FORM 10-QSB/A
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20429
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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:
---- ----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 17,813,704 shares of Issuer's voting
common stock were outstanding on April 26, 2004.
SPACEDEV, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2004
INDEX PAGE
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PART I FINANCIAL INFORMATION 1
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ITEM 1. FINANCIAL STATEMENTS 1
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Consolidated Balance Sheets 1
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Consolidated Balance Sheets 2
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Consolidated Statements of Operations 3
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Consolidated Statements of Cash Flows 4
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Notes to Consolidated Financial Statements 6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 13
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ITEM 3. CONTROLS AND PROCEDURES 24
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PART II OTHER INFORMATION 25
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ITEM 1. LEGAL PROCEEDINGS 25
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ITEM 2. CHANGES IN SECURITIES 25
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES 27
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 28
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ITEM 5. OTHER INFORMATION 28
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 28
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SIGNATURES 29
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPACEDEV, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
At March 31, . . . . . . . . . . . . . . . . . . . . . . 2004 2003
-------------------------------------------------------- ---------- --------
ASSETS
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 981,898 $210,856
Accounts receivable. . . . . . . . . . . . . . . . 296,980 220,841
Work in Progress . . . . . . . . . . . . . . . . . 135,988 -
Costs in excess of billings and estimated earnings - 253,819
Inventory. . . . . . . . . . . . . . . . . . . . . 8,142 -
-------------------------------------------------------- ---------- --------
Total current assets. . . . . . . . . . . . . . . . . . 1,423,008 685,516
FIXED ASSETS - NET. . . . . . . . . . . . . . . . . . . 129,598 131,475
CAPITALIZED SOFTWARE COSTS . . . . . . . . . . . . . . - 69,005
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . 43,223 31,536
-------------------------------------------------------- ---------- --------
$1,595,829 $917,532
-------------------------------------------------------- ---------- --------
-------------------------------------------------------- ---------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
1
SPACEDEV, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
At March 31,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 2003
------------------------------------------------------------------------ ------------ -------------
LIABILITIES AND STOCKHOLDERSDEFICIT
CURRENT LIABILITIES
Current portion of notes payable . . . . . . . . . . . . . . . . . 37,961 $ 55,392
Current portion of capitalized lease obligations . . . . . . . . . 7,012 28,382
Note payable - related party (Note 3(b)) . . . . . . . . . . . . . 80,000 80,000
Convertible debt notes payable (Note 4). . . . . . . . . . . . . . - 229,955
Accounts payable and accrued expenses. . . . . . . . . . . . . . . 254,352 321,911
Accrued payroll, vacation and related taxes. . . . . . . . . . . . 153,913 111,489
Customer deposits and deferred revenue . . . . . . . . . . . . . . - 124,765
Provision for anticipated loss (Note 2). . . . . . . . . . . . . . - 5,173
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . - 40,000
Revolving credit facility (Note 3(c)). . . . . . . . . . . . . . . 1,001,043 -
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . 183,071 -
------------------------------------------------------------------------ ------------ -------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 1,717,352 997,067
NOTES PAYABLE, LESS CURRENT MATURITIES (NOTE 3(A)). . . . . . . . . . . 37,130 76,552
CAPITALIZED LEASE OBLIGATIONS, LESS CURRENT MATURITIES. . . . . . . . . 4,369 3,979
NOTE PAYABLE - RELATED PARTY, LESS CURRENT MATURITIES . . . . . . . . . 500,113 528,364
DEFERRED GAIN - ON BUILDING SALE (NOTE 3(A)). . . . . . . . . . . . . . 1,035,903 1,153,175
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 5,000
------------------------------------------------------------------------ ------------ -------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,299,867 2,764,137
------------------------------------------------------------------------ ------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERSDEFICIT
Convertible preferred stock, $.0001 par value, 10,000,000 shares
authorized no shares issued or outstanding. . . . . . . . . . - -
Common stock, $.0001 par value; 50,000,000 shares authorized, and
17,023,704 and 15,338,907 shares issued and outstanding,
respectively. . . . . . . . . . . . . . . . . . . . . . . . . 1,702 1,533
Additional paid-in capital (Note 5). . . . . . . . . . . . . . . . 10,054,585 8,728,659
Additional paid-in capital - stock options . . . . . . . . . . . . 750,000 750,000
Deferred compensation. . . . . . . . . . . . . . . . . . . . . . . (250,000) (250,000)
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . (12,260,325) (11,076,797)
------------------------------------------------------------------------ ------------ -------------
TOTAL STOCKHOLDERSDEFICIT . . . . . . . . . . . . . . . . . . . . . . . (1,704,038) (1,846,605)
------------------------------------------------------------------------ ------------ -------------
1,595,829 917,532
------------------------------------------------------------------------ ------------ -------------
------------------------------------------------------------------------ ------------ -------------
The accompanying notes are an integral part of these consolidated financial
statements.
