus, management evaluates segment performance based on profit
or loss before income taxes, exclusive of any significant gains or losses on the
disposition of investments or other assets. The Company typically manages and
evaluates equity investments and related income or loss on a segment level.
12. SETTLEMENT WITH U.S. SECURITIES AND EXCHANGE COMMISSION
In August 1998, the U.S. Securities and Exchange Commission (SEC) alleged that
the Company and its chairman made statements on the Internet regarding revenue
and earnings estimates without a reasonable basis and also misrepresented a
financing agreement it had with a broker-dealer.
During April 1999, the Company and its chairman agreed to settle the SEC's
charges. Neither party paid any fines. Under the settlement, the Company and its
chairman neither admitted nor denied wrongdoing. The Company and its chairman
agreed to be subject to stiffer sanctions for any future violations.
13. SUBSEQUENT EVENT
On February 4, 2000, the Company entered into an employment agreement with its
President and Chief Operating Officer. The agreement automatically renews for
one-year periods until terminated by written notice of either the employee or
the Company. This agreement provides for compensation of salary and options to
the President. The agreement also prohibits the President from competing with
the Company for one year after termination of employment. Pursuant to that
agreement, the President will receive 50,000 shares of restricted common stock
and options to purchase an additional 50,000 shares of common stock upon
successful completion of his first year of employment.
On February 5, 2000, the Company negotiated Separation and Release Agreements
with its then Chief Operating Officer of ISS, and 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 the ISS employee, the
Company has agreed to pay a total of $70,000 base salary for the period from
January 29, 2000 to February 11, 2000. This employee has agreed to be available
to the Company for a period of six months from the date of the agreement.
F-33
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
13. SUBSEQUENT EVENT, CONT'D
Pursuant to the Separation and Release Agreement with the former COO, the
Company has agreed to pay a promissory note in six monthly installments, for a
total of $70,000 and to pay his base salary of $90,000 for the period from
January 29, 2000 to February 11, 2000. He 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 the
former employee have been released, including claims to back-salary of
approximately $47,000 and authorized but unissued stock options under the
Company's 1999 Employee Stock Option Plan.
In February and March 2000, the Company renegotiated employment agreements with
three key employees. The changes associated with these agreements were to change
the vesting schedule for outstanding options and salary limits for future years.
This change is not anticipated to have a material impact on the financial
condition and results of operations of the Company. Claims to back-salary of
approximately $13,000 to one of these employees was settled for 10,000 shares of
restricted common stock to be issued on April 28, 2000.
14. SUBSEQUENT EVENTS (UNAUDITED)
In April 2000, the Company entered a Separation and Release Agreement with a
former employee under an employment contract. As a result, the Company will
incur an early termination penalty equal to $60,000 to be paid in monthly
installments plus 5,000 shares of restricted common stock. All other claims of
the former employee have been released, including authorized but unissued stock
options under the Company's 1999 Employee Stock Option Plan.
Effective April 6, 2000, the Company began trading on the NQB Electronic
Quotation System. When the NASD receives notice from the SEC that the SEC has no
further comments with respect to the Company's Registration Statement, it is
anticipated that the Company will return to the Over-The-Counter Bulletin Board
exchange.
F-34
<PAGE>
SPACEDEV, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
F-35
<PAGE>
SPACE INNOVATIONS LIMITED
DIRECTORS' REPORT AND ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
Company Registration No. 03193413 (England and Wales)
F-36
<PAGE>
SPACE INNOVATIONS LIMITED
COMPANY INFORMATION
- --------------------------------------------------------------------------------
DIRECTORS A K Ward
J L Culhane
J E Holloway
A J Barrington Brown
D R Brindley
J Anzalchi
H K K Ngan
T W Brown
SECRETARY J E Holloway
COMPANY NUMBER 03193413
REGISTERED OFFICE 3 The Paddock
Hambridge Road
Newbury
Berks
RG14 5TQ
AUDITORS BDO Stoy Hayward
Reading
BANKERS Lloyds Bank
Newbury
SOLICITORS Bird & Bird
London
F-37
<PAGE>
SPACE INNOVATIONS LIMITED
CONTENTS
- --------------------------------------------------------------------------------
DIRECTORS' REPORT.........................................................1
AUDITORS' REPORT..........................................................4
PROFIT AND LOSS ACCOUNT...................................................5
BALANCE SHEET.............................................................6
CASH FLOW STATEMENT.......................................................7
NOTES TO THE ACCOUNTS.....................................................8
F-38
<PAGE>
SPACE INNOVATIONS LIMITED
DIRECTORS' REPORT
YEAR ENDED 31 DECEMBER 1998
- --------------------------------------------------------------------------------
The directors present their report and accounts for the year ended 31 December
1998.
