FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20429
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number 000-28947 .
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SPACEDEV, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1374613
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13855 Stowe Drive, Poway, California 92064
(Address of principal executive offices)
(Issuer's telephone number) (858) 375-2030.
--------------
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(Former name, former address and former fiscal year,
if changed since last report)
Checkmark whether the issuer (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No[ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 14,705,809 shares of Issuer's voting
common stock were outstanding on July 31, 2001.
SPACEDEV, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2001
INDEX PAGE
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PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)......................................1
Condensed Consolidated Balance Sheets at June 30, 2001 and 2000.............1
Condensed Consolidated Statements of Operations for June 30, 2001 and 2000..3
Condensed Consolidated Statements of Cash Flows for June 30, 2001 and 2000..4
Notes to Condensed Consolidated Financial Statements........................6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................................9
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings....................................................16
ITEM 2. Changes in Securities................................................16
ITEM 3. Defaults Upon Senior Securities......................................17
ITEM 4. Submission of Matters to Vote of Security Holders....................17
ITEM 5. Other Information....................................................17
ITEM 6. Exhibits and Reports on Form 8-K.....................................17
Signatures....................................................................18
ii
ITEM 1. FINANCIAL STATEMENTS
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 2001 2000
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ASSETS
CURRENT ASSETS
Cash $ 79,428 $ 101,338
Accounts receivable 85,535 185,195
Other current assets (Note 3) 416,474 17,862
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Total current assets 581,437 304,395
FIXED ASSETS - NET 2,208,700 2,137,337
INTANGIBLE ASSETS - NET 1,142,902 1,829,656
CAPITALIZED SOFTWARE COSTS 207,016 -
OTHER ASSETS 118,489 64,241
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$ 4,258,544 $ 4,335,629
================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
1
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 2001 2000
-----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Line of credit $ - $ 41,085
Current portion of notes payable 13,000 7,200
Current portion of capitalized lease obligations 57,598 38,267
Current portion of notes payable - related party 85,000 75,964
Accounts payable and accrued expenses 727,343 425,469
Accrued payroll, vacation and related taxes 167,491 157,827
Other accrued liabilities (Note 4) 150,000 -
Customer deposits and deferred revenue 178,794 -
Billing in excess of costs incurred (Note 2) 260,257 50,241
Provision for anticipated loss (Note 2) 565,410 -
-----------------------------------------------------------------------------------------------------
Total current liabilities 2,204,893 796,053
NOTES PAYABLE, LESS CURRENT MATURITIES 2,267,108 2,281,080
CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES 64,704 75,419
NOTES PAYABLE - RELATED PARTY, LESS CURRENT MATURITIES 599,600 543,992
DEFERRED REVENUE 5,000 5,000
-----------------------------------------------------------------------------------------------------
Total liabilities 5,141,305 3,701,544
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible preferred stock, $.001 par value, 10,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.0001 par value; 50,000,000 shares
authorized; 14,705,809 and 13,948,993 shares issued and
outstanding, respectively 1,470 1,394
Additional paid-in capital 8,042,986 7,257,161
Additional paid-in capital - stock options 750,000 750,000
Deferred compensation (250,000) (250,000)
Accumulated deficit (9,427,217) (7,124,470)
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Total stockholders' equity (deficit) (882,761) 634,085
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$ 4,258,544 $ 4,335,629
=====================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
2
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
THREE AND SIX MONTHS ENDED JUNE 30, 2001 2000 2001 2000
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NET SALES $ 940,928 $ 865,834 $ 1,478,188 $ 1,944,364
Cost of Sales 606,333 438,556 1,199,243 1,022,118
Anticipated loss on uncompleted contract
(Note 2) (85,758) - (295,297) -
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TOTAL COST OF SALES 520,575 438,556 903,946 1,022,118
-------------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 420,353 427,278 574,242 922,246
OPERATING EXPENSES
General and administrative 655,516 445,341 1,122,198 880,165
Stock and stock option based compensation 112,555 45,057 173,401 89,090
-------------------------------------------------------------------------------------------------------------------------
TOTAL GENERAL AND ADMINISTRATIVE
EXPENSES 768,071 490,398 1,295,599 969,255
Research and development - - 198,400 -
-------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 768,071 490,398 1,493,999 969,255
-------------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (347,718) (63,120) (919,757) (47,009)
OTHER INCOME (EXPENSE)
Interest expense (81,086) (62,209) (167,782) (143,180)
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NET LOSS $ (428,804) $ (125,329) $(1,087,539) $ (190,189)
=========================================================================================================================
NET LOSS PER SHARE:
Net loss ($0.03) ($0.01) ($0.07) ($0.01)
=========================================================================================================================
Weighted-Average Shares Outstanding 14,162,586 13,936,246 14,117,780 13,921,369
=========================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,087,539) $ (190,189)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 436,178 417,926
Common stock and stock options issued for
compensation and services 173,401 89,090
Change in operating assets and liabilities (272,455) 18,502
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (205,505) 335,329
--------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets (9,503) (5,628)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net payments on bank line of credit - (200,330)
Net payments on notes payable (500) (23,720)
Net Payments on capital lease obligations (29,688) (9,154)
Net payments on notes payable - related party (34,999) (98,046)
Proceeds from issuance of common stock 100,000 -
--------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 34,813 (331,250)
--------------------------------------------------------------------------------------
Net decrease in cash (180,195) (1,549)
CASH AT BEGINNING OF PERIOD 259,623 102,887
--------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 79,428 $ 101,338
======================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
SPACEDEV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D.