2
SPACEDEV, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three-Months Ending March 31, 2004 % 2003 %
------------------------------------------------------ ------------ ----------- --------- -------
NET SALES . . . . . . . . . . . . . . . . . . . . . . $ 1,014,751 100.0% $ 532,840 100.0%
TOTAL COST OF SALES . . . . . . . . . . . . . . . . . 807,523 79.6% 461,610 86.6%
GROSS MARGIN. . . . . . . . . . . . . . . . . . . . . 207,228 20.4% 71,230 13.4%
------------------------------------------------------ ------------ ----------- ---------- ------
OPERATING EXPENSES
Marketing and sales expense. . . . . . . . . . . . 99,151 9.8% 65,042 12.2%
Research and development . . . . . . . . . . . . . 15,304 1.5% - 0.0%
General and administrative . . . . . . . . . . . . 80,852 8.0% 369,916 69.4%
------------------------------------------------------ ------------ ----------- ---------- ------
TOTAL OPERATING EXPENSES. . . . . . . . . . . . . . . 195,307 19.2% 434,958 81.6%
------------------------------------------------------ ------------ ----------- ---------- ------
PROFIT (LOSS) FROM OPERATIONS . . . . . . . . . . . . 11,921 1.2% (363,728) -68.3%
------------------------------------------------------ ------------ ----------- ---------- ------
NON-OPERATING EXPENSE (INCOME)
Interest expense . . . . . . . . . . . . . . . . . 19,788 2.0% 20,449 3.8%
Non-cash interest expense
debt discount (Note 5) . . . . . . . . . . . . . - 0.0% 100,455 18.9%
Gain on Building Sale (Note 4(a)). . . . . . . . . (29,318) -2.9% (19,545) -3.7%
Non-Cash Loan Fee - Equity Conversions (Note 3(c)) 464,000 45.7% - 0.0%
------------------------------------------------------ ------------ ----------- ---------- ------
TOTAL NON-OPERATING EXPENSE . . . . . . . . . . . . . 454,470 44.8% 101,359 19.0%
------------------------------------------------------ ------------ ----------- ---------- ------
LOSS BEFORE TAXES . . . . . . . . . . . . . . . . . . (442,549) -43.6% (465,087) -87.3%
INCOME TAX PROVISION. . . . . . . . . . . . . . . . . - 0.0% 40,000 7.5%
NET LOSS. . . . . . . . . . . . . . . . . . . . . . . $ (442,549) -43.6% $(505,087) -94.8%
------------------------------------------------------ ------------ ----------- ---------- ------
------------------------------------------------------ ------------ ----------- ---------- ------
NET LOSS PER SHARE:
Net loss . . . . . . . . . . . . . . . . . . . . $ (0.03) ($0.03)
------------------------------------------------------ ------------ ----------
Weighted-Average Shares Outstanding. . . . . . . 16,839,179 15,092,489
------------------------------------------------------ ------------ ----------
------------------------------------------------------ ------------ ----------
The accompanying notes are an integral part of these consolidated financial
statements.
3
SPACEDEV, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three-Months Ending March 31,. . . . . . . . . . . . . . . . . 2004 2003
--------------------------------------------------------------- ---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . $(442,549) $ (505,087)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . . . . 15,954 57,696
Gain on on building sale . . . . . . . . . . . . . . (29,318) (19,545)
Non-cash interest expense - convertible debt program - 100,455
Non-cash loan fees . . . . . . . . . . . . . . . . . 464,000 -
Change in operating assets and liabilities:. . . . . (168,910) (364,573)
--------------------------------------------------------------- ---------- ------------
NET CASH USED IN OPERATING ACTIVITIES. . . . . . . . . . . . . (160,823) (731,054)
--------------------------------------------------------------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of building. . . . . . . . . . . . - 3,150,124
Purchases of fixed assets . . . . . . . . . . . . . . . . (8,020) (3,100)
--------------------------------------------------------------- ---------- ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES . . . . . . (8,020) 3,147,024
--------------------------------------------------------------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principle payments on notes payable . . . . . . . . . . . (12,500) (2,509,853)
Principal payments on capitalized lease obligations . . . (4,204) (8,853)
Payments on notes payable - related party . . . . . . . . (20,000) (139,998)
Proceeds from issuance of common stock. . . . . . . . . . 72,139 425,942
Proceeds from revolving credit facility . . . . . . . . . 523,300 -
--------------------------------------------------------------- ---------- ------------
--------------------------------------------------------------- ---------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES. . . . . . 558,735 (2,232,762)
--------------------------------------------------------------- ---------- ------------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . 389,892 183,208
--------------------------------------------------------------- ---------- ------------
CASH AT BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . 592,006 27,648
--------------------------------------------------------------- ---------- ------------
CASH AT END OF PERIOD. . . . . . . . . . . . . . . . . . . . . $ 981,898 $ 210,856
--------------------------------------------------------------- ---------- ------------
--------------------------------------------------------------- ---------- ------------
The accompanying notes are an integral part of these consolidated financial
statements.
4
SPACEDEV, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D.
(UNAUDITED)
Three-Months Ending March 31,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2004 2003
--------------------------------------------------------------------------------------------------------- ------- ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,946 $8,157
--------------------------------------------------------------------------------------------------------- ------- ------
NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three-months ending March 31, 2004 the Company issued 500,000 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 $275,000. The Company
recorded additional non-cash loan fees of approximately $439,000 and charged these fees to expense.
During the three-months ending March 31, 2004, the Company issued 70,035 shares of its common
stock upon conversion of from employee stock options for $40,700 in cash.
During the three-months ending March 31, 2004, the Company issued 7,076 shares of its common stock
from the Company's Employee Stock Purchase Plan for approximately $6,400 in cash.
The accompanying notes are an integral part of these consolidated financial
statements.
5
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 Oklahoma. 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 three-months ending March 31, 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 March 31, 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 5, 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 March 31, 2004 have been prepared assuming the Company will continue as a
going concern. During the first three-months of 2004, the Company had a working
capital deficit of $294,344 and incurred a net loss of $442,549 as compared to a
working capital deficit of $305,551 and a net loss of $505,087 for the same
three-month period in 2003. On March 31, 2004, the Company was awarded a
$43,362,271 contract from the Missile Defense Agency. Management still intends
to obtain new commercial and government contracts, continue to utilize (and
possibly expand) its revolving credit facility and possibly raise some
additional debt or equity capital in a public or private offering or
fund-raising effort. 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.
Management does believe that, if current contracts remain on schedule and are
funded as expected, they will be sufficient to fund the Company through 2004.
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.
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 three-months ended March
31, 2003, these capitalized software costs were $34,503 leaving a balance of
$69,005, which was fully amortized in 2003.
6
2. REVENUE RECOGNITION
The Company's revenues for the three-months ended March 31, 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 three-months in
2003. Revenues from the CPFF contracts during the first three-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.
The total amount of costs in excess of billings and estimated earning was
$253,819 at March 31, 2003. There were no costs in excess of billing at March
31, 2004. Costs in excess of billings and estimated earning occur when costs
incurred on projects exceed the allowed amount billed to the customer at that
time and are booked as a temporary asset on the balance sheet.
