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 March 31, 2001
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file Number 000-21749
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 95-4257380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
3205 Lakewood Boulevard
Long Beach, California 90808
(Address of principal executive offices)
(562) 938-8618
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [_]
As of May 16, 2001, the issuer had outstanding 50,062 shares of Series A 5%
Cumulative Convertible Preferred Stock, 22,265,160 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.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Plan of Operations 11
PART II. OTHER INFORMATION 15
Item 6. Exhibits and Reports on Form 8-K 15
2
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
March 31,
2001
-----------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 3,043,000
Prepaid expenses 108,000
------------
Total current assets 3,151,000
Property, plant and equipment, net 12,643,000
Restricted cash 405,000
Other assets 315,000
------------
Total assets $ 16,514,000
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable $ 1,886,000
Capital lease obligation current portion 361,000
Other accrued liabilities 403,000
------------
Total current liabilities 2,650,000
Capital lease obligation, long term 9,544,000
Convertible debenture, long term (net discount of $1,320,000) 2,749,000
Deferred revenue 2,078,000
------------
Total liabilities 17,021,000
------------
Stockholders' Deficiency
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; 54,533 shares issued and outstanding 3,890,000
Class A Common Stock, par value $.0001 per share; 85,000,000 shares authorized; 20,116,280
shares issued and outstanding 12,000
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
Warrants 3,895,000
Public Warrants 473,000
Class A Warrants 11,290,000
Class B Warrants 4,632,000
Additional paid-in capital 44,920,000
Deficit accumulated during the development stage (69,619,000)
------------
Total stockholders' deficiency (507,000)
------------
Total liabilities and stockholders' deficiency $ 16,514,000
============
See accompanying notes to financial statements
3
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
Period from
January 26, 1990
Three Months Ended (inception) to
March 31, March 31,
2000 2001 2001
---------- ---------- ----------------
Interest income $ 48,000 $ 1,000 $ 2,819,000
Other income 3,000 -- 1,390,000
----------- ----------- ------------
51,000 1,000 4,209,000
Cost and expenses:
Research and development costs 384,000 1,775,000 38,882,000
General and administrative expenses 779,000 937,000 22,358,000
Loss on disposal of assets -- -- 755,000
Realized loss on sale of investments 43,000 -- 66,000
Interest expense 278,000 1,963,000 6,246,000
In-process research and development acquired -- -- 761,000
----------- ----------- ------------
1,484,000 4,675,000 69,068,000
----------- ----------- ------------
Loss before extraordinary item (1,433,000) (4,674,000) (64,859,000)
Extraordinary loss on retirement of Bridge Notes -- -- (942,000)
------------
Net loss $(1,433,000) (4,674,000) $(65,801,000)
=========== =========== ============
Loss per share before extraordinary item $ (.16) (.32)
----------- -----------
Net loss per share $ (.16) (.32)
=========== ===========
Weighted average number of shares outstanding 8,900,000 15,465,000
=========== ===========
See accompanying notes to financial statements.
