FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20429
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number 000-28947 .
-----------------
SPACEDEV, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1374613
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13855 Stowe Drive, Poway, California 92064
(Address of principal executive offices)
(Issuer's telephone number) (858) 375-2011.
---------------
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Checkmark whether the issuer (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 14,891,008 shares of Issuer's voting
common stock were outstanding on August 12, 2002.
SPACEDEV, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2002
INDEX PAGE
----- ----
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)....................................1
Condensed Consolidated Balance Sheets at June 30, 2002 and 2001.............1
Condensed Consolidated Statements of Operations for June 30, 2002 and 2001..3
Condensed Consolidated Statements of Cash Flows for June 30, 2002 and 2001..4
Notes to Condensed Consolidated Financial Statements........................6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................11
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings....................................................20
ITEM 2. Changes in Securities................................................20
ITEM 3. Defaults Upon Senior Securities......................................21
ITEM 4. Submission of Matters to Vote of Security Holders....................21
ITEM 5. Other Information....................................................21
ITEM 6. Exhibits and Reports on Form 8-K.....................................21
Signatures....................................................................22
ii
ITEM 1. FINANCIAL STATEMENTS
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 2002 2001
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 135,370 $ 79,428
Accounts receivable 201,331 85,535
Other current assets - 416,474
--------------------------------------------------------------------------------
Total current assets 336,701 581,437
FIXED ASSETS - NET 2,130,306 2,208,700
INTANGIBLE ASSETS - NET - 1,142,902
CAPITALIZED SOFTWARE COSTS - NET (NOTE 1) 172,513 207,016
OTHER ASSETS 158,292 118,489
--------------------------------------------------------------------------------
$ 2,797,812 $ 4,258,544
================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
1
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 2002 2001
--------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current portion of notes payable (Note 3(a)) $ 218,257 $ 13,000
Current portion of capitalized lease obligations 37,604 57,598
Current portion of notes payable - related party (Note 3(b)) 80,000 85,000
Accounts payable and accrued expenses 226,659 727,343
Accrued payroll, vacation and related taxes 145,581 167,491
Other accrued liabilities -- 150,000
Customer deposits and deferred revenue 238,362 178,794
Billings in excess of costs incurred and estimated earnings (Note 2) 441,720 260,257
Provision for anticipated loss (Note 2) 47,341 565,410
--------------------------------------------------------------------------------------------------------------
Total current liabilities 1,435,524 2,204,893
NOTES PAYABLE, LESS CURRENT MATURITIES (NOTE 3(A)) 2,350,797 2,267,108
CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES 23,780 64,704
NOTES PAYABLE - RELATED PARTY, LESS CURRENT MATURITIES (NOTE 3(B)) 568,865 599,600
DEFERRED REVENUE 5,000 5,000
--------------------------------------------------------------------------------------------------------------
Total liabilities 4,383,966 5,141,305
STOCKHOLDERS' DEFICIT
Convertible preferred stock, $.001 par value, 10,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.0001 par value; 50,000,000 shares
authorized; 14,858,396 and 14,705,809 shares issued and
Outstanding, respectively 1,485 1,470
Additional paid-in capital 8,224,827 8,042,986
Additional paid-in capital - stock options 750,000 750,000
Deferred compensation (250,000) (250,000)
Accumulated deficit (10,312,466) (9,427,217)
--------------------------------------------------------------------------------------------------------------
Total stockholders' deficit (1,586,154) (882,761)
--------------------------------------------------------------------------------------------------------------
$ 2,797,812 $ 4,258,544
==============================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
THREE AND SIX MONTHS ENDED JUNE 30, 2002 2001 2002 2001
------------------------------------------------------------------------------------------------------------
NET SALES $ 862,638 $ 940,928 $ 1,812,408 $ 1,478,188
Cost of Sales 729,614 520,575 1,441,577 903,946
------------------------------------------------------------------------------------------------------------
GROSS MARGIN 133,024 420,353 370,831 574,242
OPERATING EXPENSES
General and administrative 155,768 655,516 390,345 1,122,198
Stock and stock option based
compensation -- 112,555 -- 173,401
------------------------------------------------------------------------------------------------------------
TOTAL GENERAL AND ADMINISTRATIVE
EXPENSES 155,768 768,071 367,736 1,295,599
Research and development -- -- -- 198,400
------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 155,768 768,071 367,736 1,493,999
------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (22,744) (347,718) 3,095 (919,757)
OTHER EXPENSE
Interest expense 64,852 81,086 120,012 167,782
------------------------------------------------------------------------------------------------------------
NET LOSS $ (87,596) $ (428,804) $ (116,917) $ (1,087,539)
============================================================================================================
NET LOSS PER SHARE:
Net loss ($ 0.01) ($ 0.03) ($ 0.01) ($ 0.08)
============================================================================================================
Weighted-Average Shares Outstanding 14,858,396 14,162,586 14,842,070 14,117,780
============================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2002 2001
-------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (116,917) $(1,087,539)
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Depreciation and amortization 134,240 436,178
Contributed assets (16,251) --
Loss on disposal of assets 7,410 --
Common stock and stock options issued for compensation
and services -- 582,901
Change in operating assets and liabilities (13,286) (137,045)
-------------------------------------------------------------------------------------------------
NET CASH (USED IN) OPERATING ACTIVITIES (4,804) (205,505)
-------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets -- (9,503)
-------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments on notes payable (Note 3(a)) (34,303) (500)
Net Payments on capital lease obligations (17,160) (29,688)
Net payments on notes payable - related party (Note 3(b)) (40,000) (34,999)
Proceeds from issuance of common stock 20,000 100,000
-------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (71,463) 34,813
-------------------------------------------------------------------------------------------------
Net (decrease) in cash (76,267) (180,195)
CASH AT BEGINNING OF PERIOD 211,637 259,623
-------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 135,370 $ 79,428
=================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D.