Deferred revenue represents amounts collected from customers for projects,
products or services to be provided at a future date.
In November 1999, the Space Missions Division was awarded a turnkey mission
contract by the Space Sciences Laboratory at the University of California at
Berkeley ("UCB") worth, as of December 31, 2002, approximately $7.4 million,
including change orders worth approximately $514,000. This contract represented
14% of the Company's revenues for the year ending December 31, 2003. The
contract concluded on December 31, 2003. CHIPSat continues to operate and UCB
decided to extend the mission. On February 25, 2004, a new time and materials
purchase order arrangement was initiated between the University of California at
Berkeley and the Company.
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 March 31, 2004, the deferred gain was
$1,035,903. This amortization will be included in the Company's occupancy and
facility expense and totaled $29,318 and $19,545 for the three-months ending
March 31, 2004 and 2003, respectively.
Deferred Gain consisted of the following:
Three-Months Ending March 31, 2004
-----------
Original Deferred Gain . . . . . . $1,172,720
Less Amortization 2003 . . . . . . (107,499)
Less Amortization 2004 . . . . . . (29,318)
$1,035,903
-----------
7
In 2001, the Company entered into three settlement loan agreements with various
vendors. The total of $171,402 for all three loans called for payment between
24 and 50 months with interest that ranges from 0% to 8%. At March 31, 2004 and
2003, the outstanding balances on these notes were $75,091 and $131,944,
respectively, with interest expense for the three-months ending March 31, 2004
and 2003 of $977 and $1,394, respectively.
Future minimum principal payments on settlement notes are as follows:
Period Ended March 31,
---------------------- -------
2004 . . . . . . . . . $37,961
2005 . . . . . . . . . 37,130
2006 . . . . . . . . . 0
Total Settlement Notes $75,091
---------------------- -------
b) Related Parties
The Company has a note payable to the CEO. At March 31, 2004 and 2003, the
balances were $580,113 and $608,364, respectively, with accrued interest or
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%. The
Company is currently making principle only payments on the note, with interest
payments accruing and paid at the end of the note.
Future minimum principal payments on note payable, related parties are as
follows:
Period Ending March 31,
------------------------ --------
2004 . . . . . . . . . . $ 80,000
2005 . . . . . . . . . . 80,000
2006 . . . . . . . . . . 80,000
2007 . . . . . . . . . . 80,000
2008 . . . . . . . . . . 80,000
Thereafter . . . . . . . 180,113
------------------------ --------
$580,113
------------------------ --------
Interest expense on this note was $14,593 and $9,866 for the three-months ended
March 31, 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 $1,700 in interest and $2,100 in fees were accrued under
the revolving credit facility in the first quarter of 2004. The outstanding
balance on the revolving credit facility at March 31, 2004 was $1,001,043.
8
The Company filed Form SB-2 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. 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 of $0.55 per share on the first $1 million of principal.
The Convertible Note includes a right of conversion in favor of Laurus. If
Laurus exercises its conversion right at any time or from time to time at or
prior to maturity, on any outstanding balance at the time, 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. Thereafter, the fixed conversion price will be adjusted after
conversion of the first $1.5 million to 103% of the then fair market value of
our common stock ("Adjusted Fixed Conversion Price").
Laurus converted 500,000 shares to reduce the debt we owed by $275,000 for the
three-months ending March 31, 2004. Laurus converted a total of 915,000 shares
to reduce the debt by $503,250 since the inception of the revolving credit
facility. For the three-months ending March 31, 2004, the Company expensed
$464,000 for the non-cash loan fee expense based on the fair market value of the
stock when Laurus converted and approximately $590,000 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 increasing volume of the Company's stock.
Availability of funds under the revolving credit facility will be based on our
accounts receivables, 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 otherwise have 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 otherwise have
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 will be required to pay a continuation fee of $10,000 in June 2004 and
each year thereafter. In addition, Laurus received a warrant to purchase
200,000 shares of the Company's common stock, 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.
In addition to the initial warrant, the Company is 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 will be determined if and when issued, and
will be treated as additional interest expense and will be amortized over the
remaining term of the Convertible Note, unless sooner terminated. No more than
an aggregate of 100,000 shares of the Company's common stock may be purchased by
Laurus under such additional warrants.
9
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) four percent (4%) of the Capital Availability Amount if such payment occurs
prior to the first anniversary of the Initial Term (i.e., June 3, 2004); (y)
three percent ( 3%) of the Capital Availability Amount if such payment occurs
after the first anniversary and prior to the second anniversary of the Initial
Term; and, (z) 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 define in the agreements.
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 debentures to various directors and officers of
the Company. The total funding was completed on November 14, 2002. The
convertible debentures 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 debentures were exercisable into a number of the Company's
common shares at a conversion price that equals the 20-day average ask price
less 10%, which was, established when the note was issued, or the initial
conversion price.
Concurrent with the issuance of the convertible debentures, the Company issued
warrants to purchase up to 1,229,705 shares of 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.
All debt discounts are to be amortized as additional interest expense over the
term of the convertible debenture. As of March 31, 2003, $475,000 was reflected
as debt discount of which $100,455 was amortized to non-cash interest expense
for the first three-months ending March 31, 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 the note holders accepted the offer and the
convertible notes were retired.
