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, 2000
[_] 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 Identification)
incorporation or organization)
3205 Lakewood Boulevard
Long Beach, California 90808
(Address of principal executive offices)
(562) 938-8618
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [_]
As of November 14, 2000, the issuer had outstanding 66,709 shares of Series
A 5% Cumulative Convertible Preferred Stock, 7,707,006 shares of Class A Common
Stock, 1,900,324 shares of Class B Common Stock, 4,000,000 shares of Class E-1
Common Stock and 4,000,000 shares of Class E-2 Common stock.
1
ADVANCED AERODYNAMICS & STRUCTURES, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Plan of Operations 9
PART II. OTHER INFORMATION 12
Item 6. Exhibits and Reports on Form 8-K 12
2
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
September 30,
2000
(unaudited)
--------------
ASSETS
Current Assets:
Cash and cash equivalents $ 637,000
Short term investments 923,000
Prepaid expenses 194,000
--------------
Total current assets 1,754,000
Property, plant and equipment, net 12,592,000
Other assets 196,000
--------------
Total assets $ 14,542,000
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 411,000
Capital lease obligation current portion 244,000
Other accrued liabilities 659,000
--------------
Total current liabilities 1,314,000
Capital lease obligation, long term 9,465,000
Deferred revenue 1,787,000
--------------
Total liabilities 12,566,000
Stockholders' equity
Preferred Stock, par value $.0001 per share; 5,000,000 shares authorized; no shares issued and
outstanding --
Series A 5% Cumulative Convertible Preferred Stock, par value $.0001 per share; 100,000 shares
authorized; 67,264 shares issued and outstanding 4,385,000
Class A Common Stock, par value $.0001 per share; 60,000,000 shares authorized; 7,336,302 shares
issued and outstanding 1,000
Class B Common Stock, par value $.0001 per share; 10,000,000 shares authorized; 1,900,324 shares
issued and outstanding --
Class E-1 Common Stock; par value $.0001 per share; 4,000,000 shares authorized; 4,000,000 shares
issued and outstanding --
Class E-2 Common Stock; par value $.0001 per share; 4,000,000 shares authorized; 4,000,000 shares
issued and outstanding --
Warrants to purchase common stock --
Public Warrants 473,000
Class A Warrants 13,412,000
Class B Warrants 4,632,000
Unrealized gain in equity 7,000
Additional paid-in capital 36,488,000
Deficit accumulated during the development stage (57,422,000)
Total stockholders' equity 1,976,000
-------------
Total liabilities and stockholder's equity $ 14,542,000
=============
See accompanying notes to financial statements
3
ADVANCED AERODYNAMICS & STRUCTRUES, INC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
Period from
January 26, 1990
Three Months Ended Nine Months Ended (inception)
September 30, September 30, to September 30,
------------- ------------- ----------------
1999 2000 1999 2000 2000
---- ---- ---- ---- ----
Interest Income $ 86,000 $ 38,000 $ 299,000 $ 121,000 $ 2,864,000
Other Income 4,000 3,000 5,000 10,000 1,332,000
----------- ----------- ----------- ----------- -------------
90,000 41,000 304,000 131,000 4,196,000
Cost and Expenses:
Research and development costs 1,369,000 1,809,000 3,663,000 3,287,000 34,053,000
General and administrative expenses 946,000 949,000 2,982,000 2,370,000 20,248,000
Loss on disposal of assets -- -- -- -- 755,000
Realized loss (gain) on sale of investments -- (5,000) -- 43,000 73,000
Interest expense 311,000 459,000 778,000 1,441,000 4,786,000
In-process research and development acquired -- -- -- -- 761,000
----------- ----------- ----------- ----------- -------------
2,626,000 3,212,000 7,423,000 7,141,000 60,676,000
Loss before extraordinary item (2,536,000) (3,171,000) (7,119,000) (7,010,000) (56,480,000)
Extraordinary loss on retirement of Bridge Notes -- -- -- -- (942,000)
----------- ----------- ----------- ----------- -------------
Net loss $(2,536,000) $(3,171,000) $(7,119,000) $(7,010,000) $(57,422,000)
=============
Net loss per common share $ (.28) $ (.36) $ (.80) $ (.80)
----------- ----------- ----------- -----------
Weighted average number of common shares outstanding 8,900,000 9,040,744 8,900,000 8,946,915
=========== =========== =========== ===========
See accompanying notes to financial statements.
