As filed with the Securities and Exchange Commission on July 25, 2003.
Registration Statement No. __________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------------
SPACEDEV, INC.
(Exact name of registrant as specified in its charter)
COLORADO 3761
84-1374613
------------------------------- ---------
----------------------
(State or other jurisdiction of (Primary standard Industrial
(I.R.S. Employer
incorporation or organization) Classification Code Number)
Identification Number)
13855 STOWE DRIVE
POWAY, CALIFORNIA 92064
(858) 375-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------------
JAMES W. BENSON
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
SPACEDEV, INC.
13855 STOWE DRIVE
POWAY, CALIFORNIA 92064
(858) 375-2020
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
-------------------------
Copies to:
GRETCHEN COWEN, ESQ.
WEINTRAUB DILLON PC
12520 HIGH BLUFF DRIVE, SUITE 260
SAN DIEGO, CALIFORNIA 92130
(858) 259-2529
Approximate date of commencement of proposed sale to public: FROM TIME TO TIME
AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: | |
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box: |X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: | |
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: | |
If delivery of the prospectus is expected to be made pursuant to Rule 434 under
the Securities Act, please check the following box: | |
CALCULATION OF REGISTRATION FEE
-------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OF REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED (1) PER SHARE OFFERING PRICE FEE
------------------------------- ----------------- ---------------- ---------------- ---------------
Common Stock, $0.001 par value,
underlying Convertible Note 1,818,182 (2) 0.550 (3) 1,000,000 80.90
Common Stock, $0.001 par value,
underlying Warrants 125,000 0.630 (3) 78,750 6.37
Common Stock, $0.001 par value,
underlying Warrants 50,000 0.690 (3) 34,500 2.79
Common Stock, $0.001 par value,
underlying Warrants 25,000 0.800 (3) 20,000 1.62
Common Stock, $0.001 par value,
underlying Warrants 158,333 0.750 (3) 118,750 9.61
Common Stock, $0.001 par value,
underlying Warrants 23,419 0.854 (3) 20,000 1.62
Common Stock, $0.001 par value,
underlying Warrants 818,248 0.490 (3) 400,942 32.44
Common Stock, $0.001 par value,
underlying Warrants 196,079 0.510 (3) 100,000 8.09
------------------------------- ----------------- ---------------- --- ---------------- ---------------
Total 3,214,261 1,772,941 143.43
=============================== ================= ================ ===============
(1) In the event of a stock split, stock dividend, or similar transaction
involving common stock of the registrant, in order to prevent dilution, the
number of shares registered shall be automatically increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act. This
registration statement covers an aggregate of 3,214,261 shares.
(2) Represents 100% of the good faith estimate of the number of shares that
are issuable to the selling security holder following the conversion of interest
on and/or principal of a convertible note held by the selling security holder.
If our good faith estimate is incorrect and we determine that additional common
stock will be required to cover all principal and interest payments, we will be
required to file a new registration statement to register any such additional
shares.
(3) Exercise prices fixed in each warrant agreement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
ii
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING UNDER SECTION 8(a), MAY
DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SECURITY HOLDERS IDENTIFIED IN THIS PROSPECTUS MAY NOT SELL SECURITIES
UNDER THIS PROSPECTUS UNTIL THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS
IS A PART BECOMES EFFECTIVE.
SUBJECT TO COMPLETION, DATED July 25, 2003
iii
PROSPECTUS
SPACEDEV, INC.
3,214,261 SHARES OF COMMON STOCK
This prospectus relates to the resale by security holders of up to
3,214,261 shares of our common stock underlying (1) common stock purchase
warrants issued in a prior private placement of our securities to accredited
investors representing 1,196,079 shares (the "Warrants"), (2) a three-year
secured convertible note, or the Convertible Note, issued to Laurus Master Fund,
Ltd. ("Laurus") in the principal amount of $1,000,000, and (3) a common stock
purchase warrant for up to 200,000 issued to Laurus in relation to the
Convertible Note (the "Laurus Warrant"). We will not receive any of the proceeds
from the sale of the shares by the selling security holders. We have not
retained any underwriter in connection with the sale of the securities. We have
paid, on behalf of the selling security holders, the expenses of the offering
estimated to be $16,143.
Our common stock trades on The Over-the-Counter Bulletin Board under the
symbol "SPDV." The last reported sale price of our common stock on July 17,
2003, was $0.85 per share.
Our principal offices are located at 13855 Stowe Drive, Poway, California
92064, and our telephone number is (858) 375-2000.
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. AS YOU REVIEW THE PROSPECTUS, YOU
SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER "RISK FACTORS" BEGINNING
ON PAGE 6.
-------------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
The date of this prospectus is July 25, 2003.
1
TABLE OF CONTENTS
Page
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PROSPECTUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
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TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
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PROSPECTUS SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
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RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . 15
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SELLING SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 34
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DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . . . . . . . . . . 48
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MARKET FOR COMMON EQUITY & RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . 49
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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS & CONTROL PERSONS. . . . . . . . . . . . . . 51
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EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . . . . . . . . . . . 62
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DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
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DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES . 65
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . 65
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EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
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LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
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WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 68
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2
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. Because it
is a summary, it necessarily does not contain all of the information necessary
to your investment decision. To understand this offering fully, you should read
carefully the entire prospectus, especially the risks of investing in our common
stock discussed under "Risk Factors."
In connection with a strategic financing with Laurus Master Fund, Ltd., or
simply Laurus, this prospectus covers the resale of up to 1,818,182 shares of
our common stock that are issuable upon conversion of a three-year Secured
Convertible Note, or the Convertible Note, in the principal amount of
$1,000,000, and up to 200,000 shares of common stock that are issuable upon the
exercise by Laurus of a warrant, called the Laurus Warrant in this prospectus,
that we provided to Laurus in connection with the strategic financing. In
addition, this prospectus covers the resale of up to 1,196,079 shares of common
stock issuable upon exercise of outstanding warrants issued in a private
placement offering from November 2000 to February 2003, referred to herein as
the Warrants.
OUR COMPANY
We are engaged in the conception, design, development, manufacture,
integration and operations of space technology systems, products and services.
We are currently focused on the commercial development of low-cost
micro-satellites, nano-satellites and related subsystems, hybrid rocket
propulsion as well as the associated engineering technical services to
government, aerospace and other commercial enterprises. Our products and
solutions are sold directly to these customers and include sophisticated micro-
and nano-satellites, hybrid rocket-based orbital Maneuvering and orbital
Transfer Vehicles ("MTVs") as well as safe sub-orbital and orbital hybrid
rocket-based propulsion systems. We are also developing commercial hybrid rocket
motors and small high performance space vehicles and subsystems. See
"Description of Business" for more information.
THE OFFERING
Common stock underlying the
interest and/or principal of the
Convertible Note 1,818,182 shares
Common stock underlying the
Laurus Warrant and the Warrants 1,396,079 shares
Common Stock Outstanding after
Exercise of outstanding Warrants, the
Laurus Warrant and the Convertible
Note 18,553,168 shares
3
Termination of the Offering The offering will conclude upon the
earlier of the sale of all 3,214,261
shares of common stock registered,
the date the shares no longer need to
be registered to be sold or the three-
year anniversary of the effective date
of the registration statement of which
this prospectus is a part.
Use of Proceeds All proceeds from the sale of shares
underlying the Warrants, the Convertible
Note and the Laurus Warrant will be
received by the selling security holders
for their own accounts. See "Use of
Proceeds."
Risk Factors You should read the "Risk Factors"
beginning on page 6, as well other
cautionary statements throughout this
prospectus, before investing in shares
of our common stock.
SELECTED CONSOLIDATED FINANCIAL DATA
The following financial data is provided as of and for the fiscal years
ended December 31, 2002 and 2001 and as of and for the three months ended March
31, 2003 and 2002. The financial data as of and for the fiscal years ended
December 31, 2002 and 2001 is derived from, and is qualified by reference to,
the audited consolidated financial statements and the notes to those
consolidated financial statements which are a part of this prospectus. The
financial data as of and for the three months ended March 31, 2003 and 2002 is
derived from, and is qualified by reference to, unaudited consolidated financial
statements, which are a part of this prospectus. In the opinion of our
management, those unaudited consolidated financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial data as of and for the three months ended March 31,
2003 and 2002. Our historical results are not necessarily indicative of results
to be expected for any future periods.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
YEARS ENDING THREE MONTHS ENDING
DECEMBER 31, MARCH 31,
2002 2001 2003 2002
-------------- ------------ --------------------- ------------
Net revenues $ 3,370,118 $ 4,099,094 $ 532,840 $ 949,770
Loss from operations $ 13,920 $(1,551,620) $ (363,728) $ 25,840
Net loss $ (376,160) $(1,855,871) $ (505,087) $ (29,320)
Basic loss per share $ (0.03) $ (0.13) $ (0.03) $ -
Weighted average shares outstanding, basic 14,744,423 14,440,354 15,092,489 14,825,377
4
CONDENSED CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS):
December 31, 2002 December 31, 2001 March 31, 2003 March 31, 2002
------------------ ------------------ --------------- ---------------
Cash and cash equivalents 27,648 211,637 210,856 310,269
------------------ ------------------ --------------- ---------------
Working capital deficit (197,381) (1,002,390) (311,551) (984,886)
------------------ ------------------ --------------- ---------------
Total assets 3,811,957 3,013,651 917,532 2,806,807
------------------ ------------------ --------------- ---------------
Long-term debt, net of current portion 661,314 2,986,270 608,895 2,971,229
------------------ ------------------ --------------- ---------------
Stockholders' Deficit (1,767,459) (1,489,235) (1,846,605) (1,498,557)
------------------ ------------------ --------------- ---------------
5
RISK FACTORS
AN INVESTMENT IN SHARES OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE DECIDING TO INVEST OR
MAINTAIN AN INVESTMENT IN SHARES OF OUR COMMON STOCK. THIS PROSPECTUS CONTAINS
CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. IF ANY OF
THE FOLLOWING RISKS ACTUALLY OCCURS, IT IS LIKELY THAT OUR BUSINESS, FINANCIAL
CONDITION AND OPERATING RESULTS WOULD BE HARMED. AS A RESULT, THE TRADING PRICE
OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE PART OR ALL OF YOUR
INVESTMENT.
OUR PLANS TO BECOME PROFITABLE DEPEND ON OUR ABILITY TO INCREASE REVENUES,
WHILE CONTROLLING COSTS IN A VARIETY OF AREAS AND IMPROVING OUR PROJECT
MANAGEMENT EXPERTISE.
At December 31, 2002 and 2001, our auditors expressed a formal auditors'
opinion that our prior financial position raised "substantial doubt about [our]
ability to continue as a going concern." We incurred net losses of $376,160,
$1,855,871 and $505,087 for the fiscal years ended December 31, 2002 and 2001
and the three-months ending March 31, 2003, respectively. We provided (used)
cash in operations totaling $706,973, ($68,471) and $731,054 for the fiscal
years ending December 31, 2002 and 2001 and the three-months ending March 31,
2003, respectively. During the past year we have significantly reduced our
operating expenses. However, in order to achieve profitability, we must
increase our revenues while continuing to control our expenses and improve our
project management expertise. We are continuing to implement cost containment
measures in an effort to reduce our cash consumption from operations, and we are
working to increase sales by taking on additional design and development
projects. The results of these combined efforts have reduced our cash used in
operations to approximately $340,000 per month.
We intend to continue these combined efforts with the goal of generating
positive cash flow from operations in the quarter ending December 31, 2003. To
accomplish this goal, we are tailoring our cost containment measures and
focusing our short-term selling efforts on government contracts. However, there
can be no assurance that we will achieve positive cash flow during this
timeframe. Furthermore, because some of the areas of expense cutting, such as
sales and marketing and research and development, involve activities that we
ordinarily undertake with the expectation that they will contribute to future
revenues, obtaining and maintaining profitability may be difficult, even with
reduced expenses. Even if near-term profitability can be achieved through cost
reductions, it will not be sustainable if the effect of cost reductions is to
impede future revenue growth.
6
If adequate funds from operating activities are not available, we may be
required to delay, scale back or eliminate portions of our operations and
product development efforts or to obtain funds through arrangements with
strategic partners or others that may require us to relinquish rights to certain
portions of our technologies or potential products or to consummate additional
funding. 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, or that such funding will be available on
terms favorable to us. 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.
IF WE ARE UNABLE TO RAISE CAPITAL IN THE FUTURE, WE MAY BE UNABLE TO FUND
OPERATING CASH SHORTFALLS.
Our future capital requirements will depend upon many factors, including
but not limited to sales and marketing efforts, the development of new products
and services, the successful completion of existing projects, possible future
strategic acquisitions, the progress of our research and development efforts,
and the status of competitive products and services. As of March 31, 2003,
December 31, 2002 and 2001, we had a working capital deficit of $311,551,
$197,381 and $1,002,390, respectively, and an accumulated deficit of
$11,076,797, $10,571,709 and $10,195,547, respectively. As of those dates, we
had $210,856, $27,648 and $211,637, respectively, in cash and cash equivalents
and $220,841, $82,325 and $290,615, respectively, of accounts receivable, net of
allowance for doubtful accounts.
We believe that current and future available capital resources will be
adequate to fund our operations for the next twelve months. However,
historically we have not been able to generate sufficient cash from our
operating activities and have relied upon cash from financing activities to fund
part of the cash requirements of our operating and investing activities. To the
extent we are in need of any additional financing, it may not be available to us
on acceptable terms, or at all. Our inability to obtain any needed financing
could result in a significant loss of ownership and/or control of our
proprietary technology and other important assets and could also hinder our
ability to fund our continued operations and our product development efforts
that historically have contributed significantly to our competitiveness.
Any financing may cause significant dilution to existing stockholders. Any
debt financing or other financing of securities senior to common stock likely
will include financial and other covenants that will restrict our flexibility.
Also, we need to obtain the consent of Laurus for future equity financing. At a
minimum, we expect covenants to restrict our ability to pay dividends on our
common stock.
IF A SIGNIFICANT PORTION OF THE SECURED CONVERTIBLE NOTE WERE CONVERTED
INTO SHARES OF OUR COMMON STOCK, THE VOTING POWER OF YOUR INVESTMENT AND OUR
EARNINGS PER SHARE COULD BE DILUTED.
The Convertible Note in the amount of $1,000,000, that we issued to Laurus,
on June 3, 2003, is convertible by Laurus into up to 1,818,182 shares of our
common stock at an initial
7
fixed conversion price of $0.55 per share, to the extent that we have drawn
funds on the credit facility and not repaid those funds. This number of shares
represented approximately 11.9% of the 15,338,907 shares of our common stock
that were outstanding on July 17, 2003. As a result, if the entire principal
balance of the Note were converted at the initial conversion price, dilution of
the voting power of your investment and of our earnings per share could occur.
THE MARKET PRICE OF OUR COMMON STOCK AND THE VALUE OF YOUR INVESTMENT COULD
SUBSTANTIALLY DECLINE IF ALL OR A SIGNIFICANT PORTION OF THE CONVERTIBLE NOTE
WERE CONVERTED INTO COMMON SHARES WHICH WERE RESOLD INTO THE MARKET, OR IF A
PERCEPTION EXISTS THAT SUCH SALES COULD OCCUR.
If the conversion prices at which the Convertible Note is converted are
lower than the price at which you made your investment, immediate dilution of
the value of your investment will occur. In addition, sales of a substantial
number of shares of common stock issued upon conversion of the Note, or even the
perception that such sales could occur, could adversely affect the market price
of our common stock. You could, therefore, experience a decline in the value of
your investment as a result of both the actual and potential conversion of Note.
WE CAN GIVE NO ASSURANCE OF THE SUCCESSFUL OR TIMELY DEVELOPMENT OF
PRODUCTS.
Despite our success in designing, launching and monitoring our first
micro-satellite, our products and technologies are currently under various
stages of development, including our hybrid rocket technology. Further
development and testing will be required to prove additional performance
capability beyond current tests and commercial viability. Additionally, the
final cost of development cannot be determined until development is complete.
The success, if any, will depend on the ability to timely complete our projects
within estimated cost parameters and ultimately deploy the product in a
cost-effective manner.
THE MARKETPLACE FOR OUR TECHNOLOGY AND PRODUCTS IS UNCERTAIN.
There can be no assurance that there will be a demand for our technology,
products and services or that we will be successful in obtaining a sufficient
market share to sustain our business or to achieve profitable operations. Our
business plan is based on the assumption that significant revenues will be
generated in connection with the government being early adopters and deploying
micro-satellites in the near-term with a long-term commercial market developing
for private manned and unmanned space exploration. Because micro-satellites and
commercial space exploration are still relatively new concepts, it is difficult
to accurately predict the ultimate size of the market. We have a limited prior
operating history, and there can be no assurance that we will increase our
revenues and become profitable. Additionally, if either the demand for our
products produced or services rendered or if general economic conditions
deteriorate significantly, our business could be impacted to a substantial
degree resulting in lower profitability or losses as a direct result. Many of
our products and services are new and unproven, and the true level of consumer
demand is uncertain. Lack of significant market acceptance of our products and
services, delays in such acceptance, or failure of markets to develop could
negatively affect our business, financial condition, and results of operations.
Many of the factors, which affect us, and our business, are dictated by the
marketplace and are beyond our control.
8
CONTRACTUAL LIMITATIONS THAT RESTRICT LAURUS' ABILITY TO CONVERT THE NOTE
MAY NOT NECESSARILY PREVENT SUBSTANTIAL DILUTION OF THE VOTING POWER AND VALUE
OF YOUR INVESTMENT.
The contractual limitations that restrict Laurus' ability to convert the
Note into shares of our common stock are limited in their application and effect
and may not prevent dilution of your investment. Laurus is subject to a
contractual 4.99% beneficial ownership limitation that prohibits Laurus from
converting the note if and to the extent that the conversion would result in
Laurus, together with its affiliates, beneficially owning more than 4.99% of our
outstanding common stock. However, this 4.99% limitation automatically becomes
void upon an event of default under the Note and can be waived by Laurus upon 75
days' advance notice to us. In addition, this 4.99% limitation does not prevent
Laurus from converting the note into shares of common stock and then reselling
those shares in stages over time where Laurus and its affiliates do not, at any
given time, beneficially own shares in excess of the 4.99% limitation.
Consequently, these limitations will not necessarily prevent dilution of the
voting power and value of your investment.
IF WE ARE UNSUCCESSFUL IN ACHIEVING AND MAINTAINING COMPLIANCE WITH OUR
REGISTRATION OBLIGATIONS WITH REGARD TO THE CONVERTIBLE NOTE AND LAURUS WARRANT,
WE MAY INCUR SUBSTANTIAL MONETARY PENALTIES.
The agreements we entered into in connection with our issuance of the
Convertible Note require us to, among other things, register for resale the
shares of common stock issued or issuable under the note and the accompanying
warrant and maintain the effectiveness of the registration statement for an
extended period of time. We are subject to liquidated damage assessment of 2%
of the outstanding principal amount of the note for each thirty (30) days of
non-compliance thereafter, subject to pro ration for partial months. If we are
unable to obtain and maintain effectiveness of the required registration
statement, then we may be required to pay additional liquidated damages, to the
extent that any amounts are drawn under the Convertible Note, which could
adversely affect our business, operating results, financial condition, and
ability to service our other indebtedness by negatively impacting our cash
flows.
OUR LIMITED OPERATING HISTORY AND LACK OF EXPERIENCE IN OUR NEW OR PROPOSED
LINES OF BUSINESS MAKES IT DIFFICULT TO PREDICT OUR FUTURE SUCCESS.
We have only recently launched our first micro-satellite, CHIPSat, and are
developing applications for our other technologies and products. We intend to
provide micro-satellites to early adopters, primarily the U.S. military, and
hybrid rocket motors to government and commercial customers. As a result, we
have limited or no operating histories in each of these new or proposed lines of
business. Therefore, our historical financial information is of limited value
in projecting our future success in these markets.
9
OUR PRODUCTS AND SERVICES ARE TECHNOLOGICALLY ADVANCED AND MAY NOT FUNCTION
UNDER CERTAIN CONDITIONS.
Most of our products are technologically advanced and sometimes novel
systems that must function under demanding operating conditions. Even though we
believe that we employ sophisticated design, manufacturing, and testing
practices, there can be no assurance that our products will be successfully
launched or operated or that they will be developed or will perform as intended.
Like most organizations that have launched satellite programs, we will likely
experience some product and service failures, schedule delays, and other
problems in connection with our products in the future. Our products and
services are and will continue to be subject to significant technological change
and innovation. Our success will generally depend on our ability to penetrate
and retain markets for our existing products and services and to continue to
conceive, design, manufacture and market new products and services on a
cost-effective and timely basis. We anticipate that we will incur significant
expenses in the design and initial manufacture and marketing of new products and
services. There can be no assurance that we will be able to achieve the
technological advances necessary to remain competitive and profitable, that new
products and services will be developed and manufactured on schedule and on a
cost-effective basis, that anticipated markets will exist or develop for new
products or services, or that our existing products and services will not become
technologically obsolete.
OUR FAILURE TO LAUNCH COULD CAUSE SERIOUS ADVERSE AFFECTS.
A launch failure could adversely affect our cash flow, since a large
portion of customer payments is often contingent upon a successful launch.
Micro-satellite launches are subject to significant risks, including causing
disabling damage to or loss of a micro-satellite. Delays in the launch could
also adversely affect our revenues as a customer may have timing requirements
for milestone payments or we may have guarantee requirements. Delays could be
caused by a number of factors, including designing, constructing, integrating,
or testing the micro-satellite, micro-satellite components, or related ground
systems; delays in receiving the license necessary to operate the
micro-satellite systems; delays in obtaining the customer's payload; delays
related to the launch vehicle; weather; and other events beyond our control.
Delays and the perception of potential delay could negatively affect our
marketing efforts. There is no assurance that we will be able to launch
micro-satellites on a timely basis and any delays in the launch could have a
material adverse effect on our financial position.
OUR EXPANSION INTO OTHER NEW LINES OF BUSINESS MAY DIVERT MANAGEMENT'S
ATTENTION FROM OUR EXISTING OPERATIONS AND PROVE TO BE TOO COSTLY.
We are developing our technology into products for micro-satellites and
hybrid rocket motors. In addition, we are investigating other applications of
our technology and other markets for our products. Our expansion into new lines
of business may be difficult for us to manage because they may involve different
disciplines and require different expertise than our core businesses.
Consequently, this expansion may detract management's time and attention away
from our core business, and we may need to incur significant expenses in order
to develop the expertise and reputation we desire, which could prevent us from
generating revenues from these lines of business in amounts sufficient to
justify the expenses we incur in operating them.
10
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN OUR KEY PERSONNEL.
Our success is dependent upon the efforts of certain key members of our
management and engineering team, including our chief executive officer, James W.
Benson, our chief financial officer, Richard B. Slansky and our director of
engineering, Jeffrey Janicik. Each of these individuals has substantial prior
business experience and we have added other experienced key personnel to our
staff. The loss of any of these persons could have a material adverse effect on
us if suitable replacements are not found. Our future success is likely to
depend substantially on our continued ability to attract and retain highly
qualified personnel. The competition for such personnel is intense, and our
inability to attract and retain such personnel could have a material adverse
effect on us. We do not have current key man life insurance on any of our key
personnel.
THE U.S. FEDERAL GOVERNMENT MAY INCREASE REGULATION, WHICH COULD CAUSE OUR
BUSINESS TO HAVE SERIOUS ADVERSE EFFECTS.
Our business activities are regulated by various agencies and departments
of the U.S. federal government and, in certain circumstances, the governments of
other countries. Several government agencies, including NASA and the U.S. Air
Force, maintain Export Control Offices to ensure that any disclosure of
Scientific and Technical Information ("STI") complies with the Export
Administration Regulations and the International Traffic in Arms Regulations
("ITAR"). Exports of our products, services and technical information require
either Technical Assistance Agreements ("TAAs") or licenses from the U.S.
Department of State depending on the level of technology being transferred. This
includes recently published regulations restricting the ability of U.S.-based
companies to complete offshore launches, or to export certain satellite
components and technical data to any country outside the United States. The
export of information with respect to ground-based sensors, detectors,
high-speed computers, and national security and missile technology items are
controlled by the Department of Commerce. The government is very strict with
respect to compliance and has served notice that failure to comply with the ITAR
and/or the Commerce Department regulations may subject guilty parties to fines
of up to US$1 million and/or up to 10 years imprisonment per violation. Failure
to comply with any of the above mentioned regulations could have serious adverse
effects as dictated by the rules associated with compliance to the ITAR
regulations. Our conservative position is to consider any material beyond
standard marketing material to be regulated by ITAR regulations.
In addition to the standard local, state and national government
regulations that all businesses must adhere to, the space industry has specific
regulations. Command and telemetry frequency assignments for space missions are
regulated internationally by the International Telecommunications Union ("ITU").
In the United States, the Federal Communications Commission ("FCC") and the
National Telecommunications Information Agency ("NTIA") regulates command and
telemetry frequency assignments. All launch vehicles that are launched from a
launch site in the United States must pass certain launch range safety
regulations that are administered by the U.S. Air Force. In addition, all
commercial space launches that we would perform require a license from the
Department of Transportation. Satellites that are launched must obtain approvals
for command and frequency assignments. For international approvals, the
11
FCC and NTIA obtain these approvals from the ITU. These regulations have been in
place for a number of years to cover the large number of non-government
commercial space missions that have been launched and put into orbit in the last
15 to 20 years. Any commercial deep space mission that we would perform would be
subject to these regulations. These regulations are well understood by us. At
the present time, we are not aware of any additional or unique government
regulations related to commercial space missions.
We are required to obtain permits, licenses, and other authorizations under
federal, state, local and foreign statutes, laws or regulations or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof. At the present time, we do not have a requirement to
obtain any special environmental licenses or permits.
Our failure to comply with any of the above-mentioned regulations could
have serious adverse effects.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE, WHICH COULD
RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS PURCHASING SHARES OF OUR COMMON
STOCK.
The market prices of securities of technology-based companies like ours,
are highly volatile. The market price of our common stock has fluctuated
significantly in the past. In fact, during the 52-week period ended July 17,
2003, the high and low closing price of a share of our common stock was $0.85
and $0.29, respectively. Our market price may continue to exhibit significant
fluctuations in response to a variety of factors, many of which are beyond our
control. These factors include, among others, deviations in our results of
operations from estimates, changes in estimates of our financial performance,
changes in market valuations of similar companies and stock market price and
volume fluctuations generally. Additionally, until the full effects of our cost
reduction efforts become clear, including whether those cuts have a long-term
negative impact on revenues, it is likely that our quarter-to-quarter
performance will be unpredictable and our stock price particularly volatile.
OUR NET OPERATING LOSS CARRYFORWARDS MAY BE SUBJECT TO AN ANNUAL LIMITATION
ON THEIR UTILIZATION, WHICH MAY INCREASE OUR TAXES AND DECREASE AFTER-TAX INCOME
AND CASH FLOWS.
As of March 31, 2003, we had available net operating loss carryforwards of
$2,900,000 for federal income tax purposes and $1,672,000 for state income tax
purposes. California net operating loss carryforwards are suspended from use for
2003 and there is no guarantee that the suspension will not be extended. Due to
the "change in ownership" provisions of the Tax Reform Act of 1986, our net
operating loss carryforwards may be subject to an annual limitation on the
utilization of these carryforwards against taxable income in future periods if a
cumulative
12
change in ownership of more than 50% occurs within any three-year period. To the
extent we are unable to fully use these net operating loss carryforwards to
offset future taxable income, we will be subject to income taxes on future
taxable income, which will decrease our after-tax income and cash flows.
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 approximately $1.1 million, consisted primarily of the
income tax benefits from net operating loss carryforwards, amortization of
goodwill and research and development credit carryforwards. The federal and
state tax loss carry forwards will expire through 2022 unless previously
utilized. 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 decreased approximately $300,000 during quarter ended
March 31, 2003, from $1.4 million at December 31, 2002 to $1.1 million at March
31, 2003. Please refer to our consolidated financial statements, which are a
part of this prospectus, for further information regarding our liquidity and
capital resources.
THE CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK GIVES A FEW INDIVIDUALS
SIGNIFICANT CONTROL OVER IMPORTANT POLICY DECISIONS AND COULD DELAY OR PREVENT
CHANGES IN CONTROL.
As of July 17, 2003, our executive officers and directors and their family
members together beneficially owned approximately 74.8% of the issued and
outstanding shares of our common stock. As a result, these persons have the
ability to exert significant control over matters that could include the
election of directors, changes in the size and composition of the board of
directors, and mergers and other business combinations involving us. In
addition, through control of the board of directors and voting power, they may
be able to control certain decisions, including decisions regarding the
qualification and appointment of officers, dividend policy, access to capital
(including borrowing from third-party lenders and the issuance of additional
equity securities), and the acquisition or disposition of our assets. In
addition, the concentration of voting power in the hands of those individuals
could have the effect of delaying or preventing a change in control of our
company, even if the change in control would benefit our stockholders. A
perception in the investment community of an anti-takeover environment at our
company could cause investors to value our stock lower than in the absence of
such a perception.
OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY IS ESSENTIAL TO THE GROWTH
AND DEVELOPMENT OF OUR PRODUCTS AND SERVICES.
We rely, in part, on patents, trade secrets and know-how to develop and
maintain our competitive position and technological advantage. We intend to
protect our intellectual property through a combination of license agreements,
trademark, service mark, copyright, trade secret laws and other methods of
restricting disclosure and transferring title. There is no guarantee that such
applications will be granted. We have and intend to continue entering into
confidentiality agreements with our employees, consultants and vendors; entering
into license agreements with third parties; and generally seeking to control
access to and distribution of our intellectual property.
