FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20429
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________________ to
______________________________
Commission File Number 000-28947.
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SPACEDEV, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1374613
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13855 Stowe Drive, Poway, California 92064
(Address of principal executive offices)
(Issuer's telephone number) (858) 375-2030.
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(Former name, former address and former fiscal year, if changed since last
report)
Checkmark whether the issuer (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 20,148,660 shares of Issuer's voting
common stock were outstanding on November 9, 2004.
SPACEDEV, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2004
INDEX PAGE
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PART I -- FINANCIAL INFORMATION 1
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ITEM 1. FINANCIAL STATEMENTS 1
Consolidated Balance Sheets 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15
ITEM 3. CONTROLS AND PROCEDURES 31
PART II -- OTHER INFORMATION 32
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ITEM 1. LEGAL PROCEEDINGS 32
ITEM 2. CHANGES IN SECURITIES 32
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 33
ITEM 5. OTHER INFORMATION 33
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 33
SIGNATURES 35
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PAGE
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPACEDEV, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
At September 30, . . . . . . . 2004 2003
------------------------------ ---------- --------
ASSETS
CURRENT ASSETS
Cash . . . . . . . . . . $4,078,593 $314,229
Accounts receivable, net 427,358 297,037
Work in Progress . . . . 5,754 10,581
------------------------------ ---------- --------
Total current assets. . . . . 4,511,705 621,847
FIXED ASSETS - NET. . . . . . 248,066 115,288
OTHER ASSETS. . . . . . . . . 43,042 35,544
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$4,802,813 $772,679
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------------------------------ ---------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
1
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SPACEDEV, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
At September 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 2003
------------------------------------------------------------------------- ------------- -------------
LIABILITIES AND STOCKHOLDERSEQUITY (DEFICIT)
CURRENT LIABILITIES
Current portion of notes payable. . . . . . . . . . . . . . . . . . $ 36,239 $ 44,654
Current portion of capitalized lease obligations. . . . . . . . . . 3,943 19,804
Note payable - related party (Note 3(b)). . . . . . . . . . . . . . - 80,000
Accounts payable and accrued expenses . . . . . . . . . . . . . . . 161,980 349,464
Accrued payroll, vacation and related taxes . . . . . . . . . . . . 210,434 116,725
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . 49,779 -
Revolving credit facility (Note 3(c)) . . . . . . . . . . . . . . . - 629,500
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . 260,547 139,759
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TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . 722,922 1,379,906
NOTES PAYABLE, LESS CURRENT MATURITIES (NOTE 3(A)) . . . . . . . . . . . 18,797 55,012
CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES . . . . . . . . . 2,479 6,239
NOTE PAYABLE - RELATED PARTY, LESS CURRENT MATURITIES. . . . . . . . . . - 506,397
DEFERRED GAIN - ON BUILDING SALE (NOTE 3(A)) . . . . . . . . . . . . . . 977,267 1,094,539
DEFERRED REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 5,000
------------------------------------------------------------------------- ------------- -------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,726,465 3,047,093
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY (DEFICIT)
Preferred stock, Series C, $0.001 par value, 10,000,000 shares
authorized and 250,000 issued and outstanding . . . . . . . . 250 -
Common stock, $0.0001 par value; 50,000,000 shares authorized, and
20,026,263 and 16,029,360 shares issued and outstanding,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . 2,002 1,602
Additional paid-in capital (Note 3(c), 4 & 5) . . . . . . . . . . . 16,724,176 8,921,791
Additional paid-in capital - stock options. . . . . . . . . . . . . 750,000 750,000
Deferred compensation (Note 5). . . . . . . . . . . . . . . . . . . (250,000) (250,000)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . (14,150,080) (11,697,807)
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TOTAL STOCKHOLDERS EQUITY (DEFICIT) . . . . . . . . . . . . . . . . . . . 3,076,348 (2,274,414)
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$ 4,802,813 $ 772,679
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The accompanying notes are an integral part of these consolidated financial
statements.
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PAGE
SPACEDEV, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three-Months Ending Nine-Months Ending
Three and Nine Months Ending 2004 % 2003 % 2004 % 2003 %
September 30, 2004 and 2003
NET SALES . . . . . . . . . . . . . $1,230,126 100.0% $ 767,780 100% $ 3,445,569 100.0% $ 2,054,576 100%
TOTAL COST OF SALES . . . . . . . . 952,944 77.5% 642,940 83.7% 2,702,583 78.4% 1,682,424 81.9%
GROSS MARGIN. . . . . . . . . . . . 277,182 22.5% 124,840 16.3% 742,986 21.6% 372,152 18.1%
------------------------------------ ----------- ------ ---------- ------ ------------ ------ ------------ ------
OPERATING EXPENSES
Marketing and sales expense. . . . 120,367 9.8% 112,321 14.6% 335,652 9.7% 311,368 15.2%
Research and development . . . . . 4,522 0.4% 20,555 2.7% 39,326 1.1% 272,537 13.3%
Stock and stock option
based compensation. . . . . . . . - 0.0% 4,685 0.6% - 0.0% 4,685 0.2%
General and administrative . . . . 103,527 8.4% 137,324 17.9% 274,458 8.0% 661,943 32.2%
------------------------------------ ----------- ------ ---------- ------ ------------ ------ ------------ ------
TOTAL OPERATING EXPENSES. . . . . . 228,416 18.6% 274,885 35.8% 649,436 18.8% 1,250,533 60.9%
------------------------------------ ----------- ------ ---------- ------ ------------ ------ ------------ ------
PROFIT (LOSS) FROM OPERATIONS . . . 48,766 4.0% (150,045) -19.5% 93,550 2.7% (878,381) -42.8%
------------------------------------ ----------- ------ ---------- ------ ------------ ------ ------------ ------
NON-OPERATING EXPENSE (INCOME)
Interest income . . . . . . . . . (5,619) -0.5% - 0.0% (5,619) -0.2% - 0.0%
Interest expense. . . . . . . . . 23,110 1.9% 30,056 3.9% 62,633 1.8% 64,683 3.1%
Non-cash interest expense
debt discount (Note 4) . . . . . - 0.0% (88,408) -11.5% - 0.0% 112,500 5.5%
Gain on Building Sale (Note 3(a)) (29,318) -2.4% (29,318) -3.8% (87,954) -2.6% (78,181) -3.8%
Non-Cash Loan Fee -
Equity Conversions (Note 3(c)) . 663,481 53.9% 148,412 19.3% 2,456,794 71.3% 148,412 7.2%
------------------------------------ ----------- ------ ---------- ------ ------------ ------ ------------ ------
TOTAL NON-OPERATING EXPENSE . . . . 651,654 53.0% 60,742 7.9% 2,425,854 70.4% 247,414 12.0%
------------------------------------ ----------- ------ ---------- ------ ------------ ------ ------------ ------
LOSS BEFORE TAXES . . . . . . . . . (602,888) -49.0% (210,787) -27.5% (2,332,304) -67.7% (1,125,795) -54.8%
INCOME TAX PROVISION. . . . . . . . - 0.0% (2,526) -0.3% - 0.0% - 0.0%
NET LOSS. . . . . . . . . . . . . . $ (602,888) -49.0% $(208,261) -27.1% $(2,332,304) -67.7% $(1,125,795) -54.8%
------------------------------------ ----------- ------ ---------- ------ ------------ ------ ------------ ------
------------------------------------ ----------- ------ ---------- ------ ------------ ------ ------------ ------
NET LOSS PER SHARE:
Net loss. . . . . . $ (0.03) $ (0.01) $ (0.13) $ (0.07)
------------------------------------ ----------- ------ ---------- ------ ------------ ------ ------------ ------
Weighted-Average
Shares Outstanding 19,228,019 15,525,203 18,019,886 15,408,961
------------------------------------ ----------- ------ ---------- ------ ------------ ------ ------------ ------
------------------------------------ ----------- ------ ---------- ------ ------------ ------ ------------ ------
The accompanying notes are an integral part of these consolidated financial
statements.
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PAGE
SPACEDEV, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ending September 30, 2004 and 2003 . . . . 2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . $(2,332,304) $(1,125,795)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . . . . 55,236 153,023
Gain on building sale. . . . . . . . . . . . . . . . (87,954) (78,181)
Non-cash interest expense - convertible debt program - 112,500
Non-cash loan fees . . . . . . . . . . . . . . . . . 2,456,794 153,028
Change in operating assets and liabilities:. . . . . (25,552) (159,147)
--------------------------------------------------------------- ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES. . . . . . 66,220 (944,572)
--------------------------------------------------------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of building. . . . . . . . . . . . - 3,150,124
Purchases of fixed assets . . . . . . . . . . . . . . . . (165,770) (3,100)
--------------------------------------------------------------- ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES . . . . . . (165,770) 3,147,024
--------------------------------------------------------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principle payments on notes payable . . . . . . . . . . . (32,555) (2,542,131)
Principal payments on capitalized lease obligations . . . (9,163) (25,306)
Payments on notes payable - related party . . . . . . . . (614,778) (179,999)
Proceeds from issuance of common and preferred stock. . . 3,783,725 466,115
Payments on convertible debt program. . . . . . . . . . . (257,736)
Proceeds from revolving credit facility . . . . . . . . . 458,908 623,186
--------------------------------------------------------------- ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES. . . . . . 3,586,137 (1,915,871)
--------------------------------------------------------------- ------------ ------------
NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . 3,486,587 286,581
--------------------------------------------------------------- ------------ ------------
CASH AT BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . 592,006 27,648
--------------------------------------------------------------- ------------ ------------
CASH AT END OF PERIOD. . . . . . . . . . . . . . . . . . . . . $ 4,078,593 $ 314,229
--------------------------------------------------------------- ------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements.
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PAGE
SPACEDEV, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D.
