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 March 31, 2002
[ ] 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 .
-----------------
SPACEDEV, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1374613
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13855 Stowe Drive, Poway, California 92064
(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: 14,858,396 shares of Issuer's voting
common stock were outstanding on April 30, 2002.
SPACEDEV, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2002
INDEX PAGE
----- ----
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited).............................................1
Condensed Consolidated Balance Sheets at March 31, 2002 and 2001.................1
Condensed Consolidated Statements of Operations for March 31, 2002 and 2001......3
Condensed Consolidated Statements of Cash Flows for March 31, 2002 and 2001......4
Notes to Condensed Consolidated Financial Statements.............................6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................................10
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings...........................................................17
ITEM 2. Changes in Securities.......................................................18
ITEM 3. Defaults Upon Senior Securities.............................................19
ITEM 4. Submission of Matters to Vote of Security Holders...........................19
ITEM 5. Other Information...........................................................19
ITEM 6. Exhibits and Reports on Form 8-K............................................19
Signatures.............................................................................20
ii
ITEM 1. FINANCIAL STATEMENTS
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, 2002 2001
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 310,269 $ 22,594
Accounts receivable 33,980 114,314
Other current assets -- 6,974
--------------------------------------------------------------------------------
Total current assets 344,249 143,882
FIXED ASSETS - NET 2,151,025 2,225,532
INTANGIBLE ASSETS - NET -- 1,322,743
CAPITALIZED SOFTWARE COSTS 207,016 207,016
OTHER ASSETS 104,517 140,527
--------------------------------------------------------------------------------
$2,806,807 $4,039,700
================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
1
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, 2002 2001
--------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current portion of notes payable $ 69,256 $ 13,000
Current portion of capitalized lease obligations 32,134 51,182
Current portion of notes payable - related party 80,000 80,000
Accounts payable and accrued expenses 284,973 670,816
Accrued payroll, vacation and related taxes 116,999 125,598
Customer deposits and deferred revenue 294,422 191,197
Billing in excess of costs incurred (Note 2) 231,864 381,674
Provision for anticipated loss (Note 2) 69,487 651,168
Other accrued liability(Note 3) 150,000 --
--------------------------------------------------------------------------------------
Total current liabilities 1,329,135 2,164,635
NOTES PAYABLE, LESS CURRENT MATURITIES 2,372,381 2,267,108
CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES 21,550 72,937
NOTES PAYABLE - RELATED PARTY, LESS CURRENT MATURITIES 577,298 606,032
DEFERRED REVENUE 5,000 5,000
--------------------------------------------------------------------------------------
Total liabilities 4,305,364 5,115,712
STOCKHOLDERS' 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; 14,858,396 and 14,072,476 shares
issued and outstanding, respectively 1,485 1,407
Additional paid-in capital 8,224,827 7,420,994
Additional paid-in capital - stock options 750,000 750,000
Deferred compensation (250,000) (250,000)
Accumulated deficit (10,224,869) (8,998,413)
--------------------------------------------------------------------------------------
Total stockholders' deficit (1,498,557) (1,076,012)
--------------------------------------------------------------------------------------
$ 2,806,807 $ 4,039,700
======================================================================================
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 MARCH 31, 2002 2001
--------------------------------------------------------------------------------
NET SALES $ 949,770 $ 537,260
COST OF SALES 711,963 481,275
--------------------------------------------------------------------------------
GROSS MARGIN 237,807 55,985
OPERATING EXPENSES
General and administrative (Including
stock based compensation of $0
and $60,846 for the three months
ended March 31, 2002 and 2001.) 211,967 429,624
Research and development -- 198,400
--------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 211,967 628,024
--------------------------------------------------------------------------------
INCOME/(LOSS) FROM OPERATIONS 25,840 (572,039)
OTHER EXPENSE
Interest expense 55,160 86,696
--------------------------------------------------------------------------------
NET LOSS $ (29,320) $ (658,735)
================================================================================
NET LOSS PER SHARE:
Net loss $ (0.00) $ (0.05)
================================================================================
Weighted-Average Shares Outstanding 14,825,377 14,030,062
================================================================================
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)
THREE MONTHS ENDED MARCH 31, 2002 2001
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (29,320) $(658,735)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 48,465 217,767
Contributed asset (16,251) --
Loss on disposal of asset 7,410 --
Common stock and stock options issued for
compensation and services -- 60,846
Change in operating assets and liabilities 95,435 179,229
--------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 105,739 (200,893)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments on notes payable (1,715) (500)
Net payments on capital lease obligations (5,392) (15,636)
Net payments on notes payable - related party (20,000) (20,000)
Proceeds from issuance of common stock 20,000 --
--------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (7,107) (36,136)
--------------------------------------------------------------------------------
Net increase (decrease) in cash 98,632 (237,029)
CASH AT BEGINNING OF PERIOD 211,637 259,623
--------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 310,269 $ 22,594
================================================================================
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)
THREE MONTHS ENDED MARCH 31, 2002 2001
--------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 43,094 $ 100,762
NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31 2001, the Company issued 67,247 shares of
common stock for services and recorded expenses of $60,846.