10
Balances as of March 31, 2004 were:
-------------------------------------------------- ---------- ---------
Convertible debentures - beginning balance . . . . $ 475,000
Total interest expense incurred. . . . . $ 20,236
Accrued interest paid - 2003 . . . . . . $ (18,161)
Accrued interest paid - 2002 . . . . . . $ (2,075)
Convertible debtures paid. . . . . . . . $(237,500)
Convertible debtures converted to equity $(237,500)
-------------------------------------------------- ---------- ---------
$(475,000)
Convertible debentures - ending balance. . . . . . $ 0
-------------------------------------------------- ---------- ---------
-------------------------------------------------- ---------- ---------
Debt discount (Warrants) - beginning balance . . . $ 475,000
Amount forfeited . . . . . . . . . . . . $(237,500)
Amount expensed - 2002 . . . . . . . . . $(125,000)
Amount expensed - 2003 . . . . . . . . . $(267,879)
2003 - adjustment. . . . . . . . . . . . $ 155,379
-------------------------------------------------- ---------- ---------
$(475,000)
Debt discount (Warrants) - ending balance. . . . . $ 0
-------------------------------------------------- ---------- ---------
5. STOCKHOLDERS' EQUITY - COMMON STOCK AND WARRANTS
On November 5, 2000, the Company commenced a private placement offering ("PPO")
for a maximum of 1,000,000 shares of the Company's $0.0001 par value common
stock and warrants to purchase an 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 period ending March 31, 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 of
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 period ending March 31, 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:
11
Three-Months Ending March 31, 2004 2003
----------------------------- ---------- ----------
Net loss:
----------------------------- ---------- ----------
As reported. . . . . . . . . $(442,549) $(505,087)
Pro forma. . . . . . . . . . $(534,614) $(578,932)
Loss per Share:
----------------------------- ---------- ----------
As reported. . . . . . . . . $ (.03) $ (.03)
Pro forma. . . . . . . . . . $ (.03) $ (.04)
----------------------------- ---------- ----------
----------------------------- ---------- ----------
6. NEW ACCOUNTING PRONOUNCEMENTS
There were no recent Accounting Pronouncements that affect the Company during
the first quarter 2004. For past pronouncements please refer the company's
10-KSB filed on April 6, 2004.
12
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. These are factors that we think could cause our actual results to
differ materially from expected and historical events.
OVERVIEW
We are 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 for
space, launch and human flight vehicles as well as associated engineering and
technical services primarily to government agencies, and specifically the
Department of Defense. Our products and solutions are sold, mainly on a
project-basis, directly to these customers and include sophisticated micro and
nano satellites, hybrid rocket-based launch vehicles, Maneuvering and orbital
Transfer Vehicles ("MoTVs") as well as safe sub-orbital and orbital hybrid
rocket-based propulsion systems. Although we believe there will be a commercial
market for our micro satellite and nano satellite products and services in the
long-term, the early adopters of this technology appears to be 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.
13
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. The total five-year contract
has a ceiling amount of $43,362,271. 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 $62,000 of revenue was accrued for work performed in March 2004
but not invoiced until April 2004 due to the late execution date of the
contract. The first phase is expected to be completed this year and will result
in detailed mission and microsat designs. The estimated first phase revenue is
$1.1 million. 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 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. The second phase is anticipated to
begin on or before October 1, 2004 and run through 2005.
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 are to provide two sets of 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 will produce and assemble test
motors, including but not limited to, all expendable or semi-reusable materials
as defined by our baseline design motor. We are also required to provide
on-site engineering test support and post-test analysis. Provisions are 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 $429,000. Approximately
$106,000 of revenue was realized in the three-months ending March 31, 2004, with
approximately $63,000 from engineering change orders and the remaining $43,000
from the contract.
Also on July 9, 2003, we were awarded a second contract by the Missile Defense
Agency ("MDA") to explore the use of micro-satellites ("microsats") in national
missile defense. Our microsats are operated over the Internet and are capable
of pointing and tracking targets in space or on the ground. This study explored
fast response microsat launch and commissioning; small, low-power passive
sensors; target acquisition and tracking; formation flying and local area
networking within a cluster of microsats; and an extension of our proven use of
the Internet for on-orbit command, control and data handling. The contract was
successfully concluded on February 27, 2004. The total contract value was
$800,000 with approximately $319,000 of revenue realized in the three-months
ending March 31, 2004. The total value of our microsatellite studies for MDA
was over $1 million in 2003. This second contract was considered an
investigatory phase by MDA.
14
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 begin the
development of the SpaceDev Streaker(TM) small launch vehicle ("SLV"). SpaceDev
Streaker(TM) will be designed to responsively and affordably lift up to 1,000
pounds to Low Earth Orbit ("LEO"). The SpaceDev Streaker(TM) SLV concept is
based on a proprietary combination of technologies to increase the performance
of hybrid rocket motor technology. Hybrid rocket motors are a combination of
solid fuel and liquid oxidizer, and can be relatively safe, clean,
non-explosive, and storable, and can be throttled, shut down and restarted.
This contract is valued at approximately $100,000, is a fixed price,
milestone-based agreement, which should be completed within one year. We believe
that this SBIR will move into Phase II valued at approximately $750,000 of
carry-forward work for us, plus an additional $750,000 of funds provided by
Congress based on discussions with the Air Force Research Laboratory technical
personnel. This money will be used to develop and test fire our large Common
Core Booster for the SpaceDev Streaker(TM) launch vehicle. We believe that
there may be some interest by Congress in providing additional matching funding
to expand and accelerate the scope of the work; however, there can be no
assurance that such work will be awarded to us. Revenues for the three-months
ending March 31, 2004 were approximately $30,000.
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 microsat subsystems. It will also enable us to
explore ways to reduce the time and cost to build small satellites through
further standardization in order to help define de facto standards for payload
hardware and software interfaces. The contract is fixed price, milestone-based
and should be completed within one year. We believe that this SBIR will move
into Phase II valued at approximately $750,000 of carry-forward work for us;
however, there can be no assurance that such work will be awarded to us.
Revenues for the three-months ending March 31, 2004 were approximately $24,000.
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. Revenues for the
three-months ending March 31, 2004 were approximately $91,000. We expect to
either 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 it is,
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 the 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. We anticipate that
to complete AFRL Phase II, approximately four months of additional time and
approximately $240,000 of additional funding will be required. We are currently
negotiating with AFRL for the extension of Phase II in order to complete the
work, which we anticipate will be granted in the second quarter of 2004. In
addition to the Phase I and Phase II awards, there is an option worth
approximately $1 million pending initiation. The option has been awarded and
work will begin once certain milestones are met to the satisfaction of the AFRL
project manager. The additional funding to complete AFRL Phase II may come from
the $1 million option; thereby, requiring a reduction in the original scope of
the option. Revenues for the three-months ending March 31, 2004 were
approximately $412,000 for AFRL Phase II.
