FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20429
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to ________________
Commission File Number 000-28947.
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SPACEDEV, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1374613
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13855 Stowe Drive, Poway, California 92064
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(Address of principal executive offices)
(Issuer's telephone number) (858) 375-2030.
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(Former name, former address and former fiscal year, if changed since last
report)
Checkmark whether the issuer (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 14,815,425 shares of Issuer's voting
common stock were outstanding on October 31, 2001.
SPACEDEV, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
INDEX PAGE
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PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited).....................................................................1
Condensed Consolidated Balance Sheets at September 30, 2001 and 2000.......................................1
Condensed Consolidated Statements of Operations for September 30, 2001 and 2000............................3
Condensed Consolidated Statements of Cash Flows for September 30, 2001 and 2000............................4
Notes to Condensed Consolidated Financial Statements.......................................................6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................................9
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.....................................................................................16
ITEM 2. Changes in Securities.................................................................................16
ITEM 3. Defaults Upon Senior Securities.......................................................................18
ITEM 4. Submission of Matters to Vote of Security Holders.....................................................18
ITEM 5. Other Information.....................................................................................18
ITEM 6. Exhibits and Reports on Form 8-K......................................................................18
Signatures.......................................................................................................19
ii
ITEM 1. FINANCIAL STATEMENTS
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, 2001 2000
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ASSETS
CURRENT ASSETS
Cash $ 68,202 $ 161,763
Accounts receivable 365,070 287,284
Other current assets (Note 3) 11,804 17,862
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Total current assets 445,076 466,909
FIXED ASSETS - NET 2,215,615 2,142,164
INTANGIBLE ASSETS - NET 983,889 1,653,368
CAPITALIZED SOFTWARE COSTS 207,016 -
OTHER ASSETS 77,964 67,905
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$3,929,560 $4,330,346
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
1
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, 2001 2000
-------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Line of credit $ - $ 83,195
Current portion of notes payable 13,000 7,200
Current portion of capitalized lease obligations 29,606 40,712
Current portion of notes payable - related party 80,000 80,000
Accounts payable and accrued expenses 763,390 507,854
Accrued payroll, vacation and related taxes 108,527 115,825
Other accrued liabilities (Note 4) 189,402 -
Customer deposits and deferred revenue 318,794 5,000
Billing in excess of costs incurred (Note 2) 404,024 6,301
Provision for anticipated loss (Note 2) 468,567 -
-------------------------------------------------------------------------------------------------
Total current liabilities 2,375,310 846,087
NOTES PAYABLE, LESS CURRENT MATURITIES 2,259,456 2,281,080
CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES 35,266 65,439
NOTES PAYABLE - RELATED PARTY, LESS CURRENT MATURITIES 592,665 515,992
DEFERRED REVENUE 5,000 -
-------------------------------------------------------------------------------------------------
Total liabilities 5,267,697 3,708,598
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible preferred stock, $.001 par value, 10,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.0001 par value; 50,000,000 shares
authorized; 14,809,228 and 13,948,993 shares issued and
outstanding, respectively 1,480 1,394
Additional paid-in capital 8,153,541 7,258,342
Additional paid-in capital - stock options 750,000 750,000
Deferred compensation (250,000) (250,000)
Accumulated deficit (9,993,158) (7,137,988)
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Total stockholders' equity (deficit) (1,338,137) 621,748
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$ 3,929,560 $ 4,330,346
=================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
2
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 2000 2001 2000
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NET SALES $ 1,164,832 $ 1,141,746 $ 2,643,020 $ 3,086,110
Cost of Sales (Including stock based 889,918 737,006 2,089,161 1,759,124
compensation of $68,640 for the three and
nine months ended Sept. 30, 2001.)
Anticipated loss on uncompleted contract (96,843) - (392,140) -
(Note 2)
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TOTAL COST OF SALES 793,075 737,006 1,697,021 1,759,124
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GROSS MARGIN 371,757 404,740 945,999 1,326,986
OPERATING EXPENSES
General and administrative 867,278 327,960 2,162 ,877 1,297,216
(Including stock based compensation of
$409,500 and $582,901 for the three and
nine months ended Sept. 30, 2001 and $1,181
and $90,272 for the same period ended 2000.)