13
OUR ABILITY TO SOURCE AND OBTAIN COMPONENTS AND RAW MATERIALS COULD AFFECT OUR
ABILITY TO SATISFY CUSTOMER ORDERS OR CONTRACTS.
We purchase a significant percentage of our product components, including
structural assemblies, electronic equipment, and computer chips, from third
parties. We also occasionally obtain from the U.S. Government parts and
equipment that are used in the production of our products or in the provision of
our services. We have not experienced material difficulty in obtaining product
components or necessary parts and equipment and believe that alternative sources
of supply would be available, although increased costs and possible delays could
be incurred in securing alternative sources of supply.
OUR ABILITY TO OBTAIN ONLY LIMITED INSURANCE MAY NOT COVER ALL RISKS.
We may find it difficult to insure certain risks involved in our
operations. Insurance market conditions or factors outside of our control at
the time the insurance is purchased could cause premiums to be significantly
higher than current estimates. Additionally, the U.S. Department of State has
published regulations, which could significantly affect the ability of brokers
and underwriters to place insurance for certain launches. These factors
could cause other terms to be significantly less favorable than those currently
available, may result in limits on amounts of coverage that we can obtain, or
may prevent us from obtaining insurance at all. Furthermore, there is no
assurance that proceeds from insurance that we are able to purchase will be
sufficient to cover losses.
OUR GROWTH MAY NOT BE MANAGEABLE.
Even if we are successful in obtaining new business, failure to manage the
growth could adversely affect our condition. We may experience extended periods
of very rapid growth. This growth could place a significant strain on our
management, operating, financial and other resources. Our future performance
will depend in part on our ability to manage growth effectively including, but
not limited to, recruiting engineering talent quickly and financing the
increased costs associated with rapid growth. We must develop management
information systems, including operating, financial, and accounting systems and
expand, train, and manage employees to keep pace with growth. Our inability to
manage growth effectively could negatively affect results of operations and the
ability to meet obligations as they come due.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY TERRORIST ATTACKS.
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. In the recent past, 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 has been adversely
affected by the terrorist activities and potential activities, and any economic
downturn could adversely impact our results of operations, impair
14
our ability to raise capital, or otherwise adversely affect our ability to grow
our business. Conversely, because of the nature of our products and services,
there may be opportunities for us to offer solutions to the government that may
address some of the problems that the country faces at this time.
OUR INVESTORS MAY NOT RECEIVE DIVIDENDS.
We have not paid dividends since our inception and do not anticipate
issuing them in the foreseeable future. There can be no guarantee or assurance
that dividends will ever be paid. In fact, our goal is to reinvest earnings in
an effort to complete development of our technologies and products, and to
increase sales and long-term profitability and value. In addition, the
revolving credit facility with Laurus or other bank lines of credit, which we
may establish in the future or other credit or borrowing arrangements may
significantly impact our ability to pay dividends to our shareholders.
OUR SHAREHOLDERS MAY EXPERIENCE DILUTION IF OUR OUTSTANDING WARRANTS AND
OPTIONS ARE EXERCISED.
We are obligated to issue 1,557,941 shares of our common stock if all of
our outstanding warrants, outside of the warrants in this offering, are
exercised. In addition, as of July 17, 2003, we have outstanding stock options
to purchase an aggregate of 7,398,387 shares of our common stock, including
currently unvested options issued to our Chief Executive Officer. The total
number of shares which could be issued upon the exercise of currently vested
warrants and options (5,099,347 shares) represents approximately 33.2% of our
issued and outstanding shares of common stock as of July 17, 2003. Shares of
common stock issued as a result of the exercise of stock options will have a
dilutive effect, which could be substantial, on the currently and then
outstanding shares of common stock.
OUR COMMON STOCK IS SUBJECT TO PENNY STOCK RULES.
Our common stock is subject to Rule 15g-1 through 15g-9 under the
Securities Exchange Act of 1934, as amended, which imposes certain sales
practice requirements on broker-dealers which sell our common stock to persons
other than established customers and "accredited investors" (generally,
individuals with net worths in excess of $1,000,000 or annual incomes exceeding
$200,000 (or $300,000 together with their spouses)). For transactions covered by
this rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to the sale. This rule adversely affects the ability of broker-dealers to
sell our common stock and purchasers of our common stock to sell their shares of
such common stock.
Additionally, our common stock is subject to the Securities and Exchange
Commission regulations for "penny stock." Penny stock includes any non-Nasdaq
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions. The regulations require that prior to any non-exempt
buy/sell transaction in a penny stock, a disclosure schedule set forth by the
Securities and Exchange Commission relating to the penny stock market must be
delivered to the purchaser of such penny stock. This disclosure must include the
amount of commissions payable to both the broker-dealer and the registered
representative and current price quotations for the common stock. The
regulations also require that monthly statements be sent to holders of penny
stock which disclose recent price information for the penny stock and
information of the limited market for penny stocks. These requirements adversely
affect the market liquidity of our common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, or the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. We intend that those forward-looking statements
be subject to the safe harbors created by those sections. These forward-looking
statements generally include the plans and objectives of management for future
operations, including plans and objectives relating to our future economic
performance, and can generally be identified by the use of the words "believe,"
"intend," "plan," "expect," "forecast," "project," "may," "should," "could,"
"seek," "pro forma," "estimates," "continues," "anticipate" and similar words.
The forward-looking statements and associated risks may include, relate to, or
be qualified by other important factors, including, without limitation:
our ability to return to profitability and obtain additional working
capital, if required;
our ability to successfully implement our future business plans;
our ability to attract strategic partners, alliances and advertisers;
our ability to hire and retain qualified personnel;
the risks of uncertainty of trademark protection;
15
risks associated with existing and future governmental regulation to which
we are subject; and,
uncertainties relating to economic conditions in the markets in which we
currently operate and in which we intend to operate in the future.
These forward-looking statements necessarily depend upon assumptions and
estimates that may prove to be incorrect. Although we believe that the
assumptions and estimates reflected in the forward-looking statements are
reasonable, we cannot guarantee that we will achieve our plans, intentions or
expectations. The forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to differ in
significant ways from any future results expressed or implied by the
forward-looking statements. We do not undertake to update, revise or correct any
forward-looking statements.
Any of the factors described above or in the "Risk Factors" section above
could cause our financial results, including our net income (loss) or growth in
net income (loss) to differ materially from prior results, which in turn could,
among other things, cause the price of our common stock to fluctuate
substantially.
SELLING SECURITY HOLDERS
Laurus may sell, from time to time under this prospectus, up to an
aggregate of 2,018,182 shares of our common stock consisting of up to 1,818,182
shares of our common stock, representing 100% of the shares that may become
issuable upon conversion of the principal of and interest on the Convertible
Note at the fixed conversion price of $0.55 per share and up to 200,000 shares
of our common stock issuable upon exercise of the Laurus Warrant. Laurus may
convert principal and interest on the Convertible Note into our common stock
only to the extent that there are amounts outstanding under the revolving credit
facility described under "Description of Business - The Laurus Master Fund Ltd.
Revolving Credit Facility" below and only if we have not repaid the outstanding
amounts before Laurus exercises its conversion rights.
The following table sets forth, to our knowledge, certain information about
Laurus as of July 17, 2003. Beneficial ownership is determined in accordance
with the rules of the Commission, and includes voting or investment power with
respect to the securities. In computing the number of shares beneficially owned
by a holder and the percentage ownership of that holder, shares of common stock
subject to options or warrants or underlying convertible notes held by that
holder that are currently exercisable or convertible or are exercisable or
convertible within 60 days after the date of the table are deemed outstanding.
To our knowledge, Laurus has sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by it, except that Laurus
Capital Management, LLC, a Delaware limited liability company, may be deemed a
control person of the shares owned by Laurus. David Grin and Eugene Grin are
the principals of Laurus Capital Management, LLC. The address for Messrs. David
Grin and Eugene Grin is 152 West 57th Street, New York, NY 10019.
16
Percentage of beneficial ownership is based on presumed ownership of
2,018,182 shares of common stock outstanding as of July 17, 2003. Actual
ownership of the shares is subject to conversion of the Convertible Note and
exercise of the Warrant.
SHARES OF COMMON SHARES OF COMMON
STOCK BENEFICIALLY SHARES OF STOCK BENEFICIALLY
OWNED PRIOR COMMON STOCK OWNED AFTER
TO OFFERING BEING OFFERING (1)
------------------ -------------------
SELLING SECURITY HOLDER NUMBER PERCENTAGE REGISTERED NUMBER PERCENTAGE
------------------------ ------------------ ---------- ------------ ------------------- ----------
LAURUS MASTER FUND, LTD. 2,018,182 (2) 1.3 2,018,182 0 N/A
(1) The amount assumes the sale of all shares being offered under this
prospectus.
(2) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. For purposes of this table, we assume Laurus converts the full $1
million under the Secured Convertible Note. Under such Rule 13d-3, beneficial
ownership includes any shares as to which the selling security holder has sole
or shared voting power or investment power and also any shares, which the
selling stockholder has the right to acquire within 60 days. The actual number
of shares of common stock issuable upon the conversion or payment of the Secured
Convertible Note is subject to the amount drawn under the note and, if less than
$1 million is drawn and converted, the number of shares available to Laurus
could be materially less but not more than the number estimated in the table.
Furthermore, the selling stockholder has contractually agreed, absent an event
of default under the revolving credit facility, to restrict its ability to
convert the convertible note or exercise its warrants and receive shares of our
common stock if the number of shares of common stock held by it and its
affiliates after such conversion or exercise does not exceed 4.99% of the then
issued and outstanding shares of common stock. Laurus may void this restriction
upon seventy-five days prior written notice to us.
All other selling security holders named in this prospectus are offering up
to 1,196,079 shares of common stock through this prospectus, subject to exercise
of warrants issued to them in a private placement that was exempt from
registration under Section 4(2) and Rule 506 of the Securities Act of 1933.
The following table sets forth, as of the date of this prospectus, the name
of each selling security holder, the number of selling security holders
(excluding Laurus), to our knowledge, the aggregate number of shares owned by
each selling security holder, and the number of shares each selling security
holder will own after the completion of the offering made pursuant to this
prospectus. For purposes of establishing ownership and shares offered, we have
assumed the exercise of all of the outstanding Warrants under this offering:
17
Total Number
Of Shares To Total Shares Percentage of
Be Offered For to Be Owned Shares Owned
Name Of Shares Owned Selling Upon Upon
Selling Prior To This Shareholders Completion of Completion of
Stockholder Offering Account This Offering This Offering (6)
Charles H. Lloyd (1) 50,000 25,000 25,000 0.13%
Lunar Enterprises 133,334 66,667 66,667 0.36%
Craig Haffner 66,666 33,333 33,333 0.18%
Alex Duncan 95,166 33,333 61,833 0.33%
Arthur Benson (2) 128,470 64,235 64,235 0.35%
Curt Dean Blake (3) 61,224 30,612 30,612 0.16%
John Gross 61,224 30,612 30,612 0.16%
Edward Cuthbert 102,040 51,020 51,020 0.27%
J. Mark Grosvenor (4) 1,330,376 665,188 665,188 3.59%
Christopher McKellar (5) 392,158 196,079 196,079 1.06%
(1) Mr. Lloyd acted as Chief Financial Officer and Chief Operating Officer
of SpaceDev, Inc., and Chief Executive Officer of Integrated Space Systems,
Inc., our wholly owned subsidiary, during the period from November 1999 to June
2002. In addition to the Warrants, Mr. Lloyd owns 25,000 shares of our common
stock and holds options to purchase 1,000,000 shares of our common stock,
250,000 of which expires in 2004 and 750,000 shares of which expires in 2005.
(2) Mr. Arthur Benson is the brother of our Chief Executive Officer, James
W. Benson. In addition to the Warrants, Arthur Benson holds 64,235 shares of our
common stock.
(3) Mr. Blake is a current member of our board of directors. In addition to
the Warrants, Mr. Blake holds 30,612 shares of our common stock and options to
purchase an additional 79,706 shares of our common stock.
(4) Mr. Grosvenor is a current member of our board of directors. Mr.
Grosvenor was appointed to the board of directors after he acquired Warrants and
common shares in our private placement offering. In addition to the Warrants,
Mr. Grosvenor holds 665,188 shares of our common stock and options to purchase
an additional 19,615 common shares.
(5) Mr. McKellar is the owner of our principal business facilities. Upon
sale of the building to Mr. McKellar, we executed a leaseback of the building
for a term of 10 years. In addition to the Warrants, Mr. McKellar holds 196,079
shares of our common stock.
(6) For purposes of calculating percentage of ownership, we assumed the exercise
of all of the warrants, the Convertible Note and the Laurus Warrant. We did not
assume exercise of all other outstanding derivative securities. Ownership is
based on the total outstanding shares of common stock on July 17, 2003 plus
shares issuable upon exercise of the Warrants, the Convertible Note and the
Laurus Warrant, or 18,553,168 shares.
All costs, expenses and fees incurred in connection with the registration
of the selling security holders' shares will be borne by us. All brokerage
commissions, if any, attributable to the sale of shares by selling security
holders will be borne by selling security holders.
PLAN OF DISTRIBUTION
The selling security holders, and any of their donees, pledgees, assignees
and other successors-in-interest, may, from time to time, sell any or all of
their shares of common stock being offered under this prospectus on any stock
exchange, market or trading facility on which the shares are traded or in
private transactions. These sales, which may include block
18
transactions, may be at fixed or negotiated prices. The selling security holders
may use any one or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal
to facilitate the transaction;
o purchases by a broker-dealer as principal and resales by the broker-dealer
for its own account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o broker-dealers may agree with the selling security holder to sell a
specified number of shares at a stipulated price per share;
a combination of any of these methods of sale; or
o any other method permitted by applicable law, except that Laurus has agreed
that it has not engaged and will not engage or cause, advise, ask or assist
any person or entity, directly or indirectly, or engage, in short sales or
our common stock, which are contracts for the sale of shares of stock that
the seller does not own, or certificates which are not within the seller's
control, so as to be available for delivery at the time when, under
applicable rules, delivery must be made.
The sale price to the public may be:
o the market price prevailing at the time of sale;
o a price related to the prevailing market price;
o at negotiated prices; or
o a price the selling security holder determines from time to time.
Laurus has agreed, pursuant to the Securities Purchase Agreement, that it
has not engaged and will not engage or cause, advise, ask or assist any person
or entity, directly or indirectly, to engage, in short sales of our common
stock.
Broker-dealers engaged by the selling security holders may arrange for
other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling security holder (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated. The selling security holder does not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved.
The selling security holders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with these sales. Commissions
received by these broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Any broker-dealers or agents that are not
deemed to be underwriters may not sell shares offered under this prospectus
unless and until we set forth the names of the underwriters and the material
details of their underwriting arrangements in a supplement to this prospectus
19
or, if required, in a replacement prospectus included in a post-effective
amendment to the registration statement of which this prospectus is a part.
In the event sales are made to broker-dealers as principals, we would be
required to file a post-effective amendment to the registration statement of
which the prospectus forms a part. In such post-effective amendment, we would
be required to disclose the names of any participating broker-dealers and the
compensation arrangements relating to such sales. In addition, if any shares of
common stock or warrants offered for sale pursuant to this prospectus are
transferred, subsequent holders could not use this prospectus until a
post-effective amendment is filed, naming such holder.
The selling security holders, alternatively, may sell all or any part of
the shares offered under this prospectus through an underwriter. To our
knowledge, the selling security holders have not entered into any agreement with
a prospective underwriter, and we cannot assure you as to whether any such
agreement will be entered into. If any selling security holder informs us that
it has entered into such an agreement or agreements, any material details will
be set forth in a supplement to this prospectus or, if required, in a
replacement prospectus included in a post-effective amendment to the
registration statement of which this prospectus is a part.
This prospectus does not cover the sale or other transfer of the
Convertible Note, the Laurus Warrant or the Warrants. If the selling security
holders transfer any such securities prior to conversion or exercise, the
transferee of those derivative securities may not sell the shares of common
stock issuable upon conversion or exercise of those derivative securities under
the terms of this prospectus unless we amend or supplement this prospectus to
cover such sales.
For the period a holder holds the Convertible Note and/or the Laurus
Warrant, with respect to Laurus, or the Warrants, with respect to all other
selling security holders, the holder has the opportunity to profit from a rise
in the market price of our common stock. The terms on which we could obtain
additional capital during the period in which those derivative securities remain
outstanding may be adversely affected. The holders of the derivative securities
are most likely to voluntarily convert or exercise those derivative securities
when the conversion price or exercise price is less than the market price for
our common stock. However, we cannot assure you as to whether any of those
derivative securities will be converted or exercised.
We have agreed with Laurus to keep the registration statement of which this
prospectus constitutes a part effective until the earlier of three years or the
termination of the Securities Purchase Agreement.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of our common
stock offered by Laurus under this prospectus. Upon exercise of the Warrant, we
will receive proceeds from the Warrant holder; however, upon selling the common
stock underlying the Secured Convertible Note and/or the Warrant, the selling
security holder will receive all proceeds directly.
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DESCRIPTION OF BUSINESS
FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with our
consolidated financial statements and the notes thereto and the other financial
information appearing elsewhere in this document. Readers are also urged to
carefully review and consider the various disclosures made by us which attempt
to advise interested parties of the factors which affect our business, including
without limitation the disclosures made under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and in
our General Registration Statement on Form 10SB12G/A filed January 28, 2000.
In addition to historical information, the following discussion and other
parts of this document may contain forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"potential," or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We undertake no obligation to publicly update any of the
forward-looking statements after the date of this prospectus to conform such
statements to actual results or to changes in our expectations.
Actual results could differ materially from those anticipated by such
forward-looking statements. 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 us; 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 potential litigation, claims and other actions by or against us,
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; mission disasters such as the loss of
the space shuttle Columbia on February 1, 2003 during its re-entry into earth's
atmosphere; 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 our products. These are factors that we
think could cause our actual results to differ materially from expected and
historical events.
GENERAL
SpaceDev, Inc. (the "Company," "SpaceDev," "we," "us" or "our") is engaged
in the conception, design, development, manufacture, integration and operations
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of space technology systems, products and services. We are currently focused on
the commercial development of low-cost micro-satellites, nano-satellites and
related subsystems, hybrid rocket propulsion as well as the associated
engineering technical services to government, aerospace and other commercial
enterprises. Our products and solutions are sold directly to these customers and
include sophisticated micro- and nano-satellites, hybrid rocket-based orbital
Maneuvering and orbital Transfer Vehicles ("MTVs") as well as safe sub-orbital
and orbital hybrid rocket-based propulsion systems. We are also developing
commercial hybrid rocket motors and small high performance space vehicles and
subsystems.
Our approach is to provide smaller spacecraft -(generally 250 kg mass and
less) and compatible small hybrid propulsion space systems to commercial,
university and domestic government customers. We are developing smaller
spacecraft and miniaturized subsystems using proven, lower cost, high-quality
off-the-shelf components. Our space products are modular and reproducible, which
allows us to create affordable space solutions for our customers. By utilizing
our innovative technology and experience, and space-qualifying commercial
industry-standard hardware, software and interfaces, we provide increased
reliability at reduced costs.
We have been awarded, have successfully concluded or are successfully
concluding contracts from such esteemed government, university and commercial
customers as the Air Force Research Laboratory ("AFRL"), The Boeing Company, the
California Space Authority ("CSA"), the Jet Propulsion Laboratory ("JPL"),
Lockheed Martin, the National Reconnaissance Office ("NRO"), and the University
of California at Berkeley ("UCB") via NASA.
We were incorporated under the laws of the State of Colorado on December
23, 1996 as Pegasus Development Group, Inc. ("PDGI"). SpaceDev, LLC of Colorado
was originally formed in 1997 for commercial space exploration and was the sole
owner of shares of common stock of SpaceDev (a Nevada corporation) ("SpaceDev"),
formed on August 22, 1997. On October 22, 1997, PDGI issued 8,245,000 of its
$.0001 par value common stock for 100 percent (1,000,000 shares) of SpaceDev's
common stock owned by SpaceDev, LLC. Upon the acquisition of the SpaceDev stock,
SpaceDev was merged into PDGI and, on December 17, 1997, PDGI changed its name
to SPACEDEV, INC. After the merger, SpaceDev, LLC, changed its name to SD
Holdings, LLC on December 17, 1997. We became a publicly traded company in
October 1997 and are trading on the Nasdaq Over-the-Counter Bulletin Board
("OTCBB") under the symbol of "SPDV."
In February 1998, we acquired Integrated Space Systems ("ISS"), in San
Diego. ISS was fully integrated into SpaceDev. Most of the ISS employees were
former launch vehicle engineers and managers who worked for General Dynamics in
San Diego. As SpaceDev employees, they primarily develop products based on
hybrid rocket motor technology.
In August 1998, we acquired the patents and intellectual property produced
by American Rocket Company ("AMROC"). The acquisition provided us access to a
large cache of hybrid rocket documents, designs and test results. AMROC
specialized in hybrid rocket technology (solid fuel plus liquid oxidizer) for
small sounding rockets and launch vehicles.
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In late 1998, we bid and won a government-sponsored research and
development contract, which was directly related to our strategic commercial
space interests. We competed with seven other industry teams and we were one of
five firms selected by Jet Propulsion Laboratory ("JPL") to perform a mission
and spacecraft feasibility assessment study for the proposed 200-kg Mars
MicroMissions. The final report was delivered to JPL in March 1999 and, as a
result, we are now able to offer lunar and Mars commercial deep-space missions
based on this innovative space system design.
In mid-1999, we won an R&D contract from the National Reconnaissance Office
("NRO") to study small hybrid-based "micro" kick-motors for small-satellite
orbital transfer applications. During the contract, we successfully developed
the Secondary Payload Orbital Transfer Vehicle ("SPOTV") design concept. We
subsequently created a prototype, which lead to the development of our
capability to apply the SPOTV concept to subsequent MTV programs.
In November 1999, we won a $4.9 million turnkey mission contract by the
Space Sciences Laboratory ("SSL") at University of California, Berkeley ("UCB").
We were competitively selected by UCB/SSL to design, build, integrate, test and
operate, for one year, a small NASA-sponsored scientific, Earth-orbiting
spacecraft called CHIPSat. CHIPSat is the first mission of NASA's low-cost
University-Class Explorer ("UNEX") series. CHIPSat launched as a secondary
payload on a Delta-II rocket on January 12, 2003. The satellite achieved 3-axis
stabilization, meaning it was pointing and tracking properly, with all
individual components and systems successfully operating and is continuing to
work well in orbit. In 2000, we 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, we accrued a loss of approximately $860,000
based on the expected contract modification of $600,000, which was approved on
June 15, 2001. On November 28, 2001, a second contract modification was signed
with UCB, which added approximately $1.2 million to the contract as well as an
increase in contract scope. This increased the total contract revenue to
approximately $6.8 million and reduced the total expected loss on the contract
to approximately $460,000. During 2002, an additional contract modification for
approximately $400,000 was signed, which also increased the contract value and
scope to the current value of the CHIPSat project of approximately $7.4 million,
further reducing the total expected loss on the contract to approximately
$514,000, most of which could have been recorded as research and development
costs associated with the development of our ongoing satellite design and
development programs. As of December 31, 2002, approximately 97% of the total
contract costs were expended and the remaining loss on the balance sheet at
year-end totaled approximately $11,000. The CHIPSat program generated
approximately $2.1 million and $3.2 million of revenue in 2000 and 2001,
respectively. Revenues for 2002 were approximately $1.7 million and are
expected to be approximately $400,000 in 2003. We are currently receiving
monthly payments on the contract according to a preset payment schedule detailed
in the contract. The CHIPSat contract is expected to conclude in January 2004.
On March 22, 2000, the California Spaceport Authority and the California
Space and Technology Alliance ("CSTA") notified us that we had been awarded a
grant of approximately $100,000 to be used for test firing our hybrid rocket
motors. California's Western Commercial Space Center also awarded us
approximately $200,000 to help build and equip its satellite and space vehicle
manufacturing facilities. These facilities were completed in January 2001.
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In July 2000, the NRO granted us two separate follow-on competitive awards
of approximately $400,000 each for further hybrid rocket engine design, test,
evaluation, and development. Our work for the NRO has helped fund two innovative
hybrid rocket motor products:
o a family of small versatile orbital Maneuver and Transfer
Vehicles ("MTVs") using clean, safe hybrid rocket propulsion technology; and,
o a protoflight hybrid propulsion module for a 50-kg class
micro-satellite.
Both of those contracts were successfully completed.
In September 2001, we were awarded a contract for a proprietary hybrid
propulsion research program valued in excess of $1 million. As a part of that
program, we are competing with another party to design a space propulsion
system. The entire contract, which will be awarded based upon the submitted
designs, is valued at approximately $2.2 million. We believe that the award
could lead to a long-term market for our hybrid propulsion technology. 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. Work on this project generated
approximately $300,000 and $1.2 million of revenue in 2001 and 2002,
respectively.
On April 4, 2002, SpaceDev, Inc., an Oklahoma corporation, was formed for
the purpose of investigating and developing commercial space products in the
state of Oklahoma. Plans for development of this business in Oklahoma are
currently on hold.
On April 30, 2002, we were awarded Phase I of a contract to develop a
Shuttle-compatible propulsion module for the Air Force Research Lab ("AFRL"). We
received an award for Phase II of the contract on March 28, 2003, and will use
the project to further expand our product line to satisfy commercial and
government space transportation requirements. The first two phases of the
contract (including an additional add-on option) are worth up to approximately
$2.5 million, of which $100,000 was awarded for Phase I, and approximately $1.4
million was awarded for Phase II. AFRL Phase II is a cost-plus contract. In
addition to the Phase I and Phase II awards, there is an option worth
approximately $1 million. The option has been awarded and work will begin once
certain milestones are met to the satisfaction of the AFRL project manager.
On April 30, 2002, we were awarded Phase I of a contract to develop a
Shuttle-compatible propulsion module for the Air Force Research Lab ("AFRL"). We
received an award for Phase II of the contract on March 28, 2003, and will use
the project to further expand our product line to satisfy commercial and
government space transportation requirements. The first two phases of the
contract (including an additional add-on option) are worth up to approximately
$2.5 million, of which $100,000 was awarded for Phase I, and approximately $1.4
million was awarded for Phase II. AFRL Phase II is a cost-plus contract. In
addition to the Phase I and Phase II awards, there is an option worth
approximately $1 million. The option has been awarded and work will begin once
certain milestones are met to the satisfaction of the AFRL project manager.
On July 9, 2003, we were awarded a Phase I contract to develop micro- and
nano-satellite bus and subsystem designs. This AFRL Small Business Innovation
Research (SBIR) contract, valued at approximately $100,000, will enable us to
explore the further miniaturization of our unique and innovative microsat
subsystems. It will also enable us to explore ways to reduce the time and cost
to build small satellites through further standardization in order to help
define de facto standards for payload hardware and software interfaces. The
contract is fixed price, milestone-based and should be completed within one
year.
On July 9, 2003, we were awarded a Phase I SBIR contract by AFRL to design
and begin the development of the SpaceDev Streaker(TM) small launch vehicle
(SLV). SpaceDev Streaker(TM) will be designed to responsively and affordably
lift up to 1,000 pounds to Low Earth Orbit (LEO). The SpaceDev Streaker(TM) SLV
concept is based on a proprietary combination of technologies to increase the
performance of hybrid rocket motor technology. Hybrid rocket motors are a
combination of solid fuel and liquid oxidizer, and can be relatively safe,
clean, non-explosive, and storable, and can be throttled, shut down and
restarted. This contract is also valued at approximately $100,000, is a fixed
price, milestone-based agreement, which should be completed within one year.
Both SBIRs have the possibility of Phase II carry-forward work; however, there
can be no assurance that such work will be awarded to us.
Also, on July 9, 2003, we were awarded a second contract by the Missile
Defense Agency (MDA) to explore the use of micro-satellites in national missile
defense. In January, SpaceDev launched CHIPSat, our high-performance low-cost
satellite. Our microsats are operated over the Internet and are capable of
pointing and tracking targets in space or on the ground. This study will explore
fast response microsat launch and commissioning; small, low-power passive
sensors; target acquisition and tracking; formation flying and local area
networking within a cluster of microsats; and an extension of our proven use of
the Internet for on-orbit command, control and data handling. The contract value
is $800,000, and the total value of our microsatellite studies for MDA is over
$1 million this year.
On July 24, 2003, we were awarded a contract by Lunar Enterprise of
California (LEC) for a first phase project to begin developing a conceptual
mission and spacecraft design for a lunar lander program. The unmanned mission
will be designed to put a small dish antenna near the south pole of the Moon.
From that location it will be in near-constant sunlight for solar power
generation, and should be able to perform multi-wavelength astronomy while
communicating with ground stations on Earth. We will analyze launch
opportunities, spacecraft design, trajectory possibilities, potential landing
areas, available technologies for a small radio astronomy system, and
communications and data handling requirements. This study picks up where we left
off from our original 1997 Near Earth Asteroid Prospector (NEAP) mission design,
our 1999 Mars MicroMission design for NASA's JPL, and our work in 2001 with
Boeing on possible commercial lunar orbiter missions. This contract is valued at
$100,000, is a fixed price, milestone-based agreement, which should be completed
by November 20, 2003.
BUSINESS STRATEGY
Our strategy is based on the belief that advancements in technology and the
application of standard processes will make access to space much more practical
and affordable. We believe these factors will cause growth in certain areas of
space commerce and will create new space markets and increased demand for our
products.