15
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
recently negotiated a new time and materials contract in the form of a purchase
order with UCB for continuing support of this project. Revenues for the
three-months ending March 31, 2004 and 2003 were approximately $12,000 and
$112,000, respectively.
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.
Three-Months Ending March 31, 2004 -vs.- Three-Months Ending March 31, 2003
During the three-months ending March 31, 2004, we had net sales of approximately
$1,015,000 as compared to net sales of approximately $533,000 for the same
three-month period in 2003, an increase of over 90%. Sales increased primarily
due to the addition and expansion of government contacts such as those for AFRL
and MDA, which created new revenue opportunities for us. Revenues in the
three-months ending March 31, 2004 were comprised of approximately $412,000 from
AFRL Phase II, $319,000 from MDA Phase II, $106,000 from the new exclusive
proprietary propulsion contracts (SpaceShipOne), $91,000 from our DARPA
contract, $54,000 from the two SBIR contracts listed above, and $33,000 from all
other programs. During the same period of 2003, sales were comprised of
approximately $237,000 from the SpaceShipOne contract, $157,000 from the MDA
project, $112,000 from the CHIPSat program, $20,000 from Phase I of the AFRL
project and approximately $7,000 from all other programs.
For the three-months ending March 31, 2004, we had costs of sales (direct and
allocated costs associated with individual contracts) of approximately $807,500,
or 79.6% of net sales, as compared to approximately $462,000 or 86.6% 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 as well as the implementation of stronger cost
controls and project monitoring. We continue to focus efforts on developing
project management skills and reports to assist in the efficient and effective
management of our projects. The gross margin percentage for the three-months
ending March 31, 2004 was 20.4% of net sales, an increase of 7% of net sales, as
compared to 13.4% of net sales for the same three-month period in 2003.
We experienced a decrease of approximately $240,000 in operating expenses from
approximately $435,000, or 81.6% of net sales, for the three-months ending March
31, 2003 to approximately $195,000 or 19.2% of net sales, for the three-months
ending March 31, 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:
16
- Marketing and sales expenses increased during the first three-month of
2004 compared to the same period in 2003. The increase in marketing and sales
expense, from approximately $65,000, or 12.2% of net sales, for the three months
ending March 31, 2003, to approximately $99,000, or 9.8% of net sales, during
the same period in 2004, mainly due to our decision to expand our marketing and
sales department.
- Research and development ("R&D") expenses increased during the first
three-months of 2004 from no research and development costs in 2003 to
approximately $15,000 or 1.5% of net sales for the three-months ending March 31,
2004.
- The decrease of approximately $289,000 in G&A expenses from approximately
$370,000 for the three-months ending March 31, 2003 to approximately $81,000 for
the same three month period in 2004 was primarily due to software amortization
expense of $34,500 during the first quarter of 2003, which is no longer present
in 2004 as well as a more appropriate classification of certain expenses into
cost of goods sold.
Non-operating expense (income) consists of interest expense, 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 three-months ending March 31, 2004 and 2003 was
approximately $19,800, or 2.0% of net sales, and $20,400, or 3.8% of net sales,
respectively. The slight decrease was due to lower interest rates and a
reduction in settlement notes and capital leases. 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-months ending March 31, 2004 and 2003, interest expense on our
note to our CEO was $14,600 and $10,000, respectively. For the three-months
ending March 31, 2004 and 2003, interest expense on our revolving credit
facility/convertible debt was $4,000 and $2,400, respectively. And interest
expense on our settlement notes/capital leases for the three-month period ending
March 31, 2004 and 2003 were $1,200 and $8,000, respectively.
- We recognized approximately $29,300 and $19,500 of the deferred gain on
the sale of the building during the three-months ending March 31, 2004 and 2003,
respectively, and we will continue to amortize the remaining deferred gain of
approximately $1,036,000 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 $40,000 at March 31, 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 loss we experienced during the year.
- During the three-months ending March 31, 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, of which approximately $100,000 was expensed during the
three-months ended March 31, 2003 and paid or converted in September 2003.
There was no debt discount for the first three-months of 2004.
- We realized loan fees related to our revolving credit facility and
expenses related to the conversion of notes to common stock below fair market
value of approximately $464,000 for the three-months ending March 31, 2004. We
accrued approximately $4,000 of interest for the three-months ending March 31,
2004. We anticipate additional expenses related to similar note to equity
conversions.
During the three-months ending March 31, 2004, we incurred a net loss of
approximately $442,500, or 43.6% of net sales, compared to a net loss of
approximately $505,000, or 94.8% of net sales, for the same three-month period
in 2003. During the three-months ending March 31, 2004, we incurred an EBITDA
(earnings before interest taxes depreciation and amortization) of approximately
$28,000, or 2.7% of net sales, compared to an EBITDA loss of approximately
<$306,000>, or <30.2> % of net sales, for the three-months ending March 31,
2003.
17
The following table reconciles EBITDA to net loss for the three-months ending
March 31, 2004 and 2003, respectively:
FOR THE THREE-MONTHS ENDING. . . . . . MARCH 31, 2004 March 31, 2003
(UNAUDITED) (Unaudited)
-------------------------------------- --------------- ---------------
NET LOSS (INCOME). . . . . . . . . . . (442,549) (505,087)
-------------------------------------- --------------- ---------------
Interest Expense . . . . . . . . . . . 19,788 20,449
Non-Cash Interest exp. (Debt Discount) - 100,455
Gain on Building Sale. . . . . . . . . (29,318) (19,545)
Loan Fee - Equity Conversion. . . . . 464,000 0
Provision for income taxes . . . . . . - 40,000
Depreciation and Amortization. . . . . 15,954 57,696
-------------------------------------- --------------- ---------------
EBITDA . . . . . . . . . . . . . . . . 27,875 (306,032)
-------------------------------------- --------------- ---------------
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.
