UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file Number 000-21749
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 95-4257380
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3501 Lakewood Boulevard
Long Beach, California 90808
(Address of principal executive offices)
(562) 938-8618
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
As of November 11, 1997, the issuer had outstanding 6,900,000 shares of Class A
Common Stock, 2,000,000 shares of Class B Common Stock, 4,000,000 shares of
Class E-1 Common Stock and 4,000,000 shares of Class E-2 Common stock.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Balance Sheet
(unaudited)
December 31, 1996 September 30, 1997
-------------------------------------
Assets
Current Assets:
Cash and cash equivalents $24,222,000 $ 6,922,000
Marketable securities 2,026,000 4,912,000
Certificate of deposit 12,000 1,012,000
Prepaid expenses and other current
assets 155,000 445,000
--------------------------------------
Total current assets 26,415,000 13,291,000
Long-term Assets:
Restricted cash 8,500,000
Property and equipment, net 1,686,000 2,092,000
Other assets 689,000
--------------------------------------
Total long-term assets $ 1,686,000 11,281,000
======================================
Total assets $28,101,000 $24,572,000
======================================
See accompanying notes to financial statements.
1
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Balance Sheet (continued)
(unaudited)
December 31, 1996 September 30, 1997
--------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 145,000 $ 111,000
Accrued liabilities 158,000 443,000
--------------------------------------
Total current liabilities 303,000 554,000
Long-term liabilities:
Bonds payable 170,000
Deferred revenue 370,000
--------------------------------------
Total long-term liabilities 540,000
--------------------------------------
Total liabilities 303,000 1,094,000
--------------------------------------
Stockholders' equity:
Preferred stock, par value $.0001 per share;
5,000,000 shares authorized; no shares
issued and outstanding
Class A Common Stock, par value $.0001
per share; 60,000,000 shares authorized;
6,900,000 shares issued and outstanding 1,000 1,000
Class B Common Stock, par value $.0001 per share;
10,000,000 shares authorized; 2,000,000 shares
issued and outstanding
Class E-1 Common Stock, par value $.0001
per share; 4,000,000 shares authorized;
4,000,000 shares issued and outstanding
Class E-2 Common Stock, par value $.0001
per share; 4,000,000 shares authorized,
4,000,000 shares issued and outstanding
Warrants to purchase common stock:
Public Warrants 473,000 473,000
Class A Warrants 11,290,000 11,290,000
Class B Warrants 4,632,000 4,632,000
Additional paid-in capital (note 5) 35,730,000 35,652,000
Deficit accumulated during the development stage (24,328,000) (28,570,000)
--------------------------------------
Total stockholders' equity 27,798,000 23,478,000
--------------------------------------
Total liabilities and stockholders' equity $28,101,000 $24,572,000
======================================
See accompanying notes to financial statements.
2
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Statement of Operations
(unaudited)
Period from
January 26, 1990
Three Months Ended Nine Months Ended (inception) to
September 30, September 30, September 30,
-----------------------------------------------------------------------------------------
1996 1997 1996 1997 1997
-----------------------------------------------------------------------------------------
Other income $ $ $ 7,000 $ 7,000 $ 717,000
Investment income 3,000 243,000 4,000 884,000 1,054,000
-----------------------------------------------------------------------------------------
3,000 243,000 11,000 891,000 1,771,000
Costs and expenses:
Research and development costs 1,781,000 3,013,000 16,649,000
Preoperating costs 282,000
General and administrative expenses 249,000 827,000 1,418,000 2,014,000 9,404,000
Loss on disposal of assets 106,000 463,000
Interest expense 134,000 319,000 1,840,000
In-process research and development
acquired 761,000
-----------------------------------------------------------------------------------------
383,000 2,608,000 1,737,000 5,133,000 29,399,000
-----------------------------------------------------------------------------------------
Loss before extraordinary item (380,000) (2,365,000) (1,726,000) (4,242,000) (27,628,000)
Extraordinary loss on retirement of Bridge
Notes (942,000)
-----------------------------------------------------------------------------------------
Net loss $ (380,000) $(2,365,000) $(1,726,000) $(4,242,000) $(28,570,000)
-----------------------------------------------------------------------------------------
Net loss per share $(.11) $(.27) $(.51) $(.48)
-----------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 3,400,000 8,900,000 3,400,000 8,900,000
-----------------------------------------------------------------------------------------
See accompanying notes to financial statements.