DIRECTORS
The following directors have held office since 1 January 1998:
A K Ward
J L Culhane
J E Holloway
A J Barrington Brown
D R Brindley
J Anzalchi
H K K Ngan
T W Brown (Appointed 1 October 1998)
DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare accounts for each financial year
which give a true and fair view of the state of affairs of the company and of
the profit or loss of the company for that period. In preparing those accounts,
the directors are required to:
- - select suitable accounting policies and then apply them consistently;
- - make judgements and estimates that are reasonable and prudent;
- - prepare the accounts on the going concern basis unless it is inappropriate to
presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the accounts comply with the Companies
Act 1985. They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
PRINCIPAL ACTIVITIES AND REVIEW OF THE BUSINESS
The principal activities of the company in the period under review included the
research, design and development of space related hardware and software, and the
manufacture, test and supply of associated systems and products.
Following the recommendation of the Board, there was a unanimous decision by the
shareholders to accept the offer for the purchase of the company from SpaceDev
Inc. a company incorporated in the state of Colorado, USA. The sale was
completed on 1 October 1998 and at that date the Company became a wholly owned
subsidiary of SpaceDev, but remains a United Kingdom registered Company
operating as an autonomous organisation.
Due to the potential for rapid growth foreseen for the immediate future, the
acquisition by SpaceDev has given added strength to the Company and its product
development. The high level of research and development costs expended through
the year from (pound)86,124 in 1997 to (pound)226,609 for 1998 has resulted in
considerable added value to products that support the planned growth. The
Balance Sheet naturally reflects these costs although to a lesser extent than
the monies actually expended on the additional research and development.
F-39
<PAGE>
SPACE INNOVATIONS LIMITED
DIRECTORS' REPORT
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------
It is now hoped that a rapid expansion amounting to more than an 80% increase in
sales turnover will be achieved next year. This is based on the finalisation of
a contract for the purchase of a MicroSIL (small satellite) platform for the
FedSat Australian satellite where work has already started under a
limit-of-liability arrangement and the success of sales in the RF and digital
communications sub-system areas in particular. As an affiliate of SpaceDev the
Company's sales opportunities in the USA have dramatically improved. Past
experience has shown that United States customers make excellent working
partners and the USA represents a large potential market for the company's
products.
Following the continuing successful operation in-orbit of several of the
Company's subsystems, including most recently the on-board S-band transponders
on the Danish Orsted satellite launched in February, 1999 a growing measure of
credibility has been achieved within the Space industry. This will substantially
enhance the Company's ability to promote sales in future years.
A satellite communications ground station has been delivered and installed on
site in Morocco during 1998. Although this has been a high cost development, a
significant number of resulting future sales are expected.
The Company also continued to lead and manage one of the UK Government's (DTI)
Sector Challenge programme for innovations within the UK small satellite arena
involving a group of space SMEs.
A number of management changes have been implemented during the year in order to
put expertise within the Company to its most effective use and to achieve the
success and expansion which is now planned and expected as a part of SpaceDev
both in Europe and in the USA.
Year 2000
The directors are aware of the potential problems associated with the
"Millennium Bug" and have given the issue due consideration. The company has
considerable in-house expertise in the IT area and these experts have been
charged with ensuring that all of the company's computer systems are not going
to be adversely affected by the year 2000 date change problem.