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2002 2001
-----------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 124,012 $ 204,290
NONCASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 2002 and 2001, the Company issued 0 and
567,247 shares of stock for services and recorded expenses of $0 and
$106,346, respectively.
In April 2001, the Company issued 80,000 stock options for the acquisition
of Explorespace.com, and recorded expenses of $67,055.
===============================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
SPACEDEV, INC. AND SUBSIDIARIES
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 the newly formed SpaceDev, Inc., an Oklahoma corporation. In the opinion of
management, the condensed consolidated financial statements reflect all normal
and recurring adjustments, which are necessary for a fair presentation of the
Company's financial position, results of operations and cash flows as of the
dates and for the periods, presented. The condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information. Consequently, these statements do
not include all disclosures normally required by generally accepted accounting
principles of the United States of America for annual financial statements nor
those normally made in an Annual Report on Form 10-KSB. Accordingly, reference
should be made to the Company's Form 10-KSB filed on March 29, 2002 and other
reports the Company filed with the U.S. Securities and Exchange Commission for
additional disclosures, including a summary of the Company's accounting
policies, which have not materially changed. The consolidated results of
operations for the six months ended June 30, 2002 are not necessarily indicative
of results that may be expected for the fiscal year ending December 31, 2002 or
any future period, and the Company makes no representations related thereto.
The accompanying condensed consolidated financial statements as of June
30, 2002 and 2001 have been prepared assuming the Company will continue as a
going concern. However, the Company had a working capital deficit of $1,098,823
as of June 30, 2002, and incurred a net loss of $116,917 for the six months then
ended. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. During the first six months of 2002, management
raised $20,000 through a private equity placement. Subsequent to June 2002,
management intends to continue to raise additional financing through a
combination of public and/or private equity placements, commercial project
financing and government program funding to fund future operations and
commitments. There is no assurance that additional debt and equity financing
needed to fund operations will be consummated or obtained in sufficient amounts
necessary to meet the Company's needs.
The accompanying condensed consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the possible inability of the Company to
continue as a going concern.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities and the results of operations
during the reporting period. Actual results could differ materially from those
estimates.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation. These
reclassifications had no effect on reported total assets or net loss.
Beginning in second quarter 2002, capitalized software costs are
amortized over their estimated useful lives of eighteen months using the
straight-line method of accounting.
6
2. REVENUE RECOGNITION
In November 1999, SpaceDev was awarded a $4,995,868 turnkey mission
contract by the Space Sciences Laboratory ("SSL") at University of California,
Berkeley ("UCB"). In 2000, the Company reviewed the contract status at year-end
and determined that the total estimated costs at the end of the program would
exceed the likely revenue. As a result, the Company accrued a loss of
approximately $861,000. Included in the review was a $600,000 modification to
the scope of the contract which was signed on June 15, 2001. On November 28,
2001, a second contract modification was signed with UCB which added $1,201,132
to the contract, as well as an increase in contract scope. This increased the
total contract revenue to $6,797,000. At December 31, 2001, the Company reviewed
the contract again and with the contract modifications and added scope, the
total estimated loss was reduced by $397,238 to approximately $463,000. As of
June 30, 2002, approximately 90% of the total contract costs had been expended
and the remaining loss accrued on the balance sheet at June 30, 2002 was
approximately $47,000. The CHIPSat contract is expected to conclude on December
31, 2003. The Company successfully negotiated an additional contract change in
July 2002 that will increase the value of the CHIPSat contract by $100,000 as
well as adding additional scope. The added value and scope changes will be
reviewed during the third quarter of 2002 to determine if there will be any
significant changes to the accrued contract loss.
In September 2001, the Company was awarded a contract for a proprietary
research program valued in excess of $1 million. As a part of that program, the
Company will compete with another party to design a space propulsion system. The
entire contract, which will be awarded based upon the submitted designs, is
valued at a total $2.2 million. The Company expects this contract to generate
revenue in 2002 of approximately $824,000 to $1.8 million. Work on this project
generated approximately $807,000 in revenues during the first six months of
2002. To date, the Company has recognized approximately $180,000 of gross margin
on this contract. Management intends to review the contract status in the third
quarter of 2002, after a higher percentage of completion is attained, to
evaluate possible changes to the total estimated costs to complete the contract.
As a result, management has elected to defer the remaining to date gross margin
of approximately $100,000 on this project.
3. NOTES PAYABLE
(a) BUILDING AND SETTLEMENT NOTES
On February 23, 2000, the Company signed a $1,330,000 note to refinance
its facility in Poway, California. The note calls for 300 monthly payments of
approximately $10,000, which include principal and interest at prime plus 1.5%.
On June 30, 2002 and 2001 the interest rate on the note was 6.25% and 10% with
an outstanding balance of $1,294,032 and $1,321,828, respectively. The note
matures in February 2025.
