x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
Colorado
|
84-1374613
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer
Identification
No.)
|
13855
Stowe Drive, Poway, California 92064
|
|
(Address
of principal executive offices)
|
Index | Page |
1
|
|
1
|
|
1
|
|
2
|
|
3
|
|
5
|
|
15
|
|
15
|
|
17
|
|
19
|
|
27
|
|
28
|
|
29
|
|
29
|
|
41
|
|
42
|
|
ITEM
1. LEGAL PROCEEDINGS
|
42
|
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
42
|
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
|
42
|
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
42
|
ITEM
5. OTHER INFORMATION
|
42
|
43
|
|
43
|
At
September 30,
|
2006
|
|
|
2005
|
|||
Assets
|
|||||||
Current
Assets
|
|||||||
Cash
|
$
|
3,693,612
|
$
|
4,022,243
|
|||
Accounts
receivable
|
6,028,819
|
1,096,645
|
|||||
Inventory
(Note 2(b))
|
3,528,229
|
10,412
|
|||||
Raw
materials
|
273,559
|
-
|
|||||
WIP:
costs in excess of billings (Note 2)
|
3,254,670
|
10,412
|
|||||
Finished
goods
|
-
|
-
|
|||||
Note
receivable (Note 5)
|
-
|
1,326,453
|
|||||
Other
current assets (Note 6(a))
|
965,433
|
-
|
|||||
Total
Current Assets
|
14,216,093
|
6,455,753
|
|||||
Fixed
Assets - Net
|
3,712,149
|
822,980
|
|||||
Goodwill
(Note 5)
|
12,246,362
|
-
|
|||||
Other
Assets (Note 6(b))
|
323,063
|
64,469
|
|||||
Total
Assets
|
$
|
30,497,667
|
$
|
7,343,202
|
Liabilities
and Stockholders’ Equity
|
|||||||
Current
Liabilities
|
|||||||
Accounts
payable and accrued expenses
|
$
|
2,439,832
|
$
|
419,719
|
|||
Accrued
payroll, vacation and related taxes
|
1,421,800
|
350,145
|
|||||
Billings
in excess of costs incurred (Note 2(a))
|
3,879,981
|
-
|
|||||
Revolving
credit facility (Note 3(b))
|
1,926,853
|
||||||
Other
accrued liabilities (Note 2(a))
|
1,503,919
|
304,897
|
|||||
Total
Current Liabilities
|
11,172,385
|
1,074,761
|
|||||
Capitalized
Lease Obligations, Less Current Maturities
|
168,129
|
-
|
|||||
Deferred
Gain - Assets Held For Sale (Note 3(a))
|
742,723
|
859,996
|
|||||
Other
Long Term Liabilities
|
15,266
|
-
|
|||||
Total
Liabilities
|
12,098,503
|
1,934,757
|
|||||
Commitments
and Contingencies
|
|||||||
Stockholders’
Equity
|
|||||||
Convertible
preferred stock, $.001 par value, 10,000,000
|
|||||||
shares
authorized, and 253,249 and 248,460 shares
|
|||||||
issued
or outstanding, respectively
|
|||||||
Series
C Convertible preferred stock (Note 4(a))
|
248
|
248
|
|||||
Series
D-1 Convertible preferred stock (Note 4 (b))
|
5
|
-
|
|||||
Common
stock, $.0001 par value; 100,000,000 and 50,000,000 shares
|
|||||||
authorized,
and 29,485,036 and 22,319,156 shares issued
|
|||||||
and
outstanding, respectively (Note 4)
|
2,948
|
2,231
|
|||||
Additional
paid-in capital
|
33,365,995
|
20,091,408
|
|||||
Accumulated
deficit
|
(14,970,032
|
)
|
(14,685,442
|
)
|
|||
Total
Stockholders’ Equity
|
18,399,164
|
5,408,445
|
|||||
Total
Liabilities and Stockholders’ Equity
|
$
|
30,497,667
|
$
|
7,343,202
|
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||||||||||||
At
September 30,
|
2006
|
% |
2005
|
% |
2006
|
% |
2005
|
% | ||||||||||||||||
Net
Sales
|
$
|
7,006,347
|
100.0
|
%
|
$
|
2,234,010
|
100.0
|
%
|
$
|
22,812,290
|
100.0
|
%
|
$
|
5,942,558
|
100.0
|
%
|
||||||||
Total
Cost of Sales
|
5,123,878
|
73.1
|
%
|
1,709,077
|
76.5