Although no organisation can guarantee that no year 2000 problems will arise,
the directors are satisfied that all necessary steps are being taken to ensure
that there will not be any significant problems arising from this cause.
The directors an unable to quantify the cost of any potential modifications that
may be necessary, but where new equipment is required the expenditure will be
capitalised in accordance with the company's accounting policy. Other
expenditure will be expensed when incurred.
RESULTS AND DIVIDENDS
The results for the year are set out on page 5.
The directors are unable to recommend payment of a dividend for the year.
F-40
<PAGE>
SPACE INNOVATIONS LIMITED
DIRECTORS' REPORT
YEAR ENDED 31 DECEMBER 1998
- --------------------------------------------------------------------------------
DIRECTORS' INTERESTS
The directors' beneficial interests in the shares of the company were as stated
below:
ORDINARY SHARES OF (POUND)1 EACH
31 DECEMBER 1998 1 JANUARY 1998
A K Ward - 10,000
J L Culhane - 10,000
J E Holloway - 3,000
A J Barrington Brown - 10,000
D R Brindley - 10,000
J Anzalchi - 10,000
H K K Ngan - 10,000
T W Brown - -
PARENT COMPANY
With effect from 1 October 1998, SpaceDev Inc, a company incorporated in the
state of Colorado, USA, is considered to be the company's ultimate parent
company.
AUDITORS
On 1 March 1999 the auditors, Moores Rowland, merged their practice with that of
BDO Stoy Hayward and are now practising under that name. A resolution will be
proposed at the annual general meeting that BDO Stoy Hayward be re-appointed as
the auditors to the company for the ensuing year.
On behalf of the board
/s/ J E Holloway
J E Holloway
Director
10 June 1999
F-41
<PAGE>
SPACE INNOVATIONS LIMITED
AUDITORS' REPORT
TO THE SHAREHOLDERS OF SPACE INNOVATIONS LIMITED
- --------------------------------------------------------------------------------
We have audited the accounts pages 5 to 19.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described in the directors' report the company's directors are responsible
for the preparation of accounts. It is our responsibility as auditors to form
an independent opinion, based an our audit, on those accounts and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations that we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts an free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts.
OPINION
In our opinion the accounts give a true and fair view of the state of the
company's affairs as at 31 December 1998 and of its loss for the year then ended
and have been properly prepared in accordance with the Companies Act 1985.
/s/ BDO Stoy Hayward
BDO STOY HAYWARD
Chartered Accountants
Registered Auditors
Reading
21 June 1999
F-42
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
PROFIT AND LOSS ACCOUNT
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
Notes (pound) (pound)
<S> <C> <C> <C>
Turnover 2 1,361,309 1,347,991
Cost of sales (600,532) (601,883)
------------- -------------
Gross profit 760,777 746,108
Administrative expenses (871,144) (734,245)
Research and development costs (226,609) (86,124)
Other operating income 120,859 -
------------- -------------
Operating Loss 3 (216,117) (74,261)
Interest payable and similar charges 4 (19,555) (6,300)
------------- -------------
Loss on ordinary activities before
taxation (235,672) (80,561)
Tax on loss on ordinary activities 7 - -
------------- -------------
Loss on ordinary activities after
taxation 16 (235,672) (80,561)
============= =============
The profit and loss account has been prepared on the basis that all operations
are continuing operations.
There are no recognised gains and losses other than those passing through the
profit and loss account.