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TOTAL GENERAL AND ADMINISTRATIVE
EXPENSES 867,278 327,960 2,162,877 1,297,216
Research and development - - 198,400 -
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TOTAL OPERATING EXPENSES 867,278 327,960 2,361,277 1,297,216
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LOSS FROM OPERATIONS (495,521) 76,780 (1,415,278) 29,770
OTHER INCOME (EXPENSE)
Interest expense (70,420) (90,296) (238,202) (233,476)
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NET LOSS $ (565,941) $ (13,516) $ (1,653,480) $ (203,706)
============================================================================================================
NET LOSS PER SHARE:
Net loss ($ 0.04) ($ 0.00) ($ 0.11) ($ 0.01)
============================================================================================================
Weighted-Average Shares Outstanding 14,741,425 13,949,200 14,771,790 13,949,062
============================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,653,480) $ (203,706)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 656,414 623,841
Common stock and stock options issued for
compensation and services 651,541 90,271
Change in operating assets and liabilities 232,025 (90,809)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (113,500) 419,597
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets (50,641) (33,136)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net payments on bank line of credit - (158,220)
Net payments on notes payable (8,152) (23,720)
Net Payments on capital lease obligations (92,193) (23,635)
Net payments on notes payable - related party (46,934) (122,010)
Proceeds from issuance of common stock 119,999 -
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (27,280) (327,585)
----------------------------------------------------------------------------------
Net increase (decrease) in cash (191,421) 58,876
CASH AT BEGINNING OF PERIOD 259,623 102,887
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CASH AT END OF PERIOD $ 68,202 $ 161,763
==================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D.
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2001 2000
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 81,529 $ 201,987
NONCASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended September 30, 2001 and 2000, the Company issued
647,247 and 70,048 shares of stock for services and recorded expenses of
$651,541 and $90,272, respectively.
In April 2001, the Company issued 80,000 stock options for the acquisition of
Explorespace.com, and recorded expenses of $67,055.
In August 2001, the Company issued a warrant to purchase 25,000 shares of
restricted common stock to acquire certain technology. The warrant was valued
in accordance with FSAS 123 for a fair value of approximately $22,000.
During the nine months ended September 30, 2001, the Company financed $17,310
of fixed asset purchases with capital leases.
================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
5
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of
SPACEDEV, INC. ("the Company") include the accounts of the Company and its
wholly-owned subsidiary, Integrated Space Systems Inc. (ISS), and its inactive
subsidiary, SpaceDev Australia. In the opinion of management, the condensed
consolidated financial statements reflect all normal and recurring adjustments,
which are necessary for a fair presentation of the Company's financial position,
results of operations and cash flows as of the dates and for the periods,
presented. The condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Consequently, these statements do not include all disclosures
normally required by generally accepted accounting principles of the United
States of America for annual financial statements nor those normally made in an
Annual Report on Form 10-KSB. Accordingly, reference should be made to the
Company's Form 10-KSB filed on April 2, 2001 and other reports the Company filed
with the U.S. Securities and Exchange Commission for additional disclosures,
including a summary of the Company's accounting policies, which have not
materially changed. The consolidated results of operations for the nine months
ended September 30, 2001 are not necessarily indicative of results that may be
expected for the fiscal year ending December 31, 2001 or any future period, and
the Company makes no representations related thereto.
The accompanying condensed consolidated financial statements as of
September 30, 2001 and 2000 have been prepared assuming the Company will
continue as a going concern. However, the Company had a working capital deficit
of $1,930,234 as of September 30, 2001, and incurred a net loss of $1,653,480
for the nine months then ended. These conditions raise "substantial" doubt about
the Company's ability to continue as a going concern. During the third quarter
2001, management raised $20,000 through a private equity placement. Subsequent
to September 2001, management intends to continue to raise additional financing
through a combination of public and/or private equity placements, commercial
project financing and government program funding to fund future operations and
commitments. There is no assurance that additional debt and equity financing
needed to fund operations will be consummated or obtained in sufficient amounts
necessary to meet the Company's needs.
The accompanying condensed consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the possible inability of the Company to
continue as a going concern.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities and the results of operations
during the reporting period. Actual results could differ materially from those
estimates.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation. These
reclassifications had no effect on reported total assets or net loss.
6
2. REVENUE RECOGNITION
In November 1999, the Space Missions Division was awarded a turnkey
mission contract by the Space Sciences Laboratory (SSL) at University of
California, Berkeley (UCB) worth approximately $5.0 million. On June 15, 2001, a
contract modification was signed to add $600,000 to the contract for added
scope, which brings the total contract value to $5.6 million. This contract
represented 68% and 61% of the Company's revenue in 2001 and 2000, respectively.
The contract will conclude on December 31, 2003. The payments on the contract
are made on a monthly basis according to a preset payment schedule and resulted
in billings in excess of costs incurred and estimated earnings of approximately
$404,024 and $6,301 for the nine months ended September 30, 2001 and 2000,
respectively. At December 31, 2000, the total cost estimated to complete the
contract was approximately $6,461,000. As a result, the Company accrued a
provision for an anticipated loss of approximately $861,000. As of March 31,
2001, the anticipated costs were reviewed and reduced to approximately
$6,251,000 and the accrued loss was reduced to $651,000 to reflect this change.
The decrease in costs was due to a reduction of costs to complete the contract.
As the project is completed the loss is reduced as the costs become realized,
the balance on the anticipated loss as of September 30, 2001 was $468,567. The
Company is continuing to negotiate additional contract changes with the CHIPSat
customer that would increase contract revenues. There is no certainty that we
will be successful in these negotiations.