================================================================================
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
inactive subsidiaries, Integrated Space Systems Inc. (ISS), SpaceDev Australia,
and the newly formed SpaceDev, Inc., an Oklahoma corporation. 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 March 29, 2002 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 three months ended March 31, 2002 are not necessarily
indicative of results that may be expected for the fiscal year ending December
31, 2002 or any future period, and the Company makes no representations related
thereto.
The accompanying condensed consolidated financial statements as of
March 31, 2002 and 2001 have been prepared assuming the Company will continue as
a going concern. However, the Company had a working capital deficit of $984,886
as of March 31, 2002, and incurred a net loss of $29,320 for the three months
then ended. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. During the first quarter 2002, management raised
$20,000 through a private equity placement. Subsequent to March 2002, 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.
Certain amounts in the 2002 financial statements have been reclassified
to conform with the 2001 classifications. These reclassifications have no effect
on reported net loss.
6
2. REVENUE RECOGNITION
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 the
contract status at year-end and determined that the total estimated costs at the
end of the program would exceed the likely revenue. As a result, the Company
accrued a loss of approximately $861,000. Included in the review was a $600,000
modification to the scope of the contract which was signed on June 15, 2001. On
November 28, 2001 a second contract modification was signed with UCB which added
$1,201,132 to the contract, as well as an increase in contract scope. This
increased the total contract revenue to $6,797,000. At December 31, 2001, the
Company reviewed the contract again and with the contract modifications and
added scope, the total estimated loss was reduced by $397,238 to approximately
$463,000. As of March 31, 2002, approximately 85% of the total contract costs
had been expended and the remaining loss accrued on the balance sheet at March
31, 2002 was approximately $69,500. The CHIPSat contract is expected to conclude
on December 31, 2003. The Company is presently in the process of negotiating
another contract change that will increase the value of the CHIPSat contract.
In September 2001, the Company was awarded a contract for a proprietary
research program valued in excess of $1 million. As a part of that program, we
will compete with another party to design a space propulsion system. The entire
contract, which will be awarded based upon the submitted designs, is valued at a
total $2.2 million. We believe that the award could lead to a long-term market
for our hybrid propulsion technology if we are successful in winning the
contract. Due to the highly competitive, confidential and market-sensitive
nature of the contract, we are unable to release more detailed information on
the project until the contract has been awarded in full. However, we do believe
this new contract is indicative of an increased demand for our hybrid motor
technology and expertise in the space industry, and expect the amount of revenue
to be generated in 2002 to be approximately $824,000 to $1.8 million. Work on
this project generated approximately $365,000 in revenues during the first
quarter of 2002. Management intends to review the contract status in the second
quarter of 2002, after a larger percentage of completion is obtained, to
evaluate possible changes to the total estimated costs to complete the contract.
As a result, management has elected to defer recognizing gross profit of
approximately $145,000.
3. 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.
On May 6, 2002 a settlement agreement was reached with T&G which called
for twelve monthly payments in the amount of $1,200 to begin March 1, 2002.
After the twelve months the note calls for a balloon payment on the anniversary
of the effective date in the amount of $139,000. The Company has the right to
convert the balloon note to a three-year loan with 36 equal monthly payments
with a 10% interest rate when the balloon note matures.
7
4. NOTES PAYABLE
(a) BUILDING AND SETTLEMENT NOTES
On February 23, 2000, the Company signed a $1,330,000 note to refinance
its facility in Poway, California. The note calls for 300 monthly payments of
approximately $10,000, which include principal and interest at prime plus 1.5%.