3
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Statement of Stockholders' Equity
Common Stock
Preferred Stock Class A Class B Class B-1 Class B-2
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
Common stock issued 418,094 $-- 836,189 $-- 836,189 $--
Common stock issued in
exchange for in-process
research and development 201,494 -- 402,988 -- 402,988 --
Imputed interest on
advances from stockholder
Net loss from inception to
December 31, 1994
-------------------------------------------------------------------------------------------------------
Balance at December 31,
1994 619,588 -- 1,239,177 -- 1,239,177 --
Imputed interest on
advances from stockholder
Net loss
-------------------------------------------------------------------------------------------------------
Balance at December 31,
1995 619,588 -- 1,239,177 -- 1,239,177 --
Conversion of stockholder
advances 598,011 -- 1,196,021 -- 1,196,021 --
Conversion of officer loans 187,118 -- 374,236 -- 374,236 --
Stock issued in consideration
for services in 1994, 1995
and 1996 595,283 -- 1,190,566 -- 1,190,566 --
Imputed interest on advances
from stockholder
Net proceeds from initial
public offering of Units 6,000,000 $1,000
Net proceeds from exercise
of overallotment option 900,000 --
Warrants issued in
connection with issuance of
Bridge Notes
Net loss
------------------------------------------------------------------------------------------------------
Balance at December 31,
1996 6,900,000 $1,000 2,000,000 -- 4,000,000 -- 4,000,000 --
Adjustment to proceeds from
initial public offering and
exercise of overallotment
option
Net loss
------------------------------------------------------------------------------------------------------
Balance at September 30,
1997 (unaudited) 6,900,000 $1,000 2,000,000 -- 4,000,000 -- 4,000,000 --
See accompanying notes to financial statements
4
Advanced Aerodynamics & Structure, Inc.
(A Development Stage Enterprise)
Statement of Stockholder's Equity (continued)
Deficit
Bridge Warrants Accumulated
Warrants to Additional During the
Purchase Paid-in Development
Common Stock Class A Class B Capital Stage Total
Common stock issued $7,500,000 $7,500,000
Common stock issued in
exchange for in-process
research and development 361,000 361,000
Imputed interest on
advances from stockholder 776,000 776,000
Net loss from inception to
December 31, 1994 $(19,252,000) $(19,252,000)
-------------------------------------------------------------------------------------------
Balance at December 31,
1994 8,637,000 (19,252,000) (10,615,000)
Imputed interest on
advances from stockholder 23,000 23,000
Net loss (1,688,000) (1,688,000)
-------------------------------------------------------------------------------------------
Balance at December 31,
1995 8,660,000 (20,940,000) (12,280,000)
Conversion of stockholder
advances 10,728,000 10,728,000
Conversion of officer loans 336,000 336,000
Stock issued in consideration
for services in 1994, 1995
and 1996 1,507,000 1,507,000
Imputed interest on advances
from stockholder 11,000 11,000
Net proceeds from initial
public offering of Units $9,583,000 $4,166,000 12,566,000 26,316,000
Net proceeds from exercise
of overallotment option 1,707,000 466,000 1,922,000 4,095,000
Warrants issued in
connection with issuance of
Bridge Notes $473,000 473,000
Net loss (3,388,000) (3,388,000)
-------------------------------------------------------------------------------------------
Balance at December 31,
1996 $473,000 $11,290,000 $4,632,000 $35,730,000 $(24,328,000) $27,798,000
Adjustment to proceeds from
initial public offering and
exercise of overallotment
option (78,000) (78,000)
Net loss (4,242,000) (4,242,000)
--------------------------------------------------------------------------------------------
Balance at September 30,
1997 (unaudited) $473,000 $11,290,000 $4,632,000 $35,652,000 $28,570,000) $23,478,000
See accompanying notes to financial statements
5
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Statement of Cash Flows
(unaudited)
Period from
January 26, 1990
Nine Months Ended (inception) to
September 30, September 30,
-----------------------------------------------------------------------
1996 1997 1997
-----------------------------------------------------------------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $(1,726,000) $(4,242,000) $(28,570,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Noncash stock compensation expense 590,000 -- 1,207,000
Noncash interest expense 105,000 336,000
Cost of in-process research and development
acquired 761,000