3. OTHER ASSETS
In June 2001, the Company entered into a consulting contract with an
unrelated party. The contract called for the Company to pay the consultant
1,200,000 shares of common stock in installments over the following 12 months.
On June 18, 2001, the Company issued 500,000 shares of common stock with a fair
value of $455,000. During the quarter ended September 30, 2001, the Company
recognized expense of $409,500 as a result of the Company's intent to terminate
the agreement.
4. OTHER ACCRUED LIABILITY
In June 2001, the Company accrued a $150,000 contingent liability
related to its guarantee on a performance bond on behalf of Space Innovations
Limited ("SIL"), which was then a subsidiary of the Company. In 1999, the
Company was required to guarantee a performance bond on behalf of SIL in
connection with a contract to build a satellite bus for an Australian domestic
spacecraft project. SIL was unable to perform on the contract and subsequently
declared bankruptcy. The Company is currently in settlement negotiations with
the bonding company, Technical & General Guarantee Company Limited ("T&G"), with
a focus on extending the payment terms and/or reducing the amount of the claim
for 300,000 Australian Dollars.
5. OPERATING SEGMENTS
The Company's operating structure included two active operating
segments for 2001 and 2000.
SEGMENT PRODUCTS AND SERVICES
The Company has the following reportable segments: Space Missions
Division (SMD), and ISS. SMD is in the process of developing deep space science
exploration satellites. ISS provides small hybrid propulsion space systems and
engineering services. A third segment, SpaceDev Australia, has had no operations
in 2001.
7
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
-----------------------------------------------------------------------------------
(IN THOUSANDS) SMD ISS Total
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Net revenue from external
customers $ 1,090 $ 75 $ 1,165
Depreciation and
amortization expense $ 43 $ 176 $ 219
Segment loss $ (447) $ (119) $ (566)
====================================================
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
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(IN THOUSANDS) SMD ISS Total
-----------------------------------------------------------------------------------
Net revenue from external
customers $ 2,326 $ 317 $ 2,643
Depreciation and
amortization expense $ 106 $ 550 $ 656
Segment loss $ (1,332) $ (321) $ (1,653)
====================================================
Total segment assets $ 3,280 $ 976 $ 4,256
Less intersegment assets (164) - (164)
----------------------------------------------------
Net segment assets $ 3,116 $ 976 $ 4,092
====================================================
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------------------------
(IN THOUSANDS) SMD ISS Total
-----------------------------------------------------------------------------------
Net revenue from external
customers $ 753 $ 389 $ 1,142
Depreciation and
amortization expense $ 30 $ 176 $ 206
Segment loss $ (4) $ (10) $ (14)
====================================================
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------------------------
(IN THOUSANDS) SMD ISS Total
-----------------------------------------------------------------------------------
Net revenue from external
customers $ 2,112 $ 974 $ 3,086
Depreciation and
amortization expense $ 84 $ 540 $ 624
Segment profit (loss) $ 19 $ (223) $ (204)
====================================================
Total segment assets $ 2,606 $ 1,888 $ 4,494
Less intersegment assets (164) - (164)
----------------------------------------------------
Net segment assets $ 2,442 $ 1,888 $ 4,330
====================================================
8
6. NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board "FASB" issued
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of Accounting Principles Bulletin APB Opinion
No. 25" ("Interpretation"). The Interpretation is intended to provide guidance
for certain issues that have arisen in practice since the issuance of APB 25.
The Company adopted the Interpretation for all transactions entered into after
July 1, 2000 and the adoption of the Interpretation did not have a material
impact on the consolidated financial statements.
In July 2001, the FASB issued Statement No. 141, "Business
Combinations," and Statement No. 142, "Goodwill and Other Intangible Assets."
Statement 141 requires that the purchase method of accounting be used for all
business combinations subsequent to September 30, 2001 and specifies criteria
for recognizing intangible assets acquired in a business combination. Statement
142 requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually.
Intangible assets with definite useful lives will continue to be amortized over
their respective estimated useful lives. The Company plans to adopt the
provisions of Statement No. 141 and 142 effective January 1, 2002. The expected
effect of the implementation of these guidelines will be the reduction of
operating losses, approximately $719,000 per year, due to goodwill not being
amortized unless it becomes impaired.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Company's consolidated financial statements and the notes thereto and the other
financial information appearing elsewhere in this document. In addition to
historical information, the following discussion and other parts of this
document contain forward-looking information that involves risks and
uncertainties. Actual results could differ materially from those anticipated by
such forward-looking information due to a number of factors beyond the Company's
control.