On March 31, 2002 and 2001 the interest rate on the note was 6.25% and 10% with
an outstanding balance of $1,300,932 and $1,321,828, respectively. The note
matures in February 2025.
In December 1998, the Chief Executive Officer (the "CEO") of the
Company entered into a $500,000 loan agreement with another lender to finance
additional costs of its new facility. This liability was assigned to the Company
and called for 59 monthly interest payments at 12.00% and a balloon payment of
$505,000, including interest, in December 2003. At March 31, 2002 and 2001, the
outstanding balance on this loan was $495,012 and $499,671, respectively.
In 1999, the Company entered into a second loan agreement with this
lender. The $460,000 loan called for 59 monthly interest payments at 10.5% and a
balloon payment of $464,000, including interest, in March 2004. At March 31,
2002 and 2001, the outstanding balance on this loan was $456,020 and $458,609,
respectively.
In 2001, the Company entered into three settlement loan agreements with
various vendors. The total of $171,402 for all three loans called for payment
between 24 and 50 months with interest that ranges from 0% to 8%. At March 31,
2002, the outstanding balances on these notes were $189,673.
Future minimum principal payments on notes payable, building and settlement
notes are as follows:
3 Months Ended March 31,
--------------------------------------------
2002 $ 69,256
2003 1,017,452
2004 53,880
2005 46,000
2006 18,500
Thereafter 1,236,549
--------------------------------------------
$ 2,441,637
============================================
(b) RELATED PARTIES
The Company had notes payable to the CEO. At March 31, 2002 and 2001,
the balances were $657,298 and $686,032, respectively, with accrued interest of
10%. The note was amended on March 20, 2000 to call for annual payments of not
less than $80,000 per year with interest at 10%.
8
Future minimum principal payments on notes payable, related parties are as
follows:
3 Months Ended March 31,
--------------------------------------------
2002 $ 80,000
2003 80,000
2004 80,000
2005 80,000
2006 80,000
Thereafter 257,298
--------------------------------------------
$ 657,298
============================================
Interest expense on these notes was $12,066 and $14,066 for the three months
ended March 31, 2002 and 2001, respectively.
5. OPERATING SEGMENTS
The Company's operating structure included one active operating segment
for 2002 and two active operating segments for 2001. As a result, no segment
information is presented for the quarter ended March 31, 2002.
SEGMENT PRODUCTS AND SERVICES
The Company had the following reportable segments in 2001: Space
Mission Division (SMD), and ISS. SMD was in the process of developing deep space
science exploration satellites. ISS provided small hybrid propulsion space
systems and engineering services. Currently the SpaceDev product line offers a
combination of the former subsidiaries product lines and services.
FOR THE THREE MONTHS ENDED MARCH 31, 2001
----------------------------------------------------------
(IN THOUSANDS) SMD ISS Total
----------------------------------------------------------
Net revenue from external
Customers $ 383 $ 154 $ 537
Depreciation and
Amortization expense $ 42 $ 176 $ 218
Segment loss $ (421) $ (238) $ (659)
==============================
Total segment assets $ 2,817 $ 1,387 $ 4,204
Less intersegment assets (164) -- (164)
------------------------------
Net segment assets $ 2,653 $ 1,387 $ 4,040
==============================
6. NEW ACCOUNTING PRONOUNCEMENTS
There were no recent Accounting Pronouncements that effect the Company during
the first quarter 2002. For past pronouncements please refer the company's 10KSB
filed on March 29, 2002.
9
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 condensed 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.
Factors that could cause or contribute to such differences include, but
are not limited to, the level of sales to key customers; the economic conditions
affecting our industry; actions by competitors; fluctuations in the price of raw
materials; the availability of outside contractors at prices favorable to the
Company; our dependence on single-source or a limited number of suppliers; our
ability to protect our proprietary technology; market conditions influencing
prices or pricing; an adverse outcome in litigation, claims and other actions,
and potential litigation, claims and other actions by or against us, including,
but not limited to, the litigation that has been filed by and against EMC
Holdings Corporation; technological changes and introductions of new competing
products; the current recession; terrorist attacks or acts of war, particularly
given the acts of terrorism against the United States on September 11, 2001 and
subsequent military responses by the United States; ability to retain key
personnel; changes in market demand; exchange rates; productivity; weather; and
market and economic conditions in the areas of the world in which we operate and
market are products.