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2001 2000
--------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 24,383 $ 120,586
NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended June 30, 2001 and 2000, the Company issued 500,000
and 26,548 shares of stock for services and recorded expenses of $45,500 and
$45,057, respectively.
During the six months ended June 30, 2001 and 2000, the Company issued 567,247
and 69,048 shares of stock for services and recorded expenses of $106,346
and $89,090, respectively.
In April 2001, the Company issued 80,000 stock options for the acquisition of
Explorespace.com, and recorded expenses of $67,055.
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
5
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of SPACEDEV, INC.
("the Company") include the accounts of the Company and its wholly-owned
subsidiary Integrated Space Systems. Inc. (ISS) and its inactive subsidiary
SpaceDev Australia. In the opinion of management, the condensed consolidated
financial statements reflect all normal and recurring adjustments, which are
necessary for a fair presentation of the Company's financial position, results
of operations and cash flows as of the dates and for the periods, presented. The
condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Consequently, these statements do not include all disclosures normally required
by generally accepted accounting principles of the United States of America for
annual financial statements nor those normally made in an Annual Report on Form
10-KSB. Accordingly, reference should be made to the Company's Form 10-KSB filed
on April 2, 2001 and other reports the Company filed with the U.S. Securities
and Exchange Commission for additional disclosures, including a summary of the
Company's accounting policies, which have not materially changed. The
consolidated results of operations for the six months ended June 30, 2001 are
not necessarily indicative of results that may be expected for the fiscal year
ending December 31, 2001 or any future period, and the Company makes no
representations related thereto.
The accompanying condensed consolidated financial statements as of June 30, 2001
and 2000 have been prepared assuming the Company will continue as a going
concern. However, the Company had a working capital deficit of $1,623,456 as of
June 30, 2001, and incurred a net loss of $1,087,539 for the six months then
ended. These conditions raise "substantial" doubt about the Company's ability to
continue as a going concern. During the second quarter 2001 management raised
$100,000 through a private equity placement. Subsequent to June 2001, management
intends to continue to raise additional financing through a combination of
public and/or private equity placements, commercial project financing and
government program funding to fund future operations and commitments. There is
no assurance that additional debt and equity financing needed to fund operations
will be consummated or obtained in sufficient amounts necessary to meet the
Company's needs.
The accompanying condensed consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of the Company to continue as a going
concern.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities and the results of operations
during the reporting period. Actual results could differ materially from those
estimates.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation. These
reclassifications had no effect on reported total assets or net loss.
6
2. REVENUE RECOGNITION
In November 1999, the Space Missions Division was awarded a turnkey mission
contract by the Space Sciences Laboratory (SSL) at University of California,
Berkeley (UCB) worth approximately $5.0 million. On June 15, 2001, a contract
modification was signed to add $600,000 to the contract for added scope, which
brings the total contract value to $5.6 million. This contract represented 78%
and 54% of the Company's revenue in 2001 and 2000, respectively. The contract
will conclude on December 31, 2003. The payments on the contract are made on a
monthly basis according to a preset payment schedule and resulted in billings in
excess of costs incurred and estimated earnings of approximately $260,000 and
$50,000 for the six months ended June 30, 2001 and 2000, respectively. At
December 31, 2000, the total costs estimated to complete the contract was
approximately $6,461,000. As a result, the Company accrued a provision for an
anticipated loss of approximately $861,000. As of March 31, 2001, the
anticipated costs were reviewed and reduced to approximately $6,251,000 and the
accrued loss was reduced to $651,000 to reflect this change. The decrease in
costs was due to a reduction of costs to complete the contract. As the project
is completed the loss is reduced as the costs become realized, the balance on
the anticipated loss as of June 30, 2001 was $565,410. We also are continuing to
negotiate additional contract changes with our CHIPSat customer that would
increase contract revenues. There is no certainty that we will be successful in
these negotiations.