</TABLE>
F-43
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
BALANCE SHEET
AS OF 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
Notes (pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C> <C>
Fixed assets
Intangible assets 8 - 9,447
Tangible assets 9 150,344 138,508
----------- -----------
150,344 147,955
Current assets
Stocks 10 99,646 47,109
Debtors 11 810,272 598,822
Cash at bank and in hand 4,102 16,719
----------- -----------
914,020 662,650
Creditors: amounts falling due
within one year 12 (1,061,369) (726,130)
----------- -----------
Net current liabilities (147,349) (63,480)
----------- -----------
Total assets less current liabilities 2,995 84,475
Creditors: amounts falling due after
more than one year 13 (17,092) (52,527)
Provisions for liabilities and charges 14 (33,001) -
----------- -----------
(47,098) 31,948
=========== ===========
Capital and reserves
Called up share capital 15 82,000 82,000
Capital contributions 21 156,626 -
Share premium account 16 30,000 30,000
Profit and loss account 16 (315,724) (80,052)
----------- -----------
Shareholders' funds - equity interests 17 (47,098) 31,948
=========== ===========
</TABLE>
The accounts were approved by the Board on 10 June 1999
DR Brindley JE Holloway
Director Director
F-44
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
CASH FLOW STATEMENT
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
Notes (pound) (pound)
<S> <C> <C> <C> <C> <C>
Net case outflow from operating
activities 18 (390,684) (2,619)
Returns on investments and
servicing of finance
interest paid (19,555) (6,300)
----------- -----------
Net cash outflow for returns on
investments and servicing of finance (19,555) (6,300)
CAPITAL EXPENDITURE
Payments to acquire tangible assets (52,654) (37,951)
----------- -----------
Net cash outflow for capital
expenditure (52,654) (37,951)
----------- -----------
Net cash outflow before
management of liquid resources
and financing (462,893) (46,870)
FINANCING
Capital contributions 156,626 -
Other new short term loans 94,568 40,000
Repayment of other short term loans (72,429) (33,333)
Capital element of hire purchase contracts (16,243) (4,051)
----------- -----------
Net cash inflow from financing 162,522 2,616
----------- -----------
Decrease in cash in the year 20 (300,371) (44,254)
=========== ===========
</TABLE>
F-45
<PAGE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
1.1 ACCOUNTING CONVENTION
The accounts are prepared under the historical cost convention.
1.2 TURNOVER
Turnover represents amounts receivable for goods and services net of VAT
and trade discounts.
1.3 GOODWILL
The goodwill arising on the acquisition of the business, being the amount
paid in respect of contracts which had not commenced at 30 May 1996, has
been capitalized and is amortised through the profit and loss account over
a period of three years, estimated by the directors to be the period during
which profits will arise from these contracts. Where the carrying value of
the goodwill is considered to be impaired, it has been written down to its
recoverable amount.
1.4 TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost less depreciation. Depreciation is
provided at rates calculated to write off the cost less estimated residual
value of each asset over its expected useful life, as follows:
Leasehold improvements 20% straight line basis
Plant and equipment 20% straight line basis
Fixtures and fittings 20% straight line basis
Motor vehicles 33% straight line basis
1.5 LEASING AND HIRE PURCHASE COMMITMENTS
Assets obtained under hire purchase contracts and finance leases are
capitalised as tangible assets and depreciated over the shorter of the
lease term and their useful lives. Obligations under such agreements are
included in creditors not of the finance charge allocated to future
periods. The finance element of the rental payment is charged to the profit
and loss account so as to produce a constant periodic rate of charge on the
net obligation outstanding in each period.
Rentals payable under operating leases are charged against income on a
straight line basis over the lease term.
1.6 STOCK
Stocks are valued at the lower of cost, including appropriate overhead
expenses, and net realisable value.
F-46
<PAGE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- --------------------------------------------------------------------------------
1.7 LONG TERM CONTRACTS
Long term contracts are stated at total costs incurred, net of amounts
transferred to the profit and loss account in respect of work carried out
to date after deducting foreseeable losses if applicable and payments on
account.
Amounts recoverable on contracts are included in debtors, net of progress
payments received and receivable.
Payments made in excess of amounts (i) matched with turnover, (ii) offset
against long term contract balances are classified as payments on account
and disclosed under: Creditors: Amounts Failing Due Within One Year.
Turnover and attributable profit have been calculated by reference to the
percentage completion of the job at the balance sheet date.