18
LIQUIDITY AND CAPITAL RESOURCES
CASH POSITION FOR THREE-MONTHS ENDING MARCH 31, 2004 -VS.- THREE-MONTHS ENDING
MARCH 31, 2003
Net cash increased during the three-months ending March 31, 2004 by
approximately $390,000, compared to approximately $183,000 for the same
three-month period in 2003. Net cash used in operating activities totaled
approximately $161,000 for the three-months ending March 31, 2004, a decrease of
approximately $570,000 as compared to approximately $731,000 used in operating
activities during the same three-month period in 2003, mainly due to the
decrease in operating expenses for the first three-months of 2004 compared to
the same period in 2003.
Net cash used in investing activities totaled approximately $8,000 for the
three-months ending March 31, 2004, compared to $3,147,000 provided by investing
activities during the same three-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.
Net cash provided by financing activities totaled approximately $559,000 for the
three-months ending March 31, 2004, which is an increase of approximately
$2,792,000 from the approximately $2,233,000 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, advances on our revolving
credit facility, conversions under our revolving credit facility, as well as an
increase in issuance of common stock from the exercise of stock options and
warrants.
At March 31, 2004, our cash, which includes cash reserves and cash available for
investment, was approximately $982,000, as compared to approximately $211,000 at
March 31, 2003, an increase of approximately $771,000, mainly due to advances on
and/or conversions under our revolving credit facility.
As of March 31, 2004, our backlog of funded and non-funded business was
approximately $45 million 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, 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 for the same
three-month period in 2003 was $3.2 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 $2,360,000 and $2,190,000 as of March 31, 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
$170,000 in 2004 from $2,190,000 at December 31, 2003 to $2,360,000 at March 31,
2004.
At March 31, 2004, the Company has federal and state tax net operating loss and
capital loss carryforwards of approximately $4,673,000 and $1,847,000,
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.
19
CRITICAL ACCOUNTING STANDARDS
Our revenues transitioned in 2003 from being primarily 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 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 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 March 31, 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 5, 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 SPACEDEV, INC. AND 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 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.
20
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 debentures. The convertible debentures
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 debentures
were exercisable into common shares at a conversion price that equals the 20-day
average asking price less 10%, which was established when the debentures were
issued, or the initial conversion price. Concurrent with the issuance of the
convertible debentures, 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 three-months ending March 31, 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. AFRL Phase II is a cost-plus contract, which has required us to incur
certain costs in advance of regular contract reimbursements from AFRL. Although
we have needed a certain amount of cash to fund advance payments on the
contract, 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. In addition, we anticipated and received the initial
investigatory contract from the MDA to explore the use of micro-satellites in
national missile defense. On February 29, 2004, we concluded the study to
explore a mission with a fast response microsat launch and commissioning; small,
low-power passive sensors; formation flying and local area networking within a
cluster of microsats; and an extension of our proven use of the Internet for
on-orbit command, control and data handling. The purchase order was valued at
$800,000 and was a cost plus fixed fee agreement. The final retention payment
of approximately $33,000 will be made after the final report is approved by MDA.
In anticipation that the new $43,362,271 contract would be awarded to us, we
agreed to begin work on the MDA program on March 1, 2004. MDA agreed to make
the effective date of the agreement March 1, 2004 and it was awarded to us on
March 31, 2004. Our newly awarded $43,362,271 MDA contract is a phased contract
and we can give no assurance that the entire contract will be realized by us,
even though we have begun work on the next phase and we currently anticipate the
successful completion of future phases.
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 March 31, 2004, Laurus had
converted 500,000 shares under the revolving credit facility, which represented
approximately $275,000 of debt converted to equity.
We realized a small positive cash flow from operations during the fourth quarter
of 2003 and first quarter of 2004. We are focusing attention on our EBITDA, as
an indicator of our improving financial performance. We expect to continue
realizing net losses in 2004, primarily due to non-cash interest expense and
other fees related to our revolving credit facility. Therefore, by focusing on
EBITDA as one important measure of performance, we can illustrate the improving
results of our core business. We recorded EBITDA of approximately $28,000 for
the three-month period ending March 31, 2004, compared to a negative EBITDA of
$306,000 for the same period in 2003, an improvement of approximately $334,000.
21
In addition, we are focusing attention on our profits or losses from operations,
as an additional indicator of our improving financial performance. Therefore,
by focusing on operating results as another important measure, we can monitor
the performance of our core business. We recorded a profit from operations of
approximately $12,000 in the first quarter of 2004, compared to a loss from
operations of $364,000 in the first quarter of 2003. Profits or losses from
operations are derived from all expenses excluding interest, taxes, non-cash
expenses tied 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 and borrowings under our revolving credit facility,
that net positive cash flow from operations will be sufficient to fund both
operations and capital expenditures in 2004. There is no assurance, however,
that we will achieve or sustain any positive cash flow or profitability now or
thereafter.
RECENT ACCOUNTING PRONOUNCEMENTS
There were no recent Accounting Pronouncements that affect the Company during
the first quarter of 2004. For past pronouncements please refer the company's
10KSB filed on April 6, 2004.
FORWARD-LOOKING STATEMENTS AND RISK ANALYSIS
During the first three-months of 2004, we submitted two bids for government
programs, continued our work with the US 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.
While we do not expect a reduction of government sales, a majority of our
government work is contract related. 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 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.
We believe that we will experience an accelerated growth in sales over the next
few years. At this time, over 90% of the forecasted sales for 2004 are under
contract or near contract award. There is no guarantee and there can be no
assurance that we will win enough new business to achieve our targeted growth
projection 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 this increase in sales; however, additional capital will be
required to support and sustain our growth.
22
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 require additional funding and/or the win of both significant
government and commercial programs. We believe investor or customer funding of
$5 to $15 million may be required, which could come from a combination of
private and/or public equity placements or government and commercial customers.
At this time, we do not have any ongoing private or public equity offerings.