3. OTHER CURRENT ASSETS
In June 2001, the Company entered a consulting contract with an unrelated party.
The contract will pay, in installments, the consultant 1,200,000 shares of
common stock over the next 12 months. On June 18, 2001, the Company issued
500,000 shares of common stock with a fair value of $455,000. In June 2001, the
Company recognized expense of approximately $46,000.
4. OTHER ACCRUED LIABILITY
In June 2001, the Company accrued a $150,000 contingent liability related to its
guarantee on a performance bond on behalf of Space Innovations Limited ("SIL"),
which was then a subsidiary of the Company. In 1999, the Company was required to
guarantee a performance bond on behalf of SIL in connection with a contract to
build a satellite bus for an Australian domestic spacecraft project. SIL was
unable to perform on the contract and subsequently declared bankruptcy. The
Company is currently in settlement negotiations with the bonding company,
Technical & General Guarantee Company Limited ("T&G"), with a focus on extending
the payment terms and/or reducing the amount of the claim for 300,000 Australian
Dollars.
5. OPERATING SEGMENTS
The Company's operating structure included two active operating segments for
2001 and 2000.
SEGMENT PRODUCTS AND SERVICES
The Company has the following reportable segments: Space Missions Division
(SMD), and ISS. SMD is in the process of developing deep space science
exploration satellites. ISS provides small hybrid propulsion space systems and
engineering services. A third segment, SpaceDev Australia, has had no operations
in 2001.
7
FOR THE THREE MONTHS ENDED JUNE 30, 2001
--------------------------------------------------------------------------------
(IN THOUSANDS) SMD ISS Total
--------------------------------------------------------------------------------
Net revenue from external
customers $ 854 $ 87 $ 941
Depreciation and
amortization expense 43 176 219
-------------------------------------------
Segment loss $ (292) $ (137) $ (429)
===========================================
FOR THE SIX MONTHS ENDED JUNE 30, 2001
--------------------------------------------------------------------------------
(IN THOUSANDS) SMD ISS Total
--------------------------------------------------------------------------------
Net revenue from external
customers $ 1,236 $ 242 $ 1,478
Depreciation and
amortization expense 84 352 436
-------------------------------------------
Segment loss $ (713) $ (375) $ (1,088)
===========================================
Total segment assets $ 3,285 $ 1,138 $ 4,423
Less intersegment assets (164) - (164)
-------------------------------------------
Net segment assets $ 3,121 $ 1,138 $ 4,259
===========================================
FOR THE THREE MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
(IN THOUSANDS) SMD ISS Total
--------------------------------------------------------------------------------
Net revenue from external
customers $ 753 $ 113 $ 866
Depreciation and
amortization expense 27 181 208
-------------------------------------------
Segment loss $ (93) $ (32) $ (125)
===========================================
FOR THE SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
(IN THOUSANDS) SMD ISS Total
--------------------------------------------------------------------------------
Net revenue from external
customers $ 1,359 $ 585 $ 1,944
Depreciation and
amortization expense 54 364 418
-------------------------------------------
Segment profit (loss) $ 23 $ (213) $ (190)
===========================================
Total segment assets $ 2,556 $ 1,944 $ 4,500
Less intersegment assets (164) - (164)
-------------------------------------------
Net segment assets $ 2,392 $ 1,944 $ 4,336
===========================================
8
6. NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board "FASB" issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of Accounting Principles Bulletin APB Opinion
No. 25" ("Interpretation"). The Interpretation is intended to provide guidance
for certain issues that have arisen in practice since the issuance of APB 25.
The Company adopted the Interpretation for all transactions entered into after
July 1, 2000 and the adoption of the Interpretation did not have a material
impact on the consolidated financial statements.
In July 2001, the FASB issued Statement No. 141, "Business Combinations," and
Statement No. 142, "Goodwill and Other Intangible Assets." Statement 141
requires that the purchase method of accounting be used for all business
combinations subsequent to June 30, 2001 and specifies criteria for recognizing
intangible assets acquired in a business combination. Statement 142 requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually. Intangible
assets with definite useful lives will continue to be amortized over their
respective estimated useful lives. The Company plans to adopt the provisions of
Statement No. 141 and 142 effective January 1, 2002. The expected effect of the
implementation of these guidelines will be the reduction of operating losses,
approximately $719,000 per year, due to the goodwill not being amortized unless
the goodwill becomes impaired.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto and the other financial
information appearing elsewhere in this document. In addition to historical
information, the following discussion and other parts of this document contain
forward-looking information that involves risks and uncertainties. Actual
results could differ materially from those anticipated by such forward-looking
information due to a number of factors beyond the Company's control.