4
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Statement of Stockholders' Deficiency
---------------------------------------------------------------------------------------------------------------------------------
Common Stock
---------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Class A Class B Class E-1
---------------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------------------------------------------------------------
Common stock issued $ - $ - 418,094 $ - 836,189 -
Common stock issued in
exchange for in-process
research and development 201,494 - 402,988 -
Imputed interest on advances
from stockholder
Conversion of stockholder
advances 598,011 - 1,196,021 -
Conversion of officer loans 187,118 - 374,236 -
Stock issued in consideration
for services in 1994, 1995,
and 1996 595,283 - 1,190,566 -
Imputed interest on advances
from stockholder
Net proceeds from initial public
offering of Units 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 - 4,000,000 -
Adjustment to proceeds from
initial public offering and
exercise of overallotment
option
Net Loss
-------------------------------------------------------------------------------------------------
Balance at December 31, 1997 - - 6,900,000 1,000 2,000,000 - 4,000,000 -
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 - 4,000,000 -
Net Loss
Unrealized loss on investments
Comprehensive Loss -------------------------------------------------------------------------------------------------
Balance at December 31, 1999 - - 6,999,676 1,000 1,900,324 - 4,000,000 -
---------------------------------------------------------------------------------------------------------------------------------
Common Stock
---------------------------------------------------------------------------------------------------------------------------------
Class E-2
---------------------------------------------------------------------------------------------------------------------------------
Public Class A Class B Additional
Shares Amount Warrants Warrants Warrants Warrants Paid-In-Capital
---------------------------------------------------------------------------------------------------------------------------------
Common stock issued 836,189 $ - $ - $ $ $ - $7,500,000
Common stock issued in
exchange for in-process
research and development 402,988 - 361,000
Imputed interest on advances
from stockholder 799,000
Conversion of stockholder
advances 1,196,021 - 10,728,000
Conversion of officer loans 374,236 - 336,000
Stock issued in consideration
for services in 1994, 1995,
and 1996 1,190,566 - 1,507,000
Imputed interest on advances
from stockholder 11,000
Net proceeds from initial public
offering of Units 9,583,000 4,166,000 12,566,000
Net proceeds from exercise of
over-allotment option 1,707,000 466,000 1,922,000
Warrants issued in connection
with issuance of Bridge
Notes 473,000
Net loss from inception to
December 31, 1996
--------------------------------------------------------------------------------------------------
Balance at December
31, 1996 4,000,000 - 473,000 11,290,000 4,632,000 35,730,000
Adjustment to proceeds from
initial public offering and
exercise of overallotment
option (78,000)
Net Loss
--------------------------------------------------------------------------------------------------
Balance at December 31, 1997 4,000,000 - 473,000 11,290,000 4,632,000 35,652,000
Conversion of Class B to A
Common Stock
Net Loss --------------------------------------------------------------------------------------------------
Balance at December 31, 1998 4,000,000 - 473,000 11,290,000 4,632,000 35,652,000
Net Loss
Unrealized loss on investments
Comprehensive Loss --------------------------------------------------------------------------------------------------
Balance at December 31, 1999 4,000,000 - 473,000 11,290,000 4,632,000 35,652,000
------------------------------------------------------------------------------------------------------------
Common Stock
------------------------------------------------------------------------------------------------------------
Accumulated
Other Deficit Accumulated
Comprehensive During the
Losses Development Stage Total
----------------------------------------------------------------------------------------------------------
Common stock issued $ $ $7,500,000
Common stock issued in
exchange for in-process
research and development 361,000
Imputed interest on advances
from stockholder 799,000
Conversion of stockholder
advances 10,728,000
Conversion of officer loans 336,000
Stock issued in consideration
for services in 1994, 1995,
and 1996 1,507,000
Imputed interest on advances
from stockholder 11,000
Net proceeds from initial public
offering of Units 26,316,000
Net proceeds from exercise of
over-allotment option 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 (24,328,000) 27,798,000
Adjustment to proceeds from
initial public offering and
exercise of overallotment
option (78,000)
Net Loss (6,625,000) (6,625,000)
----------------------------------------------------------------------------
Balance at December 31, 1997 (30,953,000) 21,095,000
Conversion of Class B to A
Common Stock (10,118,000) (10,118,000)
Net Loss ----------------------------------------------------------------------------
Balance at December 31, 1998 (41,071,000) 10,977,000
Net Loss (9,341,000) (9,341,000)
Unrealized loss on investments (32,000) (32,000)
Comprehensive Loss (9,373,000)
----------------------------------------------------------------------------
Balance at December 31, 1999 (32,000) (50,412,000) 1,604,000
5