Given these uncertainties, investors are cautioned not to place too
much weight on such statements. We are not currently obligated to update these
forward-looking statements.
OVERVIEW
The Company formulated and began to implement its current business plan
in 1997. In February 1998, our operations were expanded with the acquisition of
Integrated Space Systems, Inc., a California corporation founded for the purpose
of providing engineering and technical services related to space-based systems
("ISS"). The ISS employee base acquired upon acquisition was largely made up of
former General Dynamics personnel and enlarged our then current employee base to
20 employees. ISS was purchased for a total of $3,625,000, paid in Rule 144
restricted common shares of SpaceDev. An excess in the calculated purchase price
of approximately $164,000 of net assets acquired was capitalized as goodwill and
was to be amortized over a period of 60 months.
As a result of a change in corporate focus, on November 15, 2001, we
determined that the unamortized balance of goodwill from ISS, which was
approximately $923,000, had become impaired and it was written off. While the
ISS segment did provide small hybrid propulsion space systems and engineering
services on separate contracts (mainly with the government), the engineering
service contracts had expired and, therefore, would not be producing revenue or
cash flow to support future operations. It was determined that all future
business, contracts, and proposals would be sought after only in the SpaceDev
name, making it a more efficient way for the Company to manage and track
multiple contracts and work on many different business ventures at the same time
within the same operating segment.
In November 1999, SpaceDev was awarded a $4,995,868 turnkey mission
contract by the Space Sciences Laboratory ("SSL") at University of California,
10
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 the
contract status at year-end and determined that the total estimated costs at the
end of the program would exceed the likely revenue. As a result, the Company
accrued a loss of $861,000. Included in the review was a $600,000 modification
to the scope of the contract which was signed on June 15, 2001. On November 28,
2001, a second contract modification was signed with UCB which added $1,201,132
to the contract, as well as an increase in contract scope. This increased the
total contract revenue to $6,797,000. At December 31, 2001, the Company reviewed
the contract again and with the contract modifications and added scope, the
total estimated loss was reduced by $397,238 to approximately $463,000. As of
March 31, 2002, approximately 85% of the total contract costs had been expended
and the remaining loss accrued on the balance sheet at March 31, 2002 totaled
approximately $69,500. The Company receives monthly payments on the contract
according to a preset payment schedule detailed in the contract.
On February 1, 2000, we announced that SpaceDev had teamed with Boeing
to investigate opportunities of mutual interest in the commercial deep-space
arena. The purpose of the agreement is to investigate a variety of small,
low-cost, deep space mission initiatives formulated by SpaceDev that are based
on SpaceDev's commercial micro-mission work. During 2000, technical and
corporate staff from Boeing and SpaceDev further refined and advanced SpaceDev's
concept of commercial missions to the Moon, Mars and near-Earth asteroids,
involving micro-spacecraft of 250 kg mass. The effort also included a global
assessment of the market potential for such missions, and a technical and
programmatic assessment of lower cost launch vehicle options for such missions.
We are now in the process of marketing a Lunar Orbiter Mission to sponsors and
customers. To date, we have not been successful in securing the funding needed
to proceed with this project.
In July 2000, the Company was awarded two contracts from the Office of
Space Launch of the National Reconnaissance Office totaling 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.
In April 2001, we announced that, as part of a Boeing-led team that was
awarded one of four $1 million contracts from NASA's Jet Propulsion Laboratory
in Pasadena, California, we would participate in a study of the options for a
potential Mars sample return mission in 2011. The contract ran from April
through October 2001.
In September 2001, the Company was awarded a contract for a proprietary
research program valued in excess of $1 million. As a part of that program, we
will compete with another party to design a space propulsion system. The entire
contract, which will be awarded based upon the submitted designs, is valued at a
total $2.2 million. We believe that the award could lead to a long-term market
for our hybrid propulsion technology if we are successful in winning the
contract. Due to the highly competitive, confidential and market-sensitive
nature of the contract, we are unable to release more detailed information on
the project until the contract has been awarded in full. However, we do believe
this new contract is indicative of an increased demand for our hybrid motor
technology and expertise in the space industry, and expect the amount of revenue
to be generated by the project in 2002 to be approximately $824,000 to $1.8
million. Work on this project generated approximately $365,000 in revenues
during the first quarter of 2002. Management intends to review the contract
status in the second quarter of 2002, after a larger percentage of completion is
obtained, to evaluate possible changes to the total estimated costs to complete
the contract. As a result, management has elected to defer recognizing gross
profit of approximately $145,000.