OVERVIEW
During 1998, SpaceDev acquired Integrated Space System ("ISS") and Space
Innovations Limited ("SIL"). On February 7, 1998, the Company issued 2,000,000
shares of restricted common stock and acquired all of the outstanding shares of
common stock of ISS. ISS provides small hybrid propulsion space systems,
engineering and technical services related to space-based systems, which consist
primarily of launch vehicle integration. The fair value of the shares issued was
$1.8125 per share, calculated using the average daily closing prices for a
period surrounding the acquisition date. The acquisition price was not reduced
for the Rule 144 restrictions on the shares of common stock. The total purchase
price was valued at $3,625,000. The excess of the calculated purchase price of
the approximately $164,000 of net assets acquired was capitalized as goodwill
and is being amortized over sixty months.
On November 20, 1998, SpaceDev initiated its DSN support contract with Jet
Propulsion Laboratory ("JPL"). The total cost of the effort was agreed to be
$35,000. Approximately one-third of the work has been performed to date at a
cost to SpaceDev of $10,000. As additional planning work is required to be
performed by JPL under the contract, to stay current with the NASA and JPL
planning process as it moves forward, more of the agreed upon tasks will be
performed by JPL. SpaceDev will pay the remaining balance of $25,000 as those
tasks are completed by JPL, which could extend through the end of 2001 or
longer.
9
On December 17, 1999, the Company's Board of Directors entered into a Mutual
Release and Rescission of Agreement ("Release Agreement") to rescind the
original acquisition of SIL, effective October 1, 1998. Subsequent to SIL's
acquisition and prior to December 17, 1999, the accounts of SIL were included in
the consolidated financial statements of the Company. The Release Agreement
resulted in the retirement of the 1,000,000 shares of the Company's common stock
which had been issued to the former shareholders of SIL, the cancellation of all
outstanding options for Company stock and the cancellation of the acquisition
price payable. The transaction was recorded as a purchase of treasury stock. In
accordance with Accounting Principles Board Opinion No. 29, "Accounting for
Non-monetary Transactions," the transaction was recorded as a decrease to
stockholders' equity. Therefore, $423,345 was recorded as a decrease in the
Company's additional paid-in-capital on December 17, 1999.
The significant components of the amount recorded in 1999 as a reduction to
additional paid-in capital are as follows:
Loss on unamortized goodwill $(1,929,000)
Gain on extinguishment of acquisition price payable 1,000,000
Net liabilities disposed of from SIL 506,000
------------
$ (423,000)
============
The Company was previously a guarantor on a bank line of credit used to finance
SIL's operations. Under terms of the Release Agreement, SIL agreed to apply 25%
of the proceeds from each payment received on a specific contract until the bank
loan was paid in full. Once the loan had been paid in full, the loan agreement
was to be terminated, releasing the Company's guarantor obligation. At December
31, 1999, the outstanding balance on the bank line of credit was approximately
$386,000, maturing on January 18, 2001 with interest at the bank's prime (8.5%
at December 31, 1999) plus 1.25%. In 2000, the amount of the line guaranteed by
the Company was paid and the loan agreement has been terminated.
In November 1999, SpaceDev was awarded a $4,995,868 turnkey mission contract by
the Space Sciences Laboratory ("SSL") at University of California, Berkeley
("UCB"). SpaceDev was competitively selected by UCB/SSL to design, build,
integrate, test and operate for one year a small scientific, Earth-orbiting
spacecraft called CHIPSat. In 2000, the Company reviewed this position at
year-end and determined that the total costs at the end of the program will
exceed the likely revenue. As a result, the Company has accrued a loss of
$861,000; this estimated loss was believed to be adequate to cover all possible
contingencies through the life of the program. Included in the review was an
expected increase of $600,000 to the contract value to reflect added scope. As
of March 31, 2001, the anticipated costs were reviewed and reduced to
approximately $6,251,000 and the accrued loss was reduced to $651,000 to reflect
this change. The decrease in costs was due to a reduction of costs to complete
the contract. As the project is completed the loss is reduced as the costs
become realized, the balance on the anticipated loss as of June 30, 2001 was
$565,410.On June 15, 2001, a contract modification was signed to add the
$600,000 to the contract, which brought the total contract value to $5,595,868.