(UNAUDITED)
For the Nine Months Ending September 30, 2004 and 2003 2004 2003
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . $305,038 $30,470
NONCASH INVESTING AND FINANCING ACTIVITIES:
During the nine-months ending September 30, 2004 the Company issued 1,954,661
shares of its common stock to the Laurus Master Fund from conversions under
its revolving credit facility, thereby realizing a corresponding reduction
in current liabilities of approximately $1,240,507 The Company recorded
additional non-cash loan fees of approximately $1,718,120 and charged these
fees to expense.
During the nine-months ending September 30, 2004 the Company issued 589,212
shares of its common stock to the participates in our convertible debt
program in 2003 from conversions of warrants thereby receiving cash in the
amount of $227,500. The Company recorded additional non-cash loan fees of
approximately $738,700 and charged these fees to expense.
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The accompanying notes are an integral part of these consolidated financial
statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of SpaceDev, Inc. ("the
Company") include the accounts of the Company and its inactive subsidiary,
SpaceDev, Inc., an Oklahoma corporation. In the opinion of management, the
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 consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Consequently, these statements do not include all disclosures
normally required by generally accepted accounting principles of the United
States of America for annual financial statements nor those normally made in an
Annual Report on Form 10-KSB. Accordingly, reference should be made to the
Company's Form 10-KSB filed on April 6, 2004 and other reports the Company filed
with the U.S. Securities and Exchange Commission for additional disclosures,
including a summary of the Company's accounting policies, which have not
materially changed. The consolidated results of operations for the nine-months
ending September 30, 2004 are not necessarily indicative of results that may be
expected for the fiscal year ending December 31, 2004 or any future period, and
the Company makes no representations related thereto.
As of September 30, 2004, management continues the opinion that the Company's
auditors, PKF, expressed in their formal auditors' opinion dated February 11,
2004 (except for Note 11 as to which the date is April 2, 2004), that in their
opinion, based on their audit, the Company's consolidated financial statements
referred to herein present fairly, in all material respects, the consolidated
financial position of SPACEDEV, INC. AND SUBSIDIARY as of December 31, 2003, and
the consolidated results of the Company's operations and cash flows for the year
then ended, in conformity with accounting principles generally accepted in the
United States of America. The accompanying consolidated financial statements as
of September 30, 2004 have been prepared assuming the Company will continue as a
going concern.
During the first nine-months of 2004, the Company had a working capital balance
of $3,788,783 and incurred a net loss of $2,332,304 as compared to a working
capital deficit of $758,059 and a net loss of $1,125,795 for the same nine-month
period in 2003. Also during the first nine-months of 2004, the Company had
non-operating expenses of $2,425,855 as compared to $247,414 for the same
nine-month period in 2003, with the majority of the increase representing
non-cash interest expenses.
On March 31, 2004, the Company was awarded a $43,362,271 contract from the
Missile Defense Agency. The first Task Order was awarded on April 1, 2004 and
completed on September 30, 2004. The second Task Order was awarded on October
20, 2004 and is expected to be completed by January 31, 2006.
Management intends to obtain new commercial and government contracts, reduce the
utilization of its revolving credit facility in 2004 and possibly raise some
additional equity capital in a public or private offering or fund-raising effort
in 2005 or beyond. There can be no assurance that existing contracts will be
completed successfully or that new contracts or additional debt or equity
financing that may be needed to fund operations will be available or, if
available, obtained in sufficient amounts necessary to meet the Company's needs
or on terms that are favorable to the Company. Management does believe that, if
current contracts remain on schedule and are funded as expected, they will be
sufficient to fund the Company through 2005.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
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Beginning in the second quarter of 2002, the Company's capitalized software
costs were 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. During the nine-months ended
September 30, 2003, these capitalized software costs were fully amortized.
2. REVENUE RECOGNITION
The Company's revenues for the nine-months ending September 30, 2004 were
derived primarily from United States government cost plus fixed fee (CPFF)
contracts compared to a predominance of fixed price contracts for the same
nine-months in 2003. Revenues from the CPFF contracts during the first
nine-months of 2004 were recognized as expenses were incurred compared to
revenues from fixed price contracts for the same period in 2003, which were
recognized using the percentage-of-completion method. Estimated contract
profits are taken into earnings in proportion to revenues recorded. Revenues
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 revenues and
profits are recorded based on the ratio of costs incurred to estimated total
costs at completion. Time and material revenues are recognized as services are
preformed and costs incurred. Losses on contracts are recognized when estimated
costs are reasonably determined. 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
depending on the terms and conditions of the specific contract. Time and
material revenues are recognized as services are performed and costs incurred.
Deferred revenue represents amounts collected from customers for projects,
products or services to be provided at a future date. Deferred revenue for the
nine-months ended September 30, 2004 was $49,779 and primarily represented
advanced payments on our small private fixed price contracts.
3. 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. In conjunction with the sale, the
Company entered into a lease agreement with the buyer to leaseback its
facilities. The Company's Chief Executive Officer provided a guarantee for the
leaseback. 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 September 30, 2004, the deferred gain
was $977,267. This amortization will be included in the Company's occupancy and
facility expense and totaled $87,954 and $78,181 for the nine-months ending
September 30, 2004 and 2003, respectively.
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Deferred Gain consisted of the following:
Nine-Months Ending September 30, 2004
Original Deferred Gain. . . . . . . . $1,172,720
Less Amortization 2003. . . . . . . . (107,499)
Less Amortization 2004. . . . . . . . (87,954)
--------------------------------------------------
$ 977,267
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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 September 30, 2004
and 2003, the outstanding balances on these notes were $55,036 and $99,666,
respectively, with interest expense for the nine-months ending September 30,
2004 and 2003 of $3,691 and $5,638, respectively.
Future minimum principal payments on settlement notes are as follows:
For Twelve Months Ending
September 30,
2005. . . . . . . . . . . . . . . . . . $36,239
2006. . . . . . . . . . . . . . . . . . 18,797
2007. . . . . . . . . . . . . . . . . . 0
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Total Settlement Notes. . . . . . . . . $55,036
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b) Related Parties
The Company had a note payable to its CEO. At September 30, 2004 and 2003, the
balances were $0 and $586,397, respectively, with interest accruing at 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%. As part of the Company's preferred stock
offering (see Note 5), the note was paid in full during the third quarter of
2004.
Interest expense on this note was $29,256 and $27,899 for the nine-month periods
ending September 30, 2004 and 2003, respectively.
c) Revolving Credit Facility.
On June 3, 2003, the Company entered into a Security Agreement, Secured
Convertible Note, Registration Rights Agreement and Common Stock Purchase
Warrant, with Laurus Master Fund, Ltd. ("Laurus"), which were filed on Form 8-K
dated June 18, 2003. Pursuant to the agreements, the Company received a $1
million revolving credit facility in the form of a three-year Convertible Note
secured by its assets. The net proceeds from the Convertible Note are used for
general working capital needs. Advances on the Convertible Note may be repaid
at the Company's option, in cash or through the issuance of the Company's shares
of common stock. The Convertible Note carries an interest rate of WSJ Prime
plus 0.75% on any outstanding balance. In addition, the Company is 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. Approximately $29,600 in interest and approximately $4,000 fees were
accrued under the revolving credit facility in the first nine-months of 2004.
There was no outstanding balance on the revolving credit facility at September
30, 2004.
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The Company filed a Form SB-2 registration statement on July 25, 2003 in
connection with this transaction. The shares were registered with the Securities
and Exchange Commission ("SEC") for public resale on August 6, 2003 and
subsequently updated the filing on May 7, 2004. Once the market price exceeded
118% of the fixed conversion price, which occurred on or about July 21, 2003,
the Company obtained the ability to pay amounts outstanding under the revolving
credit facility in cash or shares of its common stock at the fixed conversion
price. The Convertible Note includes a right of conversion in favor of Laurus.
Laurus has exercised its conversion rights from time to time on outstanding
balances. When Laurus chooses to exercise its conversion rights, the Convertible
Note is convertible into shares of the Company's 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 agreements). The agreement was
modified on March 31, 2004 to provide for a six-month waiver to us and a fixed
conversion price to Laurus of $0.85 per share on the first $500,000 after the
first $1 million. The agreement was further modified on August 25, 2004 to
provide for a fixed conversion price to Laurus of $1.00 per share on the next $1
million. Thereafter, the fixed conversion price will be adjusted after
conversion of $2.5 million to 103% of the then fair market value of our common
stock ("Adjusted Fixed Conversion Price").
Laurus converted 1,954,661 shares to reduce the Company's debt by $1,240,507 for
the nine-month period ending September 30, 2004. Laurus converted a total of
2,369,661 shares to reduce the debt by $1,468,757 since the inception of the
revolving credit facility. For the nine-month period ending September 30, 2004,
the Company expensed $1,718,120 for the non-cash loan fee expense based on the
fair market value of the stock when Laurus converted and approximately
$1,857,000 for the non-cash loan fee expense since the inception of the
revolving credit facility. The fair market value used in 2003 was established
using a 20% discount to the closing price on the date of conversion based on the
restricted and thinly-traded nature of the Company stock in 2003 and the fair
market value used in 2004 was established using the closing price on the date of
conversion with no discount taken due to the increased volume in the Company's
stock.
Availability of funds under the revolving credit facility will be based on the
Company's accounts receivable, except as waivers are provided by Laurus. An
initial three (3) month waiver was offered by Laurus, under which Laurus
permitted a credit advance up to $300,000, which amount would have otherwise
exceeded eligible accounts receivable during the period. Laurus subsequently
extended the waiver for two additional six (6) month periods, under which Laurus
permitted a credit advance up to $1 million, which amount would have otherwise
exceeded eligible accounts receivable during the period. The revolving credit
facility is secured by all of the assets of the Company.
In conjunction with this transaction, Laurus was paid a fee of $20,000 for the
first year, which was expensed as additional interest expense in 2003. The
Company is required to pay a continuation fee of $10,000 each year thereafter.