In December 1998, the Chief Executive Officer (the "CEO") of the
Company entered into a $500,000 loan agreement with another lender to finance
additional costs of its new facility. This liability was assigned to the Company
and called for 59 monthly interest payments at 12.00% and a balloon payment of
$505,000, including interest, in December 2003. At June 30, 2002 and 2001, the
outstanding balance on this loan was $495,012 and $499,671, respectively.
7
In 1999, the Company entered into a second loan agreement with this
lender. The $460,000 loan called for 59 monthly interest payments at 10.5% and a
balloon payment of $464,000, including interest, in March 2004. At June 30, 2002
and 2001, the outstanding balance on this loan was $456,020 and $458,609,
respectively.
In 2001, the Company entered into three settlement loan agreements with
various vendors. The total of $171,402 for all three loans called for payment
between 24 and 50 months with interest that ranges from 0% to 8%. At June 30,
2002, the outstanding balances on these notes were $175,390.
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 has been in settlement negotiations with the
bonding company, Technical & General Guarantee Company Limited ("T&G"), with a
focus on extending the payment terms and/or reducing the amount of the claim for
$300,000 Australian Dollars.
On May 6, 2002, a settlement agreement was reached with T&G which
called for twelve monthly payments of $1,200 beginning March 1, 2002. After the
twelve months the note calls for a balloon payment on the anniversary of the
effective date in the amount of $139,000. The Company has the right to convert
the balloon note to a three-year loan with 36 equal monthly payments with a 10%
interest rate when the balloon note matures.
Future minimum principal payments on notes payable, building and
settlement notes are as follows:
Six Months Ended June 30,
--------------------------------------------------------
2002 $ 218,257
2003 1,017,452
2004 53,880
2005 46,000
2006 18,500
Thereafter 1,214,965
--------------------------------------------------------
$ 2,569,054
========================================================
(b) RELATED PARTIES
The Company had notes payable to the CEO. 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%. At June 30, 2002 and 2001, the balances were $648,865 and
$679,598, respectively, with accrued interest.
8
Future minimum principal payments on notes payable, related parties are
as follows:
Three Months Ended March 31,
----------------------------------------------------------------
2002 $ 80,000
2003 80,000
2004 80,000
2005 80,000
2006 80,000
Thereafter 248,865
----------------------------------------------------------------
$ 648,865
================================================================
Interest expense on these notes was $23,633 and $27,633 for the six months ended
June 30, 2002 and 2001, respectively.
4. OPERATING SEGMENTS
The Company's operating structure included one active operating segment
for 2002 and two active operating segments for 2001. As a result, no segment
information is presented for the six months and three months ended June 30,
2002.
SEGMENT PRODUCTS AND SERVICES
The Company had the following reportable segments in 2001: Space
Mission Division (SMD), and ISS. SMD was in the process of developing deep space
science exploration satellites. ISS provided small hybrid propulsion space
systems and engineering services. Currently the SpaceDev product line offers a
combination of the former segments product lines and services.
9
FOR THE THREE MONTHS ENDED JUNE 30, 2001
-----------------------------------------------------------------------------------------
(IN THOUSANDS) SMD ISS Total
-----------------------------------------------------------------------------------------
Net revenue from external
Customers $ 854 $ 87 $ 941
Depreciation and
amortization expense 43 176 219
----------------------------------------------------
Segment loss $ (292) $ (137) $ (429)
====================================================
FOR THE SIX MONTHS ENDED JUNE 30, 2001
-----------------------------------------------------------------------------------------
(IN THOUSANDS) SMD ISS Total
-----------------------------------------------------------------------------------------
Net revenue from external
customers $ 1,236 $ 242 $ 1,478
Depreciation and
amortization expense 84 352 436
----------------------------------------------------
Segment loss $ (713) $ (375) $ (1,088)
====================================================
Total segment assets $ 3,285 $ 1,138 $ 4,423
Less intersegment assets (164) - (164)
----------------------------------------------------
Net segment assets $ 3,121 $ 1,138 $ 4,259
====================================================
5. NEW ACCOUNTING PRONOUNCEMENTS
For New Accounting pronouncements please refer the Company's Annual
Report on Form 10-KSB filed on March 29, 2002.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Company's condensed consolidated financial statements and the notes thereto and
the other financial information appearing elsewhere in this document. In
addition to historical information, the following discussion and other parts of
this document contain forward-looking information that involves risks and
uncertainties. Actual results could differ materially from those anticipated by
such forward-looking information due to a number of factors beyond the Company's
control.
Factors that could cause or contribute to such differences include, but
are not limited to, the level of sales to key customers; the economic conditions
affecting our industry; actions by competitors; fluctuations in the price of raw
materials; the availability of outside contractors at prices favorable to the
Company; our dependence on single-source or a limited number of suppliers; our
ability to protect our proprietary technology; market conditions influencing
prices or pricing; an adverse or favorable outcome in litigation, claims and
other actions, and 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; ability to retain key personnel;
changes in market demand; exchange rates; productivity; weather; and market and
economic conditions in the areas of the world in which we operate and market are
products.
Given these uncertainties, investors are cautioned not to place too
much weight on such statements. We are not currently obligated to update these
forward-looking statements.