4
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Statement of Stockholders' Equity
Common Stock Common Stock
Preferred Stock Class A Class B
Shares Amount Shares Amount Shares Amount
Common stock issued $ -- $ -- 418,094 $ --
Common stock issued in exchange for
in-process research and development 201,494 --
Imputed interest on advances from stockholder
Conversion of stockholder advances 598,011 --
Conversion of officer loans 187,118 --
Stock issued in consideration for services
in 1994, 1995, and 1996 595,283 --
Imputed interest on advances from stockholder
Net proceeds from initial public offering of Units 6,000,000 $1,000
Net proceeds from exercise of over-allotment option 900,000 --
Warrants issued in connection with issuance
of Bridge Notes
Net loss from inception to December 31, 1996
Balance at December 31, 1996 -- -- 6,900,000 1,000 2,000,000 --
Adjustment to proceeds from initial public offering
and exercise of over-allotment option
Net Loss
Balance at December 31, 1997 -- 6,900,000 1,000 2,000,000 --
Conversion of Class B to A Common Stock 99,676 (99,676)
Net Loss
Balance at December 31, 1998 -- $ -- 6,999,676 $1,000 1,900,324 $ --
Net Loss
Unrealized loss on investments
Comprehensive Loss
Balance at December 31, 1999 -- $ -- 6,999,676 $1,000 1,900,324 $ --
Net proceeds from issuance of Preferred stock 75,000 4,698,000
Conversion of Preferred Stock to Class A (7,736) (495,000) 336,626
Amortization on discount of Preferred Stock 182,000
Unrealized gain on investments
Net loss
Comprehensive loss
Balance as of Sept. 30, 2000 67,264 $4,385,000 7,336,302 $1,000 1,900,324 $ --
Common Stock Common Stock
Class E-1 Class E-2 Public Class A Class B
Shares Amount Shares Amount Warrants Warrants Warrants
-------- -------- --------
Common stock issued 836,189 $ -- 836,189 $ -- $ -- $ -- $ --
Common stock issued in exchange for
in-process research and development 402,988 -- 402,988 --
Imputed interest on advances from stockholder
Conversion of stockholder advances 1,196,021 -- 1,196,021 --
Conversion of officer loans 374,236 -- 374,236 --
Stock issued in consideration for services
in 1994, 1995, and 1996 1,190,566 -- 1,190,566 --
Imputed interest on advances from stockholder
Net proceeds from initial public offering of Units 9,583,000 4,166,000
Net proceeds from exercise of over-allotment option 1,707,000 466,000
Warrants issued in connection with issuance
of Bridge Notes 473,000
Net loss from inception to December 31, 1996
Balance at December 31, 1996 4,000,000 -- 4,000,000 -- 473,000 11,290,000 4,632,000
Adjustment to proceeds from initial public offering
and exercise of over-allotment option
Net Loss
Balance at December 31, 1997 4,000,000 -- 4,000,000 -- 473,000 11,290,000 4,632,000
Conversion of Class B to A Common Stock
Net Loss
Balance at December 31, 1998 4,000,000 $ -- 4,000,000 $ -- $473,000 $11,290,000 $4,632,000
Net Loss
Unrealized loss on investments
Comprehensive Loss
Balance at December 31, 1999 4,000,000 $ -- 4,000,000 $ -- $473,000 $11,290,000 $4,632,000
Net proceeds from issuance of Preferred stock 2,122,000
Conversion of Preferred Stock to Class A
Amortization on discount of Preferred Stock
Unrealized gain on investments
Net loss
Comprehensive loss
Balance as of Sept. 30, 2000 4,000,000 $ -- 4,000,000 $ -- $473,000 $13,412,000 $4,632,000
Deficit
Accumulated Accumulated
Additional Other During the
Paid-in Comprehensive Development
Capital Losses 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 799,000 799,000
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 12,566,000 26,316,000
Net proceeds from exercise of over-allotment option 1,922,000 4,095,000
Warrants issued in connection with issuance
of Bridge Notes 473,000
Net loss from inception to December 31, 1996 24,328,000 24,328,000
Balance at December 31, 1996 35,730,000 (24,328,000) 27,798,000
Adjustment to proceeds from initial public offering
and exercise of over-allotment option (78,000) (78,000)
Net Loss (6,625,000) (6,625,000)
Balance at December 31, 1997 35,652,000 (30,953,000) 21,095,000
Conversion of Class B to A Common Stock
Net Loss (10,118,000) (10,118,000)
Balance at December 31, 1998 $35,652,000 $(41,071,000) $ 10,977,000
Net Loss (9,341,000) (9,341,000)
Unrealized loss on investments (32,000) (32,000)
------------
(9,373,000)
Comprehensive Loss
Balance at December 31, 1999 $35,652,000 $(32,000) $(50,412,000) $ 1,604,000
Net proceeds from issuance of Preferred stock 341,000 7,161,000
Conversion of Preferred Stock to Class A 495,000
Amortization on discount of Preferred Stock 182,000
Unrealized gain on investments 39,000 39,000
Net loss (7,010,000) (7,010,000)
------------
(6,971,000)
Comprehensive loss