In addition, Laurus received a warrant to purchase 200,000 shares of the
Company's common stock for the initial $1 million revolving credit facility, as
stated herein. 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 the Company's 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.
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In addition to the initial warrant, the Company was 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 if and when over $1 million is converted under the revolving credit
facility. The value of the warrant was determined when issued, and was treated
as additional interest expense and will be amortized over the remaining term of
the Convertible Note, unless sooner terminated. On June 18, 2004, the Company
issued an additional warrant to purchase 50,000 shares at an exercise price of
$1.0625 per share in relation to the $500,000 revolving credit facility
expansion convertible at $0.85 per share. Since no more than an aggregate of
100,000 shares of the Company's common stock were authorized as additional
warrants under the Laurus Agreements, on August 25, 2004, the Company issued an
additional warrant to purchase 50,000 shares at an exercise price of $1.925 per
share in relation to the $1 million revolving credit facility expansion
convertible at $1.00 per share.
The Company may terminate its agreements with Laurus before the end of the
initial three year term and Laurus will release its security interests upon
payment to Laurus of all obligations, if the Company has: (i) provided Laurus
with an executed release of all claims which the Company may have under the
agreements; and, (ii) paid to Laurus an early payment fee in an amount equal to
(x) three percent (3%) of the Capital Availability Amount if such payment occurs
after the first anniversary (i.e., June 3, 2004) and prior to the second
anniversary of the Initial Term; and, (y) two percent (2%) of the Capital
Availability Amount if such payment occurs after the second anniversary and
prior to the end of the Initial Term. The early payment fee is also due and
payable by the Company to Laurus if the Company terminates its Agreement after
the occurrence of an Event of Default, as defined in the agreements.
As stated above, in conjunction with the Company's Preferred Stock financing on
August 25, 2004, Laurus agreed to extend our current revolving credit facility
reported on Form 8-K filed June 18, 2003 from $1.0 million to $1.5 million. The
first $1.0 million converted under the revolving credit facility was converted
last year and earlier this year at a rate of $0.55 per share. On March 31,
2004, the conversion price for the next $500,000 under the revolving credit
facility was set at $0.85 per share. The next $1 million under the revolving
credit facility will be convertible at a rate of $1.00 per share. There was no
balance on the revolving credit facility at September 30, 2004; however, the
Company did draw $1 million on the revolving credit facility in October 2004,
since Laurus has committed to convert the next $1.0 million drawn on the
Convertible Note into our common stock on or prior to December 31, 2004.
4. CONVERTIBLE DEBT NOTES PAYABLE
From October 14, 2002 through November 14, 2002, the Company sold an aggregate
of $475,000 of 2.03% convertible notes to various directors and officers of the
Company. The total funding was completed on November 14, 2002. The convertible
notes entitled the holder to convert the principal and unpaid accrued interest
into the Company's common stock when the notes matured. The maturity on the
notes was six (6) months from issue date. On March 25, 2003, an amendment was
executed which extended these notes an additional six (6) months. The
convertible notes were exercisable into a number of the Company's common shares
at a conversion price that equaled the 20-day average ask price less 10%,
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 the Company's 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 notes were 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.
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All debt discounts are to be amortized as additional interest expense over the
term of the convertible notes. As of September 30, 2003, $475,000 was reflected
as debt discount of which $267,879 was amortized to non-cash interest expense
and $155,379 was credited back to compensate for an adjustment during the
nine-months ending September 30, 2003. Fair market value of the stock was
determined by discounting the closing market price on the date of the
transaction by 20%, based on the nature of the restricted securities and thinly
traded stock.
On September 5, 2003, the Company repaid one-half of the convertible notes, with
the condition that the note holders convert the other half. Also, as a
condition of the partial repayment, the note holders were required to relinquish
one-half of the previously issued warrants. Finally, as additional
consideration for the transaction, the note holders were offered 5% interest on
their notes, rather than the stated 2.03%. All of the note holders accepted the
offer and the convertible notes were retired.
Balances as of September 30, 2004 were:
Convertible debentures - beginning balance . $ 475,000
Total interest expense incurred . . . . $ 20,236
Accrued interest paid - current year. . $ (18,161)
Accrued interest paid - prior year. . . $ (2,075)
Convertible debtures paid . . . . . . . $(237,500)
Convertible debtures converted. . . . . $(237,500)
-------------------------------------------------------
$(475,000)
-------------------------------------------------------
Convertible debentures - ending balance. . . $ 0
-------------------------------------------- ----------
Debt discount (Warrants) - beginning balance $ 475,000
Amount forfeited. . . . . . . . . . . . $(237,500)
Amount expensed prior year. . . . . . . $(125,000)
Amount expensed current year. . . . . . $(267,879)
Current year - adjustment . . . . . . . $ 155,379
-------------------------------------------------------
$(475,000)
-------------------------------------------------------
Debt discount (Warrants) - ending balance. . $ 0
-------------------------------------------- ----------
5. STOCKHOLDERS' EQUITY - PREFERRED STOCK, COMMON STOCK AND WARRANTS
PREFERRED STOCK
On August 25, 2004, the Company entered into a Securities Purchase Agreement
with the Laurus Master Fund, Ltd., whereby the Company issued 250,000 shares of
its Series C Non-Redeemable Convertible Preferred Stock, par value $0.001 per
share (the "Preferred Stock"), to Laurus for an aggregate purchase price of
$2,500,000 or $10.00 per share (the "Stated Value"). The preferred shares are
convertible into shares of the Company's $0.0001 par value common stock at a
rate of $1.54 per share at any time after the date of issuance, and pay
quarterly, cumulative dividends at a rate of 6.85% with the first payment due on
January 1, 2005. As of September 30, 2004, approximately $17,600 has been
accrued for dividends and are payable in cash or shares of our common stock at
the holder's option with the exception that dividends must be paid in shares of
our common stock for up to 25% of the aggregate dollar trading volume if the
fair market value of the Company's common stock for the 20-days preceding the
conversion date exceeds 120% of the conversion rate. The preferred shares are
redeemable by the Company in whole or in part at any time after issuance for (a)
115% of the Stated Value if the average closing price of the common stock for
the 22 days immediately preceding the date of conversion does not exceed the
conversion rate or (b) the Stated Value if the average closing price of our
common stock for the 22 days immediately preceding the date of conversion
exceeds the Stated Value. The preferred shares have a liquidation right equal to
the Stated Value upon the Company's dissolution, liquidation or winding-up. The
preferred shares have no voting rights.
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PAGE
In conjunction with the Preferred Shares, the Company issued a five-year common
stock purchase warrant to Laurus for the purchase of 487,000 shares of the
Company's common stock at an exercise price of $1.77 per share. The Company
committed to register all of the shares of its common stock underlying the
Preferred Shares and the warrant, as well as shares payable as dividends on the
Preferred Shares, for resale.
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 additional 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.
On January 16, 2003 and February 14, 2003, pursuant to an extension of the PPO,
the Company sold 665,188 and 196,079 Units, respectively. The Company received
approximately $326,000 and $100,000, respectively, 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 the periods ending September 30, 2004
and 2003 using the minimum value method as prescribed by SFAS 123 and amended by
SFAS 148. Under this method, the Company used the risk-free interest rate at
the 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 was
117%, 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 the nine-month period ending September 30,
2004 and 2003 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:
Nine-Months Ending September 30, 2004 2003
------------------------------------------------------------
Net loss:
As reported . . . . . . . . . . $(2,332,304) $(1,125,795)
Pro forma . . . . . . . . . . . $(2,635,729) $(1,333,368)
------------------------------------------------------------
Loss per Share:
As reported . . . . . . . . . . $ (0.13) $ (0.07)
Pro forma . . . . . . . . . . . $ (0.15) $ (0.08)
------------------------------------------------------------
On November 21, 1997, the Company entered into a five (5) year employment
agreement with its CEO. On July 16, 2000, the Company amended the employment
agreement with its CEO extending the term until July 16, 2005. As part of the
original 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.
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PAGE
The options are subject to the following vesting conditions, which were amended
on January 21, 2000 and later ratified by the Board on July 16, 2000. The
agreement provided an option for the Board to award options on an additional
1,500,000 shares of restricted common stock at a later date. The exercise
prices are set forth in the following chart:
Exercise
Number price per
Of shares Vesting Conditions share
---------------- --------- ----------------------------------------------------------- -----------------
Granted Options:
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
Options to be
Granted upon
the Occurrence
of Certain Events:
250,000. . . . . Upon the Company market capitalization reaching $250 million $ 5.00
500,000. . . . . Upon the Company market capitalization reaching $500 million $ 10.00
750,000. . . . . Upon the Company market capitalization reaching $1 billion $ 20.00
---------------- --------- ----------------------------------------------------------- -----------------
All options expire on July 16, 2010.
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 shares per year after issuance with the third
year having 3,334 options vest. These options expire five years from grant
date.
6. NEW ACCOUNTING PRONOUNCEMENTS
There were no recent Accounting Pronouncements that affect the Company during
the third quarter 2004. For past pronouncements please refer the Company's
10-KSB filed on April 6, 2004.
7. SUBSEQUENT EVENTS
On October 15, 2004, the Company drew $1.0 million down on its revolving credit
facility with Laurus. In addition to the commitment on August 25, 2004, for the
Company to issue 250,000 shares of its Series C Convertible Preferred Stock, par
value $0.001 per share to Laurus for an aggregate purchase price of $2,500,000
or $10.00 per share, Laurus agreed to extend the Company's current revolving
credit facility reported on Form 8-K filed June 18, 2003 from $1.0 million to
$1.5 million. The first $1,000,000 converted under the revolving credit
facility was converted last year and earlier this year at a rate of $0.55 per
share. On March 31, 2004, the conversion price for the next $500,000 under the
revolving credit facility was set at $0.85 per share. The next $1 million under
the revolving credit facility will be convertible by Laurus at a rate of $1.00
per share. Laurus has committed to convert the $1,000,000 into Common Stock on
or prior to December 31, 2004. On October 4, 2004, the Company filed a
registration statement with the Securities and Exchange Commission related to
the revolving credit facility as well as the Series C Convertible Preferred
Stock. The Company made a request for acceleration, which was granted by the
Securities and Exchange Commission and the registration statement was declared
effective on November 4, 2004.
