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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 June 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
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 August 14, 2000, the issuer had outstanding 74,750 shares of Series
A 5% Cumulative Convertible Preferred Stock, 7,008,162 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.
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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
JUNE 30,
2000
------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents .................................. $ 310,000
Short term investments ..................................... 1,853,000
Other current assets ....................................... 2,270,000
Prepaid expenses ........................................... 298,000
------------
Total current assets ..................................... 4,731,000
Property, Plant and equipment, net ............................. 12,643,000
Other assets ................................................... 194,000
------------
Total assets ............................................. $ 17,568,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........................................... $ 256,000
Capital lease obligation current portion ................... 243,000
Other accrued liabilities .................................. 708,000
------------
Total current liabilities ................................ 1,207,000
Capital lease obligation, long term ............................ 9,526,000
Deferred revenue ............................................... 1,790,000
------------
Total liabilities ........................................ 12,523,000
------------
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;
74,750 shares issued and outstanding ................... 4,770,000
Class A common, par value $.0001 per share;
60,000,000 shares authorized; 7,008,162 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
Additional paid-in capital ..................................... 36,008,000
Deficit accumulated during the development stage ............... (54,251,000)
------------
Total stockholders' equity ..................................... 5,045,000
Total liabilities and stockholder's equity ..................... $ 17,568,000
============
See accompanying notes to financial statements
3
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
PERIOD FROM
JANUARY 26,
THREE MONTHS ENDED SIX MONTHS ENDED 1990
JUNE 30, JUNE 30, (INCEPTION)
---------------------------- ---------------------------- TO JUNE 30,
1999 2000 1999 2000 2000
------------ ------------ ------------ ------------ ------------
Interest Income .................................... $ 95,000 $ 35,000 $ 213,000 $ 83,000 $ 2,826,000
Other Income ....................................... -- 4,000 1,000 7,000 1,329,000
------------ ------------ ------------ ------------ ------------
95,000 39,000 214,000 90,000 4,155,000
Cost and Expenses:
Research and development costs ..................... 716,000 1,094,000 2,294,000 1,478,000 32,244,000
General and administrative expenses ................ 1,227,000 642,000 2,036,000 1,421,000 19,299,000
Loss on disposal of assets ......................... -- -- -- -- 755,000
Realized loss on sale of investments ............... -- 5,000 -- 48,000 78,000
Interest expense ................................... 393,000 704,000 467,000 982,000 4,327,000
In-process research and development acquired ....... -- -- -- -- 761,000
------------ ------------ ------------ ------------ ------------
2,336,000 2,445,000 4,797,000 3,929,000 57,464,000
Loss before extraordinary item ..................... (2,241,000) (2,406,000) (4,583,000) (3,839,000) (53,309,000)
Extraordinary loss on retirement of Bridge Notes ... -- -- -- -- (942,000)
------------ ------------ ------------ ------------ ------------
Net loss ........................................... $ (2,241,000) $ (2,406,000) $ (4,583,000) $ (3,839,000) $(54,251,000)
============
Net loss per common share .......................... $ (.25) $ (.28) $ (.51) $ (.44)
------------ ------------ ------------ ------------
Weighted average number of common shares outstanding 8,900,000 8,900,993 8,900,000 8,900,047
============ ============ ============ ============
See accompanying notes to financial statements.
4
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
PREFERRED STOCK CLASS A CLASS B CLASS E-1 CLASS E-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
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
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 -- 4,000,000 --
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 -- 4,000,000 -- 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 -- 4,000,000 $ --
Net Loss
Unrealized loss on investments
Comprehensive Loss
Balance at D3ecember 31, 1999 -- $ -- 6,999,676 $ 1,000 1,900,324 $ -- 4,000,000 -- 4,000,000 $ --
Net proceeds from issuance of
Preferred stock 75,000 4,698,000
Conversion of Preferred Stock
to Class A (250) (15,000) 8,486
Amortization on discount of
Preferred Stock 87,000
Unrealized gain on investments
Net Loss
Comprehensive Loss
Balance as of June 30, 2000 74,750 $4,770,000 7,008,162 $ 1,000 1,900,324 $ -- 4,000,000 $ -- 4,000,000 $ --
DEFICIT
ACCUMULATED ACCUMULATED
ADDITIONAL OTHER DURING THE
PUBLIC CLASS A CLASS B PAID-IN COMPREHENSIVE DEVELOPMENT
WARRANTS WARRANTS WARRANTS 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 9,583,000 4,166,000 12,566,000 26,316,000
Net proceeds from exercise of
over-allotment 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 from inception to
December 31, 1996 24,328,000 24,328,000
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 over-allotment
option (78,000) (78,000)
Net Loss (6,625,000) (6,625,000)
Balance at December 31, 1997 473,000 11,290,000 4,632,000 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 $ 473,000 $11,290,000 $4,632,000 $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)
Comprehensive Loss
Balance at December 31, 1999 $ 473,000 $11,290,000 $4,632,000 $35,652,000 $ (32,000) $(50,412,000) $ 1,604,000
Net proceeds from issuance of
Preferred stock 2,122,000 341,000 7,161,000
Conversion of Preferred Stock
to Class A 15,000
Amortization on discount of
Preferred Stock 87,000
Unrealized gain on investments 32,000 32,000
Net Loss (3,839,000) (3,839,000)
-----------
Comprehensive Loss 3,441,000