Balance as of Sept. 30, 2000 $36,488,000 $ 7,000 $(57,422,000) $ 1,976,000
5
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
PERIOD FROM
NINE MONTHS JANUARY 26, 1990
ENDED SEPTEMBER 30, (INCEPTION) TO
--------------------------- SEPTEMBER 30,
1999 2000 2000
------------- ------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,119,000) $(7,010,000) $(57,422,000)
Adjustments to reconcile net loss to net cash used in operating
activities: - -
Noncash stock compensation expense - - 1,207,000
Noncash interest expense - 341,000 677,000
Cost of in-process research and development acquired - - 761,000
Imputed interest on advances from stockholder 810,000
Interest income from restricted cash invested (182,000) - (474,000)
Extraordinary loss on retirement of Bridge Notes - - 942,000
Depreciation and amortization 547,000 1,103,000 4,728,000
Loss on disposal of assets - - 755,000
Realized Loss on sale of investments - 42,000 72,000
Changes in operating assets and liabilities:
Decrease (Increase) in prepaid expenses and other current assets 44,000 (118,000) (21,000)
Increase in other assets (5,000) (2,000) (196,000)
(Decrease) Increase in accounts payable (1,257,000) 20,000 (977,000)
(Decrease) Increase in accrued liabilities (346,000) 120,000 1,766,000
Increase in deferred revenue 45,000 70,000 1,560,000
----------- ----------- ------------
Net cash used in operating activities (8,273,000) (5,434,000) (45,812,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in construction in progress (446,000)
Proceeds from insurance claims upon loss of aircraft - - 30,000
Proceeds from sales of assets 9,800,000 9,803,000
Capital expenditures (21,000) (2,488,000) (8,331,000)
Purchase of certificate of deposit - - (1,061,000)
Proceeds from redemption of certificate of deposit 1,061,000
Purchase of investments (6,034,000) (2,626,000) (36,346,000)
Proceeds from maturities of investments in bonds 828,000
Proceeds from sale of investments 2,012,000 4,028,000 34,530,000
Restricted cash from long term debt (8,500,000)
Decrease in restricted cash 683,000 405,000
----------- ----------- ------------
Net cash provided by (used in) investing activities 6,440,000 (1,086,000) (8,027,000)
FINANCING ACTIVITIES:
Adjustment to net proceeds from initial public offering and exercise of
over allotment option (78,000)
Net Proceeds from issuance of convertible preferred stock & warrants - 6,820,000 6,820,000
Advances from stockholder - - 10,728,000
Proceeds from issuance of common stock prior to initial public offering - - 7,500,000
Net proceeds from initial public offering and exercise of over-allotment
option - - 30,411,000
Net proceeds from bridge financing - - 6,195,000
Net proceeds from loans from officers - - 336,000
Payments on obligation under Capital Lease Obligations (136,000) (161,000) (436,000)
Repayment of bridge financing - - (7,000,000)
----------- ----------- ------------
Net cash (used in) provided by financing activities (136,000) 6,659,000 54,476,000
----------- ----------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,969,000) 139,000 637,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,153,000 498,000 -
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 184,000 $ 637,000 $ 637,000
=========== =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest 778,000 917,000 2,893,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Stockholder advances converted to common stock 10,728,000
Loans from officer converted to common stock 36,000
Common stock issued for noncash consideration and compensation 1,507,000
Liabilities assumed from ASI 400,000
Common stock issued for in-process research and development acquired 361,000
Equipment acquired under capital leases 10,047,000 9,894,000
Deposit surrendered as payment for rents due 80,000
Construction in progress acquired with restricted cash 5,496,000 8,578,000
Repayment of long term debt with restricted cash 8,500,000
6
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(unaudited)
1. GENERAL
In the opinion of the Company's management, the accompanying unaudited
financial statements include all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of the financial
position of the Company at September 30, 2000 and the results of operations and
cash flows for the nine months ended September 30, 2000 and September 30, 1999
respectively and for the period from January 26, 1990 (inception) to September
30, 2000. 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, 1999 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 $30,411,000 from the offering,
including the exercise of the overallottment option, 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.