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Statement of Stockholders' Deficiency (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Class A Class B Class E-1
------------------- --------------------- --------------------- ---------------
Shares Amount Shares Amount Shares Amount Shares Amount
----------------------------------------------------------------------------------------------
Net proceeds from issuance of
preferred stock 79,800 $5,034,000 - $ - - $ $
Conversion of Preferred Stock
to Class A C (10,891) (687,000) 712,663 - -
Net proceeds from Equity Line
Plan 1,252,160
Amortization of discount of
Preferred Stock 278,000
Amortization on warrants attached
to common stock
Unrealized gain on estments
Net Loss
----------------------------------------------------------------------------------------------
Comprehensive loss
==============================================================================================
Balance at December 31, 2000 68,909 $ 4,625,000 8,964,499 $1,000 1,900,324 $ - 4,000,000
----------------------------------------------------------------------------------------------
Conversion of Preferred Stock
to Class A (17,726) (1,102,000) 6,983,117 7,000 -
Amortization on discount of
Preferred Stock 67,000
Amortization on warrant of Common
Stock
Net proceeds from
Equity Line Plan 4,168,664 4,000
Issuance of warrants
attached to debentures
Issusance of Preferred
Stock 3,350 300,000
Net loss
----------------------------------------------------------------------------------------------
Balance at March 31, 2001 54,533 $ 3,890,000 20,116,280 $12,000 1,900,324 $ - 4,000,000
==============================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
- -----------------------------------------------------------------------------------------------------------------------------------
Class E-2
- -----------------------------------------------------------------------------------------------------------------------------------
Public Class A Class B Addition
Shares Amount Warrants Warrants Warrants Warrants Paid-In Capital
-------------------------------------------------------------------------------------------
Net proceeds from issuance of
preferred stock $ $2,217,000 $ $3,302,000
Conversion of Preferred Stock
to Class A C 687,000
Net proceeds from Equity Line
Plan 358,000 863,000
Amortization on discount of
Preferred Stock
Amortization on warrants attached
to common stock
Unrealized gain on investments 45,000
Net Loss
------------------------------------------------------------------------------------------
Comprehensive loss
==========================================================================================
Balance at December 31, 2000 4,000,000 $ - $2,575,000 $473,000 $11,290,000 $ 4,632,000 $ 40,549,000
------------------------------------------------------------------------------------------
Conversion of Preferred Stock
to Class A 1,192,000
Amortization of discount of
Preferred Stock
Amortization of warrant of Common
Stock 29,000
Net proceeds from Equity Line Plan 1,455,000
Issuance of warrants
attached to debentures 1,320,000 1,695,000
Issuance of Preferred
Stock
Net loss
------------------------------------------------------------------------------------------
Balance at March 31, 2001 4,000,000 $ - $3,895,000 $473,000 $11,290,000 $4,632,000 $ 44,920,000
==========================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other Deficit Accumulated
Comprehensive During the
Losses Development Stage Total
------------------------------------------------------------------------------------------
Net proceeds from issuance of
preferred stock $ $ (3,302,000) $ 7,251,000
Conversion of Preferred Stock
to Class A C -
Net proceeds from Equity Line
Plan 1,221,000
Amortization on discount of
Preferred Stock (278,000) -
Amortization on warrants attached
to common stock (45,000) -
Unrealized gain on investments 32,000 32,000
Net Loss (10,715,000) (10,715,000)
------------------------------------------------------------------------------------------
Comprehensive loss (10,683,000)
==========================================================================================
Balance at December 31, 2000 $ - $ (64,752,000) $ (607,000)
------------------------------------------------------------------------------------------
Conversion of Preferred Stock
to Class A (97,000) $ -
Amortization on discount of
Preferred Stock (67,000) -
Amortization on warrant of Common
Stock (29,000) -
Net proceeds from Equity Line Plan $ 1,459,000
Issuance of warrants
attached to debentures $ 3,015,000
Issuance of Preferred
Stock $ 300,000
Net loss (4,674,000) $ (4,674,000)
------------------------------------------------------------------------------------------
Balance at March 31, 2001 $ - $ (69,619,000) $ (507,000)
==========================================================================================
6
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
PERIOD FROM
JANUARY 26
1990
(INCEPTION)
QUARTER ENDING MARCH 31, TO MARCH 31,
------------------------ ---------------
2000 2001 2001
------------------------ ---------------
OPERATING ACTIVITIES:
Net loss $(1,433,000) $(4,674,000) $(65,801,000)
Adjustments to reconcile net loss to net cash used
in operating activities: - -
Noncash stock compensation expense - - 1,207,000
Noncash interest expense - - 336,000
Beneficial conversion feature on debentures issued 1,695,000 1,695,000
Cost of in-process research and development acquired - - 761,000
Imputed interest on advances from stockholder - 810,000
Interest income from restricted cash invested - - (474,000)