1.8 PENSIONS
The pension costs charged in the account represent the contributions
payable by the company during the year in accordance with SSAP 24.
1.9 FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are
translated into sterling at the rates of exchange ruling at the balance
sheet date. Transactions in foreign currencies are recorded at the rate
ruling at the date of the transaction. Differences arising are dealt with
in the profit and loss account.
1.10 RESEARCH AND DEVELOPMENT
Research and development expenditure is written off to the profit and loss
account in the year in which it is incurred.
1.11 CONTINGENCIES AND WARRANTIES
Expenditure associated with contingencies or warranties on contracts is
written off to the profit and loss account in the year in which it is
incurred.
1.12 GOVERNMENT GRANTS
Government grants in respect of research and development activities are
credited to the profit and loss account as the related expenditure is
incurred.
2 TURNOVER
GEOGRAPHICAL MARKET TURNOVER
1998 1997
(pound) (pound)
United Kingdom 130,632 32,004
Europe 734,095 471,853
Rest of the World 496,582 844,134
---------- ----------
1,361,309 1,347,991
========== ==========
F-47
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
3 OPERATING LOSS 1998 1997
(pound) (pound)
<S> <C> <C>
Operating loss is stated after charging:
Amortisation of intangible assets 9,447 6,667
Depreciation of tangible assets 40,818 27,340
Operating lease rentals
- Plant and machinery 7,596 6,240
- Other assets 52,589 52,589
Auditors' remuneration 16,500 7,500
Loss on exchange - 6,572
and after crediting:
Government grants 120,859 -
Profit on exchange 4,834 -
========== ==========
4 INTEREST PAYABLE AND SIMILAR CHARGES 1998 1997
(pound) (pound)
On bank loans and overdrafts 14,881 5,551
Hire purchase interest 2,674 749
On overdue tax 2,000 -
---------- ----------
19,555 6,300
========== ==========
5 EMPLOYEES
NUMBER OF EMPLOYEES
The average monthly number of employees (including directors) during the
year was:
1998 1997
Number Number
Production and sales 23 23
Administration 11 10
------- -------
34 33
======= =======
EMPLOYMENT COSTS
(pound) (pound)
Wages and salaries 928,822 744,039
Social security costs 93,072 73,897
Other pension costs 19,621 23,283
---------- ----------
1,041,515 841,219
========== ==========
</TABLE>
F-48
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
6 DIRECTORS' EMOLUMENTS 1998 1997
(pound) (pound)
<S> <C> <C>
Emoluments for qualifying services 236,441 221,107
Company pension contributions to money purchase schemes 4,112 4,113
---------- ----------
240,553 225,220
========== ==========
Emoluments disclosed above include the following amounts paid to the
highest paid director:
Emoluments for qualifying services 54,371 56,482
========== ==========
</TABLE>
During the year three (1997: three) directors were accruing benefits under
the company's money purchase pension scheme.
In addition to the pension contributions disclosed above, amounts totaling
(pound)5,150 (1997: (pound)4,360) have been charged to the profit and loss
account in respect of a scheme to be set up for the directors of the
company.
7 TAXATION
No liability to UK Corporation Tax arises on the results for the year
(1997: (pound)Nil). The company has tax losses available to offset against
future chargeable profits.
F-49
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
8 INTANGIBLE FIXED ASSETS
PATENTS AND GOODWILL TOTAL
TRADE MARKS
(pound) (pound) (pound)
<S> <C> <C> <C>
Cost
At 1 January 1998 & at 31 December 1998 2 20,001 20,003
---------- ---------- ----------
Amortisation
At 1 January 1998 - 10,556 10,556
Charge for year 2 9,445 9,447
---------- ---------- ----------
At 31 December 1998 2 20,001 20,003
---------- ---------- ----------
Net book value
At 31 December 1998 - - -
========== ========== ==========
At 31 December 1997 2 9,445 9,447
========== ========== ==========
</TABLE>
Goodwill represents the amount paid for contracts which had not commenced
at the date of the acquisition of the business. This is being amortised
over a period of three years which is the directors' estimate of the period
during which profits will arise from these contracts. Where the carrying
value of the goodwill is considered to be impaired, it has been written
down to its recoverable amount.