The amount of capital we need to raise is dependent upon many factors. For
example, 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 microsatellite 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 profitable or once profitable maintain profitability, or
that any additional public offering will occur, that we will be successful in
obtaining additional funds from any source or be successful in implementing an
acceptable exit strategy on behalf of our investors. Moreover, additional
funds, if obtainable at all, may not be available on terms acceptable to us when
such funds are needed or may be on terms which are significantly adverse to our
current shareholders. The unavailability of funds when needed would have a
material adverse effect on us.
Our business partially depends on activities regulated by various agencies and
departments of the U.S. government and other companies 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
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.
23
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 procedure regularly with our management and
Board of Directors.
24
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 a its own claim with the American Arbitration
Association on November 13, 2001, alleging that we owed EMC $118,000 in fees,
plus damages.
A three-day arbitration hearing was held in May and June 2002 with respect to
claims arising out of consulting and advisory service agreements between EMC and
us. On July 17, 2002, an interim award was issued in favor of us against EMC,
ordering the return of the initial installment of 500,000 shares and denying
EMC's claim for $118,000. On October 22, 2002, a status conference was 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 8, 2003, we issued 10,000 shares of our common stock to Laurus,
pursuant to our Security Agreement, Secured Convertible Note, Registration
Rights Agreement and Common Stock Purchase Warrant with Laurus dated June 3,
2003, for a corresponding $5,500 reduction in our revolving credit facility. As
part of the transaction, the shares were registered with the Securities and
Exchange Commission ("SEC") for public resale on August 6, 2003.
On August 19, 2003, pursuant to our 1999 Stock Option Plan, we granted options
to purchase up to 50,000 shares of our common stock to one of our new engineers.
These options were issued with an exercise price of $1.00 per share (based on
the closing price of our common stock on the date of grant), will vest over
five years and will expire on the six-year anniversary date of the date of
grant.
On September 1, 2003, we issued warrants to purchase 200,000 shares of common
stock to Dian Grisel of the Investor Relations Group ("IRG"), for public and
investor relations services. The warrants will vest ratably over one year at an
exercise price of $1.05 per share.
On September 23, 2003, we issued 50,000 shares of our common stock to Laurus,
pursuant to our Security Agreement, Secured Convertible Note, Registration
Rights Agreement and Common Stock Purchase Warrant with Laurus dated June 3,
2003, for a corresponding $27,500 reduction in our revolving credit facility.
As part of the transaction, the shares were registered with the Securities and
Exchange Commission ("SEC") for public resale on August 6, 2003.
On September 29, 2003, pursuant to our 1999 Stock Option Plan, we granted
options to purchase up to 50,000 shares of our common stock to one of our new
engineers. These options were issued with an exercise price of $0.94 per share
(based on the closing price of our common stock on the date of grant), will vest
over five years and will expire on the six-year anniversary date of the date of
grant.
25
On October 3, 2003, we issued 55,000 shares of our common stock to Laurus,
pursuant to our Security Agreement, Secured Convertible Note, Registration
Rights Agreement and Common Stock Purchase Warrant with Laurus dated June 3,
2003, for a corresponding $30,250 reduction in our revolving credit facility.
As part of the transaction, the shares were registered with the Securities and
Exchange Commission ("SEC") for public resale on August 6, 2003.
On October 14, 2003, we issued 100,000 shares of our common stock to Laurus,
pursuant to our Security Agreement, Secured Convertible Note, Registration
Rights Agreement and Common Stock Purchase Warrant with Laurus dated June 3,
2003, for a corresponding $55,000 reduction in our revolving credit facility.
As part of the transaction, the shares were registered with the Securities and
Exchange Commission ("SEC") for public resale on August 6, 2003.
On October 20, 2003, pursuant to our 1999 Stock Option Plan, we granted options
to purchase up to 50,000 shares of our common stock to one of our new engineers.
These options were issued with an exercise price of $1.15 per share (based on
the closing price of our common stock on the date of grant), will vest over five
years and will expire on the six-year anniversary date of the date of grant.
On November 6, 2003, pursuant to our independent director compensation plan,
adopted January 16, 2000, we granted options to purchase 5,000 shares each to
Howell M. Estes, III and Scott McClendon and 10,000 shares each to Curt Dean
Blake, Robert Walker and Wesley T. Huntress for their attendance and
participation at the Board of Directors meeting held on November 6, 2003. These
options were issued with an exercise price of $0.94 per share, (based on the
closing price of our common stock on the date of grant), will vest over two
years and will expire on the five-year anniversary date of the date of grant.
On November 11, 2003, pursuant to our 1999 Stock Option Plan, we granted options
to purchase up to 30,000 shares of our common stock to one of our new engineers.
These options were issued with an exercise price of $0.95 per share (based on
the closing price of our common stock on the date of grant), will vest over five
years and will expire on the six-year anniversary date of the date of grant.
On December 8, 2003, pursuant to our 1999 Stock Option Plan, we granted options
to purchase up to 250,000 shares of our common stock to our new vice president
of engineering. These options were issued with an exercise price of $1.05 per
share (based on the closing price of our common stock on the date of grant),
will vest over five years and will expire on the six-year anniversary date of
the date of grant.
On December 11, 2003, we issued 100,000 shares of our common stock to Laurus,
pursuant to our Security Agreement, Secured Convertible Note, Registration
Rights Agreement and Common Stock Purchase Warrant with Laurus dated June 3,
2003, for a corresponding $55,000 reduction in our revolving credit facility.
As part of the transaction, the shares were registered with the Securities and
Exchange Commission ("SEC") for public resale on August 6, 2003.
On December 29, 2003, we issued 100,000 shares of our common stock to Laurus,
pursuant to our Security Agreement, Secured Convertible Note, Registration
Rights Agreement and Common Stock Purchase Warrant with Laurus dated June 3,
2003, for a corresponding $55,000 reduction in our revolving credit facility.
As part of the transaction, the shares were registered with the Securities and
Exchange Commission ("SEC") for public resale on August 6, 2003.
On January 9, 2004, we issued 300,000 shares of our common stock to Laurus,
pursuant to our Security Agreement, Secured Convertible Note, Registration
Rights Agreement and Common Stock Purchase Warrant with Laurus dated June 3,
2003, for a corresponding $165,000 reduction in our revolving credit facility.