13
PAGE
On October 20, 2004, the Company was awarded the second Task Order in a
five-year, cost-plus-fixed fee indefinite delivery/indefinite quantity contract
to conduct a micro satellite distributed sensing experiment, an option for a
laser communications experiment, and other micro satellite studies and
experiments as required in support of the Advanced Systems Deputate of the
Missile Defense Agency originally awarded on March 31, 2004. This second Task
Order has a value of $8,257,283 out of the total contract amount of $43,362,271.
The value of the first Task Order was $1,141,404, which was successfully
completed by September 30, 2004. The period of performance for the second Task
Order is approximately sixteen months, i.e., October 1, 2004 through January 31,
2006. The principal place of performance will be Poway, California. The micro
satellite distributed sensing experiment is intended to design and build up to
six responsive, affordable, high performance micro satellites to support
national missile defense. The milestone-based, multiyear, multiphase contract
had an effective start date of March 1, 2004 for the first Task Order and
October 1, 2004 for the second Task Order. The overall contract calls for the
Company to analyze, design, develop, fabricate, integrate, test, operate and
support a networked cluster of three formation-flying boost phase and midcourse
tracking microsatellites, with an option to design, develop, fabricate,
integrate, test, operate and support a second cluster of three formation flying
microsats to be networked on-orbit with high speed laser communications
technology.
14
PAGE
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto and the other financial
information appearing elsewhere in this document. 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 our General Registration Statement on Form 10SB12G/A filed
January 28, 2000 as well as any or all of our recent filings including prior
year 10-KSB and quarterly 10-QSB filings.
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 report 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 the Company; our dependence on
single-source or a limited number of suppliers; our ability to protect our
proprietary technology; market conditions influencing prices or pricing; an
adverse outcome in 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 and coalition forces; 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.
OVERVIEW
We are a high-tech space company engaged in the conception, design, development,
manufacture, integration and operation of space technology systems, products and
services. We are currently focused on the commercial and military development
of low cost micro satellites, nano satellites and related subsystems, hybrid
rocket propulsion systems for in-space use, hybrid-based expendable launch
vehicles and human space flight vehicles, as well as, associated engineering and
technical services primarily to government agencies, specifically the Department
of Defense and the private sector. Our products and solutions are sold, mainly
on a project-basis, directly to these customers and include sophisticated high
performance, lower cost micro and nano satellites, hybrid rocket-based launch
vehicles, Maneuvering and orbital Transfer Vehicles 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 appear to be government military agencies and our "products" are
considered to be the outcome of specific "projects." We are also developing
commercial hybrid rocket motors for possible use in small launch vehicles,
targets and sounding rockets and small high performance space vehicles and
subsystems for commercial customers.
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PAGE
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."
SELECTION OF SIGNIFICANT CONTRACTS
On March 31, 2004, we were awarded a five-year, cost-plus-fixed fee indefinite
delivery/indefinite quantity contract for up to $43,362,271 to conduct a micro
satellite distributed sensing experiment, an option for a laser communications
experiment, and other micro satellite studies and experiments as required in
support of the Advanced Systems Deputate of the Missile Defense Agency. This
effort will be accomplished in a phased approach, with the first Task Order for
approximately $1.1 million awarded on April 1, 2004 and completed by September
30, 2004. The second Task Order for approximately $8.3 million was awarded on
October 20, 2004. The principal place of performance will be Poway, California.
We expect to complete the work under the contract before March 2009. Government
contract funds will not expire at the end of the current government fiscal year.
The micro satellite distributed sensing experiment is intended to design and
build up to six responsive, affordable, high performance micro satellites to
support national missile defense. The milestone-based, multiyear, multiphase
contract has an effective start date of March 1, 2004. Approximately $1.14
million of revenue has been generated since the beginning of this contract. The
first phase, (i.e., first Task Order), resulted in detailed mission and micro
satellite designs. The second phase, (i.e., second Task Order), was signed on
October 20, 2004 with an effective date of October 1, 2004, so work has already
begun on this second Task Order. The second phase is expected to be completed
by January 2006. The overall contract calls for us to analyze, design, develop,
fabricate, integrate, test, operate and support a networked cluster of three
formation-flying boost phase and midcourse tracking micro satellites, with an
option to design, develop, fabricate, integrate, test, operate and support a
second cluster of three formation flying micro satellites to be networked
on-orbit with high speed laser communications technology. The third phase is
anticipated to begin on or before February 2006.
On October 2, 2003, we were awarded an exclusive, follow-on contract to provide
the hybrid rocket motor systems and components for SpaceShipOne. We provide our
facilities, resources and a team of launch vehicle and hybrid propulsion
engineers and technical personnel in continued support of the SpaceShipOne
program. The contract called for us to use our best efforts to satisfy the
requirements of the SpaceShipOne program, based on our experience with the prior
phases. We provided re-usable flight test hardware, including a bulkhead,
commonly known as the SpaceDev bulkhead, machined in the flight configuration, a
main oxidizer valve of the current design and associated interfaces and plumbing
to the SpaceDev bulkhead, a motor control system, igniter housings, pressure
transducers, and thermocouples as required for input to the motor control
system. In addition, we produced and assembled test motors, including but not
limited to, all expendable or semi-reusable materials as defined by our baseline
design motor. We also provided on-site engineering test support and post-test
analysis. Provisions were made in the contract for minimum monthly payments in
the event of customer schedule slippage as well as additional levels of support
via engineering change orders, if required. The total contract value is
estimated at $615,000. Approximately $610,000 of revenue was realized in the
nine-months ending September 30, 2004, with approximately $147,000 from
engineering change orders and the remaining $463,000 from the contract.
16
PAGE
On July 9, 2003, we were awarded a contract by the Missile Defense Agency
("MDA") to explore the use of micro satellites in national missile defense. It
was a precursor contract to the $43 million contract mentioned above. Our micro
satellites are operated over the Internet and are capable of pointing and
tracking targets in space or on the ground. This study explored fast response
micro satellite launch and commissioning; small, low-power passive sensors;
target acquisition and tracking; formation flying and local area networking
within a cluster of micro satellites; and an extension of our proven use of the
Internet for on-orbit command, control and data handling. The contract was
successfully concluded on February 27, 2004. The total contract value was
$800,000 with approximately $318,000 of revenue realized in the nine-month
period ending September 30, 2004. The total value of our micro satellite
studies for MDA was over $1 million in 2003. This contract was considered an
investigatory phase by MDA.
Also, on July 9, 2003, we were awarded a Phase I Small Business Innovation
Research ("SBIR") contract by Air Force Research Lab ("AFRL") to design and
effectively begin the development of our small launch vehicle ("SLV"). The
SpaceDev SLV will be designed to responsively and affordably lift up to 1,000
pounds to Low Earth Orbit. The SpaceDev 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 was valued at
approximately $100,000, and was a fixed price, milestone-based agreement, which
was completed in about one year. The Phase II of this SBIR was awarded on
September 29, 2004 and is worth approximately $1,557,000. The contract outlines
the development and test firing of our large Common Core Booster for the
SpaceDev small launch vehicle. Congress has awarded us approximately $3.0
million in additional funding for this project, which we expect will be
available by mid-2005. We believe that there is additional interest by Congress
in providing further funding to expand and accelerate the scope of the work;
however, there can be no assurance that such work will be awarded to us.
Revenue from this project for the nine-month period ending September 30, 2004
was approximately $58,000.
Finally, on July 9, 2003, we were awarded a Phase I contract to develop micro
and nano satellite bus and subsystem designs. This AFRL SBIR contract, valued at
approximately $100,000, will enable us to explore the further miniaturization of
our unique and innovative micro satellite 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 August 23, 2004 we were awarded the
Phase II of this SBIR, which was later amended on September 8, 2004 to shorten
the length of the overall contract, worth approximately $739,000 for
carry-forward work. Revenues for the nine-month period ending September 30, 2004
were approximately $52,000 for Phase I and approximately $8,600 for Phase II.
On July 24, 2003, we were awarded a contract by Lunar Enterprise of California
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. The contract value was $100,000 and was completed by
November 2003. We were awarded a follow-on phase to further analyze launch
opportunities, spacecraft design, trajectory possibilities, potential landing
areas, available technologies for a small radio astronomy system, and
communications and data handling requirements on July 20, 2004 in the amount of
$150,000. Although this project is currently unfunded, if the project were to
proceed past the analysis stage, the total mission cost could exceed $50-$75
million. Again, we can give no assurance that any additional contracts will be
awarded to us from this contract.
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PAGE
On December 18, 2003, we were awarded a contract by the Defense Advanced
Research Projects Agency ("DARPA") for the study of Novel Satcom Microsat
Constellation Deployment. The contract is a milestone-based, fixed price
contract with total consideration of approximately $200,000. On August 6, 2004,
an additional $39,849 was added to the contract for increased scope bringing the
total contract value on this fixed price effort to approximately $240,000.
Revenues for the nine-month period ending September 30, 2004 were approximately
$200,000. We expect to either further expand this award or obtain new awards
under this program; however, there can be no assurance as to whether such work
will be awarded to us, or, if awarded, there can be no assurance as to the
amounts or terms of the awards.
On April 30, 2002, we were awarded Phase I of a contract to develop a
Shuttle-compatible propulsion module for 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 fixed fee contract. In order to complete AFRL
Phase II, we requested and were granted approximately four months of additional
time and approximately $240,000 of additional funding, memorialized by a
contract amendment executed on July 7, 2004. In addition to the Phase I and
Phase II awards, there is an option worth approximately $800,000, which was
initiated on May 3, 2004. The additional funding to complete AFRL Phase II came
in part from the original $1 million option; thereby reducing the option to
approximately $800,000. An additional effort to develop a miniaturized
Shuttle-compatible propulsion module has been added to this contract worth
approximately $150,000. Revenues for the nine-month period ending September 30,
2004 were approximately $945,000 for AFRL Phase II, including the exercised
option, and approximately $12,000 for the new add on contract.