The goodwill amortisation charge for the year includes impairment losses
recognized amounting to (pound)2,778. The cumulative amount of impairment
losses recognized at 31 December 1998 in respect of goodwill amounted to
(pound)2,778.
The patents and trade marks amortisation charge for the year represents
impairment losses recognized amounting to (pound)2. The cumulative amount
of impairment losses recognized at 31 December 1998 in respect of patents
and trade marks amounted to (pound)2.
F-50
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
9 INTANGIBLE FIXED ASSETS
LEASEHOLD PLANT AND FIXTURES AND MOTOR TOTAL
IMPROVEMENTS EQUIPMENT FITTINGS VEHICLES
(pound) (pound) (pound) (pound) (pound)
COST
<S> <C> <C> <C> <C> <C>
At 1 January 1998 2,526 78,940 82,626 10,700 174,792
Additions 17,187 29,260 6,207 - 52,654
--------- --------- --------- --------- ---------
At 31 December 1998 19,713 108,200 88,833 10,700 227,446
--------- --------- --------- --------- ---------
DEPRECIATION
At 1 January 1998 374 18,731 11,829 5,350 36,284
Charge for the year 2,797 17,720 16,734 3,567 40,818
--------- --------- --------- --------- ---------
At 31 December 1998 3,171 36,451 28,563 8,917 77,102
--------- --------- --------- --------- ---------
NET BOOK VALUE
At 31 December 1998 16,542 71,749 60,270 1,783 150,344
========= ========= ========= ========= =========
At 31 December 1997 2,152 60,209 70,797 5,350 138,508
========= ========= ========= ========= =========
</TABLE>
Included above are assets held under finance leases or hire purchase
contracts as follows:
<TABLE>
<CAPTION>
FIXTURES MOTOR TOTAL
AND FITTINGS VEHICLES
(pound) (pound) (pound)
NET BOOK VALUES
<S> <C> <C> <C>
At 31 December 1998 35,472 1,783 37,255
========= ========= =========
At 31 December 1997 45,575 5,350 50,925
========= ========= =========
DEPRECIATION CHARGE FOR THE YEAR
31 December 1998 9,526 3,567 13,093
========= ========= =========
31 December 1997 1,716 3,567 5,283
========= ========= =========
</TABLE>
F-51
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
10 STOCKS 1998 1997
(pound) (pound)
<S> <C> <C>
Raw materials and consumables 99,646 47,109
========== =========
F-52
<PAGE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- ------------------------------------------------------------------------------------------------------------------
11 DEBTORS 1998 1997
(pound) (pound)
Trade debtors 347,280 139,971
Amounts recoverable on long term contracts 372,891 413,209
Other debtors 19,753 23,240
Prepayments and accrued income 70,348 22,402
---------- ---------
810,272 598,822
========== =========
12 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 1998 1997
(pound) (pound)
Bank loans and overdrafts 318,298 33,333
Payments received on account 264,970 342,349
Net obligations under finance lease and hire purchase contracts 17,485 20,516
Trade creditors 194,107 132,194
Taxes and social security costs 136,110 137,397
Directors' current accounts 47,151 -
Other creditors 7,749 22,268
Accruals and deferred income 75,499 38,073
---------- ----------
1,061,369 726,130
========== =========
Debt due within one year 382,934 33,333
========== =========
</TABLE>
The bank loan and overdraft is secured by a fixed and floating charge over
the assets of the company, together with deeds of postponement in respect
of directors loans to the company. The bank loan is repayable in monthly
installments of (pound)3,021 and carries an interest rate of 2.5% over the
base rate.
Obligations under finance leases and hire purchase contracts are secured
upon the assets concerned.