The CHIPSat contract will conclude on December 31, 2003. Revenues for 2001 and
2002 are expected to be approximately, $1.4 million and $1.7 million,
respectively. The payments on the contract are made on a monthly basis according
to a preset payment schedule.
10
In July 2000, the Company was awarded two contracts from the Office of Space
Launch of the National Reconnaissance Office for a total of approximately
$800,000. These contracts were completed during the second quarter of 2001. This
work was a continuation of a previous contract concerning the development of
hybrid space propulsion technology.
The Company announced on April 16, 2001 that it is part of a Boeing-led team
that was awarded one of four $1 million contracts from NASA's Jet Propulsion
Laboratory in Pasadena, California. to study options for a potential Mars sample
return mission in 2011. The contract runs from April through October 2001.
RESULTS OF OPERATIONS
Please refer to the consolidated financial statements, which are a part of this
report for further information regarding the results of operations of the
Company.
SIX MONTHS ENDED JUNE 30, 2001 -VS.- SIX MONTHS ENDED JUNE 30, 2000
During the six months ended June 30, 2001, the Company had net sales of
$1,478,000 as compared to net sales of $1,944,000 for the same six months in
2000. Sales in 2001 were comprised of $1,158,000 from the CHIPSat program,
$200,000 from research and development performed for the Office of Space Launch
("OSL"), $91,000 from the Boeing Mars Sample Return project and $29,000 from all
other programs. In 2000, there was $1,049,000 of sales from CHIPSat, $325,000
from the OSL, and $570,000 from all other programs. The current OSL contracts
were completed during the second quarter 2001.
During the six months ended June 30, 2001, the Company had cost of sales (direct
and allocated costs associated with individual contracts) of $904,000 and
$1,022,000 in the same period in 2000. These changes were primarily due to
reallocation of the loss on the CHIPSat program, and a reclassification of
certain overhead costs (such as building expense, equipment depreciation,
utilities and operating supplies) to cost of goods sold.
The Company experienced an increase in general and administrative expenses and
research and development expenses from $969,000 for the six months ended June
30, 2000 to $1,494,000 for the same period ended June 30, 2001. General and
administrative expenses consisted primarily of salaries for administrative
personnel, fees for outside consultants, goodwill amortization, insurance, legal
and accounting fees and other overhead. The increase was primarily attributable
to the issuance of 500,000 shares of common stock to EMC Holdings Group, Inc.
("EMC") pursuant to a Consultant Agreement with the Company whereby EMC will
render certain advisory services to the Company in exchange for a total of
1,200,000 shares of the Company's common stock in three installments. EMC
received the first installment on June 26, 2001 for a total cost of $45,500.
Increases in general and administrative expenses also included $150,000 for the
contingent liability due to Technical & General Guarantee Company Limited as
referenced in Note 3 to the consolidtaed financial statements as well as stock
options that had a value of $67,000 for the acquisition of Explorespace.com. The
Company also expended $198,000 in research and development expenses to build a
prototype hybrid-propulsion-based orbital transfer vehicle.
Gross profit percentages for the six months ended June 30, 2001 were 39% as
compared to 47% for the same period in 2000 due to higher costs to perform the
OSL contracts. During the six months ended June 30, 2001, the Company had a net
loss of $1,088,000 compared to a net loss of $190,000 for the same period in
2000. The increase in the net loss was due to lower sales on CHIPSat program and
the OSL project. In addition, the Company's operating expenses increased by
$525,000 As indicated above, this increase was primarily attributable to stock
issued to EMC, the note payable to T&G and the stock options issued in the
acquisition of Explorespace.com.
11
THREE MONTHS ENDED JUNE 30, 2001-VS.- THREE MONTHS ENDED JUNE 30, 2000
During the three months ended June 30, 2001, the Company had net sales of
$941,000 as compared to net sales of $865,000 for the same three months in 2000.
Sales in 2001 were comprised of $737,000 from the CHIPSat program, $67,000 from
research and development performed for the Office of Space Launch ("OSL"),
$91,000 from the Boeing MSR project and $46,000 from all other programs. During
the same period for 2000, there was $508,000 of sales from CHIPSat, a $112,000
study contract with The Boeing Company and $245,000 from all other programs.