Imputed interest on advances from stockholder 11,000 810,000
Extraordinary loss on retirement of Bridge Notes 942,000
Depreciation and amortization 245,000 272,000 2,086,000
Loss on disposal of assets 106,000 463,000
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses and
other current assets (290,000) (445,000)
Increase in other assets (689,000) (689,000)
Increase (decrease) in accounts payable 121,000 (34,000) 111,000
Increase (decrease) in accrued liabilities (389,000) 285,000 343,000
Increase in interest payable (177,000)
Increase in deferred revenue 370,000 370,000
Increase in receivable from officer (115,000)
-----------------------------------------------------------------------
Net cash used in operating activities (1,335,000) (4,222,000) (22,275,000)
-----------------------------------------------------------------------
Cash flows from investing activities:
Purchased restricted cash (8,500,000) (8,500,000)
Proceeds from insurance claims upon loss of aircraft 30,000
Proceeds from disposal of assets 3,000 3,000
Capital expenditures (787,000) (4,634,000)
Purchase of certificate of deposit (1,000) (1,000,000) (1,012,000)
Purchase of marketable securities (1,499,000) (6,212,000) (8,238,000)
Proceeds from sale of marketable securities 3,326,000 3,326,000
-----------------------------------------------------------------------
Net cash used in investing activities (1,500,000) (13,170,000) (19,025,000)
------------------------------------------------------------------------
Cash flows from financing activities:
Advances from stockholder 10,728,000
Proceeds from issuance of common stock prior to
initial public offering 7,500,000
6
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Statement of Cash Flows (continued)
(unaudited)
Period from
January 26, 1990
Nine Months Ended (inception) to
September 30, September 30
------------------------------------------------------------------------
1996 1997 1997
------------------------------------------------------------------------
Net proceeds from initial public offering and
exercise of over-allotment option (78,000) 30,333,000
Net proceeds from bridge financing 6,195,000
Repayment of bridge financing (7,000,000)
Repayment of obligation under capital leases (15,000) (40,000)
Proceeds from loan from officer 402,000 336,000
Repayment of loan from officer (226,000)
Repayment of bank note (900,000)
Repayment of loan from SIDA Corporation (110,000)
Repayment of other short-term loans (565,000)
Proceeds from bridge financing, net of issuance costs 6,195,000
Increase in deferred offering costs (586,000)
Proceeds from bonds 170,000 170,000
------------------------------------------------------------------------
Net cash provided by financing activities 4,195,000 92,000 48,222,000
------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,360,000 (17,300,000) 6,922,000
Cash and cash equivalents at beginning of period -- 24,222,000 --
------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,360,000 $ 6,922,000 $ 6,922,000
========================================================================
Supplemental cash flow information:
Cash paid for interest $ 694,000
Supplemental disclosure of noncash investing and
financing activities:
Stockholder advances converted to common stock $10,728,000 $10,728,000
Loan from officer converted to common stock $ 336,000 $ 336,000
Common stock issued for noncash consideration
and compensation $ 1,507,000 $ 1,507,000
Liabilities assumed from ASI $ 400,000
Common stock issued for in-process research and
development acquired $ 361,000
Equipment acquired under capital leases $ 40,000
Deposit surrendered as payment for rents due $ 80,000
See accompanying notes to financial statements.
7
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
1. General
In the opinion of the Company's management, the accompanying unaudited
financial statements include all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of the financial
position of the Company at September 30, 1997 and the results of operations
and cash flows for the nine months ended September 30, 1997 and 1996.
Although the Company believes that the disclosures in these financial
statements are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Results of
operations for interim periods are not necessarily indicative of results of
operations to be expected for any other interim period or the full year.
The financial information in this quarterly report should be read in
conjunction with the audited December 31, 1996 financial statements and
notes thereto included in the Company's annual report filed on Form 10-KSB.