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Our business strategy is to:
o Introduce commercial business practices into the space arena, use
off-the-shelf technology in innovative ways and standardize hardware and
software to reduce costs and to increase reliability and profits;
o Start with small, practical and profitable projects, and leverage
credibility into larger and ever more bold initiatives - utilizing partnerships
where appropriate;
o Bid, win and leverage government programs to fund our Research and
Development ("R&D") and product development efforts;
o Integrate our smaller, low cost commercial spacecraft and hybrid
space transportation systems to provide one-stop turnkey payload and/or data
delivery services to target customers;
o Apply our low cost space products to new applications and to
create new users, new markets and new revenue streams;
o Produce and fly commercial missions, in conjunction with partners
and investors, throughout the inner solar system and be "first to market" in the
commercial beyond earth orbit "space"; and
o Join or establish a team to build a safe, affordable sub-orbital,
passenger space plane to help initiate the space tourism business.
We believe that our business model, emphasizing smaller satellites,
commercial approaches, technological simplicity, architectural and interface
standardization and horizontal integration (i.e., "whole product"), provides the
following advantages:
o Enables small-space customers to contract for end-to-end mission
solutions, reducing the need for and complexity of finding other contractors for
different project tasks;
o Lowers total project costs and therefore provides greater value
and increases return on investment for us and our customers; and
o Creates barriers to entry for and competition from competitors.
PRODUCTS AND SERVICES; MARKET
We currently have three primary lines of space products and services on
which we believe a sound foundation and profitable, cash generating business can
be built:
o Our Products - Microsatellites & Nanosatellites, BD-II Spacecraft
Bus, MTV (orbital maneuvering and transfer vehicle) and Hybrid Propulsion
Systems;
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o Our Subsystem Products - MFC (miniature flight computer), MS-VOS
(micro space vehicle operating system), PC-DS (power conditioning and
distribution system) and MTS (miniature S-band transponder); and,
o Our Services - Mission Analysis and Design, Spacecraft Subsystem
Design, Microsatellite and Nanosatellite Launches and Mission Control and
Operations.
These products and services are being marketed and sold directly into
domestic government, university and commercial markets. Our business is not
seasonal to any significant extent; however, our business follows normal
industry trends such as increased demand during bullish economic periods, or
slow-downs in demand during periods of recession.
In addition, we are working with partners to create new markets that can
generate new space-related service, media, tourism and commercial revenue
streams. While we believe that certain space market opportunities are still
several years away, we are currently working with industry-leading partners to
develop unique enabling technology for the potentially very large sub-orbital
manned space plane tourism market; and, creating a new unmanned Beyond Earth
Orbit commercial market with spacecraft derived from our NASA JPL Mars
MicroMission mission design contract.
Our Products
-------------
Microsatellites & Nanosatellites - We design and build small, light,
high-performance, reliable and affordable micro- and nanosatellites. The primary
benefit of micro- and nanosatellites is lower cost. Since we can dramatically
reduce manufacturing costs and the costs to launch the satellites to earth-orbit
and deep space, we can pass those cost savings on to our customers. Small,
inexpensive satellites were once the exclusive domain of scientific and amateur
groups; however, smaller satellites are now a viable alternative to larger, more
expensive ones, as they provide cost-effective solutions to traditional
problems. We design and build low cost space-mission solutions involving
micro-satellites (generally less than 100 kg) and even smaller satellites (less
than 50 kg). Our approach is to provide smaller spacecraft and compatible low
cost, safe hybrid propulsion space systems to a growing market of commercial,
domestic government and university customers.
BD-II (Boeing Delta-II compatible) spacecraft bus - We have a qualified
microsatellite bus available to sell as a standard, fixed-price product to
government and commercial customers needing an affordable satellite for small
payloads. We developed this product in 1999, when we were selected as the
mission designer, spacecraft bus provider, integrator and mission operator of
the University of California, Berkeley ("UCB") Space Sciences Laboratory's
("SSL") Cosmic Hot Interstellar Plasma Spectrometer ("CHIPS") mission. CHIPSat
was launched at 4:45 PM PST on January 12, 2003 from Vandenberg Air Force Base
in California. The satellite achieved 3-axis stabilization with all individual
components and systems successfully operating and continues to work well in
orbit.
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Orbital Maneuvering and Transfer Vehicle ("MTV") - Our MTV system is a family of
small, affordable, elegantly simple, throttleable, and restartable propulsion
and integrated satellite products. Our MTV can be used as a standard propulsion
module to transport a customer's payload. The MTV provides the change in
velocity and maneuvering capabilities to support a wide variety of applications
for on-orbit maneuvering, proximity operations, rendezvous, inspection, docking,
surveillance, protection, inclination changes and orbital transfer.
Hybrid Rocket Propulsion System - We provide a wide variety of safe, clean,
simple, reliable, inexpensive hybrid propulsion systems to safely and
inexpensively enable satellites and on-orbit delivery systems to rendezvous and
maneuver on-orbit and deliver payloads to sub-orbital altitudes. Hybrid rocket
propulsion is a safe and low-cost technology that has tremendous benefits for
current and future space missions. Our hybrid rocket propulsion technology
features a simple design, is restartable, is throttleable and is easy to
transport, handle and store. We acquired some of our expertise in hybrid
propulsion technology from AMROC.
Our Subsystem Products
------------------------
Miniature Flight Computer ("MFC") - Our MFC is a high performance 300
million instructions per second ("MIPS") general-purpose flight computer for a
wide variety of space vehicles. It is cost-effective, has about ten times the
performance-to-power ratio of current flight computers and only uses 2 to 6
watts of power, depending on its tasks. Our MFC has successfully passed
manufacturing and environmental testing for low earth orbit ("LEO") missions and
is ready for civil, military and commercial spacecraft and launch vehicle
applications.
Micro Space Vehicle Operating System ("MS-VOS") - Our MS-VOS is a small,
fast, modular and layered operating system, similar to the operating systems of
microcomputers. The modular nature of our MS-VOS and our other space products
allow us to design and build affordable space solutions for our customers. We
use industry-standard interfaces to increase reliability while reducing cost.
Our MS-VOS combines standard protocols like TCP/IP, software components like
VxWorks(R) and application software to effect real time command and control,
scriptable autonomous vehicle control, scriptable data acquisition and
telemetry.
Mission Control and Operations Software ("MC-OS") - Our MC-OS performs
satellite command and control and data acquisition. The MC-OS satellite command
and control is managed via user commands, batched command scripts and timed
command scripts. Data acquisition is accomplished by mapping the input data
stream (bytes, words or floats) to MC-OS variables. The mapping is accomplished
by selecting a frame offset and data type for each MC-OS variable. Other MC-OS
components include file transfer protocol ("FTP") for file transfer between the
ground station and satellite, a system security module which assigns users a
password, command level and logs all user commands to disk, and a status window
for monitoring MC-OS status.
Power Conditioning and Distribution System ("PC-DS") - Our PC-DS controls
critical failsafe spacecraft functions, including battery charge control, bus
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voltage regulation, load power switching, current monitoring & limiting for the
spacecraft and individual loads, and hardware load-shedding protection for
spacecraft contingency management, and allows direct ground control of power
switches. Our PC-DS is capable of keeping the spacecraft alive independent of
any other spacecraft computers.
Our Miniature S-Band Transmitter ("MST") and Miniature S-Band Receiver
("MSR") are a cost-effective solution for low cost and low mass spacecraft. The
MST and MSR feature lightweight state-of-the-art electronic circuitry designed
to meet today's requirements for power efficient space-based communications
hardware. The weight of the transmitter and receiver are 2.5-oz and 32-oz,
respectively. These units leverage years of communications design heritage and
have been in orbit since the January 12, 2003 launch of CHIPSat, the first
mission to be funded through NASA's University-Class Explorer ("UNEX") Program.
The MST and MSR designs provide flexibility to meet customer requirements and
options. Both units are designed to operate in most present day thermal, launch,
and on-station low-Earth-orbit ("LEO") spacecraft environments.
Our Services
-------------
Mission Analysis and Design - We provide end-to-end mission design and
analysis, including the design of the mission and its science, commerce or
technology demonstration goals, the design of an appropriate space vehicle
(satellite or spacecraft), prototype development, construction and testing of
the spacecraft, integration of one or more payloads (instruments, experiments or
technologies) into the spacecraft, integration of the spacecraft onto the launch
vehicle (rocket), the launch and the mission control and operations during the
life of the mission. Many of our products and services are now qualified and
capable to assist with missions that orbit the earth, travel to another
planetary body, or cruise through space taking measurements and transmitting
valuable data back to Earth.
Spacecraft and Subsystem Design - We also provide reliable, affordable
access to space through innovative solutions currently lacking in the
marketplace. Our approach is to provide smaller spacecraft - generally 250 kg
mass and less - and compatible hybrid propulsion space systems to commercial,
university and government customers. The small spacecraft market is supported by
the evolution and enabling of microelectronics, common hardware & software
interface standards, and smaller launch vehicles. Reduction of the size and mass
of traditional spacecraft electronics has reduced the overall spacecraft size,
mass, and volume over the past 10 to 15 years. For example, our Miniature Flight
Computer ("MFC") is only 24 cubic inches and provides 300 million instructions
per second ("MIPS") of processing power versus a competitor's more "traditional"
solution that requires about 63 cubic inches and only provides 10 MIPS.
Microsatellite & Nanosatellite Launches - To support the growth in customer
demand within the small satellite market, we are working with several launch
providers to identify and market affordable launch opportunities and to provide
customers with a complete on-orbit data delivery service that combines our
spacecraft and hybrid propulsion products. These innovative, low-cost, and
turnkey launch solutions will allow us to provide one-stop shopping for launch
services, spacecraft, payload accommodation, total flight system integration and
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test and mission operations. The customer only needs to provide the payload, and
we perform all the tasks required for the customer to get to orbit and to get
their data.
Mission Control and Operations - Our mission control and operations package
is uniquely Internet-based and allows for the operation and control of missions
from anywhere in the world that has access to the Internet. The Cosmic Hot
Interstellar Plasma Spectrometer Satellite ("CHIPSat") is the first U.S. mission
to use end-to-end satellite operations with TCP/IP and FTP. While this concept
has been analyzed and demonstrated by the NASA OMNI team, CHIPSat is the first
to implement the concept as the only means of satellite communication. A
formation flying cluster or constellation of TCP/IP-based micro-satellites can
be designed to communicate directly with each other. Providing any one
satellite/node in this network is in line-of-sight with any ground station at
any given time, the entire constellation would always maintain ground station
connectivity, thus creating a network on orbit and on the web, a direct
extension of CHIPSat's elegantly simple TCP/IP mission operations architecture.
COMPONENTS AND RAW MATERIALS
Although we may experience a shortage of certain parts and components
related to our products, we have many alternative suppliers and distributors and
are not dependent on any individual supplier or distributor. Furthermore, we
have not experienced difficulty in our ability to obtain our parts or component
materials, nor do we expect this to be an issue in the future.
COMPETITION
We compete for sales of our products and services based on price,
performance, technical features, contracting approach, reliability,
availability, customization and, in some situations, geography. Our primary
competition for low-cost propulsion systems using clean, safe, commercially
available hybrid rocket motor technology comes from Cesaroni Technology
Incorporated in Canada and their affiliates. While Lockheed Martin has
demonstrated large-scale hybrid rocket capability, and there are a number of
smaller enterprises, especially academic-based organizations, in the domestic
market currently investigating various aspects of hybrid rocket technology, to
date we have seen limited competitive pressures arising from these
organizations.
The primary domestic competition for unmanned earth-orbiting micro-
-satellites, unmanned deep space micro-spacecraft and micro-satellite subsystems
as well as software systems comes from other small companies such as AeroAstro
or MicroSat Systems. The most established international competitor is Surrey
Satellite Technology Limited ("SSTL") in the United Kingdom. Swedish Space
Corporation is also able to compete in the small-satellite arena, particularly
in the European market. In addition to private companies, there are a limited
number of universities in the United States that have the capability to produce
reasonably simple micro-satellites. These include Weber State in Utah and
Arizona State University ("ASU") in Phoenix.
While we believe that our product and service offerings provide a wide
breadth of solutions for our customers and prospective customers, some of our
competitors compete across many of our product lines. Several of our current and
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potential competitors have greater resources, including technical and
engineering resources. We are not aware of any established large companies
(e.g., Northrop Grumman, Lockheed Martin, Boeing), which have expressed
corporate goals to design and build inexpensive micro-spacecraft for a mission,
which would be our direct competition.
REGULATION
Our business activities are regulated by various agencies and departments
of the U.S. government and, in certain circumstances, the governments of other
countries. Several government agencies, including NASA and the U.S. Air Force,
maintain Export Control Offices to ensure that any disclosure of scientific and
technical information ("STI") complies with the Export Administration
Regulations and the International Traffic in Arms Regulations ("ITAR"). Exports
of our products, services and technical information require either Technical
Assistance Agreements ("TAAs") or licenses from the U.S. Department of State,
depending on the level of technology being transferred. This includes recently
published regulations restricting the ability of U.S.-based companies to
complete offshore launches, or to export certain satellite components and
technical data to any country outside the United States. The export of
information with respect to ground-based sensors, detectors, high-speed
computers, and national security and missile technology items are controlled by
the Department of Commerce. The government is very strict with respect to
compliance and has served notice that failure to comply with the ITAR and/or the
Commerce Department regulations may subject guilty parties to fines of up to $1
million and/or up to 10 years imprisonment per violation. Our failure to comply
with any of the foregoing regulations could have serious adverse effects as
dictated by the rules associated with compliance to the ITAR regulations. Also,
our ability to successfully market and sell into international markets may be
severely hampered due to ITAR regulation requirements. Our conservative position
is to consider any material beyond standard marketing material to be regulated
by ITAR regulations.
In addition to the standard local, state and national government
regulations that all businesses must adhere to, the space industry has specific
regulations. In the U.S., command and telemetry frequency assignments for space
missions are primarily regulated by the Federal Communications Commission
("FCC") for our domestic commercial products. Our products geared toward
domestic government customers are regulated by the National Telecommunications
Information Agency ("NTIA") and any of our products sold internationally, if
any, are regulated by the International Telecommunications Union ("ITU"). All
launch vehicles that are launched from a launch site in the United States must
pass certain launch range safety regulations that are administered by the U.S.
Air Force. In addition, all commercial space launches that we might perform
require a license from DOT. Satellites that are launched must obtain approvals
for command and frequency assignments. For international approvals, the FCC and
NTIA obtain these approvals from the ITU. These regulations have been in place
for a number of years to cover the large number of non-government commercial
space missions that have been launched and put into orbit in the last 15 to 20
years. Any commercial deep space mission that we might perform would be subject
to these regulations. Presently, we are not aware of any additional or unique
government regulations related to commercial deep space missions.
30
We are also required to obtain permits, licenses, and other authorizations
under federal, state, local and foreign statutes, laws or regulations or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof. Presently, we do not have a requirement to obtain any
special environmental licenses or permits.
We may need to utilize the Deep Space Network ("DSN") on some of our
missions. The DSN is an international network of antennas that supports
interplanetary spacecraft missions and radio and radar astronomy observations
for the exploration of the solar system and the universe. The network also
supports selected Earth-orbiting missions. The network is a facility of NASA,
and is managed and operated for NASA by the Jet Propulsion Laboratory ("JPL").
The Telecommunications and Mission Operations Directorate ("TMOD") manages the
program within JPL. Coordination for the use of this facility is arranged with
the Telecommunications and Mission Operations Command ("TMOC").
THE LAURUS MASTER FUND, LTD. REVOLVING CREDIT FACILITY
On June 3, 2003, we entered into a Security Agreement, Secured Convertible
Note, Registration Rights Agreement and Common Stock Purchase Warrant, with
Laurus Master Fund, Ltd., or Laurus. In this prospectus, we refer to these
agreements, as the Agreement, which we filed on Form 8-K dated June 18, 2003.
Pursuant to the Agreement, we received a $1 million revolving credit facility in
the form of a three-year Convertible Note secured by our assets. The net
proceeds from the Convertible Note shall be used for our general working capital
needs. Advances on the Convertible Note may be repaid at our option, in cash or
through the issuance of our shares of common stock. The Convertible Note
carries an interest rate of WSJ Prime plus 0.75% on any outstanding balance. In
addition, we are required to pay a collateral management payment of 0.55% of the
average aggregate outstanding balance during the month plus an unused line
payment of 0.20% per annum.
Once the shares are registered with the Securities and Exchange Commission
("SEC") for public resale and the then current market price is 118% of the fixed
conversion price. we will have an option to pay amounts outstanding under the
revolving credit facility in shares of our common stock at the fixed conversion
price of $0.55 per share on the first $1 million of principal.
The Convertible Note includes a right of conversion in favor of Laurus. If
Laurus exercises its conversion right at any time or from time to time at or
prior to maturity, the Convertible Note will be convertible into shares of our
common stock at a fixed conversion price, subject to adjustments for stock
splits, combinations and dividends and for shares of common stock issued for
less than the fixed conversion price (unless exempted pursuant to the
Agreement). The fixed conversion price will be adjusted after conversion of the
31
first $1 million to 103% of the then fair market value of our common stock
("Adjusted Fixed Conversion Price").
Availability of funds under the revolving credit facility will be based on
our accounts receivables. The revolving credit facility will be secured by all
of our assets, except for an initial three (3) month period during which Laurus
will permit a credit advance up to $300,000, which amount might otherwise exceed
eligible accounts receivable during the period.
In conjunction with this transaction, Laurus was paid a fee of $20,000 for
the first year (and will be required to pay a continuation fee of $10,000 for
each year thereafter), which fee will be expensed as additional interest
expense. In addition, Laurus received a warrant to purchase 200,000 shares of
our common stock, as stated herein. The value of the warrant of approximately
$98,475 will be treated as additional interest expense and will be amortized
over the three-year life of the Convertible Note, unless sooner terminated. The
warrant exercise price is computed as follows: $0.63 per share for the purchase
of up to 125,000 shares; $0.69 per share for the purchase of an additional
50,000 shares; and $0.80 per share for the purchase of an additional 25,000
shares. The warrant exercise price may be paid in cash, in shares of our common
stock, or by a combination of both. The warrant expiration date is June 3,
2008. The warrant exercise price and the number of shares underlying the
warrant are subject to adjustments for stock splits, combinations and dividends.
In addition to the initial warrant, we are obligated to issue an additional
five-year warrant to Laurus to purchase one share of common stock at an exercise
price equal to 125% of the Adjusted Fixed Conversion Price for every ten dollars
($10) in principal of the Convertible Note converted into common stock. The
value of the warrant will be determined, if and when issued, and will be treated
as additional interest expense and will be amortized over the remaining term of
the Convertible Note, unless sooner terminated. No more than an aggregate of
100,000 shares of our common stock may be purchased by Laurus under such
Additional Warrants.
EMPLOYEES
At July 17, 2003, we employed approximately twenty-four (24) persons full
and part-time, most of whom are aerospace, mechanical and electrical engineers.
We expect to hire other personnel as necessary for product development, quality
assurance, sales and marketing, finance and administration. In addition, due to
the nature of our business, we anticipate that it may become necessary to lay
off employees whose work is no longer required to maintain operations in order
to prevent cost overruns. We do not have any collective bargaining agreements
with our employees and we believe our employee-relations are good.
INTELLECTUAL PROPERTY
We rely in part on patents, trade secrets and know-how to develop and
maintain our competitive position and technological advantage. We intend to
protect our intellectual property through a combination of license agreements,
trademarks, service marks, copyrights, trade secrets and other methods of
restricting disclosure and transferring title. There can be no assurance that
such applications will be granted. We have and intend to continue entering into
32
confidentiality agreements with our employees, consultants and vendors; enter
into license agreements with third parties; and, generally, seek to control
access to and distribution of our intellectual property.
In August 1998, we acquired a license to intellectual property (including
patents and trade secrets) from an individual who had acquired them from the
former AMROC, which specialized in hybrid rocket technology. We are obligated to
issue warrants to this individual to purchase a minimum of 100,000 and a maximum
of 3,000,000 shares of our common stock over ten years beginning at the
inception of the agreement, depending on our annual revenues related to sales of
hybrid technology-based products. To date, we have issued warrants to purchase a
total of 100,000 shares of our common stock under the agreement.
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with our
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 our control. (See "Forward Looking
Statements" above.)
OVERVIEW
We are engaged in the conception, design, development, manufacture,
integration and operations of space technology systems, products and services.
We are currently focused on the development of low-cost micro-satellites,
nanosatellites and related subsystems, hybrid rocket propulsion as well as the
associated engineering technical services primarily to government, and
specifically Department of Defense, agencies. Our products and solutions are
sold, mainly on a project-basis, directly to these customers and include
sophisticated micro- and nanosatellites, hybrid rocket-based orbital Maneuvering
and orbital Transfer Vehicles ("MTVs") as well as safe sub-orbital and orbital
hybrid rocket-based propulsion systems. Although we believe there will be a
commercial market for our micro-satellite and nano-satellite products and
services in the long-term, the early adopters of this technology appears to be
the military and our "products" are considered to be the outcome of specific
projects. We are also developing commercial hybrid rocket motors and small high
performance space vehicles and subsystems for commercial customers.
We were incorporated under the laws of the State of Colorado on December
23, 1996 as Pegasus Development Group, Inc. ("PDGI") and subsequently changed
our name to "SpaceDev." We became a publicly traded company in October 1997 and
are trading on the Nasdaq Over-the-Counter Bulletin Board ("OTCBB") under the
symbol of "SPDV."
In February 1998, our operations were expanded with the acquisition of
Integrated Space Systems, Inc. ("ISS"), a California corporation founded for the
purpose of providing engineering and technical services related to space-based
systems. The ISS employee base, acquired upon acquisition, largely consisted of
former General Dynamics personnel and enlarged our then current employee base to
20 employees. ISS was purchased for approximately $3.6 million, paid in Rule 144
restricted common shares of SpaceDev. Goodwill of approximately $3.5 million was
capitalized and was to be amortized over a period of 60 months, based on the
purchase price exceeding the net asset value of approximately $164,000. 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. We determined that all future business, contracts, and
34
proposals would be sought after only in the SpaceDev name, making it a more
efficient way for us 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, we won a $4.9 million turnkey mission contract by the
Space Sciences Laboratory ("SSL") at University of California, Berkeley ("UCB").
We were competitively selected by UCB/SSL to design, build, integrate, test and
operate, for one year, a small NASA-sponsored scientific, Earth-orbiting
spacecraft called CHIPSat. CHIPSat is the first mission of NASA's low-cost
University-Class Explorer ("UNEX") series. CHIPSat launched as a secondary
payload on a Delta-II rocket on January 12, 2003. The satellite achieved 3-axis
stabilization, meaning it was pointing and tracking properly, with all
individual components and systems successfully operating and is continuing to
work well in orbit. In 2000, we 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, we accrued a loss of approximately $860,000
based on the expected contract modification of $600,000, which was approved on
June 15, 2001. On November 28, 2001, a second contract modification was signed
with UCB, which added approximately $1.2 million to the contract as well as an
increase in contract scope. This increased the total contract revenue to
approximately $6.8 million and reduced the total expected loss on the contract
to approximately $460,000. During 2002, an additional contract modification for
approximately $400,000 was signed, which also increased the contract value and
scope to the current value of the CHIPSat project of approximately $7.4 million,
further reducing the total expected loss on the contract to approximately
$514,000, most of which could have been recorded as research and development
costs associated with the development of our ongoing satellite design and
development programs. As of December 31, 2002, approximately 97% of the total
contract costs were expended and the remaining loss on the balance sheet at
year-end totaled approximately $11,000. The CHIPSat program generated
approximately $2.1 million and $3.2 million of revenue in 2000 and 2001,
respectively. Revenues for 2002 were approximately $1.7 million and are
expected to be approximately $400,000 in 2003. We are currently receiving
monthly payments on the contract according to a preset payment schedule detailed
in the contract. The CHIPSat contract is expected to conclude in January 2004.
In April 2001, we were awarded one of four $1.0 million contracts from
NASA's Jet Propulsion Laboratory in Pasadena, California. As part of a
Boeing-led team, we participated in a study of the options for a potential Mars
sample return mission in 2011. The contract ran from April through October 2001.
Our revenue from this contract in 2002 and 2001 was approximately $7,000 and
$216,000, respectively.
In September 2001, we were awarded a contract for a proprietary propulsion
research program valued in excess of $1.0 million. As a part of that program, we
are competing with another party to design a space propulsion system. The entire
contract, which will be awarded based upon the submitted designs, is valued at
approximately $2.2 million. We expect this contract to generate revenue in 2003
of approximately $240,000. Work on this project generated approximately $1.2
million in revenues during 2002. To date, we have recognized approximately
$24,000 of gross margin on this contract. We reviewed the contract status in the
fourth quarter of 2002, to evaluate changes to the total estimated costs to
35
complete the contract due to schedule delays. Further discussion of the impacts
of the contract delay is included under "Liquidity and Capital Resources -
Forward Looking Statements and Risk Analysis" below.
On April 30, 2002, we were awarded Phase I of a contract to develop a
Shuttle-compatible propulsion module for the Air Force Research Lab ("AFRL").
We received an award for Phase II of the contract on March 28, 2003, and will
use the project to further expand our product line to satisfy commercial and
government space transportation requirements. The first two phases of the
contract (including an additional add-on option) are worth up to approximately
$2.5 million, of which $100,000 was awarded for Phase I, and approximately $1.4
million was awarded for Phase II. AFRL Phase II is a cost-plus contract. In
addition to the Phase I and Phase II awards, there is an option worth
approximately $1 million. The option has been awarded and work will begin once
certain milestones are met to the satisfaction of the AFRL project manager.
On July 9, 2003, we were awarded a Phase I contract to develop micro- and
nano-satellite bus and subsystem designs. This AFRL Small Business Innovation
Research (SBIR) contract, valued at approximately $100,000, will enable us to
explore the further miniaturization of our unique and innovative microsat
subsystems. It will also enable us to explore ways to reduce the time and cost
to build small satellites through further standardization in order to help
define de facto standards for payload hardware and software interfaces. The
contract is fixed price, milestone-based and should be completed within one
year.
On July 9, 2003, we were awarded a Phase I SBIR contract by AFRL to design
and begin the development of the SpaceDev Streaker(TM) small launch vehicle
(SLV). SpaceDev Streaker(TM) will be designed to responsively and affordably
lift up to 1,000 pounds to Low Earth Orbit (LEO). The SpaceDev Streaker(TM) SLV
concept is based on a proprietary combination of technologies to increase the
performance of hybrid rocket motor technology. Hybrid rocket motors are a
combination of solid fuel and liquid oxidizer, and can be relatively safe,
clean, non-explosive, and storable, and can be throttled, shut down and
restarted. This contract is also valued at approximately $100,000, is a fixed
price, milestone-based agreement, which should be completed within one year.
Both SBIRs have the possibility of Phase II carry-forward work; however, there
can be no assurance that such work will be awarded to us.
Also, on July 9, 2003, we were awarded a second contract by the Missile
Defense Agency (MDA) to explore the use of micro-satellites in national missile
defense. Our microsats are operated over the Internet and are capable of
pointing and tracking targets in space or on the ground. This study will explore
fast response microsat launch and commissioning; small, low-power passive
sensors; target acquisition and tracking; formation flying and local area
networking within a cluster of microsats; and an extension of our proven use of
the Internet for on-orbit command, control and data handling. The contract value
is $800,000, and the total value of our microsatellite studies for MDA is over
$1 million this year.
On July 24, 2003, we were awarded a contract by Lunar Enterprise of
California (LEC) for a first phase project to begin developing a conceptual
mission and spacecraft design for a lunar lander program. The unmanned mission
will be designed to put a small dish antenna near the south pole of the Moon.
From that location it will be in near-constant sunlight for solar power
generation, and should be able to perform multi-wavelength astronomy while
communicating with ground stations on Earth. We will analyze launch
opportunities, spacecraft design, trajectory possibilities, potential landing
areas, available technologies for a small radio astronomy system, and
communications and data handling requirements. This study picks up where we left
off from our original 1997 Near Earth Asteroid Prospector (NEAP) mission design,
our 1999 Mars MicroMission design for NASA's JPL, and our work in 2001 with
Boeing on possible commercial lunar orbiter missions. This contract is valued at
$100,000, is a fixed price, milestone-based agreement, which should be completed
by November 20, 2003.
On June 18, 2001, we entered into a relationship with two individuals
(doing business as EMC Holdings Corporation ("EMC")) whereby EMC was to provide
certain consulting and advisory services to us. EMC received the first
36
installment of 500,000 shares of our common stock on June 26, 2001. Total
expense for the initial stock issuance through September 30, 2001 was
approximately $455,000. Pursuant to a demand for arbitration filed by us on
November 7, 2001, we sought the return of all or a portion of the shares issued
to EMC. Following a three-day arbitration in May and June 2002, on July 17,
2002, an interim award was issued in favor of us against EMC, ordering the
return of the initial installment of our 500,000 shares and denying EMC's own
claim for $118,000. On October 22, 2002, a tentative final award was issued in
our favor including an award of approximately $83,000 in attorney and
arbitration fees to us. The tentative final ruling became effective on October
29, 2002, and has been submitted to the Superior Court of California, Orange
County, for entry of judgment.
Because collection of the attorney and arbitration fees award is not
assured, we expensed all of our fees related to this matter. Any recovery of the
fees will be recorded as income in the period they are received. The return of
our 500,000 shares, as provided in the interim award issued on July 17, 2002,
was recorded in the third quarter of 2002 as a reversal of the original expense
recorded. Because the original expense was not recorded as an extraordinary
item, the reversal of the expense did not qualify as an extraordinary item. See
"Results of Operations" below.