OVERVIEW
On February 7, 1998, the Company issued 2,000,000 shares of restricted
common stock and acquired all of the outstanding shares of common stock of
Integrated Space System ("ISS"). ISS provides small hybrid propulsion space
systems, engineering and technical services related to space-based systems,
which consist primarily of launch vehicle integration. The fair value of the
shares issued was $1.8125 per share, calculated using the average daily closing
prices for a period surrounding the acquisition date. The acquisition price was
not reduced for the Rule 144 restrictions on the shares of common stock. The
total purchase price was valued at $3,625,000. The excess of the calculated
purchase price of the approximately $164,000 of net assets acquired was
capitalized as goodwill and is being amortized over sixty months.
On October 1, 1998, the Company acquired all of the shares of SIL in exchange
for 1,000,000 restricted common shares of SpaceDev. By mutual and amicable
agreement of both parties, this transaction was rescinded on December 17, 1999
through a Mutual Release and Rescission Agreement (the "Release Agreement").
During the time the Company held SIL as a subsidiary, it became the guarantor on
a bank line of credit used to finance SIL's operations. Under terms of the
Release Agreement, SIL agreed to apply 25% of the proceeds from each payment
received on a specific contract until the bank loan was paid in full. Once the
loan had been paid in full, the loan agreement was to be terminated, releasing
the Company's guarantor obligation. At December 31, 1999, the outstanding
balance on the bank line of credit was approximately $386,000, maturing on
January 18, 2001 with interest at the bank's prime (8.5% at December 31, 1999)
plus 1.25%. In 2000, the amount of the line guaranteed by the Company was paid
and the loan agreement has been terminated.
9
In November 1999, SpaceDev was awarded a $4,995,868 turnkey mission
contract by the Space Sciences Laboratory ("SSL") at University of California,
Berkeley ("UCB"). SpaceDev was competitively selected by UCB/SSL to design,
build, integrate, test and operate for one year a small scientific,
Earth-orbiting spacecraft called CHIPSat. In 2000, the Company reviewed this
position at year-end and determined that the total costs at the end of the
program will exceed the likely revenue. As a result, the Company has accrued a
loss of $861,000; this estimated loss was believed to be adequate to cover all
possible contingencies through the life of the program. Included in the review
was an expected increase of $600,000 to the contract value to reflect added
scope. As of March 31, 2001, the anticipated costs were reviewed and reduced to
approximately $6,251,000 and the accrued loss was reduced to $651,000 to reflect
this change. The decrease in costs was due to a reduction of costs to complete
the contract. As the project is completed the loss is reduced as the costs
become realized, the balance on the anticipated loss as of September 30, 2001
was $468,567. On June 15, 2001, a contract modification was signed to add the
$600,000 to the contract, which brought the total contract value to $5,595,868.
The CHIPSat contract will conclude on December 31, 2003. Revenues for 2001 and
2002 are expected to be approximately, $2.5 million and $966,000, respectively.
The payments on the contract are made on a monthly basis according to a preset
payment schedule. The Company is currently negotiating with UCB for additional
adjustments to the contract to further reduce the anticipated loss. There can be
no guarantee that UCB will agree to additional adjustments.
In July 2000, the Company was awarded two contracts from the Office of
Space Launch of the National Reconnaissance Office for a total of approximately
$800,000. These contracts were completed during the second quarter of 2001. This
work was a continuation of a previous contract concerning the development of
hybrid space propulsion technology.
The Company announced on April 16, 2001 that it is part of a Boeing-led
team that was awarded one of four $1 million contracts from NASA's Jet
Propulsion Laboratory in Pasadena, California to study options for a potential
Mars sample return mission in 2011. The contract runs from April through October
2001.
In September 2001, the Company announced that it had been awarded a
contract for a proprietary research program valued in excess of $1 million that
could lead to a total value of $2.2 million. Although specific information about
this new work cannot be released at this time do to the highly confidential and
market-sensitive nature of the project, we expect the work to have a positive
impact on revenues for both the fourth quarter of 2001 and first quarter of
2002. SpaceDev believes this new contract is indicative of an increased demand
for its hybrid motor technology and expertise in the space industry.
RESULTS OF OPERATIONS
Please refer to the consolidated financial statements, which are a part
of this report for further information regarding the results of operations of
the Company.
NINE MONTHS ENDED SEPTEMBER 30, 2001 -VS.- NINE MONTHS ENDED SEPTEMBER 30, 2000
During the nine months ended September 30, 2001, the Company had net
sales of $2,643,000 as compared to net sales of $3,086,000 for the same nine
months in 2000. Sales in 2001 were comprised of $2,117,000 from the CHIPSat
program, $228,000 from research and development performed for the Office of
Space Launch ("OSL"), $204,000 from the Boeing Mars Sample Return and Mars
Assent Vehicle projects, and $94,000 from all other programs. In 2000, there was
$1,615,000 of sales from CHIPSat, $572,000 from OSL, $250,000 from the Boeing
Company for a joint study of beyond Earth Orbit commercial missions and $649,000
from all other programs.