11
On April 30, 2002, the Company was awarded Phase I of a contract to
develop a Shuttle-compatible propulsion module for the Air Force Research Lab
(AFRL). We also expect to receive an award for Phase II of the contract in
September 2002 and will use the project to further expand the Company's product
line to satisfy commercial and government space transportation requirements. The
first two phases of the contract are worth up to $1.6 million, of which $100,000
was awarded for Phase I.
RESULTS OF OPERATIONS
Please refer to the condensed consolidated financial statements, which
are a part of this report for further information regarding the results of
operations of the Company.
THREE MONTHS ENDED MARCH 31, 2002 -VS.- THREE MONTHS ENDED MARCH 31,
2001
During the three months ended March 31, 2002, the Company had net sales
of $949,770 as compared to net sales of $537,260 for the same period in 2001.
Sales in the first quarter 2002 were comprised of approximately $481,000 from
the CHIPSat program, $365,000 from a contract for a proprietary development
program, and $104,000 from all other programs. In the first quarter 2001, sales
were comprised of $383,000 from the CHIPSat program, $132,000 from research and
development performed for the Office of Space Launch (OSL) and $22,000 from all
other programs.
For the first quarter 2002, the Company had cost of sales (direct and
allocated costs associated with individual contracts) of approximately $712,000
as compared to $481,000 during the same period in 2001. This increase was
primarily due to the increase in revenues on the CHIPSat program as well as on
the contract for a proprietary development program. The Company's revenues on
both of these programs are derived primarily from fixed price contracts and are
recognized using the percentage-of-completion method of contract accounting
based on the ratio of total costs incurred to total estimated costs, so an
increase in total costs will increase total revenue.
The gross margin percentage for the period ended March 31, 2002 was
25.0% as compared to 10.4% for the same period in 2001. The increase was due to
the addition of a proprietary development program with a higher gross margin as
well as a reduction of the loss of approximately $70,000 on CHIPSat due to the
contract changes. See above in "overview" for the deferral of gross margin. We
experienced a decrease in operating expenses from approximately $628,000 during
the period ended March 31, 2001 to $212,000 for the same three months in 2002.
Operating expenses include general and administrative expenses and research and
development expenses. General and administrative expenses consisted primarily of
salaries for administrative personnel, fees for outside consultants, insurance,
legal and accounting fees and other overhead expenses. The decrease was
primarily attributable to the reduction of research and development costs from
$198,400 during the first three months of 2001 to $0 for the same period in
2002. There was also an overall reduction of non-cash expenses -- including
stock based compensation of approximately $61,000 and approximately $159,000 of
goodwill amortization -- during the first three months in 2001 to $0 for the
first three months of 2002
Interest expense for the three months ending March 31, 2002 and 2001
was approximately $55,000 and $87,000, respectively. The decrease in interest
expense was caused by the decrease in the rates on the debt.
12
During the three months ended March 31, 2002, the Company had a net
loss of $29,320, compared to a net loss of $658,735 for the same three-month
period in 2001. The decrease in the net loss was due an increase in revenues as
well as a reduction to the Company's operating expenses by approximately
$491,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's auditors have expressed a formal auditors' opinion that
the Company's December 31, 2001 financial position raises substantial doubt
about its ability to continue as a going concern. Management believes that this
condition remains at March 31, 2002. The Company's ability to continue as a
going concern depends upon our ability to implement management's plans to
continue reducing the working capital deficit, consummating additional funding
and obtaining profitable new business. The funding as well as new business 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.
CASH POSITION FOR THREE MONTHS ENDED MARCH 31, 2002 -VS.- THREE MONTHS
ENDED MARCH 31, 2001
Net increase in cash during the three months ended March 31, 2002 was
$98,632, compared to a net decrease of ($237,029) for the same period in 2001.
Net cash provided by operating activities totaled $105,739 for the three months
ended March 31, 2002, an increase of $306,632 as compared to ($200,893) used by
operating activities during the same period in 2001. This is attributable
primarily to the decrease in operating expenses and a reduction of the overall
loss from ($658,735) for the period ending March 31, 2001 to ($29,320) for the
same period in 2002.