OVERVIEW
The Company formulated and began to implement its current business plan
in 1997. In February 1998, our operations were expanded with the acquisition of
Integrated Space Systems, Inc., a California corporation founded for the purpose
of providing engineering and technical services related to space-based systems
("ISS"). The ISS employee base acquired upon acquisition was largely made up of
former General Dynamics engineers and enlarged our then current employee base to
20 employees. ISS was purchased for a total of $3,625,000, paid in Rule 144
restricted common shares of SpaceDev. An excess in the calculated purchase price
of approximately $164,000 of net assets acquired was capitalized as goodwill and
was to be amortized over a period of 60 months.
As a result of a change in corporate focus, on November 15, 2001, we
determined that the unamortized balance of goodwill from ISS, which was
approximately $923,000, had become impaired and it was written off. While the
ISS segment did provide small hybrid propulsion space systems and engineering
services on separate contracts (mainly with the government), the engineering
service contracts had expired and, therefore, would not be producing revenue or
cash flow to support future operations. It was determined that all future
business, contracts, and proposals would be sought after only in the SpaceDev
name, making it a more efficient way for the Company to manage and track
multiple contracts and work on many different business ventures at the same time
within the same operating segment.
In November 1999, SpaceDev was awarded a $4,995,868 turnkey mission
contract by the Space Sciences Laboratory ("SSL") at University of California,
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
11
contract status at year-end and determined that the total estimated costs at the
end of the program would exceed the likely revenue. As a result, the Company
accrued a loss of $861,000. Included in the review was a $600,000 modification
to the scope of the contract which was signed on June 15, 2001. On November 28,
2001, a second contract modification was signed with UCB which added $1,201,132
to the contract, as well as an increase in contract scope. This increased the
total contract revenue to $6,797,000. At December 31, 2001, the Company reviewed
the contract again and with the contract modifications and added scope, the
total estimated loss was reduced by $397,238 to approximately $463,000. As of
June 30, 2002, approximately 90% of the total contract costs had been expended
and the remaining loss accrued on the balance sheet at June 30, 2002 totaled
approximately $47,000. The Company successfully negotiated an additional
contract change in July 2002 that will increase the value of the CHIPSat
contract by $100,000 as well as adding additional scope. The added value and
scope changes will be reviewed again during the third quarter of 2002 to
determine if there will be any significant changes to the accrued contract loss.
The Company receives monthly payments on the contract according to a preset
payment schedule detailed in the contract.
On February 1, 2000, we announced that SpaceDev had teamed with Boeing
to investigate opportunities of mutual interest in the commercial deep-space
arena. The purpose of the agreement was to investigate a variety of small,
low-cost, deep space mission initiatives formulated by SpaceDev that are based
on SpaceDev's commercial micro-mission work. During 2000, technical and
corporate staff from Boeing and SpaceDev further refined and advanced SpaceDev's
concept of commercial missions to the Moon, Mars and near-Earth asteroids,
involving micro-spacecraft of 250 kg mass. The effort also included a global
assessment of the market potential for such missions, and a technical and
programmatic assessment of lower cost launch vehicle options for such missions.
In July 2000, the Company was awarded two contracts from the Office of
Space Launch of the National Reconnaissance Office ("NRO") totaling
approximately $800,000. These contracts were completed during the second quarter
of 2001. This work was a continuation of two previous contracts concerning the
development of hybrid space propulsion technology and orbital transfer vehicles.
In September 2001, SpaceDev was awarded a contract for a proprietary
research program valued in excess of $1 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 a total $2.2 million. We expect this contract to generate revenue in
2002 of approximately $824,000 to $1.8 million. Work on this project generated
approximately $807,000 in revenues during the first six months of 2002. To date,
we have recognized approximately $180,000 of gross margin on this contract. We
intend to review the contract status in the third quarter of 2002, after a
higher percentage of completion is attained, to evaluate possible changes to the
total estimated costs to complete the contract. As a result, we have elected to
defer the remaining to date gross margin of approximately $100,000 on this
project.
On April 30, 2002, the Company was awarded Phase I of a contract to
develop a Shuttle-compatible propulsion module for the Air Force Research Lab
(AFRL). We anticipate receiving an award for Phase II of the contract in
September 2002 and will use the project to further expand the Company's product
line to satisfy commercial and government space transportation requirements. The
first two Phases of the contract are worth up to $1.6, million of which $100,000
was awarded for Phase I. There can be no assurance that Phase II will actually
be awarded to SpaceDev. Money has been appropriated to this project by Congress
and, as of the date of this report, SpaceDev has been invited to submit a
proposal for Phase II. Our success in winning Phase II will depend on approval
of our Phase II proposal.
12
RESULTS OF OPERATIONS
Please refer to the condensed consolidated financial statements, which
are a part of this report for further information regarding the results of
operations of the Company.
SIX MONTHS ENDED JUNE 30, 2002 -VS.- SIX MONTHS ENDED JUNE 30, 2001
During the six months ended June 30, 2002, the Company had net sales of
$1,812,408 as compared to net sales of $1,478,188 for the same period in 2001.
Sales in the first six months of 2002 were comprised of approximately $806,000
from the CHIPSat program, $807,000 from a contract for a proprietary development
program, and $199,000 from all other programs. In the first six months of 2001,
sales were comprised of $1,158,000 from the CHIPSat program, $200,000 from
research and development performed for the NRO, $91,000 from the Boeing/JPL Mars
Sample Return project and $29,000 from all other programs.