In November 1999, we won a $4.9 million turnkey mission contract by the Space
Sciences Laboratory ("SSL") at 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 and only successful mission of NASA's low-cost University-Class
Explorer ("UNEX") series to date. 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 after one year. 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 increased the scope of the contract to the
current value of the CHIPSat project of approximately $7.4 million, thereby
increasing the total expected loss to approximately $514,000. In retrospect,
some of the CHIPSat expenses creating the loss could have been recorded as
research and development costs associated with our ongoing satellite design and
development programs. As of December 31, 2003, the total contract costs were
expended, mainly as cost of goods sold. The original support contract expired
on December 31, 2003. CHIPSat is still operating successfully and providing UCB
with new and interesting data. UCB requested to extend the program and we
negotiated a new time and materials contract in the first quarter of 2004 in the
form of a purchase order with UCB for continuing support of this project. The
contract will continue until UCB decides that no further relevant information is
forthcoming or funding is terminated, at which time the use of the micro
satellite will revert to NASA and then to us. Revenues for the nine-month
periods ending September 30, 2004 and 2003 were approximately $25,000 and
$392,000, respectively.
18
PAGE
RESULTS OF OPERATIONS
Please refer to the consolidated financial statements, which are a part of this
report, for further information regarding the results of operations.
Nine-Months Ending September 30, 2004 -vs.- Nine-Months Ending September
30, 2003
During the nine-months ending September 30, 2004, we had net sales of
approximately $3,446,000 as compared to net sales of approximately $2,055,000
for the same nine-month period in 2003, an increase of over 67%. Sales
increased primarily due to the addition and expansion of government contacts,
e.g., AFRL and MDA, which created new revenue opportunities for us. Revenues in
the nine-month period ending September 30, 2004 were comprised of approximately
$957,000 from AFRL Phase II including add on effort, $1,141,000 from MDA Phase
I, $318,000 from the MDA Phase 0, $610,000 from SpaceShipOne, $200,000 from our
DARPA contract, $110,000 from the two SBIR contracts listed above, $40,000 from
Phase B of the Lunar Lander Project and $70,000 from all other programs. During
the same period of 2003, sales were comprised of approximately $410,000 from
SpaceShipOne, $395,000 from the MDA project, $346,000 from the CHIPSat program,
$705,000 from Phase I and Phase II of the AFRL project and approximately
$199,000 from all other programs.
For the nine-month period ending September 30, 2004, we had costs of sales
(direct and allocated costs associated with individual contracts) of
approximately $2,703,000, or 78.4% of net sales, as compared to approximately
$1,682,000, or 81.9% of net sales, during the same period in 2003. The increase
in cost of sales was primarily due to higher revenues since the majority of our
current contracts are cost plus fixed fee contracts. We continue to focus
efforts on developing project management skills and reports and we are in the
process of implementing a new project management and project accounting software
package to assist in the efficient and effective management of our projects.
The gross margin percentage for the nine-month period ending September 30, 2004
was 21.6% of net sales, an increase of 3.7% of net sales, as compared to 18.1%
of net sales for the same nine-month period in 2003, mainly due to the improved
management of our projects and the influence of our fixed priced contracts,
which carry higher margins than our cost plus contracts.
We experienced a decrease of approximately $601,500 in operating expenses from
approximately $1,250,500, or 60.9% of net sales, for the nine-month period
ending September 30, 2003 to approximately $649,000 or 18.8% of net sales, for
the nine-month period ending September 30, 2004, primarily due to non-recurring
development costs of CHIPSat in 2003, amortization of software costs in 2003 and
a refinement of our allocation model in 2004. Operating expenses include
general and administrative expenses ("G&A"), marketing and sales expenses and
research and development expenses as well as stock and stock option based
compensation expenses. Fluctuations in operating expenses for 2004 from 2003
are primarily attributable to the following:
- Marketing and sales expenses increased slightly during the first
nine-months of 2004 compared to the same period in 2003. The increase in
marketing and sales expense, from approximately $311,000, or 15.2% of net
sales, for the nine-month period ending June 30, 2003, to approximately
$336,000, or 9.7% of net sales, during the same period in 2004, are mainly
due to personnel expenses related to our decision to expand the marketing
and sales department. The fact that there was only a slight increase is
primarily attributable to our Vice President of Business Development
doubling as Project Manager for our MDA project with a significant portion
of his expenses being charged directly to projects.
- Research and development ("R&D") expenses decreased during the first
nine-months of 2004 from approximately $272,500 or 13.3% of net sales in
2003 to approximately $39,000 or 1.1% of net sales for the nine-month
period ending September 30, 2004, mainly due to non-recurring engineering
development costs of CHIPSat in 2003 and our decision to focus our limited
resources on billable projects and develop new technologies under existing
contracts in 2004 and beyond.
19
PAGE
- The decrease of approximately $387,000 in G&A expenses from approximately
$662,000 for the nine-month period ending September 30, 2003 to
approximately $274,000 for the same nine- month period in 2004 was
primarily due to software amortization expense of $104,000 in 2003, which
is no longer present in 2004 as well as refinement of our allocation model
to more appropriately classify certain expenses as cost of goods sold
rather than G&A.
Non-operating expense (income) consists of interest expenses, non-cash interest
expenses, non-cash debt discount expense and deferred gain on the sale of our
building, as well as, other loan fees and expenses.
- Interest expense for the nine-month period ending September 30, 2004 and
2003 was approximately $62,600, or 1.8% of net sales, and $65,000, or 3.1%
of net sales, respectively. The slight decrease was due to lower notes
payable in 2004. Interest expense is comprised of interest on our note to
our CEO, interest on our revolving credit facility/convertible debt and
interest on our settlement notes/capital leases. For the nine-month period
ending September 30, 2004 and 2003, interest expense on our note to our CEO
was approximately $29,300 and $28,000, respectively. For the nine-month
period ending September 30, 2004 and 2003, interest expense on our
revolving credit facility/convertible debt was $29,600 and $31,400,
respectively. And interest expense on our settlement notes/capital leases
for the nine-month period ending September 30, 2004 and 2003 were
approximately $3,700 and $5,600, respectively. We also had interest income
for the nine-months ending September 30, 2004 of approximately $5,600 from
our growing cash balances.
- We recognized approximately $88,000 and $78,000 of the deferred gain on
the sale of the building during the nine-month periods ending September 30,
2004 and 2003, respectively, and we will continue to amortize the remaining
deferred gain of approximately $977,267 into non-operating income over the
remainder of the lease. In relation to the gain we received on the
building, we also accrued an income tax payable expense of $2,526 at
September 30, 2003 of which none remained at December 31, 2003. The
reduction of the income tax payable was due to a change in estimate based
on the net loss we experienced during the year.
- During the nine-month period ending September 30, 2003, we expensed, in
conjunction with our convertible notes, part of the existing convertible
debt discount related to warrants that accompanied the convertible debt
issue in 2002 of approximately $475,000, later reduced to $237,500 based on
a conversion in September 2003 of which approximately $112,500 was expensed
during the nine-months ended September 30, 2003 and paid or converted in
September 2003. There was no debt discount for the first nine-months of
2004.
- We realized $2,456,794 and $148,412 in non-cash interest expense and loan
fees during the nine-months ending September 30, 2004 and 2003,
respectively. The non-cash interest expense and loan fees consisted of
approximately $1,718,000 related to our revolving credit facility and
approximately $739,000 related to the conversion of notes to common stock
below fair market value for the nine-month period ending September 30,
2004. We accrued approximately $50,900 of interest for the nine-month
period ending September 30, 2004, of which approximately 33,000 represented
interest on our revolving credit facility and $17,600 was dividends owed on
our preferred stock transaction. We anticipate additional expenses related
to similar note to equity conversions during the fourth quarter.
20
PAGE
During the nine-month period ending September 30, 2004, we incurred a net loss
of approximately $2,332,000, or 67.7% of net sales, compared to a net loss of
approximately $1,126,000, or 54.8% of net sales for the same nine-month period
in 2003, primarily due to our non-cash charges as discussed above. During the
nine-month period ending September 30, 2004, we incurred an EBITDA (earnings
before interest taxes depreciation and amortization) of approximately $149,000,
OR 4.3% OF NET SALES, compared to an EBITDA loss of approximately <$725,000>, or
<35.3> % of net sales, for the nine-month period ending September 30, 2003.
The following table reconciles EBITDA to net loss for the nine-month period
ending September 30, 2004 and 2003, respectively:
FOR THE NINE-MONTHS ENDING . . . . . . SEPTEMBER 30, 2004 September 30, 2003
(UNAUDITED) (Unaudited)
-------------------------------------- -------------------- --------------------
NET LOSS (INCOME). . . . . . . . . . . $ (2,332,304) $ (1,125,795)
-------------------------------------- -------------------- --------------------
Interest Income. . . . . . . . . . . . (5,619)
Interest Expense . . . . . . . . . . . 62,634 64,683
Non-Cash Interest exp. (Debt Discount) - 112,500
Gain on Building Sale. . . . . . . . . (87,954) (78,181)
Loan Fee - Equity Conversion. . . . . 2,456,794 148,412
Provision for income taxes . . . . . . - -
Depreciation and Amortization. . . . . 55,236 153,023
-------------------------------------- -------------------- --------------------
EBITDA . . . . . . . . . . . . . . . . $ 148,787 $ (725,358)
-------------------------------------- -------------------- --------------------
EBITDA should not be considered as an alternative to net income or loss (as an
indicator of operating performance) or as an alternative to cash flow (as a
measure of liquidity or ability to service debt obligations). We believe that
EBITDA provides an important additional perspective on our operating results,
our ability to service our long-term obligations, our ability to fund continuing
growth, and our ability to continue as a going concern.