Net cash used in investing activities totaled $0 for the three months
ended March 31, 2002 and 2001. There were no purchases of fixed assets during
both periods. Net cash used in financing activities totaled ($7,107) for the
three months ended March 31, 2002, an improvement of $29,029 versus the
($36,136) used in financing activities during the same period on 2001. This
improvement is primarily attributable to generating $20,000 from sales of common
stock during the three months ended March 31, 2002 compared to $0 for the same
period in 2001.
At March 31, 2002, the Company's cash, which includes cash reserves and
cash available for investment, was $310,269 as compared to $22,594 at March 31,
2001, an increase of $287,675. At March 31, 2002, the Company had accounts
receivable of $33,980, and accounts payable and accrued expenses of $284,973.
As of March 31, 2002, the Company's backlog of funded and non-funded
business was approximately $2.5 million, as compared to approximately $3.4
million as of March 31, 2001.
13
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 $2,036,000 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 $8,000 during the quarter ended March 31, 2002, from $2,036,000 at
December 31, 2001 to $2,044,000 at March 31, 2002.
Please refer to the condensed consolidated financial statements, which
are a part of this report for further information regarding the liquidity and
capital resources of the Company.
CRITICAL ACCOUNTING STANDARDS
The Company's revenues are derived primarily from fixed price contracts
and are recognized using the percentage-of-completion method of contract
accounting based on the ratio of total costs incurred to total estimated costs.
Losses on contracts are recognized when they become known and reasonably
estimable. Actual results of contracts may differ from management's estimates
and such differences could be material to the consolidated financial statements.
Professional fees are billed to customers on a time and materials basis, a fixed
price basis or a per-transaction basis. Time and materials revenues are
recognized as services are performed. Billings in excess of costs incurred and
estimated earnings represent the excess of amounts billed in accordance with the
contractual billing terms. Deferred revenue represents amounts collected from
customers for services to be provided at a future date.
In October 1995 the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting
for Stock-Based Compensation." The Company adopted SFAS No. 123 in 1997. We have
elected to measure compensation expense for our stock-based employee
compensation plans using the intrinsic value method prescribed by APB Opinion
25, "Accounting for Stock Issued to Employees" and have provided pro forma
disclosures as if the fair value based method prescribed SFAS No. 123 has been
utilized. The Company has valued its stock, stock options and warrants issued to
non-employees at fair value in accordance with the accounting prescribed in SFAS
No. 123, which states that all transactions in which goods or services are
received for the issuance of equity instruments shall be accounted for based on
the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
Fixed assets are depreciated over their estimated useful lives of
three-to-thirty years using the straight-line method of accounting. Goodwill and
other intangible assets were created upon the acquisition of the Company's
subsidiaries. Intangible assets are amortized over their assets' estimated
future useful lives on a straight-line basis over three to five years. Goodwill
and other intangibles are reviewed annually for impairment based on an
assessment of future operations to ensure they are appropriately valued in
accordance with Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or disposal of Long-Lived Assets." Effective November 2001,
there was no more amortization of goodwill.
14
FORWARD-LOOKING STATEMENTS
The Company has sustained itself over the last two years with a mix of
government and commercial contracts. The Company can continue to grow and
execute certain parts of its strategy without additional equity funding by
identifying, bidding and winning new commercial and government funded programs.
During the first three months of 2002, the Company submitted five bids for
government programs, has worked with the US Congress to identify directed
funding for its programs and is actively working to win several significant
commercial programs. The win of some of these programs would enable SpaceDev to
continue to grow and broaden its business base. As outlined above, the Company
signed a contract with one government customer on April 30, 2002 that could
ultimately lead to approximately $1.6 million of new business over the next 18
months. We were not successful on the other government proposals, but continue
to work on the commercial projects and are preparing new proposals for
government customers.
To date, we have maintained a mix of government and commercial
business. In 2001, we had about 80% government or government related work. In
2002, we expect the ratio to be approximately 70% government or
government-related work. We will continue to do both government and commercial
business and anticipate the mix of government revenues to continue to be above
60% for the next several years as we increase our government marketing efforts
for both of our product lines.