The Company is currently in the process of developing their product and
obtaining appropriate certification from the Federal Aviation Administration. To
date, the Company has generated no sales revenue and none is projected until the
Company can begin commercial production of their product and the certification
process is complete. Prior to commencing deliveries, the Company will need to,
among other things, complete the development of the JETCRUZER 500 and obtain the
requisite regulatory approvals. Based upon the Company's current development
spending levels, current working capital is insufficient to meet the Company's
needs over the next year.
The Company's management team has been developing a financial plan to
address its working capital requirements. Additionally, the commencement of
production and the collection of progress payments starting in December 2000, is
imperative to the success of management's financial plan to meet its working
capital requirements. There can be no assurances however, that the current
timetable for completion of the development and certification of the aircraft
will not be delayed beyond the current fiscal year. While there is no assurance
that additional financing will be available, the Company's management believes
that it has developed a financial plan that if executed successfully, will
substantially improve the Company's ability to meet its working capital
requirements.
2. NET LOSS PER COMMON SHARE
The Company's net loss per common share was computed based on the weighted
average number of shares of common stock outstanding during the nine month
periods ended September 30, 2000 and 1999 and excludes all outstanding shares of
Class E-1 and Class E-2 Common Stock because the conditions for the lapse of
restrictions on such shares have not been satisfied. There is no difference
between the loss per common share amounts computed for basic and dilutive
purposes because the impact of convertible preferred stock, options and warrants
outstanding are anti-dilutive.
3. STOCKHOLDERS' EQUITY
As of September 30, 2000, the Company received $6,820,000 in net cash
proceeds related to an agreement to issue up to 100,000 shares of 5% Cumulative
Convertible Series A Preferred Stock with a par value of $.0001 and Common Stock
Purchase Warrants to purchase Class A Common Stock, for the aggregated purchase
price of $10 million. For consideration received in the funding to date, the
Company issued 75,000 shares of Preferred stock and 897,000 detachable warrants
and paid $680,000 in commissions and legal fees.
7
Additionally, as consideration for the transaction a warrants to purchase up to
718,000 shares of Class A Common Stock were issued. A fair value of $1,178,000
for the detachable warrants has been included in stockholders equity and as a
discount to the Preferred Stock. Amortization expense was for the period ended
September 30, 2000 and included in interest expense. The additional warrants
issued as consideration for the transaction were value at $944,000 and are
included in Stockholder's equity. The related expense was netted against the
proceeds of the Preferred Stock. The fair value for these warrants was estimated
at the dates of grant using a black-scholes pricing model with the following
weighted-average assumptions: risk-free interest rates of 6.43% to 6.36%;
dividend yields of 0%; a volatility factor of .866 and an expected life of the
option of 3 years. The remaining $2,500,000 in funding will not occur until
certain criteria have been met, including stock price requirements of the
Company's Common Stock. Terms for the additional warrants are similar to the
terms of the detachable warrants issued with the Preferred Stock.
Holders of the Preferred Stock are entitled to receive cash dividends,
payable quarterly and have preferential liquidation rights above all other
issuances of Common Stock for an amount equal to the stated value. The
Preferred Stock and unpaid dividends is convertible into shares of Common Stock
equal to an amount determined by the market value at the date of close of the
common stock, adjusted for changes in the market price prior to the conversion.
The Preferred stockholders do not have voting rights. The Warrants are callable
in installments after the registration is effective. The Company has reserved
4,000,000 of its Class A Common Stock for the conversion of the Preferred Stock.
As of September 30, 2000, the Company has dividend in arrears for the Preferred
Shares totaling $163,000.
On August 11, 2000, the Company closed a Private Equity Line of Credit
Agreement with private investors. These investors have committed to purchase up
to $20,000,000 of Common Stock over the course of two years. This private
placement agreement provides the Company to request, at the Company's sole
discretion, that the investors purchase certain amounts of shares every 30 days
at a price equal to 92% or 93% of the market price. Each request will be for a
minimum of $200,000 and subject to a maximum of $1,500,000. In connection with
the Equity Line Agreement, warrants to purchase 250,000 will be issued with a
strike price of $3.15 per share.