The Company is a development stage enterprise. On December 3, 1996, the
Company successfully completed an initial public offering to finance the
continued development, manufacture and marketing of its product to achieve
commercial viability. The net proceeds of the offering were and will be
used to amend its Federal Aviation Administration ("FAA") Type Certificate
for technical revisions to its product, to obtain a FAA Production
Certificate for its product, to repay borrowings under a bridge loan, to
expand the Company's sales and marketing efforts, to establish a new
manufacturing facility, and to acquire production materials and additional
tooling and equipment.
2. Net Loss Per Share
The Company's net loss per share was computed based on the weighted average
number of shares of common stock outstanding during the three and nine
month periods ended September 30, 1996 and 1997 and excludes all
outstanding shares of Class E-1 and Class E-2 Common Stock because the
conditions for the lapse of restrictions on such shares have not been
satisfied.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, certain common stock equivalents issued by the Company have been
included as outstanding in net loss per share computations for the three
and nine month periods ended September 30, 1996. Common stock equivalents
were not included in the net loss per share computation for the three and
nine month periods ended September 30, 1997 as their effect on net loss per
share is antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share."
SFAS No. 128 establishes standards for computing and presenting earnings
per share ("EPS") and supersedes APB Opinion No. 15, "Earnings per Share."
It replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the
8
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS No. 128 will become effective for the Company
for the year ending December 31, 1997. The impact of the adoption of SFAS
No. 128 on the Company's financial statements is not expected to be
material.
3. Stock Option Plan
On March 4, 1997, options to purchase 210,000 shares of Class A Common
Stock were granted, at an exercise price of $5 per share, by the Company's
Board of Directors to certain employees, officers, consultants and agents
of the Company. On May 27, 1997, options to purchase 100,000 shares of
Class A Common Stock were granted to the President, at an exercise price of
$5.00 per share.
4. Industrial Development Bonds
On August 5, 1997, the Company entered into a loan agreement with the
California Economic Development Financing Authority for the issuance of
$8,500,000 in variable rate demand industrial development bonds ("IDBs").
The Company will use the proceeds from the IDBs to finance the construction
and installation of a 200,000 square foot manufacturing facility and
related manufacturing equipment.
The Company was required to provide cash collateral to a bank in the amount
of $8,500,000 for an irrevocable direct-pay letter of credit for the
payments of principal and interest. The letter of credit, unless extended
or terminated by the Company or the bank, will expire on August 5, 2002.
5. Land Lease for Manufacturing and Headquarters Facility
On October 17, 1997 the Company entered into a Lease Agreement (the
"Lease") with the City of Long Beach (the "Landlord"), whereby the Company
leased from the Landlord approximately 10 acres of land located on the Long
Beach Airport. The purpose of the Lease is to effectuate the construction
of an approximately 200,000 square foot manufacturing and headquarters
facility. The Lease also contains options to lease other airport
properties. The monthly rent under the Lease is $4,500, which monthly rent
escalates to approximately $15,600 after five (5) years.
The Lease term commences on November 15, 1997 (subject to extension by the
Landlord) but not until all "Conditions to Commencement of Term" have been
met. The lease term is 30 years with an option to renew for an additional
10 years.
6. Contract to Construct a Manufacturing and Headquarters Facility
On October 29, 1997, the Company entered into an agreement with Commercial
Developments International/West (Design/Builder) whereby Design/Builder
shall design and build an approximately 200,000 square foot manufacturing
and headquarters facility. The contract sum for this project is "Cost plus
Fixed Fees" with a Guaranteed Maximum Price of $6,300,000. Any savings
realized upon completion and acceptance of the project will be shared by
the Design/Builder and the Company. The Company believes that the project
will be completed in the second quarter of 1998.
9
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Item 2. Plan of Operations
Certain statements contained in this report, including statements
concerning the Company's future cash and financing requirements, the Company's
ability to obtain market acceptance of its aircraft, the Company's ability to
obtain regulatory approval for its aircraft, and the competitive market for
sales of small business aircraft and other statements contained herein regarding
matters that are not historical facts, are forward looking statements; actual
results may differ materially from those set forth in the forward looking
statements, which statements involve risks and uncertainties, including without
limitation those risks and uncertainties set forth in the Company's Registration
Statement on Form SB-2 (No. 333-12273) under the heading "Risk Factors."