While we do not expect a reduction of government sales, we are
continuing to aggressively market our products to the commercial market,
particularly for manned sub-orbital space planes, and are marketing our micro
spacecraft to a variety of commercial customers. Our business model does
anticipate the winning of contracts in both market segments. Based on current
trends and proposals, we believe that we can offset fluctuations in one market
segment with contract wins from the other; however, our inability to win
business in both markets would have a negative effect on the Company's business
operations and financial condition.
We are forecasting about the same or modest growth in sales for 2002 as
in 2001. At this time, about 80% of the forecasted sales are under contract.
There is no guarantee that we will win enough new business to achieve any
growth. To obtain the same or modest growth in sales we do not expect to have to
make significant capital expenditures to achieve this modest increase in sales
for 2002.
As it relates to the CHIPSat program, the Company will receive total
fixed compensation on the CHIPSat project in a total amount of $6,797,000, of
which about $3.2 million was generated in 2001 and $566,000 was received in the
first quarter of 2002. The contract calls for total payments of $1,789,000 in
2002 and $138,000 in 2003. As outlined above, the Company reviewed the contract
again in late 2001 and the total loss was reduced from $861,000 to approximately
$463,000. We are currently negotiating an increase to the contract for
approximately $300,000 to the total contract value and scope. At this time, we
do not expect any additional losses from or increases to the contract. The
launch of CHIPSat is currently scheduled for late 2002. A delay in the launch
would have no significant financial effects on the Company in the near term, but
would negatively impact our marketing efforts and our ability to raise
additional equity funding.
We expect payments of about $1.5 million in 2002 from a commercial
contract won last November. This effort could lead to follow-on contracts from
the same customer later this year or in 2003, but at this time we cannot assess
the probability of winning or the value of those contracts.
The Company's broad, overall, higher growth business strategy, requires
significant development and capital expenditures. The Company will incur a
substantial portion of these expenditures before it generates significantly
higher sales. Combined with operating expenses, these capital expenditures will
result in a negative cash flow until we can establish an adequate
revenue-generating customer base. We expect losses through 2002 and do not
expect to generate net positive cash flow from annual operations sufficient to
fund both operations and capital expenditures until the launch of our first
commercial spacecraft - expected at the end of 2002. There can be no assurance
that the Company will achieve or sustain any positive cash flow or profitability
thereafter.
15
During the years ended December 31, 2001 and December 31, 2000, we
raised approximately $145,000 through private sales of stock. The Company raised
an additional $20,000 in the first quarter of 2002. To execute the Company's
total strategy of small, capable, low-cost micro satellites, hybrid propulsion
products and new commercial revenue sources, we require significant funding
and/or the winning of both significant government and commercial programs. The
current estimate of investor or customer funding is over $20 million, which
could come from a combination of private and/or public equity placements or
government and commercial customers. At this time, we do have an ongoing private
placement to generate up to $1 million of private equity, but do not have a
commitment from any placement agent or underwriter to implement any additional
public or private offering.
The Company may also need to raise additional capital if, for example,
(i) significant delays occur in deploying its first 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 its satellite products 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 we
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
hybrid-related systems, a Lunar Orbiter or a NEAP-like system.
Our ability to execute a public offering or otherwise obtain funds is
subject to numerous factors beyond our 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 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 such funds are needed 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.
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, significant 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 has been 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.
16
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 18, 2001, SpaceDev entered into a relationship with two
individuals (doing business as EMC Holdings Corporation ("EMC")) whereby EMC was
to provide certain consulting, advisory and fundraising services to the Company.
Pursuant to such relationship, EMC would receive certain equity and cash
compensation in exchange for their services. Due to fundamental
misunderstandings and disagreements, the Company terminated its relationship
with EMC. The second installment of 400,000 shares, which would have been due to
EMC on November 18, 2001, was not issued. Pursuant to a demand for arbitration
filed on November 7, 2001, the Company sought 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. EMC filed a its own claim with the American Arbitration Association on
November 13, 2001, alleging that the Company owed EMC $118,000 in fees under a
purported contract, plus damages to be proven at arbitration.