Three-Months Ending September 30, 2004 -vs.- Three-Months Ending September
30, 2003
We recorded our seventh consecutive quarter of revenue growth. During the
three-month period ending September 30, 2004, we had net sales of approximately
$1,230,000 as compared to net sales of approximately $768,000 for the same
three-month period in 2003, an increase of over 60.0%. Sales increased
primarily due to the addition and expansion of our contracts such as AFRL and
MDA, which created new revenue opportunities for us. Revenue only increased 2%
from $1,200,692 in the second quarter of 2004, mainly due to our decision to
focus resources on new proposal work for new business development opportunities
and to a lesser extent to preparing for the introduction of our new project
accounting/project management system in October 2004. Revenues in the
three-month period ending September 30, 2004 were comprised of approximately
$584,000 from MDA Phase I, $283,000 from AFRL Phase II, $216,000 from
SpaceShipOne, $63,000 from our DARPA contract, $19,600 from the two SBIR
contracts listed above, $40,000 from phase B of the Lunar Enterprises project
and $24,400 from all other programs. During the same period of 2003, sales were
comprised of approximately $145,000 from the MDA project, $463,000 from Phase II
of the AFRL project, $70,000 from the Lunar Enterprises contract, $36,000 from
the AFRL SBIR programs, $15,000 from the CHIPSat program, $13,000 from
SpaceShipOne, and approximately $26,000 from all other programs.
21
PAGE
For the three-month period ending September 30, 2004, we had costs of sales
(direct and allocated costs associated with individual contracts) of
approximately $953,000 or 77.5% of net sales, as compared to approximately
$643,000 or 83.7% of net sales during the same period in 2003. The increase in
cost of sales was primarily due to higher revenues since the majority of our
current contracts are cost plus fixed fee contracts. We continue to focus
efforts on developing project management skills and reports and we are in the
process of implementing a new project management and project accounting software
package to assist in the efficient and effective management of our projects.
The gross margin percentage for the three-month period ending September 30, 2004
was 22.5% of net sales, an increase of 6.2% of net sales, as compared to 16.3%
of net sales for the same three-month period in 2003, mainly due to the improved
management of our projects and the influence of our fixed priced contracts,
which carry higher margins than our cost plus contracts.
We recorded our third consecutive quarter of profit from operations. We
experienced a decrease of approximately $47,000 in operating expenses from
approximately $275,000, or 35.8% of net sales, for the three-month period ending
September 30, 2003 to approximately $228,000, or 18.6% of net sales, for the
three-month period ending September 30, 2004, primarily due to non-recurring
development costs of CHIPSat in 2003, amortization of software costs in 2003 and
a refinement of our allocation model in 2004. Operating expenses include
general and administrative expenses ("G&A"), marketing and sales expenses and
research and development expenses as well as stock and stock option based
compensation expenses. Fluctuations in operating expenses for 2004 from 2003
are primarily attributable to the following:
- Marketing and sales expenses increased slightly during the three-month
period ending September 30, 2004 compared to the same period in 2003. The
increase in marketing and sales expense, from approximately $112,000, or
14.6% of net sales, for the three-months ending September 30, 2003, to
approximately $120,000, or 9.8% of net sales, during the same period in
2004, was mainly due to more resources being transitioned into efforts on
new contracts and the extension of current contracts for the Company. The
fact that there was only a slight increase is primarily attributable to our
Vice President of Business Development doubling as Project Manager for our
MDA project and contributing to other projects with a significant portion
of his expenses being charged directly to these projects.
- Research and development ("R&D") expenses decreased during the
three-month period ending September 30, 2004 from approximately $20,500, or
2.7% of net sales in 2003, to $4,500, or 0.4% of net sales for the
three-month period ending September 30, 2004, mainly due to non-recurring
engineering development costs of CHIPSat in 2003 and our decision to focus
our limited resources on billable projects and develop new technologies
under existing contracts in 2004 and beyond.
- The decrease of approximately $33,500 in G&A expenses from approximately
$137,000 for the three-month period ending September 30, 2003 to
approximately $103,500 for the same three-month period in 2004 was
primarily due to a refinement of our allocation model to more appropriately
classify certain expenses as cost of goods sold rather than G&A.
- The decrease of approximately $4,600 in stock and stock option based
compensation from approximately $4,600 for the three-month period ending
September 30, 2003 to none for the same three-month period in 2004 was due
to no equity issuances for products or services in lieu of cash
expenditures.
Non-operating expense (income) consists of interest expenses, non-cash interest
expenses, non-cash debt discount expense and deferred gain on the sale of our
building, as well as, other loan fees and expenses.
22
PAGE
- Interest expense for the three-month periods ending September 30, 2004
and 2003 was approximately $23,000, or 1.9% of net sales, and $30,000, or
3.9% of net sales, respectively. The slight decrease was due to repayment
on our revolving credit facility. Interest expense is comprised of interest
on our note to our CEO, interest on our revolving credit
facility/convertible debt and interest on our settlement notes/capital
leases. For the three-month period ending September 30, 2004 and 2003,
interest expense on our note to our CEO was approximately $3,300 and
$8,800, respectively. For the three-month period ending September 30, 2004
and 2003, interest expense on our revolving credit facility/convertible
debt was $19,000 and $20,000, respectively. And interest expense on our
settlement notes/capital leases for the three-month periods ending
September 30, 2004 and 2003 were approximately $700 and $1,200
respectively. We also earned interest income during the three months ending
September 30, 2004 of approximately $5,600 from our growing cash balances.
- We recognized approximately $29,300 and $29,300 of the deferred gain on
the sale of the building during the three-months ending September 30, 2004
and 2003, respectively, and we will continue to amortize the remaining
deferred gain of approximately $977,267 into non-operating income over the
remainder of the lease. In relation to the gain we received on the
building, we also credited our accrued income tax payable expense by
($2,526) during the three-month period ending September 30, 2003, of which
none remained at December 31, 2003. The reduction of the income tax payable
was due to a change in estimate based on the net loss we experienced during
the year.
- During the three-month period ending September 30, 2003, we expensed in
conjunction with our convertible notes, part of the existing convertible
debt discount related to warrants that accompanied the convertible debt
issue in 2002 of approximately $475,000 which was reduced to $237,500 in
conjunction with a repayment and reallocation of remaining warrants. During
the three-months ending September 30, 2003 we experienced a credit of
($88,400) which had previously been expensed during prior periods 2003 and
paid or converted in September 2003. There was no debt discount for the
same period of 2004.
- We realized $663,481 in non-cash interest expense and loan fees of which
$540,000 was related to our revolving credit facility and approximately
$124,000 was related to the conversion of notes to common stock below fair
market value for the three-month period ending September 30, 2004. We
anticipate additional expenses related to similar note to equity
conversions in the fourth quarter of 2004.
During the three-month period ending September 30, 2004, we incurred a net loss
of approximately $603,000 or 49.0% of net sales, compared to a net loss of
approximately $208,000, or 27.1% of net sales, for the same three-month period
in 2003, primarily due to our non-cash charges as discussed above. During the
three-month period ending September 30, 2004, we incurred an EBITDA (earnings
before interest taxes depreciation and amortization) of approximately $71,500,
OR 5.8% OF NET SALES, compared to an EBITDA loss of approximately <$103,000>, or
<13.4> % of net sales, for the three-months ending September 30, 2003.
23
PAGE
The following table reconciles EBITDA to net loss for the three-months ending
September 30, 2004 and 2003, respectively:
FOR THE THREE-MONTHS ENDING. . . . . . SEPTEMBER 30, 2004 September 30, 2003
(UNAUDITED) (Unaudited)
-------------------------------------- -------------------- --------------------
NET LOSS (INCOME). . . . . . . . . . . $ (602,888) $ (208,261)
-------------------------------------- -------------------- --------------------
Interest Income. . . . . . . . . . . . (5,619) -
Interest Expense . . . . . . . . . . . 23,110 30,056
Non-Cash Interest exp. (Debt Discount) - (88,408)
Gain on Building Sale. . . . . . . . . (29,318) (29,318)
Loan Fee - Equity Conversion. . . . . 663,481 148,412
Provision for income taxes . . . . . . - (2,526)
Depreciation and Amortization. . . . . 22,749 46,822
-------------------------------------- -------------------- --------------------
EBITDA . . . . . . . . . . . . . . . . $ 71,515 $ (103,223)
-------------------------------------- -------------------- --------------------
EBITDA should not be considered as an alternative to net income or loss (as an
indicator of operating performance) or as an alternative to cash flow (as a
measure of liquidity or ability to service debt obligations). We believe that
EBITDA provides an important additional perspective on our operating results,
our ability to service our long-term obligations, our ability to fund continuing
growth, and our ability to continue as a going concern.
24
PAGE
LIQUIDITY AND CAPITAL RESOURCES
CASH POSITION FOR NINE-MONTHS ENDING SEPTEMBER 30, 2004 -VS.- NINE-MONTHS
ENDING SEPTEMBER 30, 2003
Net cash increased during the nine-months ending September 30, 2004 by
approximately $3,486,600 to $4,078,600, compared to an increase of approximately
$286,500 to $314,200 for the same nine-month period in 2003. Net cash provided
by operating activities totaled approximately $66,000 for the nine-months ending
September 30, 2004, an increase of approximately $1,011,000 as compared to
approximately $945,000 used in operating activities during the same nine-month
period in 2003, mainly due to increased revenues combined with the decrease in
operating expenses for the first nine-months of 2004 compared to the same period
in 2003.