The Company is a development stage enterprise organized to design, develop,
manufacture and market propjet and jet aircraft intended primarily for business
use. Since its inception, the Company has been engaged principally in research
and development of its proposed aircraft. In March 1990, the Company made
application to the FAA for a Type Certificate for the JETCRUZER 450, which
Certificate was ultimately granted in June 1994. As a result, the Company has
not generated any operating revenues to date and has incurred losses from such
activities. The Company believes it will continue to experience losses until
such time as it commences the sale of aircraft on a commercial scale.
Prior to commencing commercial sales of the JETCRUZER 500, the Company will
need to, among other things, complete the development of the aircraft, obtain
the requisite regulatory approvals, establish an appropriate manufacturing
facility, hire additional engineering and manufacturing personnel and expand its
sales and marketing efforts. The Company estimates that the cost to complete
development of the JETCRUZER 500 and obtain an amendment of its FAA Type
Certificate will be approximately $8,000,000. This amount includes the cost of
equipment and tooling (estimated at approximately $1,500,000), static and flight
testing of the aircraft (estimated at approximately $2,500,000) and the
employment of the necessary personnel to build and test the aircraft (estimated
at approximately $4,000,000).
The Company expects to receive progress payments during the construction of
aircraft and final payments upon the delivery of aircraft. However, the Company
believes it will continue to experience losses until such time as it commences
the sale of aircraft on a commercial scale.
Through the end of the third quarter of 1998, the Company intends to focus
its efforts in the following areas: (i) the completion of the development of the
JETCRUZER 500, including, among other things, adding a larger engine, completing
the pressurization, environmental systems, and de-icing capabilities of the
aircraft, obtaining autopilot certification, and lengthening the aircraft's
fuselage; (ii) obtaining an amendment to the Company's Type Certificate to
include the JETCRUZER 500, including the manufacture of FAA conformed models of
the JETCRUZER 500 and static and flight testing; (iii) building a manufacturing
facility capable of producing the JETCRUZER 500 on a commercial scale, including
establishing a production line in such facility, acquiring production inventory
and additional equipment, and tooling and computer hardware and software
systems; (iv) obtaining a production certificate from the FAA and commencing
commercial production of the JETCRUZER 500; (v) expanding the Company's sales
and marketing staff and increasing its marketing efforts with respect to the
JETCRUZER 500; and (vi) increasing the Company's engineering, manufacturing and
administrative staff in anticipation of increased development and production
activities. The Company believes that the net proceeds from the December 1996
IPO will be sufficient to finance its plan of operations through approximately
the third quarter of 1998, based upon the current status of its business
operations, its current plans and current economic and industry conditions. If
the Company's estimates prove to be incorrect, however, then during such period
the Company may have to seek additional sources of financing, reduce operating
costs and/or curtail growth plans.
Liquidity and Capital Resources
At September 30, 1997, the Company had working capital of $12,737,000 and
stockholders' equity of $24,572,000. Since its inception in January 1990, the
Company has experienced continuing negative cash flow from operations, which,
prior to its recent IPO, resulted in the Company's inability to pay certain
existing liabilities in a timely manner. The Company has financed its operations
through private funding of equity and debt and its December 1996 IPO.
10
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
The Company expects its cash requirements to increase in the future due to
higher expenses associated with product development, the scale-up of production
(including capital investment in production equipment), intensification of a
sales and marketing program, the hiring of personnel and other anticipated
operating activities. The Company also expects to continue to incur losses until
such time, if ever, as it obtains regulatory approval for the JETCRUZER 500 and
related production processes and market acceptance for its proposed aircraft at
selling prices and volumes which provide adequate gross profit to cover
operating costs and generate positive cash flow. The Company's working capital
requirements will depend upon numerous factors, including the level of resources
devoted by the Company to the scale-up of manufacturing and the establishment of
sales and marketing capabilities and the progress of the Company's research and
development program for the JETCRUZER 500 and other proposed aircraft.