Based upon certain misrepresentations in the subscription agreement
originally submitted to SpaceDev by EMC upon issuance of the shares, SpaceDev
dismissed its claim in arbitration and filed a complaint with the Superior Court
of California, Orange County, on January 23, 2002 alleging intentional
misrepresentation, conversion, unfair business practices and interference with
prospective economic advantage against EMC. The Company requests injunctive and
declaratory relief with respect to the shares issued to EMC by the Company, as
well as 50,000 shares of common stock issued to EMC by our Chief Executive
Officer, James W. Benson, as a condition to EMC entering into the agreements.
EMC has not withdrawn its own arbitration claim. A two-day arbitration is set
for May 28 and 29, 2002, on EMC's claim against the Company. EMC filed a general
denial to our complaint in the Superior Court, and, by agreement, that case will
be stayed pending a ruling on the arbitration. EMC has stipulated not to
transfer the 500,000 shares of stock we are attempting to recover, pending a
ruling in the arbitration.
17
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, Curt Dean Blake, and Wesley T. Huntress for their
attendance at a Board of Directors meeting held on January 10, 2002. These
options were issued with an exercise price of $0.542 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 January 2, 2002, the Company entered into an employment agreement
with John Gardner, pursuant to which he received an option to purchase up to
20,000 shares of the Company's common stock at a purchase price of $0.556. Mr.
Gardner's options vest as follows; 2,500 shares on July 2, 2002; 2,500 shares on
January 2, 2003; 2,500 shares on July 2, 2003; 2,500 shares on January 2, 2004;
2,500 shares on July 2, 2004; 2,500 shares on January 2, 2005; 2,500 shares on
July 2, 2005; and 2,500 shares on January 2, 2006. Mr. Gardner is an engineering
and manufacturing technician responsible for building test hardware, tooling and
hybrid motors.
On January 22, 2002, the Company entered into an employment agreement
with Jennifer Lynn Clark, pursuant to which she received an option to purchase
up to 48,000 shares of the Company's common stock at a purchase price of $0.592.
Ms. Clark's options vest as follows; 6,000 shares on July 22, 2002; 6,000 shares
on January 22, 2003; 6,000 shares on July 22, 2003; 6,000 shares on January 22,
2004; 6,000 shares on July 22, 2004; 6,000 shares on January 22, 2005; 6,000
shares on July 22, 2005; and 6,000 shares on January 22, 2006. Ms. Clark
currently handles investor and public relations for the Company.
On February 8, 2002, the Company issued options to purchase a total of
573,150 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. The option
awards were issued for different numbers of shares at different vesting
schedules in an effort to provide long-term employees with the same
opportunities for ownership in the Company as new employees receiving more
favorable awards. As a result, some of the options were immediately vested,
while the remaining options will vest at a rate of 1/8 of the remaining
non-vested total every 6 months beginning with the first 1/8 becoming vested
August 8, 2002. All options issued pursuant to this policy are issued at the
five-day average closing price of the Company's common stock on the
Over-The-Counter Bulletin Board ("OTCBB"), or $0.51 per share, and will expire
after six years. The options issued, vested totals and the employees awards are
as follows:
EMPLOYEE OPTIONS VESTED
Jonathan Wolff 110,500 27,625
Jeffrey Janicik 68,900 17,225
Chris Grainger 53,250 13,312
Garnet Parker 44,000 11,000
Katie McNeil-Longacre 44,000 11,000
Robert Davis 43,250 10,812
Simon Dawson 40,750 10,187
David McNeely 44,500 5,562
Kenneth Rubio 25,000 3,125
Assi Friedman 34,000 0
John Gardner 16,000 0
Jeffrey Hickerson 25,000 0
Calvin Lindsay 24,000 0
18
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 March 14, 2002, the Company issued 40,816 shares of common stock and
warrants to purchase an additional 40,816 shares of common stock at an exercise
price of $0.49 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.
Pursuant to its independent director compensation plan, adopted January
16, 2000, the Company granted options to purchase 5,000 shares each to Robert
Walker, Howell M. Estes, III, Curt Dean Blake, and Wesley T. Huntress for their
attendance at the Board of Directors meeting held on April 19, 2002. These
options were issued with an exercise price of $0.496 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.
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
None.
19
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: May 15, 2002 /s/ James W. Benson
--------------------------------------------
James W. Benson
Chief Executive Officer
Dated: May 15, 2002 /s/ Charles H. Lloyd
--------------------------------------------
Charles H. Lloyd
Chief Operations Officer and
Chief Financial Officer
20