10
During the nine months ended September 30, 2001, the Company had cost
of sales (direct and allocated costs associated with individual contracts) of
$1,697,000 as compared to $1,759,000 in the same period in 2000. These changes
were primarily due to reallocation of the loss on the CHIPSat program, as
described under "Forward Looking Statements" below.
The Company experienced an increase in general and administrative
expenses and research and development expenses from $1,297,000 for the nine
months ended September 30, 2000 to $2,361,000 for the same period ended
September 30, 2001. General and administrative expenses consisted primarily of
salaries for administrative personnel, fees for outside consultants, goodwill
amortization, insurance, legal and accounting fees and other overhead. The
increase was primarily attributable to the issuance of 500,000 shares of common
stock to EMC Holdings Group, Inc. ("EMC") pursuant to a Consultant Agreement
with the Company whereby EMC was retained to render certain advisory services to
the Company in exchange for a total of 1,200,000 shares of the Company's common
stock in three installments (the "Consultant Agreement"). EMC received the first
installment on June 26, 2001. Total expense for the initial stock issuance
through September 30, 2001 was $455,000. Increases in general and administrative
expenses also included $150,000 for the contingent liability due to Technical &
General Guarantee Company Limited as referenced in Note 3 to the consolidated
financial statements as well as stock options that had a value of $67,000 for
the acquisition of Explorespace.com. The Company also expended $198,000 in
research and development expenses during the nine months ended September 30,
2001, to build a prototype hybrid-propulsion-based orbital transfer vehicle, as
compared to $0 in research and development expenses during the same period of
2000.
Gross profit percentage for the nine months ended September 30, 2001
was 36% as compared to 43% for the same period in 2000. The decrease was due to
higher margins on the OSL program, and the Boeing Lunar Orbiter Study last year.
During the nine months ended September 30, 2001, the Company had a net loss of
$1,653,000, compared to a net loss of $204,000 for the same period in 2000. The
increase in the net loss was due to lower sales on the OSL project and from all
other programs. In addition, the Company's operating expenses increased by
$1,064,000. As indicated above, this increase was primarily attributable to
stock issued to EMC, the note payable to T&G (see "Legal Proceedings" below),
the stock options issued in the acquisition of Explorespace.com, and research
and development costs.
THREE MONTHS ENDED SEPTEMBER 30, 2001-VS.- THREE MONTHS ENDED SEPTEMBER 30, 2000
During the three months ended September 30, 2001, the Company had net
sales of $1,165,000 as compared to net sales of $1,142,000 for the same three
months in 2000. Sales in 2001 were comprised of $958,000 from the CHIPSat
program, $29,000 from research and development performed for the Office of Space
Launch ("OSL"), $113,000 from the Boeing Mars Sample Return and Mars Assent
Vehicle projects and $65,000 from all other programs. During the same period for
2000, there was $564,000 of sales from CHIPSat, a $138,000 study contract with
The Boeing Company, $257,000 from OSL and $183,000 from all other programs.
11
During the three months ended September 30, 2001, the Company had cost
of sales (direct and allocated costs associated with individual contracts) of
$793,000 and $737,000 in the same period in 2000. These changes were primarily
due to an increase in revenue on the CHIPSat program.
The Company experienced an increase in general and administrative
expenses from $328,000 for the three months ended September 30, 2000 to $867,000
for the same period ended September 30, 2001. The increase was primarily
attributable to the issuance of 500,000 shares of common stock to EMC. EMC
received the first installment of shares under the Consultant Agreement on June
26, 2001 total expense for the initial stock issuance for the three months ended
September 30, 2001 was $409,500.
Gross profit percentage in third quarter 2001 was 32% as compared to
35% for the same period in 2000. During the three months ended September 30,
2001, the Company had a net loss of $566,000 compared to a net loss of $14,000
for the same period in 2000. The increase in the net loss was due to higher
margins on the OSL project last year, and lower sales on all other programs this
year. In addition, the Company's operating expenses increased during the third
quarter 2001 by $539,000. As indicated above, this increase was primarily
attributable to stock issued to EMC.
There were no research and development expenses for the three-month
periods ended September 30, 2000 and 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's auditors have expressed a formal auditors' opinion that
the Company's December 31, 2000 financial position raises "substantial" doubt
about its ability to continue as a going concern. Management believes that this
condition remains at September 30, 2001. The Company's opportunity to continue
as a going concern depends upon our ability to consummate additional funding and
new profitable business. This funding can come from a variety of sources,
including public or private equity markets, state and federal grants and
government and commercial customer program funding. However, there can be no
assurance that we will be able to obtain such funding as needed. The likelihood
of our success must be considered in light of the expenses, difficulties and
delays frequently encountered in connection with the developing businesses,
those historically encountered by us, and the competitive environment in which
we will operate.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25" (the "Interpretation"). The Interpretation is intended to
provide guidance for certain issues that have arisen in practice since the
issuance of APB 25. The Company adopted the Interpretation for all transactions
entered into after July 1, 2000 and the adoption of the Interpretation did not
have a material impact on the consolidated financial statements.