RESULTS OF OPERATIONS
Please refer to the consolidated financial statements, which are a part of
this prospectus for further information regarding the results of operations.
Year Ended December 31, 2002 -Vs.- Year Ended December 31, 2001
-------------------------------------------------------------------------
During the year ended December 31, 2002, we had net sales of $3.4 million
as compared to net sales of $4.1 million in 2001. Sales in 2002 were comprised
of approximately $1.7 million from the CHIPSat program, approximately $1.2
million from a contract for a proprietary propulsion development program,
approximately $300,000 from the completion of our outstanding State Grants,
approximately $70,000 from Phase I of the AFRL project and approximately
$130,000 from all other programs. In 2001, sales were comprised of approximately
$3.2 million from the CHIPSat program, approximately $328,000 from a contract
for a proprietary propulsion development program, approximately $228,000 from
research and development performed for the Office of Space Launch ("OSL"),
approximately $216,000 from the Boeing Mars Sample Return and Mars Assent
Vehicle projects, and approximately $164,000 from all other programs.
For the year 2002, we had costs of sales (direct and allocated costs
associated with individual contracts) of approximately $3.3 million as compared
to approximately $2.4 million in 2001. This increase was primarily due to
additional project costs as a result of project delays and scope changes. The
gross margin percentage for the year ended December 31, 2002 was 2% as compared
to 41% for the same period in 2001. The decrease was due to additional project
costs due to contract delays and an allocation of certain G&A expenses to cost
of goods sold.
We experienced a decrease in operating expenses from approximately $3.2
million in 2001 to approximately $66,000 for 2002. Operating expenses include
37
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 reduction of approximately $3.1
million in the operating expenses was due in part to the arbitration ruling
reversal of the EMC stock issuance of 500,000 shares and a resulting credit of
$455,000 in 2002 that was expensed in 2001. See "Legal Proceeding" above.
Other issues involving the reduction in operating expenses can be attributed to
a reduction of research and development costs from $198,400 in 2001 to none for
the same period in 2002, a write-off of $923,000 in 2001 related to the
impairment of the unamortized balance of goodwill from the ISS acquisition, the
amortization expense related to goodwill for ISS of $520,000 incurred in 2001
compared to none in 2002, the expense of $150,000 for a contingent liability due
to Technical & General Guarantee Company Limited expensed in 2001 compared to
none in 2002, an issuance of 80,000 stock options that had a value of $67,000
for the acquisition of Explorespace.com that was expensed as advertising in 2001
compared to no equivalent expense in 2002, as well as, a deduction in salaries
of approximately $190,000 from 2001 to 2002 due to changes in personnel. In
addition, we began a system of more fully absorbing costs into projects,
effectively shifting approximately $600,000 of expenses that were recorded as
operating expenses in 2001 to cost of goods sold in 2002.
Interest expense for the periods ending December 31, 2002 and 2001 was
approximately $263,000 and $303,000, respectively. We paid interest expense on
certain capital leases and mortgages. In addition, we accrued interest expense
related to our related party notes and convertible debentures. In 2002, we
accrued a convertible debt discount related to warrants that accompanied the
convertible debt issue of approximately $475,000, of which $125,000 was expensed
in 2002 and the remainder will be amortized over the remaining life of the
notes.
During the year ended December 31, 2002, we incurred a net loss of
approximately $400,000, compared to a net loss of approximately $1.9 million for
the same period in 2001. The decrease in the net loss was due to our reduction
in operating expenses by approximately $3.2 million. As discussed above, the
decrease was primarily attributable to non-cash expenses, including impairment
of the un-amortized balance of goodwill from ISS, goodwill expense in 2001,
stock issued to EMC in 2001 and then recovered by us in 2002, the note payable
to T&G, the stock options issued for the acquisition of ExploreSpace.com, and
research and development costs.
Three-Months Ended March 31, 2003 vs Three Months Ended March 31, 2002
---------------------------------------------------------------------------
During the three-months ended March 31, 2003, we had net sales of $532,840
as compared to net sales of $949,770 for the same period in 2002. Sales in 2003
were comprised of approximately $237,000 from the proprietary propulsion
contract, $157,000 from the MDA project, $112,000 from the CHIPSat program,
$20,000 from Phase I of the AFRL project and approximately $7,000 from all other
programs. In the first quarter of 2002, sales were comprised of approximately
$481,000 from the CHIPSat program, $365,000 from the proprietary propulsion
contract and $104,000 from all other programs.
38
For the three-months ended March 31, 2003, we had costs of sales (direct
and allocated costs associated with individual contracts) of approximately
$462,000, 87% of net sales, as compared to approximately $712,000, 75% of net
sales, during the same period in 2002. This decrease was primarily due to an
overall reduction of direct costs on current projects and to delays on
additional projects. The gross margin percentage for the three-months ended
March 31, 2003 declined to 13.4% as compared to 25% for the same three-month
period in 2002, mainly due to continued delays and customer schedule slips on
existing contracts.
We experienced an increase in operating expenses from approximately
$212,000, 22% of net sales, in the three-months ended March 31, 2002 to
approximately $435,000, 82% of net sales, for the three-months ended March 31,
2003. Operating expenses include general and administrative expenses (G&A), and
marketing and sales expenses. Marketing and sales expenses increased from
approximately $26,000, 3% of net sales, to approximately $65,000, 12% of net
sales, during the same period in 2002, due to our decision to expand our
marketing department, including the addition of a Vice President of Marketing
and Product Development. G&A expenses consisted primarily of salaries for
administrative personnel, fees for outside consultants, insurance, legal and
accounting fees and other overhead expenses. The increase of approximately
$184,000 in G&A was due certain new expenses including rent of $53,000 and
amortization expense of the capitalized software costs of $34,500, which did not
begin until the second quarter of 2002, and in part to an increase in G&A
personnel, including our vice president of operations and our chief financial
officer and increases in general overhead expenses of approximately $18,000 and
$78,500 in other expenses for the three-months ended March 31, 2003.
Interest expense for the three-months ended March 31, 2003 and 2002 was
approximately $20,000, 4% of net sales, and $55,000, 6% of net sales,
respectively. The decrease was due to the building sale on January 31, 2003,
which reduced overall interest on the notes associated with the building. We
continue to pay interest expense on certain capital leases and settlement notes.
In addition, we accrued interest expense related to our related party note and
convertible debentures. In the three-months ended March 31, 2003 and 2002, the
accrued interest on our related party note was $9,866 and $12,066, respectively.
We also accrued approximately $2,400 of interest on our convertible notes for
the three-months ended March 31, 2003. In conjunction with our convertible
notes, there is an existing convertible debt discount related to warrants that
accompanied the convertible debt issue in 2002 of approximately $475,000, of
which approximately $100,000 was expensed during the three-months ended March
31, 2003. The remainder will be amortized over the remaining life of the notes.
We recognized approximately $20,000 of the deferred gain on the sale of the
building during the first quarter of 2003 and we will continue to amortize the
remaining deferred gain of $1,153,175 into income over the remainder of the
lease.
During the three-months ended March 31, 2003, we incurred a net loss of
approximately $533,000, 95% of net sales, compared to a net loss of
approximately $29,000, 3% or net sales, for the same three-months ended in 2002.
The increase in the net loss was due to our reduction in revenues and to an
increase in operating expenses, as discussed above.
39
LIQUIDITY AND CAPITAL RESOURCES
Our auditors have expressed a formal auditors' opinion that our December
31, 2002 financial position raises substantial doubt about our ability to
continue as a going concern. The opinion is based on net losses incurred by us
for the years ended December 31, 2002 and 2001 of approximately $400,000 and
$1.9 million, respectively, and working capital deficits of approximately
$200,000 and $1.0 million, respectively, for those years. Although there was a
significant reduction in the working capital deficit, items remain that raise
substantial doubt about our ability to continue as a going concern.
On January 31, 2003, we closed escrow on the sale of our facility in Poway,
California and entered into a ten-year lease for the same facility. The selling
price of the facility was $3.2 million. The total debt repayment from the
transaction was approximately $2.4 million. The approximate net proceeds to us
for working capital purposes was approximately $636,000. However due to
continuing delays and schedule slips with our commercial propulsion project and
further delays in obtaining new contract business, we remain in a cash crisis.
From October 14, 2002 through November 14, 2002, we raised $475,000 from
certain of our directors and officers by issuing 2.03% convertible debentures.
The convertible debentures entitle the holder to convert the principal and
unpaid accrued interest into our common stock when the note matures. The
original maturity on the notes was six (6) months from issue date and were
subsequently extended to twelve (12) months from issue date on March 19, 2003.
The convertible debentures are exercisable into a number of our common shares at
a conversion price that equals the 20-day average asking price less 10%, which
was established when the note was issued, or the initial conversion price.
Concurrent with the issuance of the convertible debentures, we issued to the
subscribers, warrants to purchase 1,229,705 shares of our common stock. These
warrants are exercisable for three (3) years from the date of issuance at the
initial exercise price which equals to the 20-day average asking price less 10%
which was established when the note was issued, or the initial conversion price.
There can be no assurance that additional funds will be raised and if raised,
will be under the same or more favorable terms than the convertible debentures.
We have sustained ourselves over the last few years with a mixture of
government and commercial contracts. In particular, we anticipated and received
an award for AFRL Phase II on March 28, 2003. AFRL Phase II is a cost-plus
contract, which will require us to incur certain costs in advance of regular
contract reimbursements from AFRL. Although we will need a certain amount of
cash to fund advance payments on the contract, we will be entitled, as a small
business concern, to recover our costs on a weekly basis. In addition, we
anticipated and received a purchase order from the Missile Defense Agency (MDA)
to explore the use of micro-satellites in national missile defense. To be
explored in this study will be fast response microsat launch and commissioning;
small, low-power passive sensors; formation flying and local area networking
within a cluster of microsats; and an extension of our proven use of the
Internet for on-orbit command, control and data handling. The purchase order
value is $800,000. It is a cost plus agreement and is anticipated to be
completed in the first quarter of 2004.
40
We can continue to grow and execute certain parts of our strategy without
additional equity funding by identifying, bidding and winning new commercial and
government funded programs. We expect to obtain new commercial and government
contracts; however, depending on the timing of those contracts, we may need to
seek additional and possibly immediate financing through a combination of public
and private debt or equity placements, commercial project financing and
government programs to fund future operations and commitments. We were
successful in obtaining a revolving credit facility from Laurus Master Fund, as
described herein; however, there is no assurance that new contracts or
additional debt or equity financing needed to fund operations will be available
or obtained in sufficient amounts necessary to meet our needs. 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
operate.
Cash Position For Year Ended December 31, 2002 -Vs.- Year Ended
-------------------------------------------------------------------------
December 31, 2001
-------------------
Net decrease in cash during the year ending December 31, 2002 was
approximately $184,000, compared to a net decrease of $48,000 for the same
period in 2001. Net cash used in operating activities totaled approximately
$707,000 for the year ending December 31, 2002, a decrease of approximately
$775,000 as compared to approximately $68,000 provided by operating activities
during the same period in 2001. This is attributable primarily to the increased
costs on the CHIPSat project as well as the contract for a proprietary
propulsion research program, both of which, at December 31, 2002, had costs that
exceeded their billings for the ongoing work toward completion of these
programs.
Net cash provided by investing activities totaled approximately $48,000 for
the year ended December 31, 2002, compared to approximately $43,000 of net cash
used in investing activities during the same period in 2001. The increase in
cash used of $91,000 is attributable to a reduction in the purchase of fixed
assets and an advance payment made toward the purchase of our facility in
January 2003. Net cash provided by financing activities totaled approximately
$475,000 for the year ended December 31, 2002, which showed an increase of
$549,000 from the approximately $74,000 used in financing activities during the
same period in 2001. This improvement is primarily attributable to generating
more cash from sales of common stock and issuance of convertible debt in 2002 of
$550,000 versus $120,000 in 2001.
At December 31, 2002, our cash, which includes cash reserves and cash
available for investment, was approximately $27,000 as compared to approximately
$212,000 at December 31, 2001, a decrease of approximately $184,000. At December
31, 2002, our working capital ratio improved to 0.94 compared to 0.34 at
December 31, 2001.
As of December 31, 2002, our backlog of funded and non-funded business was
approximately $4.0 million, as opposed to approximately $3.4 million as of
fiscal year end 2001. During 2002, we won AFRL Phase I, negotiated increases of
approximately $500,000 to the CHIPSat program and began a private commercial
propulsion project.
41
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 approximately $1.4 million 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
decreased approximately $600,000 during 2001, from $2.0 million at December 31,
2001 to $1.4 million at December 31, 2002. Please refer to our consolidated
financial statements, which are a part of this prospectus for further
information regarding our liquidity and capital resources.
Cash Position for Three-Months Ended March 31, 2003 vs. Three-Months Ended
---------------------------------------------------------------------------
March 31, 2002
----------------
Net increase in cash during the three-months ended March 31, 2003 was
approximately $183,000, compared to a net increase of $99,000 for the same
three-months in 2002. Net cash used in operating activities totaled
approximately ($731,000) for the three-months ended March 31, 2003, a decrease
of approximately $837,000 as compared to approximately $106,000 provided by
operating activities during the same three-months in 2002. This is
attributable, in part, to the increased costs on the CHIPSat project as well as
the proprietary propulsion project, both of which, at March 31, 2003, had costs
that exceeded their billings for the ongoing work toward completion of these
programs of approximately $254,000. The increase can also be contributed to
the overall increase in our G&A expenses, the reduction of revenues, and the
increase in accounts payable for the three-months ended March 31, 2003 compared
to those positions during the same period in 2002.
Net cash provided by investing activities totaled approximately $3,147,000
for the three-months ended March 31, 2003, compared to no cash used in or
provided by investing activities during the same period in 2002. The increase
in cash is attributable to the sale of the building on January 31, 2003.
Net cash used in financing activities totaled approximately $2,233,000 for
the three-months ended March 31, 2003, which showed an decrease of $2,226,000
from the approximately $7,000 used in financing activities during the same
three-month period 2002. This is primarily attributable to paying off notes
payable associated with the building sale.
At March 31, 2003, our cash, which includes cash reserves and cash
available for investment, was approximately $211,000 as compared to
approximately $310,000 at March 31, 2002, a decrease of approximately $99,000.
At March 31, 2003, our working capital ratio improved to 0.69 compared to 0.25
at March 31, 2002.
As of March 31, 2003, our backlog of funded and non-funded business was
approximately $3.2 million, as opposed to approximately $2.5 million as of March
31, 2002. During the three-months ended March 31, 2003, we won AFRL Phase II
worth approximately $1.4 million, negotiated increases of approximately $1.0
million to the AFRL Phase II Contract as a deferred option still open, continued
the proprietary propulsion project, and were completing significant milestones
on our CHIPSat and MDA projects.
42
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 approximately $1.1 million, consisted primarily of the
income tax benefits from net operating loss carryforwards, amortization of
goodwill and research and development credit carryforwards. The federal and
state tax loss carry forwards will expire through 2022 unless previously
utilized. The State of California has suspended the utilization of net operating
losses for 2003. 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 decreased approximately $300,000 during
quarter ended March 31, 2003, from $1.4 million at December 31, 2002 to $1.1
million at March 31, 2003. Please refer to our consolidated financial
statements, which are a part of this prospectus for further information
regarding our liquidity and capital resources.
CRITICAL ACCOUNTING STANDARDS
Our 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 (see
Notes to the Consolidated Financial Statements). 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 FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." We adopted SFAS 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 123 has been utilized. See Notes to the
Consolidated Financial Statements. We have valued our 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-five years using the straight-line method of accounting in accordance
with Statement of Financial Accounting Standards No. 144. Goodwill and other
intangible assets were created upon the acquisition of our 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 periodically reviewed for impairment based on an assessment of
future operations to ensure they are appropriately valued in accordance with
43
Statement of Financial Accounting Standards No. 142. Effective November 2001,
there will be no more amortization of goodwill (see Notes to the Consolidated
Financial Statements).
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002 the Financial Accounting Standards Board (FASB) issued
FASB Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN No. 45 elaborates on previously existing disclosure requirements
for most guarantees. It also clarifies that at the time a company issues a
guarantee, the company must recognize an initial liability for the fair value,
or market value, of the obligations it assumes under the guarantee and must
disclose that information in its financial statements. The provisions related to
recognizing a liability at inception of the guarantee for the fair value of the
guarantor's obligations does not apply to product warranties or to guarantees
accounted for as derivatives. FIN No. 45 also requires expanded disclosures
regarding product warranty expense. The initial recognition and initial
measurement provisions apply on a prospective basis to guarantees issued or
modified after December 31, 2002. The adoption of this Statement is not
expected to have a material effect on the consolidated financial statements.
In January 2003 the FASB issued FASB Interpretation (FIN) No. 46,
"Consolidation of Variable Interest Entities, an interpretation of ARB No. 51."
This interpretation provides guidance on: 1) the identification of entities for
which control is achieved through means other than through voting rights, known
as "variable interest entities" (VIEs); and 2) which business enterprise is the
primary beneficiary and when it should consolidate the VIE. This new model for
consolidation applies to entities: 1) where the equity investors (if any) do not
have a controlling financial interest; or 2) whose equity investment at risk is
insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. In addition, this
interpretation requires that both the primary beneficiary and all other
enterprises with a significant variable interest in a VIE make additional
disclosures. This interpretation is effective for all new VIEs created or
acquired after January 31, 2003. For VIEs created or acquired prior to February
1, 2003, the provisions of the interpretation must be applied no later than the
beginning of the first interim or annual reporting period beginning after June
15, 2003. Certain disclosures are effective immediately. The adoption of this
Statement is not expected to have a material effect on the consolidated
financial statements.
In April 2003 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 requires that contracts with comparable
characteristics be accounted for similarly. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of this Statement is
not expected to have a material effect on the consolidated financial statements.
44
In May 2003 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). SFAS No.
150 is effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of nonpublic entities. For nonpublic entities,
mandatorily redeemable financial instruments are subject to the provisions of
SFAS No. 150 for the first fiscal period beginning after December 15, 2003. The
adoption of this Statement is not expected to have a material effect on the
consolidated financial statements.
FORWARD-LOOKING STATEMENTS AND RISK ANALYSIS
During the first half of 2003, we submitted five bids for government
programs, worked with the US Congress to identify directed funding for our
programs and are actively working to win several commercial programs. We
believe that we will win some of these programs, which would enable us to
continue to grow, employ more talented engineers, become profitable in the next
year or two and broaden our business base, although there can be no assurance
that these contracts will be awarded to us, and if awarded to us, would enable
us to become profitable.
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
had about 60% government and government related work. In 2003, we expect the
ratio to be about 80% government or government-related work. Most of the
current government contracts are cost plus agreements. The combination of our
revolving credit facility with Laurus and these cost plus contracts will enable
us to fund the hiring needed to "staff-up" these new projects. 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
focus on military applications for our products and technologies and continue to
see the government sector embrace projects demonstrating the capabilities of our
products. We intend to increase our government and commercial marketing efforts
for both of our product lines. Currently, we are focusing on the domestic U.S.
government (military) market, which we believe is only about one-half of the
global government market for our products and services. Although we are
interested in exploring international revenue and contract opportunities, we are
restricted by export control regulations, e.g., International Traffic in Arms
Regulations ("ITAR"), which may limit our ability to develop market
opportunities outside the United States.
While we do not expect a reduction of government sales, a majority of our
government work is contract and project related. These customers continue to be
the early adopters of our products and technologies and the outcome of the
projects are often our product(s). We are beginning to develop commercial
products; however, the commercial market for our products, particularly for
micro- and nano-satellites and applications of our propulsion technology, may be
several years away. We anticipate winning contracts in both the micro-satellite
45
and propulsion market segments, although there can be no assurance that the
contracts will be awarded to us. If they are not awarded to us, based on
current trends and proposals, we believe that we can offset fluctuations in one
market segment with contracts from the other; however, our inability to win
business in both markets would have a negative effect on our business operations
and financial condition.
We are forecasting a modest decline in sales for 2003, with sales beginning
to grow again in 2004. At this time, about 25% of the forecasted sales for 2004
are under contract or near to contract award, but there is no guarantee that we
will win enough new business to achieve our targeted growth projection or to
achieve a positive cash flow position. We do not believe that significant
capital expenditures will be required to achieve this modest increase in sales.
As it relates to the CHIPSat program, we will receive total fixed
compensation on the CHIPSat project in an amount of approximately $7.4 million,
of which about $3.1 million was generated in 2001, and $1.2 million was
generated in 2002. The contract calls for payments of approximately $450,000 in
2003. As outlined above, we reviewed the contract again in late 2002 and the
total loss was reduced from $463,000 to approximately $432,000. As the project
is completed, the loss is reduced as costs become realized. At this time, we do
not expect any additional losses from or increases to the contract. The launch
of CHIPSat occurred in January 2003.
We expect payments of about $240,000 in 2003 from a private commercial
propulsion contract. This effort could lead to follow-on contracts from the
same customer later this year, but at this time we cannot assess the probability
of winning the contract or the value of the contract.
Our broad, overall, higher growth business strategy, requires significant
development and capital expenditures. We will incur a substantial portion of
these expenditures before we generate 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 the first part of 2003 and expect to begin generating net
positive cash flow from operations sufficient to fund both operations and
capital expenditures toward the end of 2003. There is no assurance, however,
that we will achieve or sustain any positive cash flow or profitability
thereafter.
During the years ended December 31, 2002 and 2001, we raised approximately
$145,000 through private sales of stock and approximately $475,000 from our
convertible debt offering. To execute our strategy of small, capable, low-cost
micro- and nano-satellites, hybrid propulsion products and new commercial
revenue sources, we require significant funding and/or the win of both
significant government and commercial programs. We believe investor or customer
funding of $1 to $5 million will be required, which could come from a
combination of private and/or public equity placements or government and
commercial customers. At this time, we do not have any ongoing private or public
equity offerings.
We need to raise additional capital. The amount of capital we need to
raise is dependent upon many factors. For example, the need for additional
46
capital will be greater if (i) we do not enter into agreements with other
customers on the terms we anticipate; (ii) our net operating deficit increases
because we incur significant unanticipated expenses; or (iii) we incur
additional costs from modifying our micro-satellite products or our 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. If additional capital is not raised, it could have a significant
negative effect on our business operations and financial condition, possibly
causing us to take immediate cost reduction or other actions.
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 we will be profitable, or that any additional
public offering will occur, that we will be successful in obtaining additional
funds from any source or be successful in implementing an acceptable exit
strategy on behalf of our investors. Moreover, additional funds, if obtainable
at all, may not be available on terms acceptable to us when such funds are
needed or may be on terms which are significantly adverse to our current
shareholders. The unavailability of funds when needed would have a material
adverse effect on us.
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 us to offer solutions to the government that may address some of the
problems that the country faces at this time.
DESCRIPTION OF PROPERTY
Subsequent to year-end, we entered into a 25,000 square foot lease for our
facility in Poway, California that includes a small Spacecraft Assembly and Test
facility ("SAT") with an 1,800 square foot Class 100,000 clean room, avionics
development lab, machine shop, mechanical assembly lab, and mission operations
center. Key uses of the Poway facility are program and project conferences and
meetings, engineering design, engineering analysis, spacecraft assembly,
avionics labs and software labs and media outreach. We also have a Mission
Control Center in the Poway building, which is currently being used to monitor
the CHIPSat mission. Our facility allows for efficient design, assembly and test
of our products, thereby providing us a cost effective means to produce quality,
low cost products.
47
We purchased our headquarter facility, which houses our engineering,
manufacturing and administration, in the Poway Industrial Park complex in
December 1998. We subsequently sold our facility on January 31, 2003, wherein we
entered into a ten (10) year leaseback of the facility. [See Notes to our
audited condensed consolidated financial statements for the fiscal year ended
December 31, 2002 for additional information.] The selling price of the facility
was $3.2 million. The total debt repayment from the transaction was
approximately $2,407,000. The approximate net proceeds to us for working capital
purposes was $636,000. Mr. Benson provided a guarantee for the leaseback.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
James W. Benson, our Chief Executive Officer and Chairman of the Board of
Directors, and Susan Benson, our former Corporate Secretary, are husband and
wife. Mr. Benson has personally guaranteed the building lease on our facility.
One of our independent directors, Robert S. Walker, is a principal of
Wexler & Walker Public Policy Associates, a Washington-based, full-service
government relations firm founded in 1981. Wexler & Walker principals have
served in Congress, in the White House and federal agencies, as congressional
staff, in state and local governments and in political campaigns. Wexler &
Walker is a leader on the technology issues of the twenty-first century. During
2002 and 2001, we incurred consulting fees with Hill and Knowlton, Inc., an
affiliate of Wexler & Walker, in an aggregate amount of approximately $56,000
and $36,000.
In September and October 2002, certain of our officers provided personal
interest-free short-term loans to support our working capital needs. The officer
loans were paid with the proceeds from imminently pending contract payments and
the proceeds of the convertible note program sales.
From October 14, 2002 through November 14, 2002, we sold an aggregate of
$475,000 of 2.03% convertible debentures to three of our directors and officers.
Mr. Benson purchased $375,000 of Series A Subordinated Convertible Notes and Mr.
Shaffer purchased $50,000. The total funding was completed on November 14, 2002.
The convertible debentures entitle the holder to convert the principal and
unpaid accrued interest into our common stock when the note matures. The notes
originally were set to mature six (6) months from issue date and were
subsequently extended to twelve (12) months from issue date on March 19, 2003,
unless paid, extended or re-negotiated, the convertible debentures are
exercisable into a number of our common shares at a conversion price that equals
the 20-day average asking price less 10%, which was established when the note
was issued, or the initial conversion price. Concurrent with the issuance of the
convertible debentures, we issued to the subscribers, warrants to purchase up to
1,229,705 shares of our common stock. These warrants are exercisable for three
(3) years from the date of issuance at the initial exercise price, which equals
to the 20-day average asking price less 10% which was established when the note
was issued, or the initial conversion price. Upon issuance, the warrants were
valued using the Black-Scholes pricing model based on the expected fair value at
issuance and the estimated fair value was recorded as debt discount. See Note
8(c) to our Consolidated Financial Statements for discussion of the terms of the
48
warrants. The debt discount is being amortized as additional interest expense
over the term of the convertible debentures. (See "Management's Discussion And
Analysis Of Financial Condition And Results Of Operations.")
MARKET FOR COMMON EQUITY & RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock has been traded on the Over-the-Counter Bulletin Board
("OTCBB") since October 1997 under the symbol "SPDV." The following table sets
forth the trading history of our common stock on the OTCBB for each quarter as
reported by Dow Jones Interactive. The quotations reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not represent actual
transactions.
Quarter Ending Quarterly High Quarterly Low
-------------- -------------- -------------
3/31/2001 1.03 0.63
6/30/2001 0.97 0.45
9/30/2001 1.01 0.69
12/31/2001 0.86 0.35
3/31/2002 0.65 0.48
6/30/2002 0.64 0.43
9/30/2002 0.52 0.3
12/31/2002 0.5 0.29
3/31/2003 0.55 0.36
6/30/2003 0.75 0.33
7/17/2003 * 0.85 0.55
*Reflects partial period.
HOLDERS
As of June 30, 2003, there were approximately 200 holders of record of our
common stock. We estimate the total number of beneficial owners of our common
stock to be in excess of 2,500 holders. We believe that the number of beneficial
49
owners is substantially greater than the number of record holders because a
significant portion of our outstanding common stock is held in broker "street
names" for the benefit of individual investors.
DIVIDENDS
We have never paid a cash dividend on our Common Stock. Payment of
dividends is at the discretion of the Board of Directors. The Board of Directors
plans to retain earnings, if any, for operations and does not intend to pay
dividends in the foreseeable future.
50
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS & CONTROL PERSONS
Our management and directors' business activities are under the control of
our Board of Directors. Our Chief Executive Officer, James W. Benson, and our
Chief Financial Officer, Richard B. Slansky, manage our daily operations. Our
Board currently consists of eight directors. General Howell M. Estes, III (USAF
Retired), and Retired Congressman Robert S. Walker were added to the Board of
Directors in 2001. Stuart Schaffer and Scott McClendon were added to the Board
of Directors in 2002. J. Mark Grosvenor joined our Board of Directors in 2003.
Below are our executive officers and directors.
NAME POSITION HELD
---- --------------
James W. Benson Chief Executive Officer,
13855 Stowe Drive Director, Chairman of the Board
Poway, California 92064
Richard B. Slansky Corporate Secretary, Chief
13855 Stowe Drive Financial Officer
Poway, CA 92064
Stuart Schaffer Director
13855 Stowe Drive Vice President, Product
Poway, California 92064 Development & Marketing
J. Mark Grosvenor* Director
13855 Stowe Drive
Poway, CA 92064
Wesley T. Huntress* Director
13855 Stowe Drive
Poway, California 92064
Curt Dean Blake* Director
13855 Stowe Drive
Poway, California 92064
General Howell M. Estes, III (USAF Retired)* Director
13855 Stowe Drive
Poway, California 92064
Robert S. Walker* Director
13855 Stowe Drive
Poway, California 92064
Scott McClendon * Director
13855 Stowe Drive
Poway, California 92064
* Denotes Independent Director
51
The following is a summary of the business experience of our officers and
directors as well as other key employees.