Prior to September 30, 2000, various Preferred Stock Holder's converted a
total of 7,736 shares into 336,626 shares of Class A Common Stock. No Warrants
have been exercised during the nine-month period ended September 30, 2000.
4. SUBSEQUENT EVENT
Subsequent to September 30, 2000, the Company received its first funding
from the Private Equity Line of Credit in the month of October 2000, of which
the net proceeds received was $632,000. In return, the company issued 338,530
shares of Class A Common Stock, based on the Private Equity Line of Credit
Agreement.
In addition, subsequent to September 30, 2000, two Preferred Stock Holders
converted a total of 555 shares to 32,174 Class A Common Shares. No warrants
were exercised during this time.
8
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 raise additional capital, the Company's ability to obtain market
acceptance of its aircraft, the Company's ability to obtain regulatory approval
for its aircraft, and the competitive market for sales of small business
aircraft and other statements contained herein regarding matters that are not
historical facts, are forward looking statements; actual results may differ
materially from those set forth in the forward looking statements, which
statements involve risks and uncertainties, including without limitation to
those risks and uncertainties set forth in the Company's Registration Statement
on Form SB-2 (No. 333-12273) under the heading "Risk Factors."
The Company is a development stage enterprise organized to design, develop
manufacture and market propjet and jet aircraft intended primarily for business
use. Since its inception, the Company has been engaged principally in research
and development of its proposed aircraft. In March 1990, the Company made
application to the FAA for a Type Certificate for the JETCRUZER 450, which
Certificate was ultimately granted in June 1994. The Company has not generated
any operating revenues to date and has incurred losses from such activities. The
Company believes it will continue to experience losses until such time as it
commences the sale of aircraft on a commercial scale.
Prior to commencing commercial sales of the JETCRUZER 500, the Company will
need to, among other things, complete the development of the aircraft, obtain
the requisite regulatory approvals, hire additional engineering and
manufacturing personnel and expand its sales and marketing efforts. The Company
estimates that the cost to complete development of the JETCRUZER 500 and obtain
an amendment of its FAA Type Certificate will be approximately $5,000,000. This
amount includes the cost of equipment and tooling, static and flight-testing of
the aircraft and the employment of the necessary personnel to build and test the
aircraft.
The Company expects to receive progress payments during the construction of
aircraft and final payments upon the delivery of aircraft. However, the Company
believes it will continue to experience losses until such time as it commences
the sale of aircraft on a commercial scale.
The Company has been and will continue its efforts on the following events:
. Completing Company high-speed cruise flight-testing to assure customers of
the JETCRUZER 500's speed.
. Commencing production of the JETCRUZER 500. The Company anticipates
that production will start at a rate of 2 to 4 planes per month.
. Starting progress payment collections. As the Company starts the production
process, each customer whose plane is being built will be requested to make
an initial progress payment, as specified in the customer's purchase
contract. The Company believes that this event will be the start of
positive cash flow.
. Obtaining Type Inspection Authorization (TIA). This event marks the end of
Company flight tests and means that the FAA will test the plane, using its
pilots.
. Obtaining an amended Type Certificate (TC) for the Jetcruzer 500 from the
FAA. This means that the Company may deliver planes to its customers.
. Delivering the first JETCRUZER 500. With the delivery of its first plane,
the Company will record its first sales revenue and cost of goods sold.
. Obtaining a production certificate from the FAA. This will allow use of the
Company's specified inspectors during the production and delivery processes
of the JETCRUZER 500. This certification should quickly follow the receipt
of the TC.
The Company entered into a subscription agreement for the sale of up to
$10,000,000 of 5% Cumulative Convertible Series A Preferred Stock, of which to
date the Company has received net cash, proceeds of $6,820,000.
9
The Company's management believes that its current working capital, the
additional funding obtained in June 2000 and its new equity line of $20,000,000,
which includes proceeds of $632,000 received to date, along with the customer
progress payments commencing in December 2000, will be sufficient to finance its
plan of operations through the end of the first quarter of 2001. However, there
can be no assurances that the current timetable for completion of the
development and certification of the aircraft will not be delayed beyond the
current fiscal year. If the Company's estimates prove to be incorrect, or
additional sources of financing prove to be unavailable, if needed, the Company
will have to curtail its development plans.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had working capital of $440,000 and
stockholders' equity of $1,976,000. Since its inception in January 1990, the
Company has experienced continuing negative cash flow from operations, which,
prior to the December 1996 IPO, resulted in the Company's inability to pay
certain existing liabilities in a timely manner. The Company has financed its
operations through private funding of equity and debt and through the proceeds
generated from its December 1996 initial public offering.