The gross margin percentage for the six months ended June 30, 2002 was
20% as compared to 39% for the same period in 2001. The decrease was due to a
higher level of low margin work on the CHIPSat project and deferral of gross
margin on the proprietary research program. We experienced a decrease in
operating expenses from $1,493,999 during the six months ended June 30, 2001 to
$367,736 for the same six months in 2002. Operating expenses include general and
administrative expenses and research and development expenses. General and
administrative expenses consisted primarily of salaries for administrative
personnel, fees for outside consultants, insurance, legal and accounting fees
and other overhead expenses. The decrease was primarily attributable to the
reduction of research and development costs from $198,400 during the first six
months of 2001 to $0 for the same period in 2002, as well as a reduction in
salaries of approximately $126,000 due to changes in personnel in 2001. There
was also an overall reduction of non-cash expenses -- including stock based
compensation of approximately $173,000 and $318,000 of goodwill amortization --
during the first six months in 2001 to $0 for the same period in 2002. The
reduction of these expenses can also be attributed to the absorption of certain
Indirect General and Administrative costs into costs of good sold.
For the first six months of 2002, the Company had cost of sales (direct
and allocated costs associated with individual contracts) of approximately
$1,441,577 as compared to $903,946 during the same period in 2001. This increase
was primarily due to the increase in revenues on percentage-of-completion
programs as well as a reclassification of certain General and Administrative
costs to cost of goods sold. The percentage-of-completion method of contract
accounting is based on the ratio of total costs incurred to total estimated
costs, therefore an increase in costs incurred will increase earned revenue
during the period.
Interest expense for the six months ending June 30, 2002 and 2001 was
approximately $120,012 and $167,782, respectively. The decrease in interest
expense was caused by the decrease in the interest rates on the debt.
During the six months ended June 30, 2002, we experienced a net loss of
$116,917, compared to a net loss of $1,087,539 for the same six-month period in
2001. The decrease in the net loss was due an increase in revenues as well as a
reduction to our operating expenses by approximately $1,100,000.
13
THREE MONTHS ENDED JUNE 30, 2002-VS.- THREE MONTHS ENDED JUNE 30, 2001
During the three months ended June 30, 2002, the Company had net sales
of $862,638 as compared to net sales of $940,928 for the same three months in
2001. Sales in 2002 were comprised of approximately $325,000 from the CHIPSat
program, $441,000 from a contract for a proprietary development program, and
$97,000 from all other programs. During the same period in 2001, there was
$737,000 from the CHIPSat program, $67,000 from research and development
performed for the NRO, $91,000 from the Boeing/JPL MSR project and $46,000 from
all other programs.
Gross profit percentages in second quarter 2002 were 15% as compared to
45% for the same period in 2001. The decrease was due to a higher level of low
margin work on the CHIPSat project and managements deferral of gross margin on
the proprietary research program. During the three months ended June 30, 2002,
we experienced a net loss of approximately $88,000 as compared to a net loss of
$429,000 for the same period in 2001. The decrease in the net loss was due to
increased revenues on a contract for a proprietary development program, as well
as a decrease in general and administrative expense as detailed above.
During the three months ended June 30, 2002, the Company had cost of
sales (direct and allocated costs associated with individual contracts) of
$730,000 and $521,000 in the same period in 2001. This increase was primarily
due to the increase in revenues on percentage-of-completion programs as well as
a reclassification of certain indirect General and Administrative costs to cost
of goods sold. The percentage-of-completion method of contract accounting is
based on the ratio of total costs incurred to total estimated costs, therefore
an increase in incurred costs will result in an increase in earned revenue
during the period. The Company experienced a decrease in general and
administrative expenses from $768,071 for the three months ended June 30, 2001
to $155,768 for the same period ended June 30, 2002. The decrease was primarily
attributable to the issuance of 500,000 shares of common stock to EMC Holdings
Group, Inc. ("EMC"). EMC received the first and final installment on June 26,
2001 for a total cost of $455,000 of which $45,500 was expensed during the
second quarter of 2001. Decreases in general and administrative costs also
included $150,000 for the contingent liability due to Technical & General
Guarantee Company Limited as referenced in Note 3(a) to the consolidated
financial statements, stock options that had a value of $67,000 for the
acquisition of Explorespace.com which were expensed in 2001, and a reduction in
salaries of approximately $72,000 from 2001. The reduction of these expenses can
also be attributed to the absorption of certain Indirect General and
Administrative costs into costs of good sold.
There were no research and development expenses for the three-month
periods ended June 30, 2002 and 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's auditors have expressed a formal auditors' opinion that
the Company's December 31, 2001 financial position raises substantial doubt
about its ability to continue as a going concern. Management believes that this
condition remains at June 30, 2002. Our ability to continue as a going concern
depends upon our ability to continue reducing the working capital deficit,
consummate additional funding and obtain profitable new business. The funding as
well as new business can come from a variety of sources, including public or
private equity markets, state and federal grants, government and commercial
customer program funding as well as commercial product sales. However, there can
be no assurance that we will be able to obtain such funding as needed. The
likelihood of our success must be considered in light of the expenses,
difficulties and delays frequently encountered in connection with the developing
businesses, those historically encountered by us, and the competitive
environment in which we will operate.