James W. Benson (58) - Chief Executive Officer and Chairman of the Board of
Directors
Mr. Benson is our founder, Chairman and Chief Executive Officer. Mr. Benson
served as our President until he resigned from that position on February 4,
2000. Mr. Benson is also our Chairman of the Board, a position he has held
since October 1997. In 1984, Mr. Benson founded Compusearch Software Systems in
McLean, Virginia, a company based on use of personal computers to create full
text indexes of massive government procurement regulations and to provide fast
full text searches for any word or phrase; the first instance of large scale,
commercial implementation of PC-based full text searching. Mr. Benson sold
Compusearch and started SpaceDev LLC, which was acquired by us in October 1997.
Mr. Benson holds a Bachelor of Science degree in Geology from the University of
Missouri. He founded the non-profit Space Development Institute and introduced
the $5,000 Benson Prize for Amateur Discovery of Near Earth Objects. He is also
Vice-Chairman and private sector representative on NASA's national Space Grant
Review Panel and a member of the American Society of Civil Engineers
subcommittee on Near Earth Object Impact Prevention and Mitigation.
Stuart E. Schaffer (44) - Vice President of Product Development and Marketing
Mr. Schaffer has served as our Vice President of Product Development and
Marketing since May 20, 2002 and will be resigning as an officer on August 8,
2003. Mr. Schaffer will remain on our Board. From 1998 to 2001, Mr. Schaffer
acted as Vice President of Marketing for Infocus Corporation, a fully reporting
company, where he managed all aspects of the marketing mix for market-share
leading digital projection business throughout the Americas region. In that
position, Mr. Schaffer revitalized the Proxima brand, managed a multi-million
dollar annual advertising, communications and program budget, directed multiple
outside and in-house agencies, led product marketing teams in defining and
delivering both mobile and conference room digital projector product lines,
developed channel strategies and programs for both value-added and volume
channels, served as primary press spokesperson for the company, established a
market intelligence structure focused on developing customer and industry
knowledge and spearheaded merger teams to ensure the smooth transition of the
merger between the Infocus and Proxima marketing organizations. Prior to his
employment by Infocus Corporation, Mr. Schaffer worked for the Hewlett-Packard
Company from 1985 to 1998, where he held various positions in Business
Development, Marketing and Business Planning. Mr. Schaffer worked with the
Leukemia & Lymphoma Society, on a volunteer basis, as an Assistant Coach and
Mentor from 2000 through the date of employment with us. In that capacity, he
was responsible for ensuring that participants in the Society's Team-in-Training
Program reached their goal to run a marathon, while mentoring them in
fundraising for research and aid for patients suffering from Leukemia and other
blood-related cancers. Mr. Schaffer has an MBA from Harvard University (1985)
and a BS degree in physics from Harvey Mudd College (1981).
52
Richard B. Slansky (46) - Chief Financial Officer
Mr. Slansky is the Chief Financial Officer and Corporate Secretary and
joined us on February 10, 2003. Mr. Slansky served as interim Chief Executive
Officer and Chief Financial Officer of Quick Strike Resources, Inc., an IT
training, services and consulting firm, from July 2002 to February 2003.
Previously, Mr. Slansky served as Chief Financial Officer, Vice President of
Finance, Administration and Operations and Corporate Secretary for Path 1
Network Technologies, Inc., a company focused on merging broadcast and cable
quality video transport with IP networks from May 2000 to July 2002. Before his
tenure at Path 1, Mr. Slansky served as President, Chief Financial Officer and
member of the Board of Directors of Nautronix, Inc., a marine
electronics/engineering services company, from January 1999 to May 2000. Prior
to Nautronix, Mr. Slansky served as Chief Financial Officer of Alexis
Corporation, an international pharmaceutical research products technology
company, from August 1995 to January 1999. He also served as President and Chief
Financial Officer of C-N Biosciences, formerly Calbiochem, from July 1989 to
July 1995. Mr. Slansky is currently serving on the Board of Directors of two
privately held high technology companies and one closely held, private real
estate company. Mr. Slansky earned a bachelor's degree in economics and science
from the University of Pennsylvania's Wharton School of Business and a master's
degree in business administration in finance and accounting from the University
of Arizona.
Scott McClendon (64) - Director
Scott McClendon was appointed to the Board of Directors as an independent
director on July 19, 2002. McClendon currently sits on the Board of Directors
for Overland Storage, Inc., where he acts as chairman of the Board. He became
the chairman after serving as President and Chief Executive Officer from October
1991 to March 2001. Prior to joining Overland Storage, Inc., Mr. McClendon was
employed by Hewlett-Packard Company for over 32 years in various positions of
engineering, manufacturing, sales and marketing. Mr. McClendon received a
Bachelor of Science degree in electrical engineering in June 1960, and a Master
of Science degree in electrical engineering in June 1962 from Stanford
University School of Engineering.
J. Mark Grosvenor (55) - Director
J. Mark Grosvenor was appointed to the Board of Directors as an independent
director at our Board Meeting on March 19, 2003. Mr. Grosvenor is currently
Chief Executive Officer of Grosvenor Industries, originally established in San
Diego in 1979. Grosvenor Industries was involved in the purchase and sale of
the historic El Cortez Hotel in addition to owning three other city blocks of
property in downtown San Diego. Grosvenor Industries also owns and operates
Grosvenor Square Shopping Center. Since 1979, Mr. Grosvenor has built three
hotels and has founded or become involved with many other national businesses.
In 1984, he started Medallion Foods, Inc. in Newport, Arkansas, a snack food
manufacturing company supplying Wal-Mart, Sam's Club and Costco as well as other
companies. In 1989, Grosvenor formed GHG Hospitality, Inc., which owns and
operates eleven hospitality projects including motels, hotels, resorts, and
marinas across the United States. Prior to founding Grosvenor Industries and
its combination of businesses, Grosvenor worked for more than three years as a
stockbroker and financial planner. In 1973 he founded Jaymark Financial, a real
53
estate company with offices in San Diego, Tokyo and Osaka, Japan. Mr. Grosvenor
graduated from San Diego State University with a bachelor's degree in business
and finance. Mr. Grosvenor has been very active in the community as a member of
San Diego Sheriff's Association Honorary Deputy, Young Presidents Organization:
California and Colorado Chapters, the President's Council at San Diego State
University, the Lincoln Club, the San Diego Rotary, the University Club and the
San Diego Yacht Club. He serves as a Director of the Grosvenor Foundation, a
private family foundation which funds other charities.
Wesley T. Huntress (61) - Director
Wesley T. Huntress was elected to our Board of Directors as an independent
director at our annual shareholder meeting held June 30, 1999. Dr. Huntress is
currently Director of the Geophysical Laboratory at the Carnegie Institution of
Washington in Washington, DC, where he leads an interdisciplinary group of
scientists in the fields of high-pressure science, astrobiology, petrology and
biogeochemistry. Prior to his appointment at Carnegie, Dr. Huntress served the
Nation's space program as the Associate Administrator for Space Science at NASA
from October 1993 through September 1998 where he was responsible for NASA's
programs in astrophysics, planetary exploration, and space physics. During his
tenure, NASA space science produced numerous major discoveries, and greatly
increased the launch rate of missions. These discoveries include the discovery
of possible ancient microbial life in a Mars meteorite; a possible subsurface
ocean on Jupiter's moon Europa; the finding that gamma ray bursts originate at
vast distances from the Milky Way and are extraordinarily powerful; discovery of
massive rivers of plasma inside the Sun; and a wealth of announcements and
images from the Hubble Space Telescope, which have revolutionized astronomy as
well as increased public interest in the cosmos. Dr. Huntress also served as a
Director of NASA's Solar System Exploration Division from 1990 to 1993, and as
special assistant to NASA's Director of the Earth Science and Applications from
1988 to 1990. Dr. Huntress came to NASA Headquarters from Caltech's Jet
Propulsion Laboratory ("JPL"). Dr. Huntress joined JPL as a National Research
Council resident associate after receiving is B.S. in Chemistry from Brown
University in 1964 and his Ph.D. in Chemical Physics from Stanford in 1968. He
became a permanent research scientist at JPL in 1969. He and his JPL team
gained an international reputation for their pioneering studies of chemical
evolution in interstellar clouds, comets and planetary atmospheres. At JPL Dr.
Huntress served as co-investigator for the ion mass spectrometer experiment in
the Giotto Halley's Comet mission, and as an interdisciplinary scientist for the
Upper Atmosphere Research Satellite and Cassini missions. He also assumed a
number of line and research program management assignments while at JPL, and
spent a year as a visiting professor in the Department of Planetary Science and
Geophysics at Caltech.
Curt Dean Blake (45) - Director
Curt Dean Blake was appointed to the Board of Directors as an independent
director on September 5, 2000. Mr. Blake acted as the Chief Operating Officer of
the Starwave Corporation from 1993 until 1999, where he managed business
development, finance, legal and business affairs, and operations for the world's
most successful collection of content sites on the Internet. During that time,
he developed business strategies, financial models, and structured and
negotiated venture agreements for Starwave's flagship site, ESPN Sportszone, at
54
that time the highest traffic destination site on the Internet. He also
developed and negotiated venture agreements with the NBA, NFL, Outside Magazine
and NASCAR to create sites around these brands. Mr. Blake negotiated sale of
controlling interest in Starwave Corporation to Disney/ABC. Prior to Starwave,
Mr. Blake worked at Corbis from 1992 to 1993, where he led the acquisitions and
licensing effort to fulfill Bill Gates' vision of creating the largest taxonomic
database of digital images in the world. Mr. Blake acted as General Counsel to
Aldus Corporation from 1989 to 1992, where he was responsible for all legal
matters of the $125 million public corporation and its subsidiaries. Prior to
that, Mr. Blake was an attorney at Shidler, McBroom, Gates and Lucas, during
which time he was assigned as onsite counsel to the Microsoft Corporation, where
he was primarily responsible for the domestic OEM/Product Support and Systems
Software divisions. Mr. Blake has an MBA and JD from the University of
Washington.
General Howell M. Estes, III (USAF Retired) (61) - Director
General Howell M. Estes, III (USAF Retired), was appointed to the Board of
Directors as an independent director on April 2, 2001. General Estes retired
from the United States Air Force in 1998 after serving for 33 years. At that
time he was the Commander-in-Chief of the North American Aerospace Defense
Command ("CINCNORAD") and the United States Space Command ("CINCSPACE"), and the
Commander of the Air Force Space Command ("COMAFSPC") headquartered at Peterson
AFB, Colorado. In addition to a Bachelor of Science Degree from the Air Force
Academy, he holds a Master of Arts Degree in Public Administration from Auburn
University and is a graduate of the Program for Senior Managers in Government at
Harvard's JFK School of Government. Gen. Howell Estes is the President of Howell
Estes & Associates, Inc., a wholly owned consulting firm to CEOs, Presidents and
General Managers of aerospace and telecommunications companies worldwide. He
serves as Vice Chairman of the Board of Trustees at The Aerospace Corporation.
He served as a consultant to the Defense Science Board Task Force on SPACE
SUPERIORITY and more recently as a commissioner on the U.S. Congressional
Commission to Assess United States National Security Space Management and
Organization (the "Rumsfeld Commission").
Robert S. Walker (60) - Director
Robert S. Walker was appointed to the Board of Directors as an independent
director on April 2, 2001. Mr. Walker has acted as Chairman of Wexler & Walker
Public Policy Associates in Washington, D.C. since January 1997. As a former
Congressman (1977-1997), Chairman of the House Science Committee, Vice Chairman
of the Budget Committee, and a long-time member of the House Republican
leadership, Walker became a leader in advancing the nation's space program,
especially the arena of commercial space, for which he was the first sitting
House Member to be awarded NASA's highest honor, the Distinguished Service
Medal. Bob Walker is a frequent speaker at conferences and forums. His main
issues include the breadth and scope of space regulation today, and how
deregulation could unleash the telecommunications, space tourism, broadcast and
Internet industries. Mr. Walker currently sits on the board of directors of
Aerospace Corporation, a position he has held since March 1997. Wexler & Walker
is a Washington-based, full-service government relations firm founded in 1981.
Wexler & Walker principals have served in Congress, in the White House and
55
federal agencies, as congressional staff, in state and local governments and in
political campaigns. Wexler & Walker is a leader on the technology issues of the
twenty-first century. During 2002 and 2001, we incurred consulting fees with
Hill and Knowlton, Inc., an affiliate of Wexler & Walker, in an aggregate amount
of approximately $56,000 and $36,000, respectively.
SIGNIFICANT EMPLOYEES
----------------------
Jeff Janicik, Age 35, is our director of engineering and flight systems and
was primarily responsible for managing the success of the CHIPSat project. He is
responsible for managing the engineering effort at SpaceDev and also oversees
all flight system / component marketing and research activity. Mr. Janicik has
over 13 years experience in program management, engineering and instruction in
aerospace. Before coming to us in January 2000, Mr. Janicik spent ten years as a
project manager, engineer and instructor in the field of aerospace working for
the United States Air Force in designing low-cost, streamlined approaches for
the X-40A and X-37 program at Air Force SMC/TE, and set the precedent for future
space vehicle demos with extensive research of safety, technical and operational
issues. Mr. Janicik has an Aerospace Engineering degree from the University of
Notre Dame and a Master's Degree in Mechanical Engineering from the University
of California, Davis, which he received while serving as an active duty officer
in the United States Air Force.
56
EXECUTIVE COMPENSATION
REMUNERATION PAID TO EXECUTIVES
The following table sets forth the remuneration to our executive officers
for the past three fiscal years:
SUMMARY COMPENSATION TABLE
Long Term Compensation
-----------------------
Annual Compensation Awards Payouts
-------------------- ----------------------- --------
Other All
Annual Restricted Securities Other
Name and Compen- Stock Underlying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
------------ ---- -------------------- ------ -------- ----------------------- ----------- -------- --------
James W. 2000 42,946 -- -- -- 2,500,000 (1) -- --
Benson, CEO 2001 147,923 -- -- -- 10,000 (1) -- --
(2) 2002 141,325 -- -- -- -- -- --
Charles H. 2000 77,770 -- -- -- 750,000 (2) -- --
Lloyd, COO 2001 200,000 -- -- -- 10,000 (2) -- --
&CFO 2002 118,565 -- -- -- -- -- --
------------ ---- -------------------- ------ -------- ----------------------- ----------- -------- --------
(1) Mr. Benson was awarded 2,500,000 options in 1997 and those options were
modified in 2000. Messrs. Benson and Lloyd were awarded 10,000 options each as a
part of an annual award of options to our employees. Mr. Lloyd resigned in June
2002. As outlined in his employment agreement, Mr. Benson may be awarded an
additional 1,500,000 options upon the occurrence of certain events.
(2) 200,000 of these options were performance-based options, which terminated on
December 31, 2000. Mr. Lloyd was awarded 10,000 options as a part of an annual
award of options to our employees.
During the last fiscal year and as of December 31, 2002, we did not grant
stock options to our executive officers listed in the above compensation table.
Executive officers were granted stock options in 2003.
The following table is intended to provide information as to the number of
stock options exercised by each of the executive officers listed above, the
value realized upon exercise of such options, and the number and value of any
unexercised options still held by such individuals.
57
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at FY-
FY-End (#) End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable(1)
James W. Benson 0 0 503,333/ 0/0
2,006,667
Charles H. Lloyd(2) 0 0 697,963/ 0/0
0
(1) For purposes of determining whether options are "in-the-money," we
defined fair market value as the five-day weighted average of the closing price
of our common stock on the Over-The-Counter Bulletin Board as of March 7, 2003,
or $0.46 per share. None of the options listed on the table are "in-the-money."
(2) Mr. Lloyd resigned in June 2002; however, his options will remain
exercisable until the five-year anniversary of the grant date of each option, as
specified in a separation agreement with him dated May 31, 2002.
REMUNERATION PAID TO DIRECTORS
At our annual meeting on July 16, 2000, our Board of Directors adopted a
compensation plan for independent directors whereby they will receive options
for attending meetings of the Board as follows: each such director shall receive
an option to purchase 5,000 shares for each of two telephonic meetings attended
per year, and an option to purchase 10,000 shares for each of two meetings
attended in person per year. These directors will not receive additional
compensation for attending meetings in excess of those described above. In
addition to the above, independent directors will receive $5,000 in options on
the date of election or appointment. All such options will be issued pursuant to
the Plan at fair market value as of the date of the meeting attended, will vest
50% on the first anniversary date of the date of grant and 50% on the second
anniversary date of the date of grant and will expire on the five-year
anniversary of the grant date. We do not compensate any of our directors for
their services as members of the Board through non-standard arrangements.
58
The following table sets forth the remuneration paid to our directors
during our fiscal year ended December 31, 2002.
Cash Compensation Security Grants
Name Annual Meeting Fees Consulting Number of Shares
Retainer Fees / Other Fees
Fees
James W. Benson --- --- --- ---
Charles H. Lloyd --- --- --- ---
Stuart Schaffer --- --- --- ---
Wesley T. Huntress --- --- --- 30,000
Curt Dean Blake --- --- --- 30,000
General Howell M. --- --- --- 30,000
Estes, III
Robert S. Walker --- --- --- 25,000
Scott McClendon (1) --- --- --- 15,460(1)
(1) Pursuant to our policy regarding compensation of independent directors,
we issued Mr. McClendon options to purchase a total of $5,000 in common shares,
or 10,460 shares at a per share price of $0.478, upon acceptance of his position
as one of our directors. The exercise price of the shares represents the fair
market value on July 19, 2002, the date of issuance. The options vest at a rate
of 50% on July 19, 2003 and the remaining 50% on July 19, 2004. Mr. McClendon
also received options to purchase 5,000 shares on October 31, 2002 for
attendance at a telephonic meeting of the Board of Directors. These options vest
as follows: 50% on the one-year anniversary of the grant date and 50% on the
two-year anniversary of the grant date.
EMPLOYMENT AGREEMENTS
On November 21, 1997, we entered into a five-year employment agreement with
our CEO, Mr. Benson. This agreement provides for compensation of salary and
stock as well as stock options. This agreement also prohibits Mr. Benson from
competing with us, disclosing any confidential information, or soliciting any of
our employees or customers for one year after termination of employment. Our
Board of Directors amended the employment contract for Mr. Benson at its meeting
on July 16, 2000. The amended agreement provides for the grant of additional
options to purchase up to 4,000,000 shares of our common stock upon the
occurrence of certain events. Mr. Benson was awarded 2,500,000 options in 1997
and those options were modified in 2000. As outlined in his employment
agreement, Mr. Benson may be awarded an additional 1,500,000 options upon the
occurrence of certain events, such options would be immediately exercisable upon
grant.
On May 17, 2002, we entered into an "at-will" employment agreement with Mr.
Schaffer. The agreement provided for Mr. Schaffer's compensation of salary,
benefits and options to purchase up to 450,000 shares of our common stock. The
agreement also provided for severance under certain termination provisions. Due
to a shift in our short-term focus toward projects rather than products, Mr.
Schaffer signed a Separation Agreement and General Release on July 2, 2003. Mr.
59
Schaffer will receive salary and benefits until August 8, 2003 and will remain
on our Board of Directors without further board compensation for a one-year
period. Mr. Schaffer will retain certain exercise rights on his vested options
of 90,000 shares until the earlier of (i) eighteen (18) months from his
resignation as a member of our Board of Directors or other subsequent consulting
relationship with us, or (ii) July 19, 2008.
On May 31, 2002, we entered into a Confidential Separation Agreement and
General Release of Claims with Mr. Lloyd, our former Chief Operating Officer and
Chief Financial Officer. The agreement provided for the resignation of Mr. Lloyd
as an officer and director of SpaceDev, Inc. and Integrated Space Systems, Inc.,
effective June 14, 2002. In exchange for a release of claims and other promises
set forth in the agreement, Mr. Lloyd received $36,000 and an extension of the
exercise period of each of his non-statutory stock options for a five-year
period from the original date of grant. Until May 31, 2003, the agreement also
prohibits Mr. Lloyd from soliciting our employees, inducing any customer away
from us or representing himself on our behalf.
On February 14, 2003, we entered into an "at-will" employment agreement
with Mr. Slansky. The agreement provided for Mr. Slansky's compensation of
salary, benefits and options to purchase up to 375,000 shares of our common
stock. The agreement also provided for severance under certain termination
provisions.
EMPLOYEE BENEFITS
At our 1999 Annual Stockholder Meeting, the shareholders adopted an
Incentive Employee Stock Option Plan under which our Board of Directors may
grant our employees, directors and affiliates Incentive Stock Options,
Supplemental Stock Options and other forms of stock-based compensation,
including bonuses or stock purchase rights. Incentive Stock Options, which
provide for preferential tax treatment, are only available to employees,
including officers, and affiliates, and may not be issued to non-employee
directors. The exercise price of the Incentive Stock Options must be 100% of the
fair market value of the stock on the date the option is granted. Pursuant to
our plan, the exercise price for the Supplemental Stock Options will not be less
than 85% of the fair market value of the stock on the date the option is
granted. We are required to reserve an amount of common shares equal to the
number of shares, which may be purchased as a result of awards made under the
Plan.
At the 2000 Annual Stockholder Meeting, the shareholders approved an
amendment to the Stock Option Plan of 1999, increasing the number of shares
eligible for issuance under the Plan to 30% of the then outstanding common stock
and allowing the Board of Directors to make annual adjustments to the Plan to
maintain a 30% ratio to outstanding common stock at each annual meeting of the
Board of Directors. The Board, at its annual meetings in 2001 and 2002, made no
adjustment, as a determination was made that the number of shares then available
under the Plan was sufficient to meet our needs. As of December 31, 2002,
4,184,698 shares were authorized for issuance under the Plan, 3,398,772 of which
are currently subject to outstanding options and awards. The Stock Option Plan
of 1999 was registered with the U.S. Securities & Exchange Commission on Form
S-8.
60
During the fourth quarter of fiscal year 2002, we issued non-statutory
options to purchase 30,000 shares to our independent directors for attendance at
our October 18, 2002 Board of Directors meeting. In addition to the Stock Option
Plan of 1999, our shareholders adopted the 1999 Employee Stock Purchase Plan,
which authorized our Board of Directors to make twelve consecutive offerings of
our common stock to our employees. The 1999 Employee Stock Purchase Plan has
been instituted. To date, no employees have purchased any shares of common stock
under the Plan. We also offer a variety of health, dental, vision, 401(k) and
life insurance benefits to our employees in conjunction with our co-employment
partner, Administaff.
EQUITY COMPENSATION PLAN INFORMATION
(a) (b) (c)
Plan category Number of Weighted-average Number of
securities to be exercise price of securities
issued upon outstanding remaining
exercise of options, warrants available for
outstanding and rights future issuance
options, warrants under equity
and rights compensation plans
(excluding
securities
reflected in
column (a))
Equity
compensationn plans
approved by
security holders 2,938,772 $ 0.86 1,245,926
Equity
compensation plans
not approved by
security holders 2,500,000 $ 10.50 0
Total 5,438,772 $ 5.29 1,245,926
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as July 17, 2003 concerning the
beneficial ownership of our common stock by (i) each director, (ii) each named
executive officer, (iii) each shareholder known by us to be the beneficial owner
of more than 5% of our outstanding Common Stock, and (iv) our directors and
officers as a group. Except as otherwise indicated, the persons named in the
table have sole voting and investing power with respect to all shares of Common
Stock owned by them.
Title of Class Name and Address of Beneficial Amount and Nature Percent of
Owner of Beneficial Ownership (1) Class
..0001 par value James W. Benson, CEO & 12,081,670 (2) 58.7%
common stock Chairman
13855 Stowe Drive
Poway, California 92064
..0001 par value J. Mark Grosvenor, Director 1,330,396 (3) 6.5%
common stock 13855 Stowe Drive
Poway, California 92064
..0001 par value Curt Dean Blake, Director 110,930 (4) 0.5%
common stock 13855 Stowe Drive
Poway, California 92064
..0001 par value Wesley T. Huntress Jr., Director 60,515 (5) 0.3%
common stock 13855 Stowe Drive
Poway, California 92064
..0001 par value General Howell M. Estes, III, 36,667 (6) 0.2%
common stock Director
13855 Stowe Drive
Poway, California 92064
..0001 par value Robert S. Walker, Director 34,167 (7) 0.2%
common stock 13855 Stowe Drive
Poway, California 92064
..0001 par value Stuart Schaffer, Director & Vice 346,410 (8) 1.7%
common stock President, Product Development
& Marketing
13855 Stowe Drive
Poway, California 92064
..0001 par value Scott McClendon, Director 5,230 (9) <0.1 %
common stock 13855 Stowe Drive
Poway, California 92064
..0001 par value Officers and Directors as a Group 14,050,965 (10) 68.3%
common stock (9 persons)
62
(1) Where persons listed on this table have the right to obtain additional
shares of our common stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days from July
17, 2003, these additional shares are deemed to be beneficially owned for the
purpose of computing the amount and percentage of common stock owned by such
persons. Percentages are based on total outstanding shares on July 17, 2003
plus options and warrants that will become exercisable within 60 days of July
17, 2003, for a total of 20,569,098 shares.
(2) Represents 236,000 shares held directly by Mr. Benson and his wife,
Susan Benson; 8,895,000 shares held by SD Holdings, LLC, an entity controlled by
James W. Benson; and 497,413 shares recently transferred from SD Holdings, LLC
to Space Development Institute, a 501(c)(3) corporation, plus 506,667 options
and 973,295 warrants plus 973,295 equivalents from a convertible debt instrument
currently outstanding beneficially owned at May 7, 2003. In addition, Mr.
Benson has unvested options on 2,003,333 shares.
(3) Mr. Grosvenor owns 665,188 shares of our common stock plus 665,188
vested warrants that he purchased in our private placement. In addition, Mr.
Grosvenor has unvested options on 19,615 shares.
(4) Mr. Blake owns 30,612 shares of our common stock plus 30,612 vested
warrants that he purchased in our private placement. Mr. Blake also owns 49,706
vested options, which he received as compensation for his participation on our
Board of Directors. In addition, Mr. Blake has unvested options on 30,000
shares.
(5) Mr. Huntress owns 8,868 shares of our common stock. Mr. Huntress also
owns 51,647 vested options, which he received as compensation for his
participation on our Board of Directors. In addition, Mr. Huntress has unvested
options on 35,000 shares.
(6) General Estes III owns 36,667 vested options, which he received as
compensation for his participation on our Board of Directors. In addition,
General Estes III has unvested options on 35,000 shares.
(7) Mr. Walker owns 34,167 vested options, which he received as compensation
for his participation on our Board of Directors. In addition, Mr. Walker has
unvested options on 32,500 shares.
(8) Mr. Schaffer owns 128,205 warrants plus 128,205 share equivalents from a
convertible debt instrument currently outstanding. Mr. Schaffer also owns
90,000 vested options, which he received as part of his compensation package as
Vice President of Product Development and Marketing, which he will retain and be
able to exercise until the earlier of (i) eighteen (18) months from his
resignation as a member of our Board of Directors or other subsequent consulting
relationship with us, or (ii) July 19, 2008, Mr. Schaffer will forfeit his
remaining options as part of his Separation Agreement and General Release and
will forgo further board compensation for a one-year period.
(9) Mr. McClendon owns 5,230 vested options, which he received as
compensation for his participation on our Board of Directors. In addition, Mr.
McClendon has unvested options on 25,230 shares.
(10) Officers and directors as a group include our eight Board members, two
of whom are also officers, plus Mr. Slansky, who beneficially owns 45,000
shares. In addition, Mr. Slansky has unvested options on 330,000 shares, which
are not included in the calculation.
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue up to 50,000,000 shares of our $.0001 par
value common stock, of which 15,338,907 shares are issued and outstanding as of
July 17, 2003. The Board of Directors may issue additional shares of Common
Stock without the consent of the holders of Common Stock.
63
Voting Rights
--------------
Each outstanding share of Common Stock is entitled to one vote. The
holders of Common Stock do not have cumulative voting rights, which means that
the holders of more than 50% of such outstanding shares voting for the election
of directors can elect all of our directors, if they so choose.
No Preemptive Rights
----------------------
Holders of Common Stock are not entitled to any preemptive rights.
Dividends and Distributions
-----------------------------
Holders of Common Stock are entitled to receive such dividends as may be
declared by the directors out of funds legally available therefore and to share
pro rata in any distributions to holders of Common Stock upon liquidation or
otherwise. However, we have not paid cash dividends on our Common Stock, and do
not expect to pay such dividends in the foreseeable future.
WARRANTS
The Warrants, excluding the Laurus Warrant, are exercisable immediately
upon issuance for the purchase of one additional share of Common Stock at an
exercise price equal to the price paid for the Common Stock, and expire on the
third anniversary date of the date of issuance.
TRANSFER AGENT AND REGISTRAR
We use Corporate Stock Transfer, 3200 Cherry Creek Drive South, Suite 430,
Denver, Colorado 80209, as our transfer agent for our Common Stock. Corporate
Stock Transfer can be contacted via telephone at (303) 282-4800. To exercise
64
your Warrants, you must submit a notice of exercise to us, and we will have the
underlying Common Stock issued to you via the transfer agent.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our Articles of Incorporation provide that our directors, officers,
employees or agents shall be indemnified as to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, as long as the director, officer, employee or agent acted in good
faith and in a manner reasonably believed to be in the best interests of the
corporation. No indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his/her duty.
In addition, our Articles of Incorporation and Bylaws obligate us to
indemnify our directors and officers against expenses and other amounts
reasonably incurred in connection with any proceeding arising from the fact that
such person is or was an agent of ours. Our Articles of Incorporation and
Bylaws also authorize us to purchase and maintain insurance on behalf of any of
our directors or officers against any liability asserted against that person in
that capacity, whether or not we would have the power to indemnify that person.