The Company expects that the net proceeds of the December 1996 IPO will
enable it to meet its liquidity and capital requirements at least through the
third quarter of 1998, by which time the Company expects to have received a type
certificate and a production certificate for the JETCRUZER 500 and commenced
commercial production and sale of the JETCRUZER 500. Such proceeds are being,
and will be used primarily for amendment of the Type Certificate, the purchase
of equipment and tooling, the establishment of a manufacturing facility, and
sales and marketing. The Company's capital requirements are subject to numerous
contingencies associated with development stage companies. Specifically if
delays are encountered in amending the current Type Certificate, the time and
cost of obtaining such certification may be substantial, may render it
impossible for the Company to complete such new or amended certification and may
therefore have a material and adverse effect on the Company's operations.
Further, if the Company has not completed the development of the JETCRUZER 500
or received the required regulatory approvals and successfully commenced
commercial sales of its aircraft by the third quarter of 1998, the Company may
require additional funding to fully implement its proposed business plan. The
Company has no commitments from any third parties for any future funding, and
there can be no assurance that the Company will be able to obtain financing in
the future from bank borrowings, debt or equity financing or other sources on
terms acceptable to the Company or at all. In the event necessary financing were
not obtained, the Company would be materially and adversely affected and might
have to cease or substantially reduce operations.
The Company had no other material capital commitments at September 30, 1997
other than as discussed in this report. The Company intends to hire a number of
additional employees and to establish a larger manufacturing facility, both of
which will require substantial capital resources. The Company anticipates that
it will hire approximately 10 employees over the next six months and 150
employees over the next 21 months, including engineers and manufacturing
technicians necessary to produce its aircraft.
11
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Charge to Income in the Event of Conversion of Performance Shares
In the event the Company attains certain earnings thresholds or the
Company's Class A Common Stock meets certain minimum bid price levels, the Class
E Common Stock will be converted into Class B Common Stock. In the event any
such converted Class E Common Stock is held by officers, directors, employees or
consultants, the maximum compensation expense recorded for financial reporting
purposes will be an amount equal to the fair value of the shares converted at
the time of such conversion which value cannot be predicted at this time.
Therefore, in the event the Company attains such earnings thresholds or stock
price levels, the Company will recognize a substantial charge to earnings during
the period in which such conversion occurs, which would have the effect of
increasing the Company's loss or reducing or eliminating its earnings, if any,
at that time. In the event the Company does not attain these earnings thresholds
or minimum bid price levels, and no conversion occurs, no compensation expense
will be recorded for financial reporting purposes.
Financing of Manufacturing and Headquarters Facility
On August 5, 1997, the Company entered into agreements with the California
Economic Development Financing Authority (the "Authority"), The Sumitomo Bank,
Limited (the "Bank") and Rauscher Pierce Refnes, Inc. (the "Underwriter")
whereby the Authority issued $8,500,000 in industrial development bonds ("IDBs")
to the Authority and loaned the proceeds to the Company. The Bank provided a
letter of credit to support the payment of principal and interest on the IDB.
The Company will use the loan proceeds from the IDBs for the acquisition,
construction and equipping of an approximately 200,000 square foot manufacturing
and headquarters facility located in the City of Long Beach, California.
The Company was required to provide cash collateral to the Bank in the
amount of $8,500,000 for a stand-by letter of credit in favor of the holders of
the IDBs, which stand-by letter of credit will expire on August 5, 2002, if not
terminated earlier by the Company or the Bank.
Item 5. Other Information
Land Lease for Manufacturing and Headquarters Facility
On October 17, 1997 the Company entered into a Lease Agreement (the
"Lease") with the City of Long Beach (the "Landlord"), whereby the Company
leased from the Landlord approximately 10 acres of land located on the Long
Beach Airport. The purpose of the Lease is to effectuate the construction of an
approximately 200,000 square foot manufacturing and headquarters facility. The
Lease also contains options to lease other airport properties. The monthly rent
under the Lease is $4,500, which monthly rent escalates to approximately $15,600
after five (5) years.
The Lease term commences on November 15, 1997 (subject to extension by the
Landlord) but not until all "Conditions to Commencement of Term" have been met.
The lease term is 30 years with an option to renew for an additional 10 years.