14
CASH POSITION FOR SIX MONTHS ENDED JUNE 30, 2002 -VS.- SIX MONTHS ENDED
JUNE 30, 2001
We had a net decrease in cash during the six months ended June 30, 2002
of ($76,267), compared to a net decrease of ($180,195) for the same period in
2001. Net cash used in operating activities totaled ($4,804) for the six months
ended June 30, 2002, a decrease of $200,701 as compared to ($205,505) used by
operating activities during the same period in 2001. This is attributable
primarily to the decrease in operating expenses and a reduction of the overall
loss for the six months ending June 30, 2001 from ($1,087,539) to ($116,917) for
the same period in 2002.
Net cash used in investing activities totaled $0 for the six months
ended June 30, 2002 compared to $9,503 used in investing activities for the same
period in 2001. Fixed assets purchased during the six months ended June 30, 2001
totaled $9,503 as compared to $0 in the first six months ended June 30, 2002.
Net cash used in financing activities totaled ($71,463) for the six months ended
June 30, 2002, a decrease of $106,276 versus the $34,813 provided by financing
activities during the same period on 2001. This decrease is primarily
attributable to generating $100,000 from sales of common stock during the six
months ended June 30, 2001 compared to $20,000 for the same period in 2002.
At June 30, 2002, the Company's cash, which includes cash reserves and
cash available for investment, was $135,370 as compared to $79,428 at June 30,
2001, an increase of $55,942. At June 30, 2002, the Company had accounts
receivable of $201,331, and accounts payable and accrued expenses of $226,659.
As of June 30, 2002, the Company's backlog of funded and non-funded
business was approximately $2.6 million, as compared to approximately $2.7
million as of June 30, 2001.
Deferred income taxes are provided for temporary differences in
recognizing certain income and expense items for financial and tax reporting
purposes. The deferred tax asset of $2,076,000 consisted primarily of the income
tax benefits from net operating loss carryforwards, amortization of goodwill and
research and development credit carryforwards. A valuation allowance has been
recorded to fully offset the deferred tax asset as it is more likely than not
that the assets will not be utilized. The valuation allowance increased
approximately $40,000 during the six months ended June 30, 2002, from $2,036,000
at December 31, 2001 to $2,076,000 at June 30, 2002.
Please refer to the condensed consolidated financial statements, which
are a part of this report for further information regarding the liquidity and
capital resources of the Company.
CONTRACTUAL OBLIGATIONS
Commercial commitments are intended to include lines of credit,
guarantees, and other potential cash outflows resulting from a contingent event
that requires registrant performance pursuant to a funding commitment.
The Company's contractual obligations and commercial commitments are
detailed below:
15
---------------------------------------------------------------------------------------------------------------
Contractual 12 Months 12 Months 12 Months 12 Months Thereafter Total
Obligations 6-30-03 6-30-04 6-30-05 6-30-06
---------------------------------------------------------------------------------------------------------------
Notes Payable,
Unrelated $ 218,257 $1,017,452 $ 53,880 $ 46,000 $1,233,465 $2,569,054
---------------------------------------------------------------------------------------------------------------
Capital Lease
Obligations 37,604 19,060 4,720 - - 61,384
---------------------------------------------------------------------------------------------------------------
Related Party Notes
Payable 80,000 80,000 80,000 80,000 328,865 648,865
---------------------------------------------------------------------------------------------------------------
Total Cash
Contractual
Obligations $ 335,861 $1,116,512 $ 138,600 $126,000 $1,562,330 $3,279,303
---------------------------------------------------------------------------------------------------------------
CRITICAL ACCOUNTING STANDARDS
The Company's revenues are derived primarily from fixed price contracts
and are recognized using the percentage-of-completion method of contract
accounting based on the ratio of total costs incurred to total estimated costs.
Losses on contracts are recognized when they become known and reasonably
estimable. Actual results of contracts may differ from management's estimates
and such differences could be material to the consolidated financial statements.
Professional fees are billed to customers on a time and materials basis, a fixed
price basis or a per-transaction basis. Time and materials revenues are
recognized as services are performed. Billings in excess of costs incurred and
estimated earnings represent the excess of amounts billed in accordance with the
contractual billing terms. Deferred revenue represents amounts collected from
customers for services to be provided at a future date.
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting
for Stock-Based Compensation." The Company adopted SFAS No. 123 in 1997. We have
elected to measure compensation expense for our stock-based employee
compensation plans using the intrinsic value method prescribed by APB Opinion
25, "Accounting for Stock Issued to Employees" and have provided pro forma
disclosures as if the fair value based method prescribed SFAS No. 123 has been
utilized. The Company has valued its stock, stock options and warrants issued to
non-employees at fair value in accordance with the accounting prescribed in SFAS
No. 123, which states that all transactions in which goods or services are
received for the issuance of equity instruments shall be accounted for based on
the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
Fixed assets are depreciated over their estimated useful lives of
three-to-thirty years using the straight-line method of accounting. Goodwill and
other intangible assets were created upon the acquisition of the Company's
subsidiaries. Intangible assets are amortized over their assets' estimated
future useful lives on a straight-line basis over three to five years. Goodwill
and other intangibles are reviewed annually for impairment based on an
assessment of future operations to ensure they are appropriately valued in
accordance with Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or disposal of Long-Lived Assets." Effective November 2001,
there was no more amortization of goodwill.