Extraordinary loss on retirement of Bridge Notes - - 942,000
Depreciation and amortization 431,000 350,000 5,123,000
Loss on disposal of assets - - 755,000
Realized Loss on sale of investments 43,000 - 66,000
Changes in operating assets and liabilities:
Decrease in prepaid expenses and other current assets (62,000) (39,000) 65,000
Decrease in other assets (109,000) (315,000)
Decrease in accounts payable 37,000 493,000 498,000
Decrease in accrued liabilities 58,000 (281,000) 1,510,000
Decrease in deferred revenue 50,000 296,000 1,856,000
----------------------------------------
Net cash used in operating activities (876,000) (2,269,000) (50,966,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in construction in progress - - (446,000)
Notes from insurance claims upon loss of aircraft - - 30,000
Notes from sales of assets - - 9,803,000
Capital expenditures (1,312,000) (274,000) (8,393,000)
Purchase of certificate of deposit - - (1,061,000)
Proceeds from redemption of certificate of deposit - - 1,061,000
Purchase of investments (2,595,000) - (36,346,000)
Proceeds from maturities of investments in bonds - - 828,000
Proceeds from sale of investments 2,055,000 - 35,452,000
Restricted cash from long term debt - - (8,095,000)
Increase in restricted cash - - (405,000)
------------------------------------------
Net cash provided by (used in) investing activities (1,852,000) (274,000) (7,572,000)
------------------------------------------
FINANCING ACTIVITIES:
Adjustment to net proceeds from initial public offering
and exercise of over allotment option - - (78,000)
Notes from the issuance of convertible debenture - 4,069,000 4,069,000
Notes from long term debt - - 8,500,000
Restricted cash collateral for long term debt - - (8,500,000)
Proceeds from issuance of convertible preferred stock 4,550,000 300,000 7,551,000
Advances from stockholder - - 10,728,000
Proceeds from issuance of common stock - 1,459,000 10,180,000
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 capital lease obligations (59,000) (255,000) (811,000)
Repayment of bridge financing - - (7,000,000)
------------------------------------------
Net cash (used in) provided by financing activities 4,491,000 5,573,000 61,581,000
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 1,763,000 3,030,000 3,043,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 498,000 13,000 -
------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,261,000 $ 3,043,000 $ 3,043,000
==========================================
7
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS (continued)
PERIOD FROM
JANUARY 26
1990
(INCEPTION)
QUARTER ENDING MARCH 31, TO MARCH 31,
------------------------ ----------------
2000 2001 2001
------------------------ ----------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $278,000 $268,000 $ 3,434,000
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 $ 10,327,000
Deposit surrendered as payment for rents due $ 80,000
Construction in progress acquired with restricted cash $ 8,578,000
8
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 March 31, 2001 and the results of operations and cash
flows for the three months ended March 31, 2001 and March 31, 2000 respectively
and for the period from January 26, 1990 (inception) to March 31, 2001.
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, 2000 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 its 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.
Certain reclassifications have been made to the December 31, 2000 financial
statement balances in order to conform to the March 31, 2001 presentation.
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 three month
periods ended March 31, 2001 and 2000 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. The amount of loss
available to common shareholders includes the amortization of the discount on
preferred stock and dividends in arrears. 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. CONVERTIBLE DEBENTURES
The Company obtained new financing on March 27, 2001 of up to $5,000,000,
with an availability of up to an additional $3,000,000. The additional amount
becomes available after certain criteria have been met, as defined in the
agreement. The Company issued $4,100,000 in Secured Convertible Notes with an
interest rate of 5% to accredited investors, as defined by Regulation D rules
issued by the Securities and Exchange Commission under the Securities Act of
1933. Attached to the Notes are warrants to purchase 2 shares of Common stock
for every one dollar in Notes, at a purchase price calculated based upon the
then market price of the stock at the date of exercise. The Company is required
to file a proxy statement relating to the approval of the transaction with the
SEC within 45 days of the closing date and make best efforts to be `effective'
within 120 days of the Closing date. Additionally, the Company shall file
within 30 days of the Closing date and have declared effective within 120 days
of the Closing date a Form S-3 Registration Statement. The Company is required
to register 200% of the number of Common shares required for the conversion of
the Notes and 100% of the number of Common shares required for the exercise of
the warrants. There is a Mandatory redemption requirement at 125% of the unpaid
principal balance and unpaid interest upon the occurrence of default or if the
Company is
9
prohibited from issuing shares of Common stock. Additionally, the Company may
put the additional notes to the note holders upon meeting certain covenants
related to the availability of trading of the stock, trading volume and market
price and other milestones.