As part of the transaction, the shares were registered with the Securities and
Exchange Commission ("SEC") for public resale on August 6, 2003.
26
On February 23, 2004, we issued 7,076 shares of our common stock pursuant to our
1999 Stock Purchase Plan to four employees enrolled in the plan for
approximately $6,400 in cash.
On March 3, 2004, we issued 200,000 shares of our common stock to Laurus,
pursuant to our Security Agreement, Secured Convertible Note, Registration
Rights Agreement and Common Stock Purchase Warrant with Laurus dated June 3,
2003, for a corresponding $110,000 reduction in our revolving credit facility.
As part of the transaction, the shares were registered with the Securities and
Exchange Commission ("SEC") for public resale on August 6, 2003.
Pursuant to our independent director compensation plan, adopted January 16, 2000
and modified March 25, 2004, we granted options to purchase 5,000 shares each to
Curt Dean Blake, Wesley T. Huntress and Scott McClendon for their attendance and
participation at the Audit Committee Meeting held on March 23, 2004. These
options were issued with an exercise price of $0.92 per share, (based on the
closing price of our common stock on the date of grant), will vest over
two-years and will expire on the three-year anniversary date of the date of
grant.
Pursuant to our independent director compensation plan, adopted January 16, 2000
and modified March 25, 2004, we granted options to purchase 12,000 shares each
to Howell M. Estes, III, Wesley T. Huntress and Scott McClendon and 6,000 shares
to Curt Dean Blake for their attendance and participation at the Board of
Directors meeting held on March 25, 2004. These options were issued with an
exercise price of $0.92 per share, (based on the closing price of our common
stock on the date of grant), will vest over two years and will expire on the
three-year anniversary date of the date of grant.
On March 25, 2004, pursuant to our 1999 Stock Option Plan, we granted options to
purchase up to 1,104,000 shares of our common stock to employees and officers.
These options were issued with an exercise price of $0.92 per share (based on
the closing price of our common stock on the date of grant). Options to
purchase 781,500 shares of our common stock will vest over five-years in ten
semi-annual installments and options to purchase the remaining 322,500 shares
will vest based on performance criteria established by the CEO. All options
will expire on the six-year anniversary date of the date of grant, unless sooner
forfeited, exercised or otherwise terminated.
Also, on March 25, 2004, pursuant to our 1999 Stock Option Plan, we granted
options to purchase up to 25,000 shares of our common stock each to Curt Dean
Blake, Wesley T. Huntress and Scott McClendon for their previous work,
attendance and participation on the Audit Committee.
On April 1, 2004, we issued 250,000 shares of our common stock to Laurus,
pursuant to our Security Agreement, Secured Convertible Note, Registration
Rights Agreement and Common Stock Purchase Warrant with Laurus dated June 3,
2003, for a corresponding $137,500 reduction in our revolving credit facility.
As part of the transaction, the shares were registered with the Securities and
Exchange Commission ("SEC") for public resale on August 6, 2003.
On April 20, 2004, we issued 300,000 shares of our common stock to Laurus,
pursuant to our Security Agreement, Secured Convertible Note, Registration
Rights Agreement and Common Stock Purchase Warrant with Laurus dated June 3,
2003, for a corresponding $165,000 reduction in our revolving credit facility.
As part of the transaction, the shares were registered with the Securities and
Exchange Commission ("SEC") for public resale on August 6, 2003.
27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
At our annual meeting on July 16, 2000, our Board of Directors adopted a
compensation plan for independent directors whereby they will receive options
for attending meetings of the Board as follows: each such director shall receive
an option to purchase 5,000 shares for each of two telephonic meetings attended
per year, and an option to purchase 10,000 shares for each of two meetings
attended in person per year. These directors will not receive additional
compensation for attending meetings in excess of those described above. In
addition to the above, independent directors will receive $5,000 in options on
the date of election or appointment. All such options will be issued pursuant to
the Plan at fair market value as of the date of the meeting attended, will vest
50% on the first anniversary date of the date of grant and 50% on the second
anniversary date of the date of grant and will expire on the five-year
anniversary of the grant date. We do not compensate any of our directors for
their services as members of the Board through non-standard arrangements.
On March 25, 2004, our Board of Directors modified our compensation plan for
independent directors. Under the modified plan, independent directors will
receive options for attending meetings of the Board as follows: each director
shall receive an option to purchase 6,000 shares for each telephonic meeting
attended and an option to purchase 12,000 shares for each meeting attended in
person, with a cap of options on 36,000 shares per year. Our directors will
also receive compensation for attending committee meetings as follows: each
director shall receive an option to purchase 5,000 shares for each Audit
Committee meeting attended, each director shall receive an option to purchase
2,500 shares for each Compensation Committee meeting attended and each director
shall receive an option to purchase 2,500 shares for each Nominating/Governance
Committee meeting attended, which options shall not be subject to a cap. In
addition to the above, independent directors will receive 5,000 options on the
date of election or appointment. All such options will be issued pursuant to the
Plan at fair market value as of the date of the meeting attended, will vest 50%
on the first anniversary date of the date of grant and 50% on the second
anniversary date of the date of grant and will expire on the
three-year anniversary of the grant date.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Certificate of James W. Benson Pursuant to Section 1350 of Chapter 63 of Title 18 U.S. Code 99.1
Certificate of Richard B. Slansky Pursuant to Section 1350 of Chapter 63 of Title 18 U.S. Code 99.2
Certificate of James W. Benson Pursuant to Section 906 of the Corporate
Fraud Accountability Act of 2002 32.1
Certificate of Richard B. Slansky Pursuant to Section 906 of the Corporate
Fraud Accountability Act of 2002 32.2
(b) Reports on Form 8-K
None.
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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: May 10, 2004 /s/ James W. Benson
-------------------------
James W. Benson
Chief Executive Officer
Dated: May 10, 2004 /s/ Richard B. Slansky
------------------------
Richard B. Slansky
Chief Financial Officer
29