16
FORWARD-LOOKING STATEMENTS AND RISK ANALYSIS
We continue to sustain operations with a mix of government and
commercial contracts. To date, we have maintained a mix of government and
commercial business. In 2001, we had about 80% government or government related
work. In 2002, we expect the ratio to be approximately 70% government or
government-related work. We will continue to do both government and commercial
business and anticipate the mix of government revenues to continue to be above
60% for the next several years as we increase our government marketing efforts
for both of our product lines.
SpaceDev can continue to grow and execute certain parts of its strategy
without additional equity funding by identifying, bidding and winning new
commercial or government funded programs. During the second quarter of 2002, we
submitted several bids for commercial and government programs, have worked with
the U.S. Congress to secure directed funding for our programs and have actively
worked to procure some significant commercial projects. The win of some of these
programs would enable SpaceDev to continue to grow and broaden its business
base. We were not successful on some of the other government and commercial
proposals, but continue to work on the commercial products and projects, and are
preparing new proposals and quotes for government customers.
As highlighted above, we did sign a contract with one government
customer on April 30, 2002 and anticipate being awarded Phase II of this
program, which should lead to approximately $1.6 million of new business over
the next 15 months. Although we do anticipate winning Phase II of the program,
there can be no assurance that we will receive the award. Money has been
appropriated to this project by Congress and, as of the date of this report,
SpaceDev has been invited to submit a proposal for Phase II. Our success in
winning Phase II will depend on approval of our Phase II proposal. A failure to
win Phase II of the AFRL contract could have a negative effect on our financial
position during the next twelve months. In that event, we would attempt to
offset the loss with other contract wins or a reduction in overhead costs,
including, potentially, a reduction in work force.
While we do not expect a reduction of government sales, we are
continuing to aggressively market our products to the commercial market,
particularly our subsystems and hybrid propulsion for manned sub-orbital space
planes, and are marketing our micro spacecraft to a variety of commercial
customers. Our business model does anticipate the winning of contracts in either
the government or commercial market segments. Based on current trends and
proposals, we believe that we can offset fluctuations in one market segment with
contract wins from the other; however, our inability to win business in either
market would have a negative effect on the Company's business operations and
financial condition. To mitigate this risk, we have embarked on a strategy of
marketing our satellite subsystem products, developed during the CHIPSat
program, to numerous commercial customers, and have received positive interest
in these products.
We are forecasting about the same or modest growth in sales for 2002 as
in 2001. At this time, about 80% of the forecasted sales are under contract.
There is no guarantee that we will win enough new business to achieve any
growth. To obtain the same or modest growth in sales we do not expect to have to
make significant capital expenditures for 2002.
We will receive total fixed compensation on the CHIPSat project in a
total amount of $6,897,000, of which about $3.2 million in revenues was
generated in 2001 and approximately $806,000 was generated through the first
half of 2002. The contract calls for total payments of $1,404,000 in 2002 and
$572,000 in 2003. As outlined above, we reviewed the contract again in late 2001
and the total loss was reduced from $861,000 to approximately $463,000. We are
17
currently negotiating an increase to the contract for approximately $300,000 to
the total contract value and scope of which $100,000 was successfully negotiated
in July 2002. At this time, we do not expect any additional losses from or
increases to the contract. The launch of CHIPSat is currently scheduled for late
2002. The successful and/or timely launch of CHIPSat depends on a number of
factors, many of which are beyond our control. In the event of a delay in the
launch or an unsuccessful launch of CHIPSat, we would request a contract
modification from our customer to cover all resulting expenses pursuant to the
terms of the original contract. A failed CHIPSat launch could negatively impact
our marketing efforts and our ability to raise additional equity funding, if
necessary.
We expect payments of about $1.5 million in 2002 from a commercial
contract won last November, of which approximately $807,000 in revenues has been
generated during the first six months of 2002. This effort could lead to
follow-on contracts or commitments from the same customer later this year or in
2003, but at this time we cannot assess the probability of winning or the value
of those contracts or commitments.
We expect to incur losses through 2002 from the ongoing operations of
our business and do not expect to generate net positive cash flow from annual
operations sufficient to fund both operations and any significant capital
expenditures. There can be no assurance that SpaceDev will achieve or sustain
any positive cash flow or profitability thereafter.
During the years ended December 31, 2001 and December 31, 2000, we
raised approximately $145,000 through private sales of stock. The Company raised
an additional $20,000 in the first six months of 2002. To execute the Company's
total strategy of small, capable, low-cost micro satellites, hybrid propulsion
products and new commercial revenue sources, we require significant funding
and/or the winning of significant government and commercial programs. The
current estimate of investor or customer funding is over $20 million, which
could come from a combination of private and/or public equity placements or
government and commercial customers. At this time, we do have an ongoing private
placement to generate private equity, but do not have a commitment from any
individual, placement agent or underwriter to implement any additional public or
private offering.
SpaceDev may also need to raise additional capital if, for example, (i)
significant delays occur in deploying its first space mission due to technical
difficulties, launch, or satellite failure, or other reasons; (ii) it does not
enter into agreements with customers on the terms we anticipates; (iii) its net
operating deficit increases because it incurs significant unanticipated
expenses; or (iv) it incurs additional costs from modifying its satellite
products or its proposed hybrid-related systems to meet changed or unanticipated
market, regulatory, or technical requirements. If these or other events occur,
there is no assurance that we could raise additional capital on favorable terms,
on a timely basis or at all. A substantial shortfall in funding would delay or
prevent deployment of the hybrid-related systems, a Lunar Orbiter or a NEAP-like
system.