The Company expects to continue to incur losses until such time, if ever,
as it obtains regulatory approval for the JETCRUZER 500 and related production
processes and market acceptance for its proposed aircraft at selling prices and
volumes which provide adequate gross profit to cover operating costs and
generate positive cash flow. The Company's working capital requirements will
depend upon numerous factors, including the level of resources devoted by the
Company to the scale-up of manufacturing and the establishment of sales and
marketing capabilities and the progress of the Company's research and
development program for the JETCRUZER 500 and other proposed aircraft.
The Company's management team has developed a financial plan to address its
working capital requirements. On March 6, 2000, the Company entered into a
series of subscription agreements for the sale of up to $10,000,000 of 5%
Cumulative Convertible Series A Preferred Stock, from which the Company has
received net proceeds of $6,820,000, to date.
The remaining $2,500,000 in Preferred Stock funding will not occur until
certain criteria have been met, including stock price requirements of the
Company's common stock. The Company expects to receive some or all of the
Preferred Stock funding by the end of the fourth quarter.
On August 11, 2000 the Company finalized an "equity line" which permits the
Company to sell up to $ 20,000,000 of its common stock through a Regulation D
offering to a private investor. In connection with the sale, the Company will
issue 250,000 warrants with a three-year life. The first equity draw from the
"equity line" was executed on October 3, 2000, in which the Company has received
net proceeds in the amount of $632,000.
While there is no assurance that additional financing will be available,
the Company's management believes that it has developed a financial plan that,
if executed successfully, will substantially improve the Company's ability to
meet its working capital requirements. This financial plan includes the
commencement of production and the collection of progress payments to assist
with the working capital requirements. However, there can be no assurances that
the current timetable for completion of the commencement of production and
development and certification of the aircraft will not be delayed beyond the
current fiscal year. If the Company's estimates prove to be incorrect, or
additional sources of financing prove to be unavailable, if needed, the Company
may have to curtail its development plans.
In November 1998 the Company moved into its manufacturing and headquarters
facility. The primary financing for this project was the Company's obligation
under a loan agreement related to proceeds received from $8,500,000 in the
issuance of Industrial Development Bonds (IDB) by the California Economic
Development Financing Authority (the "Authority"). The Company was required to
provide cash collateral to The Sumitomo Bank, Limited (the "Bank") in the amount
of $8,500,000 for a stand-by letter of credit in favor of the holders of the
IDBs which was to expire on August 5, 2002, if not terminated earlier by the
Company or the Bank. The IDBs were retired in 1999 and the stand-by letter of
credit in favor of the holders of the IDBs was terminated by the Company.
In June 1999, the Company sold its 200,000 square-foot building to The
Abbey Company and leases it back. The purchase price of the building was
$9,800,000 and the term of the lease is eighteen years plus an option to extend
the lease for an additional ten years. Monthly payments under the terms of the
leaseback are approximately $106,000 and will be adjusted annually, after the
first year, for changes in the Consumer Price Index, not to exceed 3% per annum.
The rent for periods after the eighteenth year would be at fair market rental
value.
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The Company leases approximately 10 acres of land located on the Long Beach
Airport in Long Beach, California. The lease commenced on January 14, 1999 and
has a term of 30 years with an option to renew for an additional 10 years. The
lease also contains options to lease other airport properties. An escalation
clause in the lease increases the monthly rent to $7,400 beginning July 1999.
The lease contains incremental increases that escalate the monthly rent to
approximately $15,600 after 5 years.
The Company had no material capital commitments at September 30, 2000,
other than discussed elsewhere in this report. As the certification process
nears completion and production activity commences, the Company intends to hire
a number of additional employees, which will require substantial capital
resources. The Company anticipates that it will hire up to 200 employees over
the next twelve months, including engineers and manufacturing technicians
necessary to produce its aircraft.
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.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports pm Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By: /s/ Carl L. Chen
---------------------------
Carl L. Chen, President
By: /s/ Dave Turner
----------------------------
Dave Turner, Chief Financial Officer
Dated: November 10, 2000
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