Balance as of June 30, 2000 $ 473,000 $13,412,000 $4,632,000 $36,008,000 $ -- $(54,251,000) $ 5,045,000
5
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
PERIOD FROM
JANUARY 26,
1990
SIX MONTHS (INCEPTION) TO
ENDED JUNE 30, JUNE 30,
------------------------- -------------
1999 2000 2000
----------- ----------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................... $(4,583,000) $(3,839,000) $(54,251,000)
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 ............................................. 297,000 633,000 4,258,000
Gain (Loss) on disposal of assets ......................................... (306,000) -- 755,000
Realized Loss on sale of investments ...................................... -- 48,000 78,000
Changes in operating assets and liabilities:
Increase (decrease) in prepaid expenses and other current assets ...... 39,000 (2,492,000) (2,395,000)
Increase (decrease) in other assets ................................... (5,000) (194,000)
Increase (decrease) in accounts payable ............................... (1,432,000) (135,000) (1,132,000)
Increase (decrease) in accrued liabilities ............................ (291,000) 169,000 1,815,000
Increase in deferred revenue .......................................... 356,000 70,000 1,560,000
----------- ----------- -------------
Net cash used in operating activities ......................................... (6,107,000) (5,205,000) (45,583,000)
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 ....................................................... (238,000) (2,161,000) (8,004,000)
Purchase of certificate of deposit ......................................... -- -- (1,061,000)
Proceeds from redemption of certificate of deposit ......................... 1,061,000
Purchase of investments .................................................... (6,034,000) (2,595,000) (36,315,000)
Proceeds from maturities of investments in bonds ........................... 828,000
Proceeds from sale of investments .......................................... 828,000 3,054,000 33,556,000
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 ........................... 5,039,000 (1,702,000) (8,643,000)
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 ..................... (61,000) (101,000) (376,000)
Repayment of bridge financing .............................................. -- -- (7,000,000)
----------- ----------- -------------
Net cash (used in) provided by financing activities............................ (61,000) 6,719,000 54,536,000
----------- ----------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .......................... (1,129,000) (188,000) 310,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............................. 2,153,000 489,000 --
----------- ----------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 1,024,000 $ 310,000 310,000
=========== =========== =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ....................................................... 277,000 553,000 2,529,000
UPPLEMENTAL 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 .................................... 9,812,000 9,894,000
Deposit surrendered as payment for rents due ............................... 80,000
Construction in progress acquired with restricted cash ..................... 8,578,000
Repayment of long term debt with restricted cash ........................... 8,500,000 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 June 30, 2000 and the results of operations and cash
flows for the six months ended June 30, 2000 and June 30, 1999 respectively and
for the period from January 26, 1990 (inception) to June 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 the third quarter
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 six month
periods ended June 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
To date, 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. 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
7
stockholders equity and as a discount to the Preferred Stock. Amortization
expense was for the period ended June 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 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 June 30, 2000, the Company has dividend in arrears for the Preferred Stock
totaling $79,000.
Prior to June 30, 2000, a Preferred Stock Holder converted 250 shares into
8,486 shares of Class A Common Stock. No Warrants have been exercised during the
six month period ended June 30, 2000.
On April 18, 2000 the Company signed a Letter of Intent for 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
Company expects to close the deal on or before August 15,2000, and believes it
will be able to begin equity draws in the third quarter of 2000.
4. SUBSEQUENT EVENT
Subsequent to June 30, 2000, three Preferred Stock Holders converted a net
total of 1,100 shares to 42,275 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. Upon the successful
completion of the pressurization and Company speed tests, the Company
immediately will commence production of the first JETCRUZER 500
planes. The Company anticipates that production will start in lots of
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 with
the additional funding obtained in June 2000 will be sufficient to finance its
plan of operations through the end of the third quarter, by which time the
Company expects to have received the initial funding of its new equity line of
$20,000,000. The initial positive cash flow from customer progress payments
should commence shortly thereafter. 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 June 30, 2000, the Company had working capital of $3,524,000 and
stockholders' equity of $5,045,000. 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.
On April 18, 2000 the Company signed a Letter of Intent for 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
Company expects to close the deal on or before August 15, 2000, and believes it
will be able to able to begin equity draws in the third quarter of 2000.
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 June 30, 2000, other
than discussed elsewhere in this report. As the certificate 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
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Carl L. Chen, President
By: /s/ Dave Turner
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Dave Turner, Chief Financial Officer
Dated: August 11, 2000
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