F-53
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
13 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 1998 1997
(pound) (pound)
<S> <C> <C>
Bank loans - 22,223
Net obligations under finance leases and hire purchase agreements 17,092 30,304
---------- ----------
17,092 52,527
========== ==========
ANALYSIS OF LOSES
Wholly repayable within five years 30,544 55,556
---------- ----------
30,544 55,556
Included in current liabilities (30,544) (33,333)
---------- ----------
- 22,223
========== ==========
MATURITY OF DEBT
Between one and two years 16,358 39,707
Between two and five years 734 12,820
========== ==========
14 PROVISIONS FOR LIABILITIES AND CHARGES Provisions for
foreseeable
losses
(pound)
Profit and loss account 33,001
==========
15 SHARE CAPITAL 1998 1997
(pound) (pound)
AUTHORIZED
100,000 Ordinary shares of (pound)1 each 100,000 100,000
========== ==========
ALLOTTED, CALLED UP AND FULLY PAID
82,000 Ordinary shares of (pound)1 each 82,000 82,000
========== ==========
</TABLE>
F-54
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
16 STATEMENT OF MOVEMENTS ON RESERVES
SHARE PROFIT AND
PREMIUM LOSS ACCOUNT
ACCOUNT
(pound) (pound)
<S> <C> <C>
Balance at 1 January 1998 30,000 (80,052)
Retained loss for the year - (235,672)
---------- ----------
30,000 (315,724)
========== ==========
17 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 1998 1997
(pound) (pound)
Loss for the financial year (235,672) (80,561)
Capital contributions 156,626 -
---------- ----------
Net depletion in shareholders' funds (79,046) (80,561)
Opening shareholders' funds 31,948 112,509
---------- ----------
Closing shareholders' funds (47,098) 31,948
========== ==========
18 RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW
FROM OPERATING ACTIVITIES 1998 1997
(pound) (pound)
Operating loss (216,117) (74,261)
Depreciation of tangible assets 40,818 27,340
Amortisation of intangible assets 9,447 6,667
Increase in stocks (52,537) (31,625)
Increase in debtors (211,450) (78,464)
Increase in creditors within one year 6,154 147,724
Increase in pension provision 33,001 -
---------- ----------
Net cash outflow from operating activities (390,684) (2,619)
========== ==========
</TABLE>
F-55
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
19 ANALYSIS OF NET DEBT 1 January Cash Flow 31 December
1998 1998
(pound) (pound) (pound)
<S> <C> <C> <C>
NET CASH:
Cash at bank and in hand 16,719 (12,617) 4,102
Bank overdrafts - (287,754) (287,754)
---------- ---------- ----------
16,719 (300,371) (283,652)
---------- ---------- ----------
DEBT:
Finance leases (50,820) 16,243 (34,577)
Debts falling due within one year (33,333) (44,362) (77,695)
Debts falling due after one year (22,223) 22,223 -
---------- ---------- ----------
(106,376) (5,896) (112,272)
---------- ---------- ----------
NET DEBT (89,657) (306,267) (395,924)
========== ========== ==========
</TABLE>
<TABLE>
20 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 1998 1997
(pound) (pound)
<CAPTION>
<S> <C> <C>
Decrease in cash in the year (300,371) (44,254)
Cash inflow from increase in debt and lease financing (5,896) (2,616)
---------- ----------
Change in net debt resulting from cash flows (306,267) (46,870)
New finance lease - (47,631)
---------- ----------
Movement in net debt in the year (306,267) (94,501)
Opening net (debt)/funds (89,657) 4,844
---------- ----------
Closing net debt (395,924) (89,657)
========== ==========
</TABLE>
21 CAPITAL CONTRIBUTIONS
Capital contributions represent amounts of capital provided by equity
shareholders which are not represented by issued shares. The company has no
obligation to transfer economic benefits to shareholders in respect of
these contributions, as defined by Financial Reporting Standard Number 4.