In July 2001, the FASB issued Statement No. 141, "Business
Combinations," and Statement No. 142, "Goodwill and Other Intangible Assets."
Statement 141 requires that the purchase method of accounting be used for all
business combinations subsequent to June 30, 2001 and specifies criteria for
recognizing intangible assets acquired in a business combination. Statement 142
requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually.
Intangible assets with definite useful lives will continue to be amortized over
their respective estimated useful lives. The Company plans to adopt the
provisions of Statement No. 141 and 142 effective January 1, 2002. The expected
effect of the implementation of these guidelines will be the reduction of
operating losses due to the goodwill not being amortized.
12
Deferred income taxes are provided for temporary differences in
recognizing certain income and expense items for financial and tax reporting
purposes. The deferred tax asset of $2,751,000 consisted primarily of the income
tax benefits from net operating loss carryforwards, amortization of goodwill and
research and development credit carryforwards. A valuation allowance has been
recorded to fully offset the deferred tax asset as it is more likely than not
that the assets will not be utilized. The valuation allowance increased
approximately $325,000 during 2001, from $2,426,000 at December 31, 2000 to
$2,751,000 at September 30, 2000
Please refer to the consolidated financial statements, which are a part
of this report for further information regarding the liquidity and capital
resources of the Company.
NINE MONTHS ENDED SEPTEMBER 30, 2001-VS.- NINE MONTHS ENDED SEPTEMBER 30, 2000
Net decrease in cash during the nine months ending September 30, 2001
was $191,000, compared to a net increase of $59,000 for the nine months ended
September 30, 2000. Net cash used by operating activities totaled ($114,000) for
the nine months ended September 30, 2001, a decrease of $534,000 as compared to
$420,000 provided by operating activities during the nine months ended September
30, 2000. This is attributable primarily to decreased sales volume, a reduction
of gross margins on the OSL program and an increase in general and
administrative expenses.
Net cash used in investing activities totaled ($51,000) for the nine
months ended September 30, 2001, compared to ($33,000) used during the nine
months ended September 30, 2000, an increase in cash used of $18,000. This
difference is attributable to an increase in the purchase of fixed assets.
Net cash used in financing activities totaled ($27,000) for the
nine-month period ended September 30, 2001; a decrease of $301,000 from the
($328,000) used by financing activities during the nine-month period ending
September 30, 2000. This decrease is attributable to paying the line of credit
in 2000 and $120,000 of proceeds from the sale of common stock in 2001.
At September 30, 2001, the Company's cash, which includes cash reserves
and cash available for investment, was $68,000 as compared to $162,000 at
September 30, 2000, an decrease of $94,000. At September 30, 2001, the Company
had accounts receivable of $365,000 and accounts payable and accrued expenses of
$763,000.
FORWARD-LOOKING STATEMENTS
The Company's business strategy requires significant capital
expenditures. The Company will incur a substantial portion of these expenditures
before it generates significant sales. Combined with operating expenses, these
capital expenditures will result in a negative cash flow until the Company
establishes an adequate revenue-generating customer base. The Company expects
losses through 2001 and does not expect to generate net positive cash flow from
operations sufficient to fund both operations and capital expenditures until the
launch of its first commercial spacecraft. There is no assurance that the
Company will achieve or sustain any positive cash flow or profitability
thereafter.
13
During the years ended December 31, 2000 and December 31, 1999 and the
nine months ended September 30, 2001, the Company raised approximately $710,000
(including proceeds of $360,000 from the state-registered 504 Colorado offering)
through private sales of stock. To execute the Company's total strategy of
small, capable, low-cost micro satellites, hybrid propulsion products and new
commercial revenue sources, the Company requires significant funding. The
current estimate is over $20 million, which could come from a combination of
private or public equity placements, commercial project financing and government
program funding. At this time, the Company does not have a commitment from any
placement agent or underwriter to implement any additional public offering or
from any government agency to obtain significant additional program funding for
its products.
The Company may also need to raise additional capital if, for
example,(i) significant delays occur in deploying its first deep-space mission
due to technical difficulties, launch, or satellite failure, or other reasons;
(ii) the Company does not enter into agreements with customers on the terms the
Company anticipates; (iii) the Company's net operating deficit increases because
it incurs significant unanticipated expenses; or (iv) the Company incurs
additional costs from modifying all or part of NEAP or its proposed
hybrid-related systems to meet changed or unanticipated market, regulatory, or
technical requirements. If these or other events occur, there is no assurance
that the Company could raise additional capital on favorable terms, on a timely
basis or at all. A substantial shortfall in funding would delay or prevent
deployment of the Lunar Orbiter, NEAP and/or the hybrid-related systems.