We have been advised that in the opinion of the Securities and Exchange
Commission indemnification for liabilities arising under the Securities Act is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities is asserted by one of our directors, officers, or controlling
persons in connection with the securities being registered, we will, unless in
the opinion of our legal counsel the matter has been settled by controlling
precedent, submit the question of whether such indemnification is against public
policy to court of appropriate jurisdiction. We will then be governed by the
court's decision.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Sarbanes-Oxley Act of 2002 ("Act") established the Public Company
Accounting Oversight Board ("PCAOB") and charged it with the responsibility of
overseeing the audits of public companies that are subject to the federal
securities laws. Under the Act, the PCAOB's duties include the establishment of
a registration system for public accounting firms. The PCAOB has proposed rules
for the registration process, which will require approval of the U.S. Securities
Commission ("SEC") prior to enforcement. Within 180 days after SEC approval, all
public accounting firms will be required to register with the PCAOB if they wish
to prepare or issue audit reports on U.S. public companies, or to play a
substantial role in the preparation or issuance of such reports. Once
registered, public accounting firms will be required to file periodic reports
with the PCAOB. At this time, the cost of compliance with these new rules cannot
be determined, and, as a result of the recent legislation, the cost of
professional liability insurance for public accounting firms has dramatically
increased. We were informed by our independent auditor, Nation Smith Hermes
65
Diamond, Accountants and Consultants, P.C. ("Nation Smith"), that it would not
register with the PCAOB and, as a result, would not be able to continue to act
as our independent auditor once the rules were in effect. Nation Smith did not
resign its position as a result of any disagreements with us on accounting or
financial disclosure issues.
Effective June 2, 2003, we confirmed with our auditors, Nation Smith Hermes
Diamond, P.C., "Nation Smith"), that Nation Smith would no longer be
representing us as our accountants, except to provide consent herein. As of
that date, we informed Nation Smith that we were engaging a new audit firm as
our accountants.
Nation Smith last reported on Registrant's financial statements as of
February 13, 2003. The report, which covered the two fiscal years ended December
31, 2002, was an unqualified report modified for going concern. While Nation
Smith expressed concern as to the Registrant's ability to remain a going
concern, neither the report nor the financial statements for the periods
contained any other adverse opinion or disclaimer of opinion, nor were they
modified as to audit scope or accounting principles.
Our Board of Directors ratified the change of independent accountants on
June 3, 2003.
During our fiscal year 2002 and the subsequent interim period through July
25, 2003, there were no disagreements with Nation Smith on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which, if not resolved, to Nation Smith's satisfaction,
would have caused it to make reference to the subject matter of the disagreement
in connection with its report.
During fiscal year 2002 and the subsequent interim period through July 25,
2003, there have been no reportable events (as defined in Regulation S-B Item
304(a)(1)(v)).
During fiscal year 2002 and the subsequent interim period through July 25,
2003, Nation Smith did not advise us that the internal controls necessary for us
to develop reliable financial statements do not exist.
During fiscal year 2002 and the subsequent interim period through July 25,
2003, Nation Smith did not advise us that any information had come to their
attention which had led them to no longer be able to rely on management's
representation, or that had made Nation Smith unwilling to be associated with
the financial statements prepared by management.
During fiscal year 2002 and the subsequent interim period through July 25,
2003, Nation Smith did not advise us that the scope of any audit needed to be
expanded significantly or that more investigation was necessary.
During fiscal year 2002 and the subsequent interim period through July 25,
2003, Nation Smith did not advise us that there was any information which the
accountants concluded would materially impact the fairness and reliability of
either (i) a previously issued audit report or the underlying financial
statements, or (ii) the financial statements issued or to be issued covering
66
the fiscal period(s) subsequent to the date of the most recent financial
statements covered by an audit report (including information that, unless
resolved to the accountant's satisfaction, would prevent it from rendering an
unqualified audit report on those financial statements.
We requested that Nation Smith furnish us with a letter addressed to the
SEC stating whether or not it agrees with the above statements. A copy of such
letter, dated June 4, 2003, was filed as Exhibit 16.1 to our Form 8-K filing of
the same date.
We engaged PKF, Certified Public Accountants, A Professional Corporation
("PKF"), as our new independent accountants on June 2, 2003 for the fiscal year
ending December 31, 2003, and to review our quarterly financial statements for
the periods ending June 30, 2003 and September 30, 2003. Prior to June 2, 2003,
we had not consulted with PKF regarding (i) the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our financial statements, and no
written report or oral advice was provided to us by PKF concluding there was an
important factor to be considered by us in reaching a decision as to an
accounting, auditing or financial reporting issue; or (ii) any matter that was
either the subject of a disagreement, as that term is defined in Item
304(a)(1)(iv) of Regulation S-B and the related instructions to Item 304 of
Regulation S-B, or a reportable event, as that term is defined in Item
304(a)(1)(iv) of Regulation S-B.
EXPERTS
The financial statements included in the Prospectus have been audited by
Nation Smith Hermes Diamond, P.C., independent certified public accountants, to
the extent and for the periods set forth in their report (which contains an
explanatory paragraph regarding our ability to continue as a going concern)
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
Weintraub Dillon PC, our independent legal counsel, has provided an opinion
on the validity of our common stock.
LEGAL PROCEEDINGS
On June 18, 2001, we entered into a relationship with two individuals
(doing business as EMC Holdings Corporation ("EMC")), whereby EMC was to provide
certain consulting and advisory services to us in exchange for our common stock.
EMC received the first installment of 500,000 shares of our common stock on June
26, 2001. Total expense for the initial stock issuance through September 30,
2001 was valued at approximately $455,000. Pursuant to a demand for arbitration
filed by us on November 7, 2001, we sought the return of all or a portion of the
shares issued to EMC. EMC filed a its own claim with the American Arbitration
Association on November 13, 2001, alleging that we owed EMC $118,000 in fees,
plus damages.
A three-day arbitration hearing was held in May and June 2002 with respect
to claims arising out of consulting and advisory service agreements between EMC
and us. On July 17, 2002, an interim award was issued in favor of us against
EMC, ordering the return of the initial installment of 500,000 shares and
denying EMC's claim for $118,000. On October 22, 2002, a status conference was
67
held and a tentative final award was issued again in the favor of us. Included
in this tentative final ruling was an award of approximately $83,000 in attorney
and arbitration fees to us. The tentative final ruling became effective on
October 29, 2002, and was submitted to the Superior Court of California, Orange
County, for entry of judgment.
Because collection of the attorney and arbitration fees award is not
assured, we expensed all of our fees related to this matter. Any recovery of
fees will be recorded as income in the period they are received. The return of
the 500,000 shares, as provided in the interim award issued on July 17, 2002,
was recorded in the third quarter of 2002 as a reversal of the original expense
recorded. There were no further developments during the first quarter of 2003.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy any document we file at
the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the Commission at 1-800-SEC-0330 for information on the
operation of the Public Reference Room. Our filings with the Commission are also
available to the public at the Commission's Web site at http://www.sec.gov. Our
common stock is quoted on The Over-the-Counter Bulletin Board (OTCBB). Our
reports, proxy statements and other information are also available to the public
on the OTCBB's Web site at http://www.otcbb.com.
This prospectus is part of a registration statement on Form SB-2 filed with
the Commission under the Securities Act. This prospectus may omit some of the
information contained in the registration statement. You should refer to the
registration statement for further information with respect to our company and
the securities offered under this prospectus. Any statement contained in this
prospectus concerning the provisions of any document filed as an exhibit to the
registration statement or otherwise filed with the Commission is not necessarily
complete, and in each case you should refer to the copy of the document filed
for more complete information.
68
SPACEDEV, INC.
AND SUBSIDIARIES
CONTENTS
REPORT OF INDEPENDENT AUDITORS F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 2002 and 2001 F-3 to F-4
Consolidated Statements of Operations for the Years Ending
December 31, 2002 and 2001 F-5
Consolidated Statements of Stockholders' Deficit for the Years
Ending December 31, 2002 and 2001 F-6 to F-8
Consolidated Statements of Cash Flows for the Years Ending
December 31, 2002 and 2001 F-9 to F-10
Notes to Consolidated Financial Statements for the Years Ending
December 31, 2002 and 2001 F-11 to F-29
Condensed Consolidated Balance Sheets at March 31, 2003 and 2002 F-30 to F-31
Condensed Consolidated Statements of Operations for the Quarters
Ending March 31, 2003 and 2002 F-32
Condensed Consolidated Statements of Cash Flows for the Quarters
Ending March 31, 2003 and 2002 F-33 to F-34
Notes to Consolidated Financial Statements for the Quarters Ending
March 31, 2003 and 2002 F-35 to F-40
F-1
Report of Independent Auditors
Board of Directors and Stockholders
SPACEDEV, INC.
We have audited the accompanying consolidated balance sheets of SPACEDEV, INC.
AND SUBSIDIARIES (see Note 1(c) to the consolidated financial statements) as of
December 31, 2002 and 2001, and the related consolidated statements of
operations, stockholders' deficit and cash flows for each of the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of SPACEDEV, INC. AND SUBSIDIARIES as of December 31, 2002
and 2001, and the consolidated results of their operations and their cash flows
for each of the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1(b) to
the consolidated financial statements, the Company incurred net losses of
$376,160 and $1,855,871 for the years ended December 31, 2002 and 2001,
respectively, and had working capital deficits of $197,381 and $1,002,390 as of
December 31, 2002 and 2001, respectively. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1(b). The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
San Diego, California
February 13, 2003
F-2
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 2001
------------------------------------------------------------------ ---------- ----------
ASSETS
CURRENT ASSETS
Cash (Note 10(a)) $ 27,648 $ 211,637
Accounts receivable (Note 10(b)) 82,325 290,615
Inventory 1,729 -
Receivable for assets held for sale (Note 2) 3,150,124 -
Costs in excess of billings and estimated earnings (Note 1(f)) 281,175 -
Other current assets - 6,974
Total current assets 3,543,001 509,226
FIXED ASSETS - NET (NOTES 1(G) AND 2) 141,488 2,180,569
CAPITALIZED SOFTWARE COSTS (NOTE 1(E)) 103,508 207,016
OTHER ASSETS (NOTE 3) 23,960 116,840
$3,811,957 $3,013,651
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 2001
---------------------------------------------------------------------- ------------- -------------
LIABILITIES AND STOCKHOLDERSDEFICIT
CURRENT LIABILITIES
Current portion of notes payable (Note 4(a)) $ 2,431,134 $ 61,761
Current portion of capitalized lease obligations (Note 9(a)) 32,783 31,130
Notes payable - related party (Note 4(b)) 174,665 80,000
Convertible debt notes payable (Note 5) 127,075 -
Accounts payable and accrued expenses 598,480 397,914
Accrued payroll, vacation and related taxes 174,188 158,252
Customer deposits and deferred revenue (Note 1(f)) 69,402 227,721
Billing in excess of costs incurred and estimated earnings
Note 1(f)) - 302,553
Provision for anticipated loss (Note 10(c)) 11,044 102,285
Other accrued liabilities (Note 9(b)) 121,611 150,000
Total current liabilities 3,740,382 1,511,616
NOTES PAYABLE, LESS CURRENT MATURITIES (NOTE 4(A)) 89,052 2,374,096
CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES (NOTE 9(A)) 8,431 26,942
NOTES PAYABLE - RELATED PARTY, LESS CURRENT MATURITIES (NOTE 4(B)) 563,831 585,232
DEFERRED GAIN - ASSETS HELD FOR SALE (NOTE 2) 1,172,720 -
DEFERRED REVENUE (NOTE 1(F)) 5,000 5,000
Total liabilities 5,579,416 4,502,886
COMMITMENTS AND CONTINGENCIES (NOTES 9)
STOCKHOLDERSDEFICIT
Convertible preferred stock, $.0001 par value, 10,000,000 shares
authorized, no shares issued or outstanding (Note 8(a)) - -
Common stock, $.0001 par value; 25,000,000 shares authorized, and
14,477,640 and 14,817,580 shares issued and outstanding,
respectively (Note 8(b)) 1,447 1,481
Additional paid-in capital 8,302,803 8,204,831
Additional paid-in capital - stock options (Note 8(d)) 750,000 750,000
Deferred compensation (Note 8(d)) (250,000) (250,000)
Accumulated deficit (10,571,709) (10,195,547)
Total stockholdersdeficit (1,767,459) (1,489,235)
$ 3,811,957 $ 3,013,651
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2002 2001
------------------------------------------------------ ------------ ------------
NET SALES $ 3,370,118 $ 4,099,094
Cost of sales 3,322,029 2,808,028
Anticipated loss on uncompleted contract (Note 10(c)) (32,299) (397,238)
TOTAL COST OF SALES 3,289,730 2,410,790
GROSS MARGIN 80,388 1,688,304
OPERATING EXPENSES
General and administrative (including stock-based
compensation of $2,938 and $180,873 in 2002
& 2001 respectively) (Note 1(k) and 8(b)) 521,468 1,144,592
EMC - stock based compensation (Note 8(b)) (455,000) 455,000
- 922,932
Goodwill and amortization - 519,000
Research and development (Note 1(h)) - 198,400
TOTAL OPERATING EXPENSES 66,468 3,239,924
LOSS FROM OPERATIONS 13,920 (1,551,620)
OTHER EXPENSE
Interest expense (263,480) (302,651)
Non-cash interest expense debt discount (Note 5) (125,000) -
TOTAL OTHER EXPENSE (388,480) (302,651)
LOSS BEFORE INCOME TAXES (374,560) (1,854,271)
Income tax provision (Notes 1(j) and 6) 1,600 1,600
NET LOSS $ (376,160) $(1,855,871)
NET LOSS PER SHARE:
Net loss $ (0.03) $ (0.13)
----------------------------------- ------------ ------------
Weighted-Average Shares Outstanding 14,744,423 14,440,354
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Convertible
Preferred Stock Common Stock
--------------- -------------
Shares Amount Shares Amount
--------------- ------- ------------- --------
BALANCE AT JANUARY 1, 2001 - $ - 14,005,229 $ 1,400
Common stock issued for cash (Note 8(b)) - - 156,752 16
Common stock issued for services (Note 8 (b)) - - 605,599 60
Common stock issued to former employee (Note 8 (b)) - - 50,000 5
Common stock exchanged by related party for services (Note 8(b)) - - -
Options issued for services (Note 8(d)) - - - -
Warrants issued for acquisition of intangible assets (Note 3(b)) - - - -
Net loss - - - -
-------- --------------- ------- ------------- --------
BALANCE AT DECEMBER 31, 2001 - - 14,817,580 1,481
Common stock issued for cash (Note 8(b)) - - 153,060 15
Reversal of common stock issued for services (Note 8 (b)) - - (493,000) (49)
Warrants issued for convertible debt program (Note 5 and 8(c)) - - - -
Net loss - - - -
-------- --------------- ------- ------------- --------
BALANCE AT DECEMBER 31, 2002 - $ - 14,477,640 $ 1,447
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Additional
Additional Paid-In
Paid-in Capital - Deferred
Capital Stock Options Compensation
BALANCE AT JANUARY 1, 2001 $ 7,360,155 $ 750,000 $ (250,000)
Common stock issued for cash (Note 8(b)) 119,984 - -
Common stock issued for services (Note 8 (b)) 545,047 - -
Common stock issued to former employee (Note 8 (b)) 45,165 - -
Common stock exchanged by related party for services (Note 8(b)) 45,500 - -
Options issued for services (Note 8(d)) 67,055 - -
Warrants issued for acquisition of intangible assets (Note 3(b)) 21,925 - -
Net loss - - -
-------- ------------ -------------- --------------
BALANCE AT DECEMBER 31, 2001 8,204,831 750,000 (250,000)
Common stock issued for cash (Note 8(b)) 74,985 - -
Reversal of common stock issued for services (Note 8 (b)) (452,013) - -
Warrants issued for convertible debt program (Note 5 and 8(c)) 475,000 - -
Net loss - - -
-
--------------
BALANCE AT DECEMBER 31, 2002 $ 8,302,803 $ 750,000 $ (250,000)
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Accumulated
Deficit Total
BALANCE AT JANUARY 1, 2001 $ (8,339,678) $ (478,123)
Common stock issued for cash (Note 8(b)) - 120,000
Common stock issued for services (Note 8 (b)) - 545,107
Common stock issued to former employee (Note 8 (b)) - 45,170
Common stock exchanged by related party for services (Note 8(b)) - 45,500
Options issued for services (Note 8(d)) - 67,055
Warrants issued for acquisition of intangible assets (Note 3(b)) - 21,925
Net loss (1,855,871) (1,855,871)
-------- ------------- ------------
-
BALANCE AT DECEMBER 31, 2001 (10,195,549) (1,489,237)
Common stock issued for cash (Note 8(b)) - 75,000
Reversal of Common stock issued for services (Note 8 (b)) - (452,062)
Warrants issued for convertible debt program (Note 5 and 8(c)) - 475,000
-
Net loss (376,160) (376,160)
-------- ------------- ------------
BALANCE AT DECEMBER 31, 2002 $(10,571,709) $(1,767,459)
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002 2001
------------------------------------------------------------------- ---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(376,160) $(1,855,871)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 357,692 710,245
Contributed assets (16,251) -
Loss on disposal of assets 7,410 -
Non-cash interest expense - convertible debt program 125,000 -
Impairment of goodwill - 922,932
Common stock issued for compensation and services (452,062) 702,832
Change in operating assets and liabilities:
Accounts receivable 208,290 25,733
Prepaid and other current assets 10,168 -
Inventory (1,729) -
Costs in excess of billings and estimated earnings (281,175) -
Other assets - (2,032)
Accounts payable and accrued expenses 202,641 38,349
Accrued payroll, vacation and related taxes 15,936 (1,922)
Customer deposits and deferred revenue (158,319) 74,851
Billings in excess of costs incurred and estimated earnings (302,553) (30,892)
Provision for anticipated loss (91,241) (758,422)
Accrued interest - related party 45,265 53,266
Other accrued liabilities 115 189,402
------------------------------------------------------------------- ---------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (706,973) 68,471
CASH FLOWS FROM INVESTING ACTIVITIES
Advance on sale of assets held for sale 50,000 -
Purchases of fixed assets (1,900) (42,624)
---------- ------------
Cash acquired in purchase (disposal) of subsidiaries - -
------------------------------------------------------------------- ---------- ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 48,100 (42,624)
------------------------------------------------------------------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in bank line of credit - -
Proceeds from convertible debt program 475,000 -
Principle payments on notes payable (65,785) (14,840)
Principal payments on capitalized lease obligations (37,330) (98,993)
Payments on notes payable - related party (66,667) (80,000)
Proceeds on notes payable - related party 94,666 -
Proceeds from issuance of common stock 75,000 120,000
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 474,884 (73,833)
------------------------------------------------------------------- ---------- ------------
CASH AT BEGINNING OF YEAR 211,637 259,623
------------------------------------------------------------------- ---------- ------------
CASH AT END OF YEAR $ 27,648 $ 211,637
------------------------------------------------------------------- ---------- ------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
SPACEDEV, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002 2001
--------------------------------------------------- -------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $310,821 $249,385
Income Taxes $ 1,600 $ 1,600
NONCASH INVESTING AND FINANCING ACTIVITIES:
During 2002 and 2001 the Company acquired fixed assets under capital lease
Agreements of $20,472 and $17,310, respectively.
During 2002 and 2001 the Company issued 7,000 and 655,599 shares of restricted
Common for consulting services with a fair value of approximately$2,900 and
$590,000, respectively. The Company also recovered 500,000 shares issued during
2001 and recorded a credit of $455,000. The fair value of the shares was
calculated using the average closing price surrounding the issuance date. See
Note 8(b)).
During 2002 the Company issued warrants to purchase 1,229,705 shares of common
Stock under the Company's convertible debt program. A debt discount of $475,000
was Recorded related to this convertible debt (See Note 5). These warrants were
valued in Accordance with SFAS 123 for fair value of approximately $475,000.
In August 2001 the Company issued warrants to purchase 25,000 shares of
restricted common stock to acquire certain technology. These warrants were
valued in accordance with SFAS 123 for fair value of approximately $22,000.
During 2001, the Company issued options to purchase 80,000 shares of common
stock for services. These options were valued in accordance with SFAS 123 for
fair value of approximately $67,000.
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial statements
follows.
(a) Nature of operations
SPACEDEV, INC. (the "Company") is engaged in the conception, design,
development, manufacture, integration and operations of space technology
systems, products and services. The Company is currently focused on the
commercial development of low-cost satellites and their subsystems, as well as
providing engineering technical services to aerospace companies. The Company
was incorporated under the laws of Colorado on December 23, 1996 as Pegasus
Development Group, Inc. (PDGI).
SpaceDev, LLC of Colorado was originally formed in 1997 for commercial space
exploration and was the sole owner of shares of common stock of SpaceDev (a
Nevada corporation) ("SpaceDev"). On October 22, 1997, PDGI issued 8,245,000 of
its $.0001 par value common stock for 100 percent (1,000,000 shares) of
SpaceDev's common stock owned by SpaceDev, LLC. Upon the acquisition of the
SpaceDev stock, SpaceDev was merged into PDGI and, on December 17,1997, PDGI
changed its name to SPACEDEV, INC. After the merger, SpaceDev, LLC, changed its
name to SD Holdings, LLC on December 17, 1997. (See Notes 8(a) and 8(b)).
For accounting purposes, the transaction was accounted for as a reverse merger
with the Company as the acquirer. Since SpaceDev had minimal assets prior to
the merger, the transaction was accounted for as the sale of the Company's
common stock for net assets of $1,232.
(b) Liquidity/going concern
The accompanying consolidated financial statements as of December 31, 2002 have
been prepared assuming the Company will continue as a going concern. However,
the Company had working capital deficits of $197,381 and $1,002,390 as of
December 31, 2002 and 2001, respectively, and incurred net loss of $376,160 and
$1,855,871 for the years ended December 31, 2002 and 2001, respectively.
Although there was a significant reduction in the working capital deficit, items
remain that raise substantial doubt about the Company's ability to continue as a
going concern. Subsequent to December 2002, management completed a sale
leaseback transaction (Note 12) and intends to obtain new commercial and
government contracts and to seek additional financing through a combination of
public and private debt or equity placements, commercial project financing and
government programs to fund future operations and commitments. There is no
assurance that new contracts or additional debt or equity financing needed to
fund operations will be available or obtained in sufficient amounts necessary to
meet the Company's needs.
The accompanying 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.
F-11
(c) Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned inactive subsidiaries: Integrated Space Systems, Inc. (ISS) (a
California Corporation); SpaceDev Australia; and, SpaceDev Oklahoma.
(d) Use of estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions, including estimates of anticipated contract costs and revenues
utilized in the earnings recognition process, that affect the reported amounts
in the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
(e) Software Development Costs
In accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," the Company capitalizes the direct costs and allocated overhead
associated with the development of software products. Initial costs are
capitalized as development costs prior to the design of a detailed program or
working model. Costs incurred subsequent to the product release and development
costs performed under contract are charged to operations. During 2000 the
Company capitalized approximately $207,000 of costs related to the development
of satellite communications software. Beginning in the second quarter 2002,
capitalized software costs are being amortized over their estimated useful life
of eighteen months using the straight-line method. Periodically and at least
annually, management performs a review for impairment in accordance with SFAS
No. 144.
(f) Revenue recognition
The Company's revenues are derived primarily from fixed price contracts and are
recognized using the percentage-of-completion method. Estimated contract
profits are taken into earnings in proportion to recorded sales. Sales under
certain long-term fixed price contracts, which provide for the delivery of
minimal quantities or require significant amounts of development effort in
relation to total contract value, are recorded upon achievement of performance
milestones or using the cost-to-cost method of accounting where sales and
profits are recorded based on the ratio of costs incurred to estimated total
costs at completion. Losses on contracts are recognized when estimated costs
are reasonably determined (see Note 10(c)). 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. Costs in
excess represent the excess of actual costs incurred to the amount that is
billed to date.
F-12
(f) Revenue recognition cont.
Deferred revenue represents amounts collected from customers for products or
services to be provided at a future date.
(g) Depreciation and amortization
Fixed assets are depreciated over their estimated useful lives of three-to-five
years using the straight-line method of accounting in accordance with Statement
of Financial Accounting Standards No. 144. 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 periodically reviewed for impairment based on an assessment of future
operations to ensure they are appropriately valued in accordance with Statement
of Financial Accounting Standards No. 142. Effective November 2001, there will
be no more amortization of goodwill (see Note 3).
In December 2002, the Company entered an agreement to sell its interest in its
facility. The transaction closed in January 2003. The escrow transaction
included the sale of the land and building. In conjunction with the sale of its
facility in December 2002, the Company entered into a non-cancelable operating
lease with the buyer to lease-back its facilities for ten years (see Note 2).
The base rent shall increase by 3.5% per year (see note 2 and 9).
(h) Research and development
The Company was actively engaged in new product development for the Office of
Space Launch in 2001. Research and development expenditures relating to
possible future products were expensed as incurred. There were no Research and
Development costs during 2002.
(i) Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising expense was approximately $900 and $67,000 in 2002 and
2001, respectively.
(j) Income taxes
Deferred income taxes are recognized for the tax consequences in future years of
the differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the years in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the combination of the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
(k) Stock-based compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". The Company adopted SFAS 123 in 1997. The Company has elected
to measure compensation expense for its stock-based employee compensation plans
using the intrinsic value method prescribed by APB Opinion 25, "Accounting for
Stock Issued to Employees" and has provided pro forma disclosures as if the fair
value based method prescribed SFAS 123 has been utilized. See Note 8(d).
F-13
(l) Common stock, stock options and warrants to non-employees
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.
(m) Net loss per common share
Net loss per common share has been computed on the basis of the weighted average
number of shares outstanding, according to the rules of SFAS No. 128, "Earnings
per Share." Diluted net loss per share has not been presented, as the
computation would result in anti-dilution.
(n) Financial instruments
The Company's financial instruments consist primarily of cash, accounts
receivable, capital leases and notes payable. These financial instruments are
stated at their respective carrying values, which approximate their fair values.
(o) Segment reporting
The Company merged its Space Missions Division (SMD) business segment and ISS
business segment in 2002. The Company has two inactive subsidiaries, SpaceDev
Australia and SpaceDev Oklahoma. The Company follows the requirement of SFSA
No. 131 "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131").
(p) New accounting standards
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that SFAS, SFAS No. 64,
"Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements." SFAS No.
145 also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers." Further, SFAS No. 145 amends SFAS No. 13, "Accounting for Leases,"
to eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. SFAS No.
145 also amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or described their applicability under
changed conditions. This pronouncement requires gains and losses from
extinguishment of debt to be classified as an extraordinary item only if the
criteria in Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," have
been met. Further, lease modifications with economic effects similar to
sale-leaseback transactions must be accounted for in the same manner as
sale-leaseback transactions. The provisions of SFAS No. 145 related to the
rescission of SFAS No. 4 shall be applied in fiscal years beginning after May
15, 2002. The provisions of SFAS No. 145 related to Statement 13 shall be
effective for transactions occurring after May 15, 2002, with early application
encouraged. The adoption of SFAS No. 145 did not have a material impact on the
Company's consolidated financial position or results of operations for the year
ended December 31, 2002.
F-14
In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
146"). SFAS 146 requires that a liability for costs associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. SFAS 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. We do not expect the adoption of
SFAS 146 to have a material impact on our operating results or financial
position.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS No. 123." SFAS No.
148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. Management
is evaluating the adoption of this statement.
2. FIXED ASSETS
In December 2002, the Company entered an agreement to sell its interest in its
facility. The transaction closed in January 2003. The escrow transaction
included the sale of the land and building.
In conjunction with the sale, the Company entered into a lease agreement with
the buyer to lease-back its facilities (see Note 9). The gain on the sale of
the facility was deferred and will be amortized in proportion to the gross
rental charged to expense over the lease term. Deferred gain of $1,172,720 will
be amortized over ten (10) years beginning February 2003 and ending in February
2013. This amortization will be included in the Company's occupancy and
facility expense.
F-15
2. Fixed Assets, cont.
Fixed assets consisted of the following:
December 31, 2002 2001
---------- -----------
Capital leases $ 145,345 224,721
---------------------------------------- ---------- -----------
Computer equipment 124,429 251,158
Building and improvements 9,488 $2,191,136
Furniture and fixtures 5,271 18,445
284,533 2,685,460
---------- -----------
Less accumulated depreciation
and amortization (143,065) (504,891)
$ 141,488 $2,180,569
---------- -----------
Depreciation and amortization expense for fixed assets was approximately
$164,000 and $156,000 for the 2002 and 2001, respectively.
3. ACQUISITIONS
All acquisitions have been accounted for using the purchase method of accounting
and intangible assets are being amortized using the straight-line method.
Initial purchase price includes stock issued at the date of acquisition, direct
acquisition costs and any guaranteed future consideration.
(a) ISS
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 Systems, Inc. ("ISS"). ISS provides engineering and technical services
related to space-based systems, primarily 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
calculated purchase price in excess of the approximately $164,000 of net assets
acquired was capitalized as goodwill was to be amortized over sixty months. On
November 15, 2001, management determined that the unamortized balance of
goodwill from the ISS acquisition of approximately $923,000 became impaired and
was written off.
F-16
(a) ISS cont.
Goodwill from the ISS acquisition consisted of the following:
December 31, 2001
----------------------------- ------------
Goodwill $ 3,461,000
----------------------------- ------------
Less accumulated amortization (2,538,068)
Less impairment loss (922,932)
$ -
Amortization expense was approximately $519,000 for 2001.