Net cash used in investing activities totaled approximately $166,000 for the
nine-months ending September 30, 2004, compared to $3,147,000 provided by
investing activities during the same nine-month period in 2003. The decrease in
cash provided by investing activities is attributable to the sale of the
building on January 31, 2003 and no comparable transaction in 2004. During the
first nine-month period in 2004, we invested approximately $80,000 in
specialized software and certain upgrades to computer hardware for our
engineering team and approximately $80,000 in a new accounting and project
management system software.
Net cash provided by financing activities totaled approximately $3,586,000 for
the nine-month period ending September 30, 2004, which is an increase of
approximately $5,502,000 from the approximately $1,916,000 used in financing
activities during the same period in 2003. This is primarily attributable to
the repayment of notes payable associated with the building sale in 2003,
payments and the pay-off of related party notes in 2004, conversions under our
revolving credit facility in 2004, a sale of non-redeemable preferred stock in
August 2004 as well as an increase in issuance of common stock from the exercise
of stock options and warrants.
At September 30, 2004, our cash was approximately $4,078,600 as compared to
approximately $314,200 at September 30, 2003, an increase of approximately
$3,764,400, mainly due to conversions under our revolving credit facility, the
non redeemable preferred stock sale in August 2004 and the exercise of stock
options and warrants.
As of September 30, 2004, our backlog of funded and non-funded business was
approximately $49 million, mainly due to the follow-on, five-year contract from
MDA for up to $43,362,271. We expect approximately $2 million in revenue from
the MDA program in 2004. Although the MDA contract was awarded to us and the
first Task Order was issued to us for approximately $1.1 million on April 1,
2004, and the second Task Order was issued to us for approximately $8.3 million
on October 20, 2004, there can be no assurance that the contract will be
continued through all phases, and if continued, that it will generate the
amounts anticipated. Backlog as of September 30, 2003 was approximately $2.6
million.
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 $2,218,000 and $2,190,000 as of September
30, 2004 and December 31, 2003, 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
increased approximately $828,000 in 2004 from $2,190,000 at December 31, 2003 to
$2,218,000 at September 30, 2004.
At September 30, 2004 and 2003, we had federal and state tax net operating loss
and capital loss carryforwards of approximately $6.9 million and $6.0 million,
respectively. The federal and state tax loss carryforwards will expire in 2023
and 2013, respectively, unless previously utilized. The State of California has
suspended the utilization of net operating loss for 2002 and 2003, a partial
allowance is in effect in 2004.
25
PAGE
CRITICAL ACCOUNTING STANDARDS
Our revenues transitioned in 2003 and early 2004 from being based primarily on
fixed-price contracts, where revenues are recognized using the
percentage-of-completion method of contract accounting based on the ratio of
total costs incurred to total estimated costs, to primarily cost-plus fixed fee
contracts, where revenues are recognized as costs are incurred and services are
performed. 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. Deferred revenue represents amounts
collected from customers for services to be provided at a future date. Research
and development costs are expensed as incurred.
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
123, "Accounting for Stock-Based Compensation." We 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 in SFAS No. 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.
SFAS No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure, which amends SFAS No. 123, Accounting for Stock-Based Compensation,
was published by the Financial Accounting Standards Board on December 31, 2002.
The effective date of FASB No. 148 is December 15, 2002. SFAS No. 123
prescribes a "fair value" methodology to measure the cost of stock options and
other equity awards. Companies may elect either to recognize fair value
stock-based compensation costs in their financial statements or to disclose the
pro forma impact of those costs in the footnotes. We have chosen the latter
approach. The immediate impact of SFAS No. 148 is more frequent and prominent
disclosure of stock-based compensation costs, starting with financial statements
for the year ended December 31, 2002 for companies whose fiscal year is the
calendar year. SFAS No. 148 also provides some flexibility for the transition
if a company chooses the fair-value cost recognition of employee stock options.
CASH POSITION AND REMOVAL OF GOING CONCERN
As of September 30, 2004, we believe that the opinion our auditors expressed in
their formal auditors' opinion dated February 11, 2004 (except for Note 11 as to
which the date is April 2, 2004) is still accurate. PKF stated that in their
opinion, based on their audit, our consolidated financial statements referred to
herein present fairly, in all material respects, the consolidated financial
position of the Company and its subsidiary as of December 31, 2003, and our
consolidated results of operations and cash flows for the year then ended are in
conformity with accounting principles generally accepted in the United States of
America. Our ability to continue as a going concern depends upon our ability to
ultimately implement our plan, which includes (but is not limited to) generation
of substantial new revenue from MDA, by successfully performing under the newly
awarded contract and continuing to attract and successfully complete other
government and commercial contracts, development of a project management
expertise to profitably execute on new business contracts and reduction of the
working capital deficit by raising additional capital. We are working with
Laurus, our revolving credit facility provider, and investigating the
possibility of raising additional capital to further support operations as new
contracts and business opportunities materialize. The prospective funding, as
well as new business opportunities, 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 or contracts as needed or,
if such funding or contracts are available, that we can obtain them 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 and industry in which we operate.
26
PAGE
On January 31, 2003, we closed escrow on the sale of our facility in Poway,
California and entered into a ten-year leaseback. The selling price of the
facility was $3.2 million. The total debt repayment from the transaction was
approximately $2.4 million. The net proceeds to us for working capital purposes
was approximately $636,000.
At the end of 2002, we raised $475,000 from certain of our directors and
officers by issuing 2.03% convertible notes. The convertible notes entitled the
holder to convert the principal and unpaid accrued interest into our common
stock when the note matured. The original maturity on the notes was six (6)
months from issue date; however, on March 19, 2003, the maturity date was
extended to twelve (12) months from issue date. The convertible notes were
exercisable into common shares at a conversion price that equaled the 20-day
average asking price less 10%, which was established when the notes were issued,
or the initial conversion price. Concurrent with the issuance of the
convertible notes, we 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, or the initial
conversion price on the debentures. On September 5, 2003, we repaid one-half of
the convertible notes, with the condition that the note holders would convert
the other half. Also, as a condition of the partial repayment, the note holders
were required to relinquish one-half of the 1,229,705 warrants previously
issued. As additional consideration for the transaction, the note holders were
offered 5% interest on their notes, rather than the stated 2.03%. All the note
holders accepted the offer and the convertible notes were retired in 2003.
During the six-month period ending June 30, 2003, we raised approximately
$426,000 from accredited investors by selling 861,267 units of our common stock
and common stock purchase warrants under in a private placement offering ("PPO")
made under Section 4(2) of the Securities Act of 1933, and Rule 506, to
accredited investors only. We subsequently closed the PPO.
We have sustained ourselves over the last few years with a mixture of government
and commercial contracts and capital raised in the private market. In
particular, we anticipated and received an award for AFRL Phase II on March 28,
2003 and MDA on March 31, 2004. The AFRL and MDA contracts are cost-plus
contracts, which have required us to incur certain costs in advance of regular
contract reimbursements from our customers. Although we have needed a certain
amount of cash to fund advance payments on the contracts, we have been entitled,
as a small business concern, to recover our costs on a weekly basis and we
established the Laurus Master Fund revolving credit facility at the end of the
second quarter of 2003, in part, to support our advance payment needs.
On March 31, 2004, we negotiated an amendment to our Secured Convertible Note
dated June 3, 2003 with the Laurus Master Fund to add a fixed conversion price
at $0.85 per share for the next $500,000 converted under the revolving credit
facility, after the initial $1 million conversion. In exchange for the
amendment, Laurus granted us a six-month waiver to utilize the full revolving
credit facility in advance of eligible accounts. At June 30, 2004, Laurus had
converted 1,403,182 shares under the revolving credit facility, which
represented approximately $772,000 of debt converted to equity. And on August
25, 2004, we concluded a $2.5 million preferred stock financing with Laurus and
agreed to a fixed conversion price of $1.00 per share for the next $1 million
converted under the revolving credit facility, after the initial $1.5 million
conversion.
We recorded our fourth consecutive quarter of positive cash flow. We realized a
small positive cash flow from operations during the fourth quarter of 2003 and
the first three quarters of 2004. Our improving EBITDA is an indicator of our
financial performance. We expect to continue realizing positive cash flow as
well as net losses in 2004. The continued net losses are primarily due to
non-cash interest expense and other fees related to our revolving credit
facility and debt related warrant conversion. While EBITDA should not be
considered as an alternative to net income (as an indicator of operating
performance) or as an alternative to cash flow (as a measure of liquidity or
ability to service debt obligations), we believe that by using EBITDA as a
measure of performance, we can illustrate the improving results of our core
business, despite the net losses derived from financing activities. Our EBITDA
was approximately $149,000 for the nine-month period ending September 30, 2004,
compared to a negative EBITDA of approximately <$725,000> for the same period in
2003, an improvement of approximately $874,000.
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We recorded our third consecutive quarter of profit from operation, which is a
significant indicator of our improving financial performance. Operating results
are an important measure of the performance of our core business. We recorded a
profit from operations of approximately $49,000 in the third quarter of 2004,
compared to a loss from operations of <$150,000> in the third quarter of 2003.
We recorded a profit from operations of approximately $103,000 for the
nine-months ending September 30, 2004, compared to a loss from operations of
<$878,000> for the same period in 2003. Profits or losses from operations are
derived from all expenses excluding interest, taxes, non-cash expenses related
to our revolving credit facility and other non-cash financing activities.
We expect to continue showing a positive trend in cash flow and operating
profits in 2004. We anticipate that with the projected increase in revenue and
backorders from near term contracts, combined with our fiscally responsible
budget and project controls, borrowings under our revolving credit facility and
exercises of stock options and warrants, that net positive cash flow from
operations will be sufficient to fund both operations and capital expenditures
in 2005. There is no assurance, however, that we will achieve or sustain any
positive cash flow or profitability now or in the future.
RECENT ACCOUNTING PRONOUNCEMENTS
There were no recent Accounting Pronouncements that affected the Company during
the third quarter of 2004. For past pronouncements please refer to the
Company's 10-KSB filed on April 6, 2004.