The debentures were issued with various stated conversion prices which
resulted in a beneficial conversion feature since the effective conversion price
was below market at the time of the issuance. The discount of $1,695,000 which
resulted from this transaction was immediately amortized to Accumulated Deficit,
as the holders of the debentures are able to convert to common stock immediately
upon issuance.
4. STOCKHOLDERS' DEFICIENCY
Preferred Stock
As of March 31, 2001, the Company received $7,551,000 in net cash proceeds
related to a preferred stock agreement to issue up to 100,000 shares of 5%
Cumulatived Convertible Series A Preferred Stock ("Preferred Stock") with a
stated value of $100 per share and Common Stock Purchase Warrants to purchase
Class A Common Stock, for the aggregated purchase price of $10 million. As of
March 31, 2001, the Company issued 83,150 shares of Preferred Stock with a
stated value of $8,315,000 and 991,000 detachable warrants and paid $763,000 in
commissions and legal fees. Of the total shares issued to date, 3,350 shares
were issued in the quarter ended March 31, 2001. The remaining $1,685,000 in
Preferred Stock funding will not occur until certain criteria have been met.
Additionally, as consideration for the transaction placement warrants to
purchase up to 796,000 shares of Class A Common Stock were issued. Fair values
of $1,231,000 and $987,000 for the detachable warrants and the placement
warrants, respectively, have been included in stockholders' equity and are
netted as a discount to the Preferred Stock. The Warrants are exercisable in
installments and the terms for the placement warrants are similar to the terms
of the detachable warrants issued with 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 5.87% divided yields of 0%; a volatility factor of .566 to.839 and
an expected life of the warrants of 3 years.
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 Stockholder does not have voting rights. As of March 31, 2001, the
Company has dividends in arrears for the Preferred Shares totaling $236,000 or
$4.32 per share.
For the period ended March 31, 2001, various Preferred Stockholder's
converted a total of 17,726 shares plus dividends in arrears into 6,983,117
shares of Class A Common Stock. Subsequent to the end of the period, certain
Preferred Stockholder's additionally converted a total of 4,471 shares plus
dividends in arrears into 2,144,880 shares of Class A Common Stock. As of March
31, 2001, no warrants have been exercised.
Equity Line of Credit
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 that the Company, to request, at its sole
discretion, subject to limitation based on volume and market price may require
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 shares of Class A Common Stock were
issued with a strike price of $3.15 per share. Additional drawings on this
Equity Line are dependent upon stock market conditions which, at the latter part
of 2000 and beginning at 2001 seriously limited such drawings. During the
Quarter ended March 31, 2001, the Company received cash proceeds of $1,459,000
from the issuance of 4,168,064 shares of common stock under this equity line.
10
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,
filed with the Securities Exchange Commission under the Securities Act of 1933,
as amended. These registration statements may be retrieved at www.sec.gov or 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 $18,000,000.
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.
In late 2000, certain of the Company's investors invited three aviation
industry expert executives to visit the Company for due diligence and issue a
report (investors' report) regarding the status of the JETCRUZER 500 project.
The report, issued in the first quarter of 2001, was most enthusiastic about the
Company and its JETCRUZER 500 project.
Based on the investors' report, and as the result of the delays caused by
the shortfall in funding due to market conditions,, the Company believes that it
will require approximately $18,000,000 and approximately 15 months of effort to
complete development of the JETCRUZER 500 and obtain an amendment of its FAA
Type Certificate. This amount of money 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. There can be no assurances,
however, that the Company's cost to complete development of the JETCRUZER 500
will not exceed $18,000,000.
On March 27, 2001, the Company consummated an agreement with certain
investors to provide the Company $4,100,000 through a convertible debenture.