The Company's ability to execute a public offering or otherwise obtain
funds is subject to numerous factors beyond the Company's control, including,
without limitation, a receptive securities market and appropriate governmental
clearances. No assurances can be given that the Company will be profitable, or
that any additional public offering will occur, that the Company will be
successful in obtaining additional funds from any source or that the Company
will be successful in implementing an acceptable exit strategy on behalf of its
investors. Moreover, additional funds, if obtainable at all, may not be
available on terms acceptable to the Company when the Company needs such funds
or may be on terms which are significantly adverse to the Company's current
shareholders. The unavailability of funds when needed would have a material
adverse effect on the Company.
The Company will receive fixed compensation on the CHIPSat project in a
total amount of $5,595,868, of which about $2.1 million was generated in 2000.
The fixed price will be paid in increments over the term of the contract. As we
reported on our annual report on Form 10-KSB, the Company reviewed this position
in 2000. Included in the review was an expected increase of $600,000 in the
contract value to reflect added scope. Based on its review, the Company
determined that the total costs at the end of the program will exceed the likely
revenue. As a result, the Company accrued a loss of $861,000; we believe that
this action covers all possible contingencies through the life of the program.
As of March 31, 2001, the anticipated costs were reviewed and reduced to
approximately $6,251,000 and the accrued loss was reduced to $651,000 to reflect
this change. The decrease in costs was due to a reduction of costs to complete
the contract. The $600,000 increase in value was approved on June 15, 2001. As
the project is completed, the loss is reduced as costs become realized. The
balance on the anticipated loss as of June 30, 2001 was $565,410. The Company is
currently in negotiations with UCB to increase the contract price for CHIPSat,
and, although there can be no guarantee of the amendment, the Company
anticipates that an increase will be approved during the fourth quarter of 2001.
As of September 30, 2001, the Company's backlog of business was
approximately $3.1 million, as opposed to approximately $2.7 million as of June
30, 2001, and $4.6 as of September 2000. To date in 2001, the Company has added
about $2.7 million in new business including $1.6 million related to the recent
contract win, an increase of $600,000 in the CHIPSat small satellite project and
almost $200,000 in additional California grant funds and $250,000 from the
Boeing Mars Sample Return program. The Company is also in negotiations for an
additional increase in the CHIPSat small satellite project.
14
Our business partially depends on activities regulated by various
agencies and departments of the U.S. government and other companies that rely on
the government. Recently, in response to terrorists' activities and threats
aimed at the United States, transportation, mail, financial, and other services
have been slowed or stopped altogether. Further delays or stoppages in
transportation, mail, financial, or other services could have a material adverse
effect on our business, results of operations, and financial condition.
Furthermore, we may experience a small increase in operating costs, such as
costs for transportation, insurance, and security as a result of the activities
and potential activities. The U.S. economy in general is being adversely
affected by the terrorist activities and potential activities, and any economic
downturn could adversely impact our results of operations, impair our ability to
raise capital, or otherwise adversely affect our ability to grow our business.
Conversely, because of the nature of our products, there may be opportunities
for the Company to offer solutions to the government that may address some of
the problems that the country faces at this time.
15
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1999, SIL, a then subsidiary of SpaceDev, won a contract to
build the satellite bus (structural chassis and some avionics) for an Australian
domestic spacecraft project, FedSat. SIL was to deliver the bus to the
Cooperative Research Center for Satellite Systems ("CRCSS") in early 2000, and
FedSat was intended to be launched as a secondary or "piggyback" satellite on a
National Space Development Agency of Japan ("NASDA") H-IIA rocket in November
2000. In connection with the CRCSS agreement, SIL was required to provide a
performance bond and, as SIL's parent corporation, SpaceDev obtained a
performance bond from Technical & General Guarantee Company Limited, an English
company ("T&G"). In conjunction with that guarantee, SpaceDev was required to
enter into a Deed of Counter Indemnity with T&G providing for the
indemnification of T&G against any losses, costs, damages, expenses and demands
arising out of SIL's actual and contingent liability under the performance bond.
On December 17, 1999, the Company's Board of Directors entered into a
Mutual Release and Rescission of Agreement (Release Agreement) to rescind the
original acquisition of SIL, effective October 1, 1998. SIL has since filed for
bankruptcy under the laws of England. On or about September 5, 2000, SpaceDev
received a demand from T&G under the Deed of Counter Indemnity for $300,000
Australian Dollars (approximately $154,000 United States Dollars) based on SIL's
alleged failure to perform under the contract. SpaceDev is in the process of
investigating the claim(s) made against the performance bond upon which this
demand is being made. The Company is in discussions with representatives of T&G
concerning this matter and is of the opinion that it is likely that the Company
will be held liable for a portion or all of the this claim. Any requirement that
the Company pay the claim in a lump sum payment would have a material adverse
effect on the Company's financial condition.