During the three months ended June 30, 2001, the Company had cost of sales
(direct and allocated costs associated with individual contracts) of $521,000
and $439,000 in the same period in 2000. These changes were primarily due to
reallocation of the loss on the CHIPSat program, and a reclassification of
certain overhead costs (such as building expense, equipment depreciation,
utilities and operating supplies) to cost of goods sold. The Company experienced
an increase in general and administrative expenses from $490,000 for the three
months ended June 30, 2000 to $768,000 for the same period ended June 30, 2001.
The increase was primarily attributable to the issuance of 500,000 shares of
common stock to EMC Holdings Group, Inc. ("EMC") pursuant to a Consultant
Agreement with the Company whereby EMC will render certain advisory services to
the Company in exchange for a total of 1,200,000 shares of the Company's common
stock in three installments. EMC received the first installment on June 26, 2001
for a total cost of $45,500. Increases in general and administrative costs also
included $150,000 for the contingent liability due to Technical & General
Guarantee Company Limited as referenced in Note 3 to the consolidated financial
statements as well as stock options that had a value of $67,000 for the
acquisition of Explorespace.com.
Gross profit percentages in second quarter 2001 were 45% as compared to 49% for
the same period in 2000. During the three months ended June 30, 2001, the
Company had a net loss of $429,000 compared to a net loss of $125,000 for the
same period in 2000. The increase in the net loss was due to lower sales on
CHIPSat program and the OSL project. In addition, the Company's operating
expenses increased during the second quarter 2001 by $278,000. As indicated
above, this increase was primarily attributable to stock issued to EMC, the note
payable to T&G and the stock options issued in the acquisition of
Explorespace.com.
There was no research and development expenses for the three-month periods ended
June 30, 2000 and 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's auditors have expressed a formal auditors' opinion that the
Company's December 31, 2000 financial position raises "substantial" doubt about
its ability to continue as a going concern. Management believes that this
condition remains at June 30, 2001. The Company's opportunity to continue as a
going concern depends upon our ability to consummate additional funding and new
profitable business. This funding can come from a variety of sources, including
public or private equity markets, state and federal grants and government and
commercial customer program funding. However, there can be no assurance that we
will be able to obtain such funding as needed. The likelihood of our success
must be considered in light of the expenses, difficulties and delays frequently
encountered in connection with the developing businesses, those historically
encountered by us, and the competitive environment in which we will operate.
12
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25" (the "Interpretation"). The Interpretation is intended to
provide guidance for certain issues that have arisen in practice since the
issuance of APB 25. The Company adopted the Interpretation for all transactions
entered into after July 1, 2000 and the adoption of the Interpretation did not
have a material impact on the consolidated financial statements.
In July 2001, the FASB issued Statement No. 141, "Business Combinations," and
Statement No. 142, "Goodwill and Other Intangible Assets." Statement 141
requires that the purchase method of accounting be used for all business
combinations subsequent to June 30, 2001 and specifies criteria for recognizing
intangible assets acquired in a business combination. Statement 142 requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually. Intangible
assets with definite useful lives will continue to be amortized over their
respective estimated useful lives. The Company plans to adopt the provisions of
Statement No. 141 and 142 effective January 1, 2002. The expected effect of the
implementation of these guidelines will be the reduction of operating losses due
to the goodwill not being amortized.
Deferred income taxes are provided for temporary differences in recognizing
certain income and expense items for financial and tax reporting purposes. The
deferred tax asset of $2,626,000 consisted primarily of the income tax benefits
from net operating loss carryforwards, amortization of goodwill and research and
development credit carryforwards. A valuation allowance has been recorded to
fully offset the deferred tax asset as it is more likely than not that the
assets will not be utilized. The valuation allowance increased approximately
$200,000 in the second quarter, from $2,426,000 at December 31, 2000 to
$2,626,000 at June 30, 2000.
Please refer to the consolidated financial statements, which are a part of this
report for further information regarding the liquidity and capital resources of
the Company.
SIX MONTHS ENDED JUNE 30, 2001-VS.- SIX MONTHS ENDED JUNE 30, 2000
Net decrease in cash during the six months ending June 30, 2001 was $180,000,
compared to a net decrease of $2,000 for the six months ended June 30, 2000. Net
cash used by operating activities totaled ($206,000) for the six months ended
June 30, 2001, a decrease of $541,000 as compared to $335,000 provided by
operating activities during the six months ended June 30, 2000. This is
attributable primarily to decreased sales volume and an increase in general and
administrative expenses.
Net cash used in investing activities totaled ($10,000) during the six months
ended June 30, 2001, compared to ($6,000) used during the six months ended June
30, 2000, an increase in cash used of $4,000. This difference is attributable to
an increase in the purchase of fixed assets.