(b) AMROC
On August 14, 1998, the Company entered the Agreement for License and Purchase
of Technology (AMROC) with an unrelated individual. The technology acquired was
hybrid rocket technology that will be used in the future operations of the
Company. Upon execution of the Agreement, the Company issued the seller a
warrant to purchase 25,000 shares of restricted common stock at a strike price
equal to 50% of the market price of the common stock on the issuance date.
For the three years following the Agreement date, the seller received warrants
to purchase the greater of 25,000 shares of restricted common stock or a number
of shares to be determined based on revenue generated from the acquired
technology as defined below. In the fourth through tenth year following the
Agreement date, the seller will receive a warrant to purchase a number of shares
based on the amount of revenue generated from the acquired technology. All
revenue based warrants are earned at a rate of one share per $125 of revenue
generated from the technology acquired. Under the terms of the Agreement, the
minimum number shares to be issued is 100,000 and the maximum consideration
shall not exceed warrants to purchase 3,000,000 shares of common stock or
$6,000,000 in recognized value. Recognized value is the sum of (a) the
cumulative difference between the market price of the common stock and the
strike price and (b) the cumulative difference between the market price on the
date of exercise and the strike price for each warrant previously exercised.
The Company valued the warrants using the fair value method as prescribed by
SFAS 123. Under this method, the Company used the risk-free interest rate at
the date of grant, the expected volatility of the stock, the expected dividend
yield on the stock and the expected life of the warrants to determine the fair
value of the warrants. The risk-free rate of interest used to value the initial
issuance was 5.4 percent, a zero percent dividend yield was assumed and the
expected life of the warrants was five years from the date of issuance. This
calculation resulted in a fair value of $24,500 and was used as the value of the
intangible assets acquired. On August 14, 2001, the Company issued warrants to
purchase 25,000 shares of restricted common stock with fair value of $21,925
using the same valuation method. This amount was capitalized as an additional
acquisition of intangible assets and will be amortized over the remaining four
years of the estimated useful life of the assets. All warrants are immediately
exercisable after issuance and expire on the fifth anniversary of their
issuance.
F-17
(b) AMROC cont.
Included in other assets are intangibles, which consisted of the following:
December 31, 2002 2001
----------------------------- ---------- ---------
Other intangibles $ 116,292 $116,292
----------------------------- ---------- ---------
Less accumulated amortization (105,736) (65,415)
$ 10,556 $ 50,877
---------- ---------
Amortization expense was approximately $40,000 and $32,000 for 2002 and 2001,
respectively.
4. NOTES PAYABLE
(a) Building and settlement notes
On February 23, 2000, the Company borrowed $1,330,000 from a lender to refinance
its facility in Poway, California. The note called for 300 monthly payments of
approximately $9,000, which included principal and interest at prime plus 1.5%.
On December 31, 2002 the interest rate on the note was 5.75% with an outstanding
balance of $1,281,227. The note was set to mature in February 2025. In
December 2002 the Company entered into an agreement to sell its interest its
facility and the aforementioned debt was paid in full at the close of escrow in
January 2003.
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 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 December 31, 2002 and 2001, the outstanding
balance on this loan was $495,012 and $499,671, respectively. In December 2002
the Company entered into an agreement to sell its interest in its facility and
the aforementioned debt was paid in full at the close of escrow in January 2003.
In 1999 the Company entered into a second loan agreement. 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 December 31, 2002 and 2001, the
outstanding balance on this loan was $456,020 and $458,609, respectively. In
December 2002, the Company entered into an agreement to sell its interest in its
facility and the aforementioned debt was paid in full at the close of escrow in
January 2003.
F-18
(a) Building and settlement notes cont.
In June 2001, the Company accrued a $150,000 contingent liability from Technical
& General Guarantee Company Ltd. ("T&G") 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. 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 called for a balloon payment on the anniversary of the
effective date in the amount of $139,000. The note also called for a third deed
of trust to be placed on the Company's building and land. At December 31, 2002
the outstanding balance on this loan was $141,400. In December 2002 the Company
entered into an agreement to sell its interest in its facility and the
aforementioned debt was paid in full at the close of escrow in January 2003.
In 2001, the Company entered into three 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 ranged from 0% to 8%. At December 31, 2002 and 2001,
the outstanding balances on these notes were $146,527 and $170,089,
respectively.
Future minimum principal payments on notes payable, building and settlement
notes are as follows:
Year Ended December 31,
-----------------------
2003 $2,431,134
----------------------- ----------
2004 41,452
2005 36,670
2006 10,930
$2,520,186
(b) Related parties
The Company has notes payable to its CEO. At December 31, 2002 and 2001, the
balances were $738,496 and $665,232, respectively, with accrued interest of 10%.
The notes were converted to a demand note and amended on March 20, 2000 to call
for annual payments of not less than $80,000 per year with interest at 10%.
F-19
(b) Related parties cont.
Future minimum principal payments on notes payable, related parties are as
follows:
Year Ended December 31,
-----------------------
2003 $174,665
----------------------- --------
2004 80,000
2005 80,000
2006 80,000
2007 80,000
Thereafter 243,831
$738,496
--------
Interest expense accrued on these notes was $45,265 and $53,266 for 2002 and
2001, respectively.
5. CONVERTIBLE DEBENTURES
From October 14, 2002 through November 14, 2002, the Company sold an aggregate
of $475,000 of 2.03% convertible debentures to various director and officers of
the Company. The total funding was completed on November 14, 2002. The
convertible debentures entitle the holder to convert the principal and unpaid
accrued interest into the Company's common stock when the note matures. The
original maturity on the notes was six (6) months from issue date and was
subsequently extended to twelve (12) months from issue date on March 19, 2003.
The convertible debentures are exercisable into a number of the Company's common
shares at a conversion price that equals the 20-day average asking price less
10%, which was established when the note was issued, or the initial conversion
price.
Concurrent with the issuance of the convertible debentures, the Company issued
to the subscribers, warrants to purchase up to 1,229,705 shares of our common
stock. These warrants are exercisable for three (3) years from the date of
issuance at the initial exercise price which equals to the 20-day average asking
price less 10% which was established when the note was issued, or the initial
conversion price. Upon issuance the warrants were valued using the
Black-Scholes pricing model based on the expected fair value at issuance and the
estimated fair value was recorded as debt discount. See Note 8(c) for
discussion of the terms of the warrants.
All debt discounts are to be amortized as additional interest expense over the
term of the convertible debentures. As of December 31, 2002, $475,000 has been
reflected as debt discount of which $125,000 was amortized to non-cash interest
expense during 2002.
F-20
Convertible Debentures cont.
Convertible debenture dated December 31, 2002 $ 475,000
Accrued interest 2,075
Less debt discount
Total 475,000
Amount amortized to expense (125,000) (350,000)
-------- --------
Convertible debenture at December 31, 2002 $127,075
--------
6. INCOME TAXES
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 $1,372,000 and $2,036,000 as of December 31, 2002 and
2001, respectively, consisted primarily of the income tax benefits from net
operating loss and capital loss carryforwards, amortization of goodwill and
research and development credits. 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 decreased approximately
$664,000 in 2001 from $2,036,000 at December 31, 2001 to $1,372,000 at December
31, 2002.
At December 31, 2002, the Company has federal and state tax net operating loss
and capital loss carryforwards of approximately $3,358,000 and $1,525,000,
respectively. The federal and state tax loss carryforwards will expire through
2021, unless previously utilized. The state of California has suspended the
utilization of net operating loss for 2002 and 2003.
A reconciliation of the statutory income tax rates and the Company's effective
tax rate is as follows:
Years Ended December 31, 2002 2001
------------------------------------------- ----- -----
Statutory U.S. federal rate 34% 34%
------------------------------------------- ----- -----
State income taxes - net of federal benefit 5% 5%
Net operating loss for which no tax
Benefit is currently available (39%) (39%)
- -
----- -----
F-21
Income taxes, cont.
The tax effects of temporary differences and carryforwards that give rise to
deferred tax assets consist of the following:
December 31, 2002 2001
--------------------------------- ------------ ------------
Deferred tax assets:
---------------------------------
Loss carryforwards $ 1,262,000 $ 1,866,000
Temporary differences 100,000 120,000
Research and development credits 10,000 50,000
Gross deferred tax assets 1,372,000 2,036,000
--------------------------------- ------------ ------------
Valuation allowance (1,372,000) (2,036,000)
$ - $ -
------------ ------------
7. EMPLOYEE BENEFIT PLAN
(a) Profit sharing 401(k) plan
During 1997, the Company adopted a 401(k) retirement savings plan for its U.S.
employees which allows each eligible employee to voluntarily make pre-tax salary
contributions up to 15% of their compensation. The Company may elect to make a
matching contribution. The total Company contribution and participant salary
reduction may not exceed 25% of the compensation of eligible participants.
During 2002 and 2001, the Company did not contribute to the Plan.
(b) Incentive stock option and employee stock purchase plans
At its 2000 Annual Stockholder Meeting, the Company adopted an Incentive
Employee Stock Option Plan under which the Board of Directors may grant
employees, directors and affiliates of the Company opportunities to purchase
Incentive Stock Options, Supplemental Stock Options and to receive stock bonuses
or rights to purchase restricted stock of the Company. Incentive Stock Options
will only be available to employees, including officers, and affiliates of the
Company; they will not be available to non-employee directors. The exercise
price of the Incentive Stock Options shall not be less than 100% of the fair
market value of the stock subject to the option on the date the option is
granted. The exercise price for the Stock Purchase Plan will not be less than
85% of the fair market value of the stock on the date the stock is purchased.
The Company will be required to reserve an amount of common shares equal to the
number of shares, which may be purchased as a result of stock awards. See Note
8(d).
8. STOCKHOLDERS' EQUITY
(a) Convertible preferred stock
On November 4, 1997, 82,450 shares of $.001 par value convertible preferred
stock were issued to SD Holdings, LLC in exchange for 8,245,000 common shares of
the Company that were issued on October 22, 1997 (see Notes 1(a) and 8(b)).
Each share of convertible preferred stock was convertible, at the option of the
holder, into 100 shares of common stock. The conversion ratio was subject to
certain anti-dilution adjustments, and the holder of each share of preferred
stock was entitled to one vote for each share of common stock into which it
would convert. These shares were converted into 8,245,000 shares of the
Company's common stock on May 11, 1999.
F-22
(b) Common stock
On October 22, 1997, PDGI issued 8,245,000 of its $.0001 par value common stock
for 100 percent (1,000,000 shares) of SpaceDev's common stock owned by SpaceDev,
LLC. Upon the acquisition of the SpaceDev stock, SpaceDev was merged into PDGI
and, on December 17, 1997, the name of the Company was changed to SPACEDEV, INC.
On November 4, 1997, these common shares were exchanged for 82,450 shares of
convertible preferred stock. See Note 8(a). On May 11, 1999, the Company
issued 8,245,000 shares of common stock upon the conversion of the preferred
shares.
The Company entered into agreements with current employees, public relations
firms and consultants to perform services and reach certain milestones for the
Company. In connection with these agreements, the Company issued 7,000 and
655,599 shares of its common stock during 2002 and 2001, respectively, of which
500,000 went to EMC and subsequently was recovered after a final judgment in
favor of the Company was granted on October 22, 2002. The Company recorded a
credit of $455,000 during 2002 to offset the expense that was recorded during
2001. The Company also recorded an expense of approximately $2,900 and $590,000
for 2002 and 2001, respectively, for the issuance of common stock. The fair
value of the shares issued was calculated using the average closing price
surrounding the issuance dates.
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 and advisory services to the Company. EMC received the first
installment of 500,000 shares of common stock on June 26, 2001. Total expense
for the initial stock issuance through September 30, 2001 was $455,000.
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. EMC filed
its own claim with the American Arbitration Association on November 13, 2001,
alleging that the Company owed EMC $118,000 in fees, plus damages to be proven
at arbitration.
A three-day arbitration hearing was held in May and June 2002 with respect to
claims arising out of consulting and advisory service agreements between the
Company and EMC. On July 17, 2002, an interim award was issued in favor of the
Company against EMC, ordering the return of the initial installment of 500,000
shares and denying EMC's claim for $118,000. On October 22, 2002, a status
conference was held and a tentative final award was issued again in the favor of
the Company. Included in this tentative final ruling was an award of
approximately $83,000 in attorney and arbitration fees to the Company. The
tentative final ruling became effective on October 29, 2002, and was submitted
to the Superior Court of California, Orange County, for entry of judgment.
F-23
(b) Common stock, cont.
Because collection of the attorney and arbitration fees award is not assured,
the Company has expensed all of its fees related to this matter. Any recovery
of the fees will be recorded as income in the period they are received. The
return of the 500,000 shares, as provided in the interim award issued on July
17, 2002, was recorded in the third quarter of 2002 as a reversal of the
original expense recorded. Because the original expense was not recorded as an
extraordinary item, the reversal of the expense did not qualify as an
extraordinary item.
In connection with the signing of the agreement, the Company's majority
shareholder issued 50,000 shares of common stock to EMC with a fair value of
approximately $45,000. The shares were recorded as a contribution of capital
and additional expense related to the EMC agreement in accordance with the SEC's
Staff Accounting Bulletin number 79.
On November 5, 2000, the Company issued a private placement memorandum ("PPM")
offering a maximum of 1,000,000 shares of the Company's $0.0001 par value common
stock and one re-pricing warrant to purchase one additional share of common
stock. The offering price for the common stock is a five-day average of the bid
and ask prices on the date of issuance with a minimum of $1.00 per share. The
re-pricing warrants allow the holder to acquire additional shares at $0.50 above
the offering price of the shares.
On March 2, 2001, the PPM offering price was amended to the average of the high
bid prices on the date of issuance and four preceding days, with no minimum per
share price and the warrants allow the holder to acquire additional shares at
the same price as the shares acquired.
The Company sold 153,060 and 156,752 shares of its common stock under the PPM
during 2002 and 2001, respectively. The Company also issued matching warrants to
the investors under the PPM agreement. The Company received $75,000 and
$120,000 for the shares of common stock sold under the PPM during 2002 and 2001,
respectively.
(c) Warrants
On August 14, 2001, the Company issued warrants to purchase 25,000 shares of
common stock at 50% of their fair market value on the date of issuance, in
return for the exclusive royalty-free right to use, sell and apply patents and
other technology developed by an individual (see Note 3(b)). The individual
will receive warrants to purchase a minimum of 25,000 additional shares and a
maximum of 3,000,000 shares of common stock at 50% of their fair market value on
the date of issuance. The number of shares varies with revenue generated by the
technology on specific dates.
Concurrent with the issuance of the convertible debentures from October 2002
through November of 2002, the Company issued to subscribers warrants to purchase
up to 1,229,705 shares of the Company's common stock. These warrants are
exercisable for three (3) years from the date of issuance at the initial
exercise price, which is equal to the 20-day average asking price less 10%
established when the notes were issued. Upon issuance the warrants were valued
using the Black-Scholes pricing model based on the expected fair value at
issuance and the estimated fair value was also recorded as debt discount.
F-24
(d) Stock options
On November 21, 1997, the Company entered into a five (5) year employment
agreement with its CEO. As part of the employment agreement, the Company
granted options to the CEO to purchase up to 2,500,000 shares of the Company's
$.0001 par value restricted common stock.
The options are subject to the following vesting conditions, which were amended
on January 21, 2000, at the exercise prices set forth:
Number
of shares Vesting Conditions Exercise price per share
--------- ------------------------------------------------------------- -------------------------
500,000 Currently vested $ 1.00
500,000 Obtaining $6,500,000 additional equity capital $ 1.50
500,000 Financing and executing a definitive space launch agreement $ 2.00
500,000 Launching of first lunar or deep-space mission $ 2.50
500,000 Successful completion of first lunar or deep-space mission $ 3.00
250,000 Upon the Company's market capitalization reading $250 million $ 5.00
500,000 Upon the Company's market capitalization reading $500 million $ 10.00
750,000 Upon the Company's market capitalization reading $1 billion $ 20.00
All options expire five (5) years from date of amendment.
In accordance with APB 25, the Company recognized $500,000 of compensation
expense and $250,000 of deferred compensation in 1997. The options granted to
the CEO are subject to vesting conditions and have exercise prices between $1.00
and $3.00 per share.
On August 27, 2001, as part of an annual review process, an additional 10,000
options were granted to the CEO at the exercise price of $0.9469 per share with
a set vesting schedule of 3,333 per year after issuance with the third year
having 3,334 options vest. These options expire five years from grant date.
F-25
(d) Stock options cont.
The following summarizes stock option activity related to all of the option plan
and employee compensation agreements:
Weighted
Options Average
Outstanding Exercise Prices
------------ ----------------
Balance at January 1, 2001 3,761,553 $ 1.81
Granted 648,609 0.83
Exercised - -
Expired (50,000) 1.28
Balance at December 31, 2001 4,360,162 $ 1.67
---------------------------- ------------ ----------------
Granted 1,386,110 0.50
Exercised - -
Expired (297,500) 0.88
Balance at December 31, 2002 5,448,772 $ 0.91
---------------------------- ------------ ----------------
The weighted average fair value of options granted to employees under the plan
during 2002 and 2001 was $0.50 and $0.83, respectively. At December 31, 2002
and 2001, there were 2,064,716 and 1,834,475 options exercisable at a weighted
average exercise price of $2.25 and $0.42 per share, respectively. The weighted
average remaining life of outstanding options under the plan at December 31,
2002 was 5.75 years.
Range of Weighted-Average
Exercise Number of Shares Remaining Contractual Life Number of Shares
Price Outstanding of Shares Outstanding Exercisable Weighted-Average
Exercisable Price
---------- ---------------- -------------------------- ---------------- -----------------
0.42-0.99 1,728,919 4.80 years 401,530 $ 0.56
1.00-1.99 2,217,631 6.75 years 1,660,964 1.26
2.00-2.99 1,002,222 7.04 years 2,222 2.25
3.00-3.50 500,000 2.05 years - 3.00
5,448,772 5.75 years 2,064,716 $ 1.38
F-26
(d) Stock options, cont'd
As of December 31, 2002, the Company had warrants outstanding that allow the
holders to purchase up to 1,692,753 shares of common stock at prices between
$0.37 and $1.44 per share. The warrants may be exercised any time within five
(5) years of issuance.
The Company has elected to account for its stock-based compensation plans under
APB 25. However, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during 2002 and 2001 using the minimum value
method as prescribed by SFAS 123. Under this method, the Company used the
risk-free interest rate at date of grant, the expected volatility, the expected
dividend yield and the expected life of the options to determine the fair value
of options granted. The risk-free interest rates ranged from 6.0% to 6.5%;
expected volatility of 117% and the dividend yield was assumed to be zero, and
the expected life of the options was assumed to be three to five years based on
the average vesting period of options granted.
If the Company had accounted for these options in accordance with SFAS 123, the
total value of options granted during 2002 and 2001 would be amortized on a pro
forma basis over the vesting period of the options. Thus, the Company's
consolidated net loss would have been as follows:
Years Ended December 31, 2002 2001
---------- ------------
Net loss:
------------------------
As reported $(376,160) $(1,885,871)
Pro forma $(604,395) $(2,002,481)
Loss per Share:
------------------------
As reported $ (.03) $ (.13)
Pro forma $ (.04) $ (.14)
On February 9, 2001, the Company purchased all rights to the name "ExploreSpace"
and the Website www.explorespace.com in an isolated transaction under Section
4(2) of the Securities Act. The Company purchased all of the outstanding common
stock of ExploreSpace.com, Inc. in exchange for options to purchase a total of
80,000 common shares of the Company for $1.00 per share.
F-27
9. COMMITMENTS AND CONTINGENCIES
(a) Capital leases
The Company leases certain equipment under non-cancelable capital leases, which
are included in fixed assets as follows:
December 31, 2002 2001
----------------------------- --------- ---------
Computer equipment $145,365 $224,721
----------------------------- --------- ---------
Less accumulated depreciation (76,161) (94,890)
$ 69,204 $129,831
Future minimum lease payments are as follows:
Year Ending December 31,
---------------------------------------
2003 $ 35,563
2004 8,882
Total minimum lease payments 44,445
Amount representing interest (3,231)
Present value of minimum lease payments $ 41,214
Total obligation $ 41,214
--------------------------------------- ---------
Less current portion (32,783)
Long-term portion $ 8,431
(b) Other accrued liabilities
In November 2002, the Company entered an agreement to sell its interest in its
facility. The transaction closed in January 2003. The escrow transaction
included the sale of the land and building. The fees that were incurred for the
sale of the building were $121,311 and recorded as other accrued liabilities.
The fees include broker fees escrow and title fees and property taxes.
(c) Building lease
In conjunction with the sale of its facility in December 2002, the Company
entered into a non-cancelable operating lease with the buyer to lease-back its
facilities for ten years (see Note 2). The base rent is $25,678 and will
increase by 3.5% per year. Mr. Benson provided a guarantee for the leaseback.
10. CONCENTRATIONS AND CONTINGENCIES
(a) Credit risk
The Company maintains cash balances at various financial institutions primarily
located in San Diego. The accounts at these institutions are secured by the
Federal Deposit Insurance Corporation up to $100,000. The Company has not
experienced any losses in such accounts.
(b) Customer
During 2002 and 2001, the Company had a major customer that accounted for sales
of approximately $1,727,000 and $3,163,000 or 51% and 77% of consolidated
revenue, respectively. At December 31, 2002 and 2001, the amount receivable
from this customer was approximately $0 and $228,000, respectively.
F-28
(c) Contract
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 as of December 31, 2002 approximately $7.4 million,
including two change orders worth approximately $412,000 June 12, 2002 and
October 7, 2002. This contract represented 51% of the Company's revenue in
2002. The contract will conclude on January 31, 2004. The payments on the
contract are made on a monthly basis according to a preset payment schedule and
resulted in costs in excess of billings and estimated earnings of approximately
$268,800. At December 31, 2002 the total costs estimated to complete the
contract was approximately $7,640,000.
11. OPERATING SEGMENTS
The Company's operating structure included one operating segment for 2002 and
two operating segments for 2001.
(a) Segment products and services
The Company merged its Space Missions Division (SMD) business segment and ISS
business segment in 2002.
The following is a summary of operating results and assets by segment for 2001.
For the Year Ended December 31, 2001
--------------------------------------
(In thousands) SMD ISS Total
Net revenue from external
--------------------------
Customers $3,749 $350 $4,099
Intersegment revenues - - -
Depreciation and
Amortization expense (181) (529) (710)
Impairment loss (923) (923)
Segment loss $(473) $(1,383) $(1,856)
-------------------------------------- -------- --------
Total segment assets $3,140 $38 $3,178
-------------------------------------- -------- --------
Less intersegment assets (164) - (164)
Net segment assets $2,976 $38 $3,014
(b) Method of determining segment profit or loss
Management evaluated the performance of its operating segments separately in
2001 to individually monitor the different factors affecting financial
performance. Segment profit or loss includes substantially all of the segment's
costs of production, distribution and administration. The Company manages
income taxes on a global basis. Thus, management evaluated segment performance
based on profit or loss before income taxes, exclusive of any significant gains
or losses on the disposition of investments or other assets.
F-29
12. SUBSEQUENT EVENTS
On January 31, 2003, the Company closed escrow on the sale of its facility in
Poway, California. The selling price of the facility was $3.2 million. The
total debt repayment from the transaction was approximately $2,407,000. The
approximate net proceeds to the Company for working capital purposes was
$635,800.
On February 10, 2003, the Company hired a new chief financial officer, who was
subsequently approved during a Board meeting on February 14, 2003. The Board
approved an at-will contract for him and granted the new chief financial officer
options to purchase up to 375,000 shares of the Company's common stock at the
closing price on date of grant. The options vest over various time periods
based on certain performance criteria and expire six (6) years from grant date.
F-30
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 2003 2002
--------------------------------------------------------------- -------- ----------
ASSETS
CURRENT ASSETS
Cash $210,856 $ 310,269
Accounts receivable 220,841 33,980
Costs in excess of billings and estimated earnings (Note 2) 253,819 -
Total current assets 685,516 344,249
FIXED ASSETS - NET 131,475 2,151,025
CAPITALIZED SOFTWARE COSTS 69,005 207,016
OTHER ASSETS 31,536 104,517
$917,532 $2,806,807
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-31
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 2003 2002
----------------------------------------------------------------------- ------------- -------------
LIABILITIES AND STOCKHOLDERSDEFICIT
CURRENT LIABILITIES
Current portion of notes payable (Note 4) $ 55,392 $ 69,256
Current portion of capitalized lease obligations 28,382 32,134
Notes payable - related party (Note 4) 80,000 80,000
Convertible debt notes payable (Note 5) 229,955 -
Accounts payable and accrued expenses 321,911 284,973
Accrued payroll, vacation and related taxes 111,489 116,999
Customer deposits and deferred revenue 124,765 294,422
Billing in excess of costs incurred and estimated earnings (Note 2) - 231,864
Provision for anticipated loss (Note 2) 5,173 69,487
Income taxes payable 40,000 -
Other accrued liabilities (Note 3) - 150,000
Total current liabilities 997,067 1,329,135
NOTES PAYABLE, LESS CURRENT MATURITIES (NOTE 4) 76,552 2,372,381
CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES 3,979 21,550
NOTES PAYABLE - RELATED PARTY, LESS CURRENT MATURITIES (NOTE 4) 528,364 577,298
DEFERRED GAIN - SALE-LEASEBACK (NOTE 4) 1,153,175 -
DEFERRED REVENUE 5,000 5,000
Total liabilities 2,764,137 4,305,364
STOCKHOLDERSDEFICIT
Convertible preferred stock, $.0001 par value, 10,000,000 shares
authorized no shares issued or outstanding - -
Common stock, $.0001 par value; 25,000,000 shares authorized, and
15,338,907 and 14,858,396 shares issued and outstanding,
respectively 1,533 1,485
Additional paid-in capital (Note 6) 8,728,659 8,224,827
Additional paid-in capital - stock options 750,000 750,000
Deferred compensation (250,000) (250,000)
Accumulated deficit (11,076,797) (10,224,869)
Total stockholdersdeficit (1,846,605) (1,498,557)
$ 917,532 $ 2,806,807
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-32
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31, 2003% 2002%
------------------------------------------------- ------------ ------------
NET SALES $ 532,840 100% $ 949,770 100%
TOTAL COST OF SALES 461,610 87% 711,963 75%
GROSS MARGIN 71,230 13% 237,807 25%
------------------------------------------------- ------------ ---- ------------ ----
OPERATING EXPENSES
Marketing and sales expense 65,042 12% 26,245 3%
General and administrative 369,916 69% 185,722 20%
----
TOTAL OPERATING EXPENSES 434,958 82% 211,967 22%
------------------------------------------------- ------------ ---- ------------ ----
LOSS FROM OPERATIONS (363,728) -68% 25,840 3%
----
OTHER EXPENSE
Non-Cash Interest Expense Debt Discount (Note 5) (100,455) -19% - 0%
Interest expense (20,449) -4% (55,160) -6%
Gain on Building Sale (Note 4) 19,545 4% - 0%
----
TOTAL OTHER EXPENSE (101,359) -19% (55,160) -6%
------------------------------------------------- ------------ ---- ------------ ----
LOSS BEFORE INCOME TAXES $ (465,087) -87% $ (29,320) -3%
Income tax provision 40,000 8% $ - 0%
------------------------------------------------- ------------ ---- ------------ ----
NET LOSS (505,087) -95% (29,320) -3%
.
NET LOSS PER SHARE:
Net loss $ (0.03) $ 0.00
----------------------------------- ------------ ------------
Weighted-Average Shares Outstanding 15,092,489 14,825,377
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-33
SPACEDEV, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31, 2003 2002
---------------------------------------------------------- ------------ ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (505,087) $(29,320)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 57,696 48,465
Contributed assets - (16,251)
(Gain) loss on disposal of assets (19,545) 7,410
Non-cash interest expense - convertible debt program 100,455 -
Change in operating assets and liabilities: (364,573) 95,435
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (731,054) 105,739
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of assets 3,150,124 -
Purchases of fixed assets (3,100) -
---------------------------------------------------------- ------------ ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 3,147,024 -
CASH FLOWS FROM FINANCING ACTIVITIES
Principle payments on notes payable (2,509,853) (1,715)
Principal payments on capitalized lease obligations (8,853) (5,392)
Payments on notes payable - related party (139,998) (20,000)
Proceeds from issuance of common stock 425,942 20,000
NET CASH USED IN FINANCING ACTIVITIES (2,232,762) (7,107)
Net increase in cash 183,208 98,632
CASH AT BEGINNING OF PERIOD 27,648 211,637
---------------------------------------------------------- ------------ ---------
CASH AT END OF PERIOD $ 210,856 $310,269
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-34
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D.
(UNAUDITED)
Three Months Ended March 31, 2003 2002
--------------------------------------------------- ------ -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $8,157 $43,094
NONCASH INVESTING AND FINANCING ACTIVITIES:
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-35
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
SpaceDev Oklahoma. 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 28, 2003 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, 2003
are not necessarily indicative of results that may be expected for the fiscal
year ending December 31, 2003 or any future period, and the Company makes no
representations related thereto.
The accompanying condensed consolidated financial statements as of March 31,
2003 and 2002 have been prepared assuming the Company will continue as a going
concern. Even though the Company reduced its working capital deficit with the
sale and leaseback of its facility, the Company had a working capital deficit of
approximately $300,000 as of March 31, 2003, and incurred a net loss of
approximately $465,000 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 2003, management raised approximately $426,000 through
a private equity placement and concluded a transaction to sell its facility and
lease it back for a ten (10) year period. Subsequent to March 2003, management
intends to obtain new commercial and government contracts and to seek additional
financing through a combination of public and private debt or equity placements,
commercial project financing and government programs to fund future operations
and commitments. There is no assurance that new contracts or additional debt or
equity financing needed to fund operations will be available 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.