FORWARD-LOOKING STATEMENTS AND RISK ANALYSIS
During the first nine-months of 2004, we submitted eight proposals and responses
to requests for information for government programs, continued our work with the
United States Congress to identify directed funding for our programs and are
Actively working to win several significant commercial programs. We believe that
we will win some of these programs, which would enable us to continue to grow
and broaden our business base, although there can be no assurance that these
contracts will be awarded to us.
To date, we have maintained a mix of government and commercial business. In
2003, we had about 82% government or government-related work. In 2002, we had
about 64% government and government-related work. In 2004, we expect the ratio
to be about 90% 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 70% for the next several years as we increase
our government and commercial marketing efforts for both of our product lines.
Currently, we are focusing on the domestic U.S. government market, which we
believe is only about one-half of the global government market for our
technology, 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 and we have chosen to focus our effort on the United States marketplace
for the near term.
While we do not expect a reduction of government sales, a majority of our
government work is contract related and could be affected by political and
budget changes. We are beginning to develop commercial products with the
long-term idea and vision of becoming a product-oriented company; however, in
the short-term, a majority of our revenue is expected to come from government
cost plus fixed fee and eventually from firm fixed price contracts. Our
definition of short-term is the next three to five years and long-term is five
to ten years and beyond. We anticipate winning contracts in both the government
and commercial 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.
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We believe that we will experience an accelerated growth in sales over the next
few years. At this time, all of the forecasted sales for 2004 are under
contract. There is no guarantee and there can be no assurance that we will win
enough new business to achieve our targeted growth projection in 2005 or to
maintain our positive cash flow position. Additionally, there is no guarantee
that awarded contracts will not be altered or terminated prior to us recognizing
our projected revenue from them. Many contracts have "exit ramps," i.e.,
provides the customer the right to terminate the contract for any of a variety
of reasons, including but not limited to non-performance by us. We do not
believe that any of our contracts will be terminated early; however, there can
be no assurance that they will not be terminated early in the future. Finally,
we do not believe that significant capital expenditures will be required to
achieve an increase in sales; however, additional capital will be required to
support and sustain our growth.
During the nine-month period ending September 30, 2004, we raised approximately
$5,258,000 through a combination of: 1) conversions on our revolving credit
facility (approximately $1,241,000); 2) exercises of warrants previously issued
(approximately $316,000); 3)issuances under our employee stock purchase plan
(approximately $13,000); 4) exercises of employee stock options, mainly from
Mr. Lloyd, our former Chief Financial Officer (approximately $1,188,000); and
5)issuance of our preferred stock to the Laurus Master Fund (approximately
$2,500,000). During the year ended December 31, 2003, we raised approximately
$654,000 through a combination of private sales of our stock (approximately
$426,000) and conversions on our revolving credit facility (approximately
$228,000). During the year ended December 31, 2002, we raised approximately
$475,000 from our convertible debt offering, of which $237,500 plus interest was
repaid in 2003. To execute our strategy of growing our Company with small,
capable, low-cost micro and nano satellites, hybrid propulsion products and new
commercial revenue sources, we may require additional funding and/or significant
government and commercial programs. We believe investor or customer funding of
$5 to $15 million may be required in 2005, which could come from a combination
of private and/or public equity placements or government and commercial
customers.
The amount of capital we need to raise is dependent upon many factors, e.g., the
need for additional capital will be greater if (i) we do not enter into
agreements with our 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
hybrid-related propulsion 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.
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 maintain operating profitability and positive cash flow,
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, which could 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 and agencies that rely on
the federal 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
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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.
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ITEM 3. CONTROLS AND PROCEDURES
Within 90 days prior to the filing date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure. There
have been no significant changes in our internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our
evaluation, including any significant actions regarding any deficiencies. We
intend to review our controls and procedures regularly with our management and
Board of Directors.
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PART II -- OTHER INFORMATION
ITEM 1. 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 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 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.
See "Results of Operations." In June 2003, we ceased efforts to recover the
awarded fees, as it was determined that the cost to pursue collection exceeded
the likelihood of collection.
ITEM 2. CHANGES IN SECURITIES
On August 25, 2004, we issued 250,000 shares of our Series C Non-Redeemable
Convertible Cumulative Preferred Stock, with a stated value of $10.00 per share
(the "Stated Value"), to the Laurus Master Fund Ltd. for a total purchase price
of $2.5 million. The preferred stock is convertible into Common Stock at a rate
of $1.54 per share at any time after the date of issuance. The preferred shares
is redeemable by the Company in whole or in part at any time after issuance for
(a) 115% of the Stated Value if the average closing price of the Common Stock
for the 22 days immediately preceding the date of conversion does not exceed the
Conversion Rate or (b) the Stated Value if the average closing price of the
Common Stock for the 22 days immediately preceding the date of conversion
exceeds the Stated Value. The preferred stock was issued pursuant to Section
4(2) of the Securities Act and Rule 506 promulgated thereunder. As part of the
transaction, 1,845,779 shares of Common Stock underlying the preferred stock and
cumulative dividends are being registered with the Securities and Exchange
Commission ("SEC") for resale.
On August 25, 2004, we issued warrants to purchase 487,000 shares of common
stock to the Laurus Master Fund Ltd. The warrants were issued at an exercise
price of $1.77 per share, were immediately vested and are exercisable over a
five (5) year period. The warrants were issued pursuant to Section 4(2) of the
Securities Act and Rule 506 promulgated thereunder. As part of this transaction,
the underlying shares are being registered with the Securities and Exchange
Commission ("SEC") for public resale. Also on June 3, 2003, we entered into a
$1 million revolving credit facility with the Laurus Master Fund, Ltd.
On August 25, 2004, we issued warrants to purchase 50,000 shares of common stock
to the Laurus Master Fund Ltd. The warrants were issued at an exercise price of
$1.9250 per share, were immediately vested and are exercisable over a five (5)
year period. The warrants were issued pursuant to Section 4(2) of the
Securities Act. As part of this transaction, the underlying shares are being
registered with the Securities and Exchange Commission ("SEC") for public
resale. Also on June 3, 2003, we entered into a $1 million revolving credit
facility with the Laurus Master Fund, Ltd.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of SpaceDev, Inc. was held at 13855 Stowe
Drive, Poway, California 92064, on August 5, 2004, at 11:00 A.M. Out of a total
of 18,935,285 shares outstanding on the date of record, 16,969,786 shares, or
approximately 90%, were voted in person or by proxy. The following proposals
were presented and passed by the amounts indicated below:
PROPOSAL 1: To elect seven directors to hold office until the 2005 Annual
Meeting of Stockholders:
ISSUE . . FOR AGAINST ABSTAIN
--------- ---------- ------- -------
Benson. . 16,856,472 0 113,314
McClendon 16,963,905 0 5,881
Blake . . 16,963,805 0 5,981
Estes . . 16,964,405 0 5,381
Walker. . 16,964,085 0 5,701
Huntress. 16,965,405 0 4,381
Schaffer. 16,966,205 0 3,581
PROPOSAL 2: To approve the appointment of PKF, Certified Public Accountants, as
our independent public accountants for the fiscal year ending December 31, 2004:
ISSUE . . FOR AGAINST ABSTAIN
----------- ---------- ------- -------
Accountants 16,959,063 2,523 8,200
PROPOSAL 3: To approve the Company's 2004 Equity Incentive Plan:
ISSUE . . FOR AGAINST ABSTAIN
----------------- ---------- ------- ---------
Stock Option Plan 11,176,558 165,267 5,627,961
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
AFRL SBIR "mini-mo" contract extension with SpaceDev dated August 20, 2004, . . . . . . . . 10.1*
AFRL SBIR small satellite bus contract with SpaceDev dated September 28, 2004 . . . . 10.2
AFRL SBIR Phase II small launch vehicle contract with SpaceDev dated September 29, 2004 . . 10.3
MDA Second Task Order with SpaceDev dated October 20, 2004. . . . . . . . . . . . . . . . . 10.4*
Certificate of James W. Benson Pursuant to Rule 13a-14(a) promulgated under the
Securities and Exchange act of 1934 as amended. . . . . . . . . . . . . . . . . . . 31.1
Certificate of Richard B. Slansky Pursuant to Rule 13a-14(a) promulgated under
the Securities and Exchange act of 1934 as amended. . . . . . . . . . . . . . . . 31.2
Certificate of James W. Benson Pursuant to Section 1350 of Chapter 63 of Title
18 U.S. Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.1
Certificate of Richard B. Slansky Pursuant to Section 1350 of Chapter 63 of
Title 18 U.S. Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.2
* Registrant requested confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and has separately filed such exhibit with the
Commission.
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(b) Reports on Form 8-K
A Current Report on Form 8-K filed August 31, 2004 was filed with the Commission
under Item 1.01 (Material Definitive Agreements), Item 3.02 (Unregistered Sales
of Equity Securities) and Item 9.01 (Financial Statements and Exhibits)
regarding the preferred stock offering with the Laurus Master Fund.
A Current Report on Form 8-K filed September 1, 2004 was filed with the
Commission under Item 1.01 (Material Definitive Agreements) and Item 9.01
(Financial Statements and Exhibits) regarding the award of a small satellite bus
technology SBIR contract from the Air Force Research Laboratory.
A Current Report on Form 8-K filed October 5, 2004 was filed with the Commission
under Item 1.01 (Material Definitive Agreements) regarding the award of a small
launch vehicle SBIR contract from the Air Force Research Laboratory.
A Current Report on Form 8-K filed October 26, 2004 was filed with the
Commission under Item 1.01 (Material Definitive Agreements) regarding the award
of a second Task Order under the Company's IDIQ contract with the Missile
Defense Agency.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPACEDEV, INC.
Registrant
Dated: November 15, 2004 /s/ James W. Benson
--------------------------
James W. Benson
Chief Executive Officer
Dated: November 15, 2004 /s/ Richard B. Slansky
--------------------------
Richard B. Slansky
Chief Financial Officer
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