Net cash used in financing activities totaled $35,000 for the six-month period
ended June 30, 2001; a decrease of $366,000 from the ($331,000) used by
financing activities during the six-month period ending June 30, 2000. This
decrease is attributable to paying the line of credit and proceeds from issuance
of common stock in 2000 and $100,000 of proceeds from the sale of common stock
in 2001.
At June 30, 2001, the Company's cash, which includes cash reserves and cash
available for investment, was $79,000 as compared to $101,000 at June 30, 2000,
an decrease of $22,000. At June 30, 2001, the Company had accounts receivable of
$86,000 and accounts payable of $727,000.
13
FORWARD-LOOKING STATEMENTS
The Company's business strategy requires significant capital expenditures. The
Company will incur a substantial portion of these expenditures before it
generates significant sales. Combined with operating expenses, these capital
expenditures will result in a negative cash flow until the Company establishes
an adequate revenue-generating customer base. The Company expects losses through
2001 and does not expect to generate net positive cash flow from operations
sufficient to fund both operations and capital expenditures until the launch of
its first commercial spacecraft. There is no assurance that the Company will
achieve or sustain any positive cash flow or profitability thereafter.
During the years ended December 31, 2000, December 31, 1999 and December 31,
1998, the Company raised approximately $1.1 million (including proceeds from the
state-registered 504 Colorado offering for an aggregate offering price of
$730,000) through private sales of stock. To execute the Company's total
strategy of small, capable, low-cost micro satellites, hybrid propulsion
products and new commercial revenue sources, the Company requires significant
funding. The current estimate is over $20 million, which could come from a
combination of private or public equity placements, commercial project financing
and government program funding. At this time, the Company does not have a
commitment from any placement agent or underwriter to implement any additional
public offering or from any government agency to obtain significant additional
program funding for its products.
The Company may also need to raise additional capital if, for example,(i)
significant delays occur in deploying its first deep-space mission due to
technical difficulties, launch, or satellite failure, or other reasons; (ii) the
Company does not enter into agreements with customers on the terms the Company
anticipates; (iii) the Company's net operating deficit increases because it
incurs significant unanticipated expenses; or (iv) the Company incurs additional
costs from modifying all or part of NEAP or its proposed hybrid-related systems
to meet changed or unanticipated market, regulatory, or technical requirements.
If these or other events occur, there is no assurance that the Company could
raise additional capital on favorable terms, on a timely basis or at all. A
substantial shortfall in funding would delay or prevent deployment of the Lunar
Orbiter, NEAP and/or the hybrid-related systems.
The Company's ability to execute a public offering or otherwise obtain funds is
subject to numerous factors beyond the Company's control, including, without
limitation, a receptive securities market and appropriate governmental
clearances. No assurances can be given that the Company will be profitable, or
that any additional public offering will occur, that the Company will be
successful in obtaining additional funds from any source or that the Company
will be successful in implementing an acceptable exit strategy on behalf of its
investors. Moreover, additional funds, if obtainable at all, may not be
available on terms acceptable to the Company when the Company needs such funds
or may be on terms which are significantly adverse to the Company's current
shareholders. The unavailability of funds when needed would have a material
adverse effect on the Company.
14
The Company will receive fixed compensation on the CHIPSat project in a total
amount of $5,595,868, of which about $2.1 million was generated in 2000. The
fixed price will be paid in increments over the term of the contract. As we
reported on our annual report on Form 10-KSB, the Company reviewed this position
in 2000. Included in the review was an expected increase of $600,000 in the
contract value to reflect added scope. Based on its review, the Company
determined that the total costs at the end of the program will exceed the likely
revenue. As a result, the Company accrued a loss of $861,000; we believe that
this action covers all possible contingencies through the life of the program.
As of March 31, 2001, the anticipated costs were reviewed and reduced to
approximately $6,251,000 and the accrued loss was reduced to $651,000 to reflect
this change. The decrease in costs was due to a reduction of costs to complete
the contract. The $600,000 increase in value was approved on June 15, 2001. As
the project is completed, the loss is reduced as costs become realized. The
balance on the anticipated loss as of June 30, 2001 was $565,410. We continue to
negotiate additional contract changes with our CHIPSat customer to increase
contract revenues. There is no certainty that we will be successful in these
negotiations.
As of June 30, 2001, the Company's backlog of business was approximately $2.7,
as opposed to approximately $4.9 million as of June 30, 2000. To date in 2001,
the Company has added about $1.1 million in new business including the $600,000
increase to the CHIPSat contract, approximately $200,000 in additional
California grant funds and $250,000 for the Mars Sample Return contract with
Boeing. The Company currently has almost $40 million in outstanding or pending
commercial and government proposals.