F-36
Beginning in second quarter 2002, capitalized software costs are amortized over
their estimated useful lives using the straight-line method. Periodically and
at least annually, management performs a review for impairment in accordance
with SFAS No. 144.
2. REVENUE RECOGNITION
In November 1999, SpaceDev was awarded a $4.9 million 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 $860,000 based on the expected contract modification of $600,000,
which was approved on June 15, 2001. Pursuant to a series of subsequent
modifications, the total value of the CHIPSat project was increased to
approximately $7.4 million. The total expected loss on the contract is
approximately $514,000. As of March 31, 2003, approximately 99% of the total
contract costs were expended and the remaining loss on the balance sheet at
March 31, 2003 totaled approximately $5,200. There are also costs in excess of
billings totaling approximately $81,000 as of March 31, 2003. The CHIPSat
contract is expected to conclude in January 2004.
In September 2001, the Company was awarded a contract for a proprietary
propulsion research program valued in excess of $1.0 million. As a part of that
program, the Company is competing with another party to design a space
propulsion system. The entire contract, which will be awarded based upon the
submitted designs, is valued at approximately $2.2 million. Work on this
project generated approximately $1.2 million in revenues during 2002. To date,
the Company has recognized approximately $23,000 of gross margin on this
contract and as of March 31, 2003 there were costs in excess of billings
totaling approximately $173,000. The Company reviewed the contract status in
the fourth quarter of 2002, to evaluate changes to the total estimated costs to
complete the contract due to schedule delays, as a result the overall gross
margin on this contract was reduced from approximately $388,000 to approximately
$28,000 of which approximately $22,000 has been placed in deferred revenue
pending further reviews on this program. This adjustment was recorded in the
fourth quarter of 2002.
3. OTHER ACCRUED LIABILITIES
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 paid this debt in January 2003 with the proceeds from the sale of the
building. (See Note 4(a)).
F-37
4. NOTES PAYABLE
a. Building and Settlement Notes
In December 2002, the Company entered an agreement to sell its interest in its
facility. The transaction closed in January 2003. The escrow transaction
included the sale of the land and building. Net fixed assets were reduced by
approximately $1.9 million and notes payable were reduced by approximately $2.4
million while a deferred gain was recorded. Mr. Benson provided a guarantee for
the leaseback.In conjunction with the sale, the Company entered into a lease
agreement with the buyer to leaseback its facilities. The gain on the sale of
the facility was deferred and amortized in proportion to the gross rental
charged to expense over the lease term. Deferred gain of $1,172,720 is being
amortized at the rate of $117,272 per year for ten (10) years ending in January
2013. As of March 31, 2003, the deferred gain was 1,153,175. This amortization
will be included in the Company's occupancy and facility expense and totaled
$19,545 as of March 31, 2003.
Deferred Gain consisted of the following:
Period Ended March 31, 2003
Deferred Gain $1,172,720
Less Amortization to date (19,545)
------------------------- ----------------------------
$1,153,175
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, 2003,
the outstanding balances on these notes were $131,944 with future interest
expense of $5,195.
Future minimum principal payments on notes payable, building and settlement
notes are as follows:
Period Ended March 31,
2003 $55,392
2004 40,770
2005 35,782
Total Settlement Notes $131,944
F-38
4. Notes Payable cont.
b) Related Parties
The Company had notes payable to the CEO. At March 31, 2003 and 2002, the
balances were $608,364 and $657,298, 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%.
Future minimum principal payments on notes payable, related parties are as
follows:
Period Ended March 31,
2004 80,000
2005 80,000
2006 80,000
2007 80,000
Thereafter 208,364
$608,364
Interest expense on these notes was $9,866 and $12,066 for the three months
ended March 31, 2003 and 2002, respectively.
5. CONVERTIBLE DEBT NOTES PAYABLE
From October 14, 2002 through November 14, 2002, the Company sold an aggregate
of $475,000 of 2.03% convertible debentures to various director's and officers
of the Company. The total funding was completed on November 14, 2002. The
convertible debentures entitle the holder to convert the principal and unpaid
accrued interest into the Company's common stock when the note matures. The
maturity on the notes was six (6) months from issue date. On March 25, 2003, an
amendment was executed which extend these notes an additional six (6) months.
The convertible debentures are exercisable into a number of the Company's common
shares at a conversion price that equals the 20-day average ask price less 10%,
which was, established when the note was issued, or the initial conversion
price.
Concurrent with the issuance of the convertible debentures, the Company issued
warrants to purchase up to 1,229,705 shares of our common stock to the
subscribers. These warrants are exercisable for three (3) years from the date
of issuance at the initial exercise price which is equal to the 20-day average
ask price less 10% which was established when the note was issued, or the
initial conversion price of the notes. Upon issuance, the issued warrants were
valued using the Black-Scholes pricing model based on the expected fair value at
issuance and the estimated fair value was recorded as debt discount.
As a result of the change to the maturity date of the convertible debt, the
amortization period for the debt discounts was also extended during the first
quarter in 2003.
F-39
5. Convertible Debt Notes Payable cont.
All debt discounts are to be amortized as additional interest expense over the
term of the convertible debenture. As of March 31, 2003, $475,000 has been
reflected as debt discount of which $100,455 was amortized to non-cash interest
expense for the first three months ended March 31, 2003.
Convertible debentures $ 475,000
Accrued interest 4,500
Less debt discount
Total 475,000
Amount amortized to expense (225,455) (249,545)
-------- ---------
Net convertible debt payable at March 31, 2003 $229,955
6. STOCKHOLDERS' EQUITY - COMMON STOCK AND WARRANTS
On November 5, 2000, the Company commenced a private placement offering ("PPO")
for a maximum of 1,000,000 shares of the Company's $0.0001 par value common
stock and warrants to purchase an addition 1,000,000 shares of common stock (the
"Units"). The offering price of the Units was the five-day average of the bid
and ask prices for the Company's common stock on the date of issuance, with a
minimum per Unit price of $1.00. The warrants allowed the holder to acquire
additional shares at $0.50 above the offering price of the shares. The Company
sold to one related-party investor under these terms.
On March 2, 2001, the PPO offering price was amended to the average of the high
bid prices on the date of issuance and four preceding days, with no minimum per
share price, and the warrants were amended to allow the holder to acquire
additional shares at the Unit price.
The Company sold 153,060 Units under the PPO during 2002. The Company received
$75,000 for the Units sold under the PPO during 2002.
On January 16, 2003 and February 14, 2003, pursuant to an extension of the PPO,
the Company sold 665,188 and 196,079 Units. The Company received approximately
$326,000 and $100,000 for the Units sold under the PPO during the first quarter
2003.
The Company has elected to account for its stock-based compensation plans under
APB 25. However, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during period ending March 31, 2003 and 2002
using the minimum value method as prescribed by SFAS 123. Under this method,
the Company used the risk-free interest rate at date of grant, the expected
volatility, the expected dividend yield and the expected life of the options to
determine the fair value of options granted. The risk-free interest rates
ranged from 6.0% to 6.5%; expected volatility of 117% and the dividend yield was
assumed to be zero, and the expected life of the options was assumed to be three
to five years based on the average vesting period of options granted.
F-40
6. Stockholders' Equity - Common Stock and Warrants cont.
If the Company had accounted for these options in accordance with SFAS 123, the
total value of options granted during period ending March 31, 2003 and 2002
would be amortized on a pro forma basis over the vesting period of the options.
Thus, the Company's consolidated net loss would have been as follows:
Period Ended March 31, 2003 2002
---------- ---------
Net loss:
----------------------
As reported $(505,087) $(29,320)
Pro forma $(578,932) $(93,190)
Loss per Share:
----------------------
As reported $ (.03) $ (.00)
Pro forma $ (.04) $ (.01)
7. NEW ACCOUNTING PRONOUNCEMENTS
There were no recent Accounting Pronouncements that effect the Company during
the first quarter 2003. For past pronouncements please refer the company's
10KSB filed on March 28, 2003.
8. SUBSEQUENT EVENTS
The Sarbanes-Oxley Act of 2002 ("Act") established the Public Company Accounting
Oversight Board ("PCAOB") and charged it with the responsibility of overseeing
the audits of public companies that are subject to the federal securities laws.
Under the Act, the PCAOB's duties include the establishment of a registration
system for public accounting firms. The PCAOB has proposed rules for the
registration process, which will require approval of the U.S. Securities
Commission ("SEC") prior to enforcement. Within 180 days after SEC approval, all
public accounting firms will be required to register with the PCAOB if they wish
to prepare or issue audit reports on U.S. public companies, or to play a
substantial role in the preparation or issuance of such reports. Once
registered, public accounting firms will be required to file periodic reports
with the PCAOB. At this time, the cost of compliance with these new rules cannot
be determined, and, as a result of the recent legislation, the cost of
professional liability insurance for public accounting firms has dramatically
increased. We have been informed by our independent auditor, Nation Smith Hermes
& Diamond ("Nation Smith"), that it will not register with the PCAOB and, as a
result, will not be able to continue to act as our independent auditor once the
rules are in effect. Although we anticipate that Nation Smith will be available
to review our financial statements for the second quarter of 2003, we have begun
interviewing with other accounting firms to review our second and third quarter
financials and prepare the audit report for the fiscal year ending December 31,
2003.
F-41
No dealer, sales person or other SPACEDEV, INC.
individual has been authorized to
give any information or make any 3,214,261 SHARES
representations other than those
contained in this prospectus and, if OF
given or made, such information or
representations must not be relied COMMON STOCK
upon as having been authorized by
the Company. This prospectus does
not constitute an offer to sell, or a
solicitation of an offer to buy, the PROSPECTUS
Notes offered hereby in any
jurisdiction where, or to any person
to whom, it is unlawful to make an
offer or solicitation. Neither the
delivery of this prospectus nor any
sale made hereunder shall, under
any circumstances, create an
implication that there has been any
change in the affairs of the
Company since the date hereof or
that the information contained
herein is correct or complete as of
any time subsequent to the date
hereof.
JULY 25, 2003
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Articles of Incorporation provide that our directors, officers,
employees or agents shall be indemnified as to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, as long as the director, officer, employee or agent acted in good
faith and in a manner reasonably believed to be in the best interests of the
corporation. No indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his/her duty.
In addition, our Articles of Incorporation and Bylaws obligate us to
indemnify our directors and officers against expenses and other amounts
reasonably incurred in connection with any proceeding arising from the fact that
such person is or was an agent of ours. Our Articles of Incorporation and
Bylaws also authorize us to purchase and maintain insurance on behalf of any of
our directors or officers against any liability asserted against that person in
that capacity, whether or not we would have the power to indemnify that person.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses payable in connection with the distribution of the securities
being registered (estimated except for the registration fee), all of which will
be borne by the registrant, are as follows:
Securities and Exchange Commission Registration Fee $ 143
Printing Expenses $ 500
Legal Fees and Expenses $10,000
Accounting Fees $ 5,000
Miscellaneous Expenses $ 500
Total $16,143
=================================================== =======
RECENT SALES OF UNREGISTERED SECURITIES
On March 2, 2001, we issued 50,000 shares of its common stock to its former
president, Mr. Stanley W. Dubyn, according to the terms of his employment
agreement with us. The common stock was issued with restrictions pursuant to
Section 4(2) of the Securities Act. Mr. Dubyn resigned his positions as our
president, chief operating officer and director on July 6, 2001.
II-1
During the first quarter of 2001, we issued a total of 17,247 shares to
consultants in exchange for services rendered to us. The shares were issued with
restrictions pursuant to Section 4(2) of the Securities Act.
In April 2001, we issued 66,667 shares of common stock and warrants to purchase
an additional 66,667 shares of common stock at an exercise price of $0.75 per
share to an individual investor in exchange for an investment of $50,000. 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.
During the second quarter of 2001, we issued a total of 500,000 shares to
EMC Holdings Corporation pursuant to Section 4(2) of the Securities Act for
certain consulting services. Due to teh failure of performance by EMC under the
consulting and advisory agreements between EMC and the Company, EMC's engagement
was terminated in late 2001, and the shares were recovered by us in arbitration.
On June 12, 2001 we issued 33,333 shares of common stock and warrants to
purchase an additional 33,333 shares of common stock at an exercise price of
$0.75 per share to an individual investor in exchange for an investment of
$25,000. 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.
On June 20, 2001 we issued 33,333 shares of common stock and warrants to
purchase an additional 33,333 shares of common stock at an exercise price of
$0.75 per share to an individual investor in exchange for an investment of
$25,000. 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.
On August 11, 2001, we 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 our 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 September 18, 2001, we 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.
During 2001, we issued a total of 105,599 shares to consultants, employees
and summer interns in exchange for services rendered to us and awards given by
us. The shares were issued with restrictions pursuant to Section 4(2) of the
Securities Act.
On November 21, 1997, we entered into a five-year employment agreement with
its President, James W. Benson. This agreement provides for compensation of
II-2
salary and stock as well as stock options. Our Board of Directors amended the
Employment contract for Mr. Benson at its meeting on July 16, 2000. The amended
agreement provides for the grant of options to purchase up to 4,000,000 shares
of our common stock upon the occurrence of certain events. Such options would be
immediately exercisable upon grant. The options are non-statutory stock options
issued outside of our 1999 Incentive Stock Option Plan and were originally
granted to Mr. Benson pursuant to Rule 701 of the Securities Act.
On March 14, 2002, we 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.
On August 9, 2002, we issued 30,612 shares of common stock and warrants to
purchase an additional 30,612 shares of common stock at an exercise price of
$0.49 per share to an individual investor in exchange for an investment of
$15,000. 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.
From October 14, 2002 through November 14, 2002, we sold an aggregate of
$475,000 of 2.03% convertible debentures to three of our directors and officers
pursuant to Section 4(2) of the Securities Act. Mr. Benson purchased $375,000
of Series A Subordinated Convertible Notes and Messrs. Shaffer and Skarupa
purchased $50,000 each. The total funding was completed on November 14, 2002.
The convertible debentures entitle the holder to convert the principal and
unpaid accrued interest into our common stock when the note matures. The notes
originally were set to mature six (6) months from issue date and were
subsequently extended to twelve (12) months from issue date on March 19, 2003,
unless paid, extended or re-negotiated, the convertible debentures are
exercisable into a number of our common shares at a conversion price that equals
the 20-day average asking price less 10%, which was established when the note
was issued, or the initial conversion price. Concurrent with the issuance of the
convertible debentures, we issued to the subscribers, warrants to purchase up to
1,229,705 shares of our common stock. These warrants are exercisable for three
(3) years from the date of issuance at the initial exercise price, which equals
to the 20-day average asking price less 10% which was established when the note
was issued, or the initial conversion price.
During 2002, we issued a total of 7,000 shares to employees and summer
interns in exchange for services rendered to us and awards given by us. The
shares were issued with restrictions pursuant to Section 4(2) of the Securities
Act.
On December 2, 2002, we issued 81,632 shares of common stock and warrants
to purchase an additional 81,632 shares of common stock at an exercise price of
$0.49 per share to two individual investors in exchange for an investment of
$40,000. 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.
II-3
On January 21, 2003, we issued 665,188 shares of common stock and warrants
to purchase an additional 665,188 shares of common stock at an exercise price of
$0.49 per share to an individual investor in exchange for an investment of
$325,942. 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.
On February 14, 2003, we issued 196,079 shares of common stock and warrants
to purchase an additional 196,079 shares of common stock at an exercise price of
$0.51 per share to an individual investor in exchange for an investment of
$100,000. 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.
On June 3, 2003, we issued warrants to purchase 200,000 shares of common
stock to Laurus Master Fund Ltd. The warrants were issued in three tranches:
warrants on 125,000 shares of common stock at an exercise price of $0.63 per
share; warrants on 50,000 shares of common stock at an exercise price of $0.69
per share; and warrants on 25,000 shares of common stock at an exercise price of
$0.80 per share.
In July 2003, we issued a total of 2,100 shares to employees in exchange
for services rendered to us and awards given by us. The shares were issued with
restrictions pursuant to Section 4(2) of the Securities Act.
II-4
EXHIBITS
ITEM EXH. NO.
--------------------------------------------------------------------------------------------------------------------
SpaceDev's Articles of Incorporation(1) 3.1
SpaceDev's Articles of Amendment to Articles of Incorporation dated November 4, 1997
Authorizing Series B Preferred Stock(1) 3.2
SpaceDev's Articles of Amendment to Articles of Incorporation dated December 17, 1997
Changing Name to SpaceDev, Inc. (1) 3.3
SpaceDev's Bylaws(1) 3.4
SpaceDev's Articles of Amendment to Articles of Incorporation dated July 21, 2003
Increasing the Authorized Shares of Common Stock 3.5
Form of Common Stock Certificate(1) 4.1
Form of Non-Qualified Stock Option(1) 4.2
Form of Incentive Stock Option(1) 4.3
Form of Re-Pricing Warrant(1) 4.4
Form of Warrant(1) 4.5
1999 Stock Option Plan(1) 4.6
1999 Employee Stock Purchase Plan 4.8
Form of Warrant from November 2, 2000 Private Placement (4) 4.9
Common Stock Purchase Warrant-Phillips Aerospace (4) 4.10
Note Purchase Agreement for Series A Subordinated Convertible Notes (6) 4.11
Form of Series A Subordinated Convertible Note (6) 4.12
Form of Warrant for Series A Subordinated Convertible Note Offering (6) 4.13
Amendment to 1999 Stock Option Plan 4.14
Opinion of Weintraub Dillon 5.1
Common Stock Exchange Agreement Between SpaceDev and SIL (1) 10.1
Mutual Rescission and Release of Share Acquisition Agreement (1) 10.2
Share Exchange Agreement Between SpaceDev and ISS (1) 10.3
Agreement of License and Purchase of Technology Between SpaceDev and AMROC (1) 10.4
Firm Fixed Price Agreement Number 108252 Between SpaceDev and Regents of the
University of California (1) 10.5
Employment Agreement between ISS and Charles H. Lloyd (1) 10.6
Employment Agreement of James W. Benson (2) 10.7
Deed of Counter-Indemnity dated August 28, 1999 (3) 10.8
II-5
Financial Advisory Services Agreement, dated June 18, 2001 (5) 10.9
Consultant/Advisory Services Agreement, dated June 18, 2001 (5) 10.10
Employment Agreement between SpaceDev, Inc. and Stuart Schaffer, dated
May 17, 2002(7) 10.11
Employment Agreement between SpaceDev, Inc. and Emery Skarupa, dated
May 24, 2002(7) 10.12
Confidential Separation Agreement and General Release of Claims, dated
May 31, 2002(7) 10.13
Code of Business Conduct and Ethics(7) 10.14
Employment Agreement between SpaceDev and Richard B. Slansky, dated
February 10, 2003(7) 10.15
Second Amendment to Series A Subordinated Convertible Note - Benson1, dated
March 25, 2003(7) 10.16
Second Amendment to Series A Subordinated Convertible Note - Benson2, dated
March 25, 2003(7) 10.17
Second Amendment to Series A Subordinated Convertible Note - Benson3, dated
March 25, 2003(7) 10.18
Second Amendment to Series A Subordinated Convertible Note - Benson4, dated
March 25, 2003(7) 10.19
Second Amendment to Series A Subordinated Convertible Note - Skarupa, dated
March 25, 2003(7) 10.20
Second Amendment to Series A Subordinated Convertible Note - Schaffer, dated
March 25, 2003(7) 10.21
Security Agreement, dated as of June 3, 2003, by and between SpaceDev, Inc.
("SpaceDev") and Laurus Master Fund, Ltd. ("Laurus")(9) 10.22
Secured Convertible Note, dated June 3, 2003, by and among SpaceDev and
Laurus(9) 10.23
Common Stock Purchase Warrant, dated June 3, 2003, issued by SpaceDev to
Laurus(9) 10.24
Registration Rights Agreement, dated as of June 3, 2003, by and between SpaceDev
and Laurus(9) 10.25
Waiver Letter, dated June 3, 2003, by and between SpaceDev and Laurus(9) 10.26
Separation Agreement and General Release, by and between SpaceDev and
Stuart Schaffer dated July 2, 2003 10.27
Letter from Nation Smith dated June 4, 2003(8) 16.1
Consent of Independent Auditor 23.1
Consent of Weintraub Dillon PC (included in Exhibit 5.1 hereto) 23.2
II-6
____________________
(1) Incorporated by reference to the corresponding Exhibit previously filed
as an Exhibit to Registrant's Form 10-SB (File #000-28947).
(2) Incorporated by reference to Exhibit 10.1 previously filed as an Exhibit
to Registrant's Form 10-QSB filed on August 10, 2000.
(3) Incorporated by reference to Exhibit 10.2 previously filed as an Exhibit
to Registrant's Form 8-K filed on September 20, 2000.
(4) Incorporated by reference to the corresponding Exhibit previously filed
as an Exhibit to Registrant's Form 10-KSB filed on April 2, 2001.
(5) Incorporated by reference to Exhibits 10.1 and 10.2 previously filed as
an Exhibit to Registrant's Form 8-K filed on July 19, 2001.
(6) Incorporated by reference to Exhibits 4.1, 4.2 and 4.3 previously filed
as an Exhibit to Registrant's Form 10-QSB filed on November 14, 2002.
(7) Incorporated by reference to the corresponding Exhibit previously filed
as an Exhibit to Registrant's Form 10-KSB filed on March 28, 2003.
(8) Incorporated by reference to Exhibits 16.1 previously filed as an
Exhibit to Registrant's Form 8-K filed on June 4, 2003.
(9) Incorporated by reference to Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5
previously filed as an Exhibit to Registrant's Form 8-K filed on June 18, 2003.
II-7
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) to include any additional or changed material information on the
plan of distribution.
Provided however, that paragraphs (1)(i) and (1)(ii) shall not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) For determining liability under the Securities Act of 1933, to treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or controlling
persons of the registrant pursuant to the foregoing provisions or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
II-8
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-9
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 to be signed on its
behalf by the undersigned, in the City of San Diego, California, on the 25th day
of July 2003.
SpaceDev, Inc.
By: /s/ James W. Benson
-------------------------------------------------
James W. Benson, Chief Executive Officer
By: /s/ Richard B. Slansky
-------------------------------------------------
Richard B. Slansky, Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors
of SpaceDev, Inc., a Colorado corporation that is filing a registration
statement on Form SB-2 with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933, as amended, hereby constitute and
appoint James W. Benson and Richard B. Slansky, and each of them, their true and
lawful attorneys-in-fact and agents; with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign such registration statement and any or all amendments to the
registration statement, including a prospectus or an amended prospectus therein,
and all other documents in connection therewith to be filed with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all interests and purposes as they might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
following capacities on the dates indicated.
Name Title Date
--------------------------------------------------------------- -------------
/s/ James W. Benson Chairman of the Board, Chief Exec July 25, 2003
---------------------- Officer and Director (principal
James W. Benson executive officer)
/s/ Richard B. Slansky Chief Financial Officer and Corporate July 25, 2003
---------------------- Secretary
Richard B. Slansky
II-10
/s/ Curt Dean Blake Director July 25, 2003
----------------------------
Curt Dean Blake
/s/ Howell M. Estes, III Director July 25, 2003
----------------------------
Howell M. Estes, III
/s/ J. Mark Grosvenor Director July 25, 2003
----------------------------
J. Mark Grosvenor
/s/ Wesley T. Huntress Director July 25, 2003
----------------------------
Wesley T. Huntress
/s/ Scott McClendon Director July 25, 2003
----------------------------
Scott McClendon
/s/ Stuart Schaffer Director July 25, 2003
----------------------------
Stuart Schaffer
/s/ Robert S. Walker Director July 25, 2003
----------------------------
Robert S. Walker
INDEX TO EXHIBITS FILED WITH THIS REGISTRATION STATEMENT
DESCRIPTION NUMBER
----------- ------
ITEM EXH. NO.
---- ---------
SpaceDev's Articles of Incorporation(1) 3.1
SpaceDev's Articles of Amendment to Articles of Incorporation dated November 4, 1997
Authorizing Series B Preferred Stock(1) 3.2
SpaceDev's Articles of Amendment to Articles of Incorporation dated December 17, 1997
Changing Name to SpaceDev, Inc. (1) 3.3
SpaceDev's Bylaws(1) 3.4
II-11
SpaceDev's Articles of Amendment to Articles of Incorporation dated July 21, 2003
Increasing the Authorized Shares of Common Stock 3.5
Form of Common Stock Certificate(1) 4.1
Form of Non-Qualified Stock Option(1) 4.2
Form of Incentive Stock Option(1) 4.3
Form of Re-Pricing Warrant(1) 4.4
Form of Warrant(1) 4.5
1999 Stock Option Plan(1) 4.6
1999 Employee Stock Purchase Plan 4.8
Form of Warrant from November 2, 2000 Private Placement (4) 4.9
Common Stock Purchase Warrant-Phillips Aerospace (4) 4.10
Note Purchase Agreement for Series A Subordinated Convertible Notes (6) 4.11
Form of Series A Subordinated Convertible Note (6) 4.12
Form of Warrant for Series A Subordinated Convertible Note Offering (6) 4.13
Amendment to 1999 Stock Option Plan 4.14
Opinion of Weintraub Dillon 5.1
Common Stock Exchange Agreement Between SpaceDev and SIL (1) 10.1
Mutual Rescission and Release of Share Acquisition Agreement (1) 10.2
Share Exchange Agreement Between SpaceDev and ISS (1) 10.3
Agreement of License and Purchase of Technology Between SpaceDev and AMROC (1) 10.4
Firm Fixed Price Agreement Number 108252 Between SpaceDev and Regents of the
University of California (1) 10.5
Employment Agreement between ISS and Charles H. Lloyd (1) 10.6
Employment Agreement of James W. Benson (2) 10.7
Deed of Counter-Indemnity dated August 28, 1999 (3) 10.8
Financial Advisory Services Agreement, dated June 18, 2001 (5) 10.9
Consultant/Advisory Services Agreement, dated June 18, 2001 (5) 10.10
Employment Agreement between SpaceDev, Inc. and Stuart Schaffer, dated
May 17, 2002(7) 10.11
Employment Agreement between SpaceDev, Inc. and Emery Skarupa, dated
May 24, 2002(7) 10.12
Confidential Separation Agreement and General Release of Claims, dated
May 31, 2002(7) 10.13
Code of Business Conduct and Ethics(7) 10.14
II-12
Employment Agreement between SpaceDev and Richard B. Slansky, dated
February 10, 2003(7) 10.15
Second Amendment to Series A Subordinated Convertible Note - Benson1, dated
March 25, 2003(7) 10.16
Second Amendment to Series A Subordinated Convertible Note - Benson2, dated
March 25, 2003(7) 10.17
Second Amendment to Series A Subordinated Convertible Note - Benson3, dated
March 25, 2003(7) 10.18
Second Amendment to Series A Subordinated Convertible Note - Benson4, dated
March 25, 2003(7) 10.19
Second Amendment to Series A Subordinated Convertible Note - Skarupa, dated
March 25, 2003(7) 10.20
Second Amendment to Series A Subordinated Convertible Note - Schaffer, dated
March 25, 2003(7) 10.21
Security Agreement, dated as of June 3, 2003, by and between SpaceDev, Inc.
("SpaceDev") and Laurus Master Fund, Ltd. ("Laurus")(9) 10.22
Secured Convertible Note, dated June 3, 2003, by and among SpaceDev and
Laurus(9) 10.23
Common Stock Purchase Warrant, dated June 3, 2003, issued by SpaceDev to
Laurus(9) 10.24
Registration Rights Agreement, dated as of June 3, 2003, by and between SpaceDev
and Laurus(9) 10.25
Waiver Letter, dated June 3, 2003, by and between SpaceDev and Laurus(9) 10.26
Separation Agreement and General Release, by and between SpaceDev and
Stuart Schaffer dated July 2, 2003 10.27
Letter from Nation Smith dated June 4, 2003(8) 16.1
Consent of Independent Auditor 23.1
Consent of Weintraub Dillon PC (included in Exhibit 5.1 hereto) 23.2
____________________
(1) Incorporated by reference to the corresponding Exhibit previously filed
as an Exhibit to Registrant's Form 10-SB (File #000-28947).
(2) Incorporated by reference to Exhibit 10.1 previously filed as an Exhibit
to Registrant's Form 10-QSB filed on August 10, 2000.
(3) Incorporated by reference to Exhibit 10.2 previously filed as an Exhibit
to Registrant's Form 8-K filed on September 20, 2000.
(4) Incorporated by reference to the corresponding Exhibit previously filed
as an Exhibit to Registrant's Form 10-KSB filed on April 2, 2001.
II-13
(5) Incorporated by reference to Exhibits 10.1 and 10.2 previously filed as
an Exhibit to Registrant's Form 8-K filed on July 19, 2001.
(6) Incorporated by reference to Exhibits 4.1, 4.2 and 4.3 previously filed
as an Exhibit to Registrant's Form 10-QSB filed on November 14, 2002.
(7) Incorporated by reference to the corresponding Exhibit previously filed
as an Exhibit to Registrant's Form 10-KSB filed on March 28, 2003.
(8) Incorporated by reference to Exhibits 16.1 previously filed as an
Exhibit to Registrant's Form 8-K filed on June 4, 2003.
(9) Incorporated by reference to Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5
previously filed as an Exhibit to Registrant's Form 8-K filed on June 18, 2003.
II-14