Contract to Construct a Manufacturing and Headquarters Facility
On October 29, 1997, the Company entered into an agreement with Commercial
Developments International/West (Design/Builder) whereby Design/Builder shall
design and build an approximately 200,000 square foot manufacturing and
headquarters facility. The contract sum for this project is "Cost plus Fixed
Fees" with a Guaranteed Maximum Price of $6,300,000. Any savings realized upon
completion and acceptance of the project will be shared by the Design/Builder
and the Company. The Company believes that the project will be completed in the
second quarter of 1998.
12
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits:
Exhibit No. Description
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* 3.1 Certificate of Incorporation
** 3.2 Bylaws
* 3.3 Amendment to Certificate of Incorporation
* 4.1 Specimen Certificate of Class A Common Stock
* 4.2 Warrant Agreement (including form of Class A and
Class B Warrant Certificates
* 4.3 Form of Underwriter's Unit Purchase Option
* 10.1 Form of Indemnification Agreement
** 10.2 Amended 1996 Stock Option Plan
* 10.3 Employment Agreement dated as of May 1, 1996 between
the Company and Dr. Carl L. Chen
* 10.4 Agreement of Merger dated July 16, 1996 between
Advanced Aerodynamics and Structures, Inc.,
California corporation, and Advanced Aerodynamics
& Structures, Inc., a Delaware corporation
** 10.5 Lease dated December 19, 1996 between Olen
Properties Corp., a Florida corporation, and the Company
*** 10.6 Standard Sublease dated June 27, 1997 with Budget
Rent-a-Car of Southern California
*** 10.7 Standard Sublease dated July 16, 1997 with Budget
Rent-a-Car of Southern California
*** 10.8 Standard Industrial/Commercial Multi-Tenant Lease-Gross
dated March 12, 1997 with the Golgolab Family Trust
10.9 Loan Agreement dated as of August 1, 1997 between the
Company and the California Economic Development Authoroity
10.10 Indenture of Trust dated as of August 1, 1997 between
the California Economic Development Authority and
First Trust of California, National Association
****10.11 Official Statement dated August 5, 1997
10.12 Letter of Credit issued by The Sumitomo Bank, Limited
10.13 Reimbursement Agreement dated as of August 1, 1997
between the Company and The Sumitomo Bank, Limited
10.14 Purchase Contract dated August 1, 1997 by and among
Rauscher Pierce Refnes, Inc., the California Economic
Development Authority and the Treasurer of the State
of California, and approved by the Company
10.15 Remarketing Agreement dated as of August 1,1997
between the Company and Rauscher Pierce Refnes, Inc.
10.16 Blanket Letters of Representations of the California
Economic Development Authority and First Trust of
California, National Association
10.17 Tax Regulatory Agreement dated as of August 1, 1997
by and among the California Economic Development
Authority, the Company and First Trust of California,
National Association
10.18 Custody, Pledge and Security Agreement dated as of August 1,
1997 between the Company and The Sumitomo Bank, Limited
10.19 Investment Agreement dated August 5, 1997 by and
between the Company and The Sumitomo Bank, Limited
10.20 Specimen Direct Obligation Note between the Company
and The Sumitomo Bank, Limited
****10.21 Lease Agreement dated October 17, 1997 between the
Company and the City of Long Beach
****10.22 Construction Agreement dated October 29,1997 between the
Company and Commercial Developments International/West
11.1 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
* Incorporated by reference to the Company's Registration Statement on Form
SB-2 (333-12273) declared effective by the Securities and Exchange Commission on
December 3, 1996.
** Incorporated by reference to the Company's Report on Form 10-KSB filed
with the Securities and Exchange Commission on March 31, 1997.
*** Incorporated by reference by the Company's Post-Effective Amendment No. 1
to Form SB-2 Registration Statement filed with the Securities and Exchange
Commission on August 5, 1997.
**** Filed by paper pursuant to the Company's request for a temporary
hardship exemption relating to this report.
Reports on Form 8-K:
During the quarter ended September 30, 1997, the Company filed one
report on Form 8-K dated October 30, 1997 and incorporated by reference. The
Form 8-K was filed due to a change in the Company's independent accountant.
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ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November 14, 1997 ADVANCED AERODYNAMICS & STRUCTURES, INC.
By: /s/ Carl L. Chen
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Carl L. Chen, President
By: /s/ Dave Turner
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Dave Turner, Chief Financial Officer
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