Under the same agreement, an additional $3,000,000 will likely be provided in
September 2001. The Debentures are convertible into Class A Common Stock at
various prices. Until such time that the debentures are converted, the
Company's interest in its assets is security for the debentures. The Company's
management believes that its current working capital as of March 31, 2001 will
be sufficient to finance its plan of operations through the end of the second
quarter, at which time additional funding will be required and is expected,
either through the use of the equity line or additional debt financing. 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 availability of funds. If the Company's estimates prove to be incorrect,
or additional sources of financing prove to be unavailable, the Company will
have to curtail its development plans.
During the first quarter of 2001, the Company:
[X] Passed the FAA limit load test for the Jetcruzer 500 main wing.
[X] Activated its ERP computer system.
[X] Finalized the engine inlet.
[X] Completed the electronic systems and made them ready for assembly on the
next aircraft.
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During the balance of 2001 and in 2002, the Company intends to focus its efforts
on the following events:
. The completion of two flight test aircraft for participation in high-speed
cruise and other flight-testing
. The completion of ERP (enterprises resources planning) system phase II
implementation, including a bar code system and internet interface
capability with customers and vendors.
. The completion of all major structural and system tests
. Completing Company high-speed cruise flight-testing to assure
customers of the JETCRUZER 500's speed.
. The commencement of limited JETCRUZER 500 production. Upon the successful
completion of the Company speed tests, the Company immediately will
commence production of the first JETCRUZER 500 planes. The Company
anticipates that production will start with a lot of 4 planes.
. The start of 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 assist
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. The Company believes that this event will occur late in the year
2001.
. Obtaining an amended Type Certificate (TC) for the Jetcruzer 500 from the
FAA. This means that the Company may deliver planes to its customers. The
Company believes that this event will occur in the year 2002.
. 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.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had a net working capital of $501,000 and
stockholders' deficiency of $(507,000). 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 $7,551,000 to date.
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 $2,322,000.
On March 27, 2001, the Company consummated an agreement with certain
investors to provide the Company $4,100,000 through a convertible debenture.
Under the same agreement, an additional $3,000,000 will likely be provided in
September 2001. The Debentures are convertible into Class A Common Stock as
various prices.
The Company's management believes that its current working capital with the
additional funding obtained in March 2001 will be sufficient to finance its plan
of operations through the end of the second quarter, at which time additional
funding will be required and is expected, through the use of the Equity Line and
the convertible debenture financing.
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 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.
The Company has leased approximately l0 acres of land located on the Long
Beach Airport in Long Beach, California ("Ground Lease"). The Ground Lease term
commenced on January l4, l998, and continues for 30 years. The rental under the
Ground Lease incrementally increases for the first five years of the Ground
Lease term from $7,400 per month to $l5,900 per month.
The Company retained Commercial Developments International West to design
and build their approximately 200,000 square foot manufacturing and headquarters
facility (the "New Facility") on the property subject to the Ground Lease. The
Company
13
moved into the New Facility on November l8, l998. The total cost for the New
Facility was approximately $9,700,000. The Company believes the New Facility
will provide adequate capacity for its operations for the foreseeable future.
In June l999, the Company, in a sale/sublease-back transaction, sold the
New Facility to AP-Long Beach Airport LLC. The purchase price of the building
was $9,800,000. The initial term of the sublease is eighteen years, and the
Company has an option to extend the term for an additional l0 years. The
approximate monthly rental payments under the terms of the Sublease are
currently $109,000. The monthly rental payments will be adjusted incrementally
on an annual basis until January l, 2008, when the monthly Sublease rental will
be $206,000. After June l, 2008, the Sublease rentals will be adjusted
annually according to changes in the Consumer Price Index, not to exceed 3% per
annum. During the option term the sublease rental will be at fair market value.
Under the terms of the Sublease, the Company is also required to pay the Ground
Lease rentals as additional rent.
The Company had no material capital commitments at March 31, 2001, other
than discussed elsewhere in this report. The Company intends to hire a number of
additional employees, which will require substantial capital resources. The
Company anticipates that it will hire up to 200 additional 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.
14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports pm Form 8-K
(a) Exhibits
None
(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: May 16, 2001
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