15
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in any of the claims reported
in the Company's Annual Report on Form 10-KSB, filed April 2, 2001. The Company
is in settlement negotiations with Technical & General Guarantee Company Limited
("T&G") with respect to T&G's claim for payment on the guarantee of the FedSat
performance bond. In 1999, the Company was required to guarantee a performance
bond on behalf of SIL in connection with a contract to build a satellite bus for
an Australian domestic spacecraft project. SIL was unable to perform on the
contract and subsequently declared bankruptcy. The Company is currently in
settlement negotiations with T&G, the bonding company, with a focus on extending
the payment terms and/or reducing the amount of the claim for 300,000 Australian
Dollars. (currently about $153,000 U.S. Dollars). In the event the Company is
required to make payment under the guarantee, it is the Company's intention to
pursue indemnification against SIL to the extent allowed by the bankruptcy laws
of England, where the bankruptcy proceeding was filed.
ITEM 2. CHANGES IN SECURITIES
On May 3, 2001, the Company issued options to purchase a total of 9,700
shares of its common stock to certain of its employees pursuant to a policy
adopted by the Board of Directors in 2000 whereby these employees will receive a
total of five installments of options to be granted every three months of
employment. All options issued pursuant to this policy are issued at the
five-day average closing price of the company's common stock on the
Over-The-Counter Bulletin Board ("OTCBB"). All options issued pursuant to this
policy will vest on the third-month anniversary of the date of grant and will
expire after five years. The options issued on May 3, 2001 represent the fifth
and final installment of options under the policy, and were issued with an
exercise price of $0.6580 per share.
On April 17 and June 13, 2001, the Company issued options to one of its
part-time employees for services rendered in the maintenance and design of its
websites. These non-statutory options were all issued at the five-day average
closing price of the Company's common stock on the OTCBB, and vested on the
grant date.
During the second quarter of 2001, the Company issued a total of
500,000 shares to consultants in exchange for services rendered to the Company.
As a result, the Company recorded an expense of $45,500.
Pursuant to its independent director compensation plan, which was
adopted on January 16, 2000, the Company granted options to purchase 6,667
shares each to Robert S. Walker and Howell M. Estes, III for joining the Board
of Directors on April 16, 2001. These options were issued with an exercise price
of $0.75 per share (based on the five-day average closing price of the Company's
common stock on the date of grant) and will expire on the five-year anniversary
date of the date of grant.
Pursuant to its independent director compensation plan, adopted January
16, 2000, the Company granted options to purchase 5,000 shares each to Robert
Walker, Howell M. Estes, III, Wesley T. Huntress, and Curt Dean Blake for their
attendance at the Board of Directors meeting held on April 18, 2001. These
options were issued with an exercise price of $0.6840 per share (based on the
five-day average closing price of the Company's common stock on the date of
grant) and will expire on the five-year anniversary date of the date of grant.
16
All of the above options were issued pursuant to the Company's Form S-8
Registration Statement for its Employee Stock Option Plan of 1999.
On June 12, 2001 the Company issued 33,333 shares of common stock and
warrants to purchase an additional 33,333 shares of common stock at an exercise
price of $0.75 per share to an individual investor in exchange for an investment
of $25,000. This purchase was made as a part of an accredited investor only,
private placement transaction under Rule 506 of Regulation D of the Securities
Act of 1933.
On June 20, 2001 the Company issued 33,333 shares of common stock and
warrants to purchase an additional 33,333 shares of common stock at an exercise
price of $0.75 per share to an individual investor in exchange for an investment
of $25,000. This purchase was made as a part of an accredited investor only,
private placement transaction under Rule 506 of Regulation D of the Securities
Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No.
-----------
None.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the Commission on April 10,
2001 under Item 5 (other events) disclosing the formation of Registrant's
Australian subsidiary and lodgement of a prospectus with the Australian
Securities and Investments Commission on behalf of the subsidiary.
A Current Report on Form 8-K/A was filed with the Commission on May 2,
2001 under Item 5 (other events), regarding a stop order issued by the
Australian Securities and Investments Commission on the SpaceDev Australia
prospectus.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPACEDEV, INC.
Registrant
Dated: August 10, 2001 /S/ James W. Benson
-----------------------------
James W. Benson
Chief Executive Officer
Dated: August 10, 2001 /S/ Charles H. Lloyd
-----------------------------
Charles H. Lloyd
Chief Operating Officer and
Chief Financial Officer
18