Our ability to execute a public offering or otherwise obtain funds is
subject to numerous factors beyond our control, including, without limitation, a
receptive securities market and appropriate governmental clearances. No
assurances can be given that SpaceDev 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 the Company 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 the Company.
18
Our business partially depends on activities regulated by various
agencies and departments of the U.S. government and other companies that rely on
the government. Recently, in response to terrorists' activities and threats
aimed at the United States, transportation, mail, financial, and other services
have been slowed or stopped altogether. Further, significant delays or stoppages
in transportation, mail, financial, or other services could have a material
adverse effect on our business, results of operations, and financial condition.
Furthermore, we may experience a small increase in operating costs, such as
costs for transportation, insurance, and security as a result of the activities
and potential activities. The U.S. economy in general has been adversely
affected by the terrorist activities and potential activities, and this economic
downturn could adversely impact our results of operations, impair our ability to
raise capital, or otherwise adversely affect our ability to grow our business.
Conversely, because of the nature of our products, there may be opportunities
for the Company to offer solutions to the government that may address some of
the problems that the country faces at this time.
19
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 SpaceDev and EMC Holdings Corporation ("EMC"). Pursuant to those
agreements, EMC was to receive a combination of equity and cash compensation in
exchange for services to be rendered to the Registrant. SpaceDev terminated the
agreements in late 2001 and, on November 7, 2001, filed a demand for arbitration
seeking the return of the first installment of 500,000 shares based on EMC's
failure to perform under the agreements. EMC filed its own claim with the
American Arbitration Association on November 13, 2001, alleging that the Company
owed it $118,000 in fees.
On July 17, 2002, an interim award was issued in favor of SpaceDev
against EMC, ordering the return of the initial installment of 500,000 shares
and denying EMC's claim for $118,000. A status conference is currently being
scheduled at which time the parties will agree upon a procedure for SpaceDev to
request that the award be increased to include recovery of its attorneys' fees
and expenses for arbitration. Once the issue of attorneys' fees and expenses is
resolved, SpaceDev will ask the Orange County Superior Court to confirm the
arbitrator's award. Currently, the interim award is not a final judgment;
however, because this matter was submitted to binding arbitration, EMC has only
limited grounds to appeal the award.
ITEM 2. CHANGES IN SECURITIES
The Company issued incentive stock options to purchase 44,000 shares of
common stock to non-officer employees with exercise prices ranging from $0.532
to $0.478. These options vest in equal installments every six months over a
period of four years.
On May 20, 2002, the Company entered into an employment agreement with
Stuart Schaffer, our Vice President of Product Development and Marketing,
pursuant to which he received an option to purchase up to 450,000 shares of the
Company's common stock at a purchase price of $0.478. Mr. Schaffer's options
vest as follows; 45,000 shares on November 20, 2002; 45,000 shares on May 20,
2003; 45,000 shares on November 20, 2003; 45,000 shares on May 20, 2004; 45,000
shares on November 20, 2004; 45,000 shares on May 20, 2005; 45,000 shares on
November 20, 2005; 45,000 shares on May 20, 2006; 45,000 shares on November 20,
2006; 45,000 shares on May 20, 2007.
On May 28, 2002, the Company entered into an employment agreement with
Emery Skarupa, our Vice president of Operations, pursuant to which he received
an option to purchase up to 120,000 shares of the Company's common stock at a
purchase price of $0.478. Mr. Skarupa's options vest as follows; 12,000 shares
on November 28, 2002; 12,000 shares on May 28, 2003; 12,000 shares on November
28, 2003; 12,000 shares on May 28, 2004; 12,000 shares on November 28, 2004;
12,000 shares on May 28, 2005; 12,000 shares on November 28, 2005; 12,000 shares
on May 28, 2006; 12,000 shares on November 28, 2006; 12,000 shares on May 28,
2007.
Pursuant to its independent director compensation plan, adopted January
16, 2000, the Company granted options to purchase 10,000 shares each to Howell
M. Estes, III, Curt Dean Blake, and Wesley T. Huntress as well as 5,000 to
Robert Walker for their attendance, either in person or by telephone, at the
Board of Directors meeting held on July 19, 2002. These options were issued with
an exercise price of $0.478 per share (based on the five-day average closing
price of the Company's common stock on the date of grant) and will expire on the
five-year anniversary date of the date of grant. The option's vest in two
installments of 50% each on the first and second anniversaries of the grand
date.
20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
CORRECTIVE DISCLOSURE
On June 19, 2002, the Company filed a Current Report on Form 8-K, the
signature page to which inadvertently listed James W. Benson as the Chief
Financial Officer of the Company. The Signature page was intended to list Mr.
Benson as the Chief Executive Officer and Chairman of the Board of the Company.
At this time, the Company is currently seeking a Chief Financial Officer to
replace Charles H. Lloyd, who resigned from that position on June 14, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No.
-----------
(99.1) Certification Pursuant to 18 U.S.C. Section 1350.
(b) Reports on Form 8-K
A Current Report on Form 8-K filed June 19, 2002 was filed with the
Commission under Item 5 (other information), regarding the resignation
of Charles H. Lloyd.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPACEDEV, INC.
Registrant
Dated: August 14, 2002 /S/ James W. Benson
------------------------
James W. Benson
Chief Executive Officer
22