Due to fundamental misunderstandings and disagreements between the
Company and EMC, on November 2, 2001 the Company exercised its option to cancel
the Consultant Agreement and Financial Services Agreement with EMC. The second
installment of 400,000 shares which would have been due to EMC under the
Consultant Agreement was not issued pursuant to extension of the due date to
November 18, 2001. The extension had been mutually agreed upon for the express
purpose of allowing the parties to discuss possible revisions to the terms of
the Consultant Agreement. Pursuant to a demand for arbitration filed on November
7, 2001, the Company is seeking rescission of the agreements and the return of
all or a portion of the shares issued to EMC in its first installment of 500,000
shares on June 26, 2001.
ITEM 2. CHANGES IN SECURITIES
Pursuant to its independent director compensation plan, adopted January
16, 2000, the Company granted options to purchase 10,000 shares each to Robert
Walker, Howell M. Estes, III, and Curt Dean Blake for their attendance at the
Board of Directors meeting held on July 20, 2001. These options were issued with
an exercise price of $0.9540 per share (based on the five-day average closing
price of the Company's common stock on the date of grant) and will expire on the
five-year anniversary date of the date of grant.
On August 14, 2001, the Company entered into an employment agreement
with Assi Friedman, pursuant to which he received an option to purchase up to
18,000 shares of the Company's common stock at a purchase price of $0.8655. Mr.
Friedman's options vest as follows; 3,000 on February 28, 2002, 3,000 on August
28, 2002, 3,000 on February 28, 2003, 3,000 on August 28, 2003, 3,000 on
February 28, 2004 and finally 3,000 on August 28, 2004.
16
On August 27, 2001, the Company issued options to purchase a total of
53,000 shares of its common stock to certain of its employees pursuant to a
policy adopted by the Board of Directors on July 1, 1999 for annual employee
performance reviews and the award of Annual Incentive Stock Options. All options
issued pursuant to this policy are issued at the five-day average closing price
of the company's common stock on the Board previously approved Over-The-Counter
Bulletin Board ("OTCBB"), or $0.8609 per share. All options issued pursuant to
this policy will vest one-third of the options on the anniversary of the date of
grant and, with the exception of options issued to James W. Benson, will expire
after six years. The options issued and the employees awards are as follows:
John Bodle 3,000
Chris Grainger 3,000
Frank Macklin 3,000
Michael Veno 3,000
Robert Davis 3,000
Simon Dawson 3,500
Jeffrey Janicik 5,000
Katie McNeil-Longacre 3,000
Garnet Parker 3,000
Jonathan Wolff 3,500
Charles Lloyd 10,000
James Benson* 10,000
* Mr. Benson's options were issued at the exercise price of $.9469 (110% of the
option price) with an expiration date of August 27, 2006, pursuant to Section
422(c)(5) of the Internal Revenue Code, which requires incentive stock options
issued to 10% or more shareholders to be issued at 110% of fair market value
with an expiration date of not more than five (5) years form the grant date.
All of the above options were issued pursuant to the Company's Form S-8
Registration Statement for its Employee Stock Option Plan of 1999.
On August 11, 2001, the Company issued a warrant to purchase 25,000
shares of restricted common stock pursuant to its agreement to acquire the AMROC
hybrid motor technology. The exercise price of the warrant is $.877, based on
the five-day average closing price of the Company's common stock on the date of
grant. The warrant was issued pursuant to Section 4(2) of the Securities Act of
1933 (the "Act").
On August 24, 2001, the Company issued stock awards to certain of its
employees working on the CHIPSat project as follows:
Jeffrey L. Janicik 23,000
Jonathan M. Wolff 18,000
Robert Davis 13,000
Simon Dawson 11,000
Allen Newcomb 7,000
Ken Rubio 6,000
Calvin Lindsay 2,000
17
The stock awards were made pursuant to the Company's Stock Option Plan
of 1999, currently registered on Form S-8.
On September 18, 2001, the Company issued 23,419 shares of common stock
and warrants to purchase an additional 23,419 shares of common stock at an
exercise price of $0.854 per share to an individual investor in exchange for an
investment of $20,000. This purchase was made as a part of an accredited
investor only, private placement transaction under Rule 506 of Regulation D of
the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No.
-----------
None.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the Commission on July 19,
2001 under Item 5 (other events) disclosing the Company's agreements with EMC
Holdings Corporation for financial advisory and consulting services and the
issuance of 500,000 shares of the Company's common stock to EMC Holdings
Corporation in connection therewith.
A Current Report on Form 8-K/A was filed with the Commission on July
25, 2001 under Item 5 (other events) announcing the results of votes taken at
the Company's 2001 Annual Meeting of Shareholders, correcting certain disclosure
items in the Company's Proxy Statement on Schedule 14A and announcing the
resignation of the Company's President.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPACEDEV, INC.
Registrant
Dated: November 13, 2001 /s/ James W. Benson
-----------------------------------------
James W. Benson
Chief Executive Officer
Dated: November 13, 2001 /s/ Charles H. Lloyd
-----------------------------------------
Charles H. Lloyd
Chief Operations Officer and
Chief Financial Officer
19