F-56
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
22 FINANCIAL COMMITMENTS
At 31 December 1998 the company had annual commitments under
non-cancellable operating leases as follows:
LAND AND BUILDINGS OTHER
1998 1997 1998 1997
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Expiry date:
Within one year - - 4,705 -
Between two and five years - - 10,487 11,303
In over five years 43,876 43,876 - -
---------- ---------- ---------- ----------
43,876 43,876 15,192 11,303
========== ========== ========== ==========
</TABLE>
23 PENSION COSTS
The company operates a defined contribution pension scheme. The assets of
the scheme are held separately from those of the company in an
independently administered fund. The pension cost charge represents
contributions payable by the company to the fund and amounted to
(pound)19,621 (1997: (pound)23,283). Contributions totaling (pound)10,821
(1997: (pound)2,508) were payable to the fund at the year end and are
included in creditors; amounts falling due within on year.
In addition to the contributions payable to fund as described above amounts
totaling (pound)5,150 (1997: (pound)4,860) have been charged to the profit
and loss account in respect of a pension scheme to be set up for the
directors of the company. At the year end amounts totaling (pound)12,689
(1997: (pound)7,539) had been accrued but not paid in respect of this
scheme.
24 CONTROL
The directors consider SpaceDev Inc., a company incorporated in the state
of Colorado, USA, to be the company's immediate controlling party and
ultimate parent company.
J W Benson a director of SpaceDev Inc., is considered to be the company's
ultimate controlling party.
F-57
<PAGE>
<TABLE>
SPACE INNOVATIONS LIMITED
NOTES TO THE ACCOUNTS
YEAR ENDED 31 DECEMBER 1998
- -------------------------------------------------------------------------------------------------------------------
25 RELATED PARTY TRANSACTIONS
Up until 30 September 1998 Crossnet Systems Limited was regarded as a
related party by virtue of three directors/shareholders of Space
Innovations Limited (Joan Holloway, Dennis Brindley, and Professor John
Culhane) holding between them 52% of the issued share capital of Crossnet
Systems Limited. Joan Holloway and Dennis Brindley are also directors of
Crossnet Systems Limited.
Purchases/(sales) made from/to Crossnet Systems Limited during the period
to 30 September 1998 were:
<CAPTION>
Value of
transactions Debtor/(creditor)
in the year at 31/12/98
(pound) (pound)
<S> <C> <C>
Reimbursement of wages - (1,996)
========== ==========
Contribution to overheads (11,981) -
========== ==========
Purchases/(sales) made from/to Crossnet Systems Limited during 1997 were:
Value of
transactions Debtor/(creditor)
in the year at 31/12/97
(pound) (pound)
Reimbursement of wages - (3,200)
========== ==========
Contribution to overheads (22,740) (1,839)
========== ==========
During the year, the following directors advanced loans to the company:
Amount of loan Balance
Outstanding at
31/12/98
(pound) (pound)
J L Culhane 11,000 11,000
A J Barrington Brown 10,000 9,429
A K Ward 10,000 6,944
J E Holloway 5,000 3,889
J Anzalchi 12,000 8,667
D R Brindley 10,000 7,222
In addition to the capital amounts above, the company reimburses directors
for interest charges and premiums incurred on their loans.
</TABLE>
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 102,887
<SECURITIES> 0
<RECEIVABLES> 363,915
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 473,776
<PP&E> 2,325,726
<DEPRECIATION> 222,400
<TOTAL-ASSETS> 4,762,064
<CURRENT-LIABILITIES> 1,765,184
<BONDS> 0
0
0
<COMMON> 1,388
<OTHER-SE> 720,796
<TOTAL-LIABILITY-AND-EQUITY> 4,762,064
<SALES> 4,877,931
<TOTAL-REVENUES> 4,877,931
<CGS> 2,445,304
<TOTAL-COSTS> 8,582,960
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 412,284
<INCOME-PRETAX> (4,116,313)
<INCOME-TAX> 3,335
<INCOME-CONTINUING> (4,116,648)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,119,648)
<EPS-BASIC> (.39)
<EPS-DILUTED> (.39)
</TABLE>