|
%
|
16,718,917
|
73.3
|
%
|
4,571,505
|
76.9
|
%
|
||||||||||||
Gross
Margin
|
1,882,469
|
26.9
|
%
|
524,933
|
23.5
|
%
|
6,093,373
|
26.7
|
%
|
1,371,053
|
23.1
|
%
|
||||||||||||
Operating
Expenses
|
||||||||||||||||||||||||
Marketing
and sales
|
524,701
|
7.5
|
%
|
188,655
|
8.4
|
%
|
1,859,396
|
8.2
|
%
|
493,344
|
8.3
|
%
|
||||||||||||
Research
and development
|
70,754
|
1.0
|
%
|
446
|
0.0
|
%
|
275,592
|
1.2
|
%
|
9,558
|
0.2
|
%
|
||||||||||||
General
and administrative
|
1,282,775
|
18.3
|
%
|
252,895
|
11.3
|
%
|
3,990,450
|
17.5
|
%
|
644,966
|
10.9
|
%
|
||||||||||||
Total
Operating Expenses
|
1,878,230
|
26.8
|
%
|
441,996
|
19.8
|
%
|
6,125,438
|
26.9
|
%
|
1,147,868
|
19.3
|
%
|
||||||||||||
Income/(Loss)
from Operations
|
4,239
|
0.1
|
%
|
82,937
|
3.7
|
%
|
(32,065
|
) |
-0.1
|
%
|
223,185
|
3.8
|
%
|
|||||||||||
Non-Operating
Income/(Expense)
|
|
|||||||||||||||||||||||
Interest
income
|
2,714
|
0.0
|
%
|
24,848
|
1.1
|
%
|
43,466
|
0.2
|
%
|
69,632
|
1.2
|
%
|
||||||||||||
Interest
expense
|
(7,842
|
) |
-0.1
|
%
|
(452
|
) |
0.0
|
%
|
(18,471
|
) |
-0.1
|
%
|
(2,283
|
) |
0.0
|
%
|
||||||||
Gain
on building sale (Note 3(a))
|
29,319
|
0.4
|
%
|
29,318
|
1.3
|
%
|
87,956
|
0.4
|
%
|
87,953
|
1.5
|
%
|
||||||||||||
Non-Cash
loan fee (Note 3(b))
|
(1,918
|
) |
0.0
|
%
|
-
|
0.0
|
%
|
(1,918
|
) |
0.0
|
%
|
(28,875
|
) |
-0.5
|
%
|
|||||||||
Total
Non-Operating Income
|
22,273
|
0.3
|
%
|
53,714
|
2.4
|
%
|
111,033
|
0.5
|
%
|
126,427
|
2.1
|
%
|
||||||||||||
Income
Before Taxes
|
26,512
|
0.4
|
%
|
136,651
|
6.1
|
%
|
78,968
|
0.3
|
%
|
349,612
|
5.9
|
%
|
||||||||||||
Income
tax provision
|
5,055
|
0.1
|
%
|
400
|
0.0
|
%
|
14,290
|
0.1
|
%
|
1,200
|
0.0
|
%
|
||||||||||||
Net
Income
|
$
|
21,457
|
0.3
|
%
|
$
|
136,251
|
6.1
|
%
|
$
|
64,678
|
0.3
|
%
|
$
|
348,412
|
5.9
|
%
|
||||||||
Net
Income
|
21,457
|
136,251
|
64,678
|
348,412
|
||||||||||||||||||||
Less
Preferred Dividend Payments
|
(150,842
|
) |
(42,737
|
) |
(446,791
|
) |
(128,210
|
) | ||||||||||||||||
Adjusted
Net Income (Loss) for EPS Calculation
|
(129,385
|
) |
93,514
|
(382,113
|
) |
220,202
|
||||||||||||||||||
Net
Income Per Share:
|
$
|
(0.00
|
) |
$
|
0.00
|
$
|
(0.01
|
) |
$
|
0.01
|
||||||||||||||
Weighted-Average
Shares Outstanding
|
29,027,350
|
21,241,448
|
28,419,751
|
21,777,211
|
||||||||||||||||||||
Fully
Diluted Net Income Per Share:
|
$
|
(0.00
|
) |
$
|
0.00
|
$
|
(0.01
|
) |
$
|
0.01
|
||||||||||||||
Fully
Diluted Weighted-Average Shares Outstanding
|
29,027,350
|
23,831,994
|
28,419,751
|
25,230,427
|
||||||||||||||||||||
* The following table shows how the Company's stock option expense would be allocated to all expenses. | ||||||||||||||||||||||||
Cost
of sales
|
$
|
10,287
|
$ | - | $ |
10,287
|
$ | - | ||||||||||||||||
Marketing
and sales
|
717
|
- |
717
|
- | ||||||||||||||||||||
Research
and development
|
- | - | - | - | ||||||||||||||||||||
General
and administrative
|
(25,555
|
)
|
- |
90,138
|
- | |||||||||||||||||||
$
|
(14,551
|
) | $ | - | $ |
101,142
|
$ | - |
Nine-Months
Ending September 30,
|
2006
|
2005
|
|||||
Cash
Flows From Operating Activities
|
|||||||
Net
income
|
$
|
64,678
|
$
|
348,412
|
|||
Adjustments
to reconcile net income to net cash
|
|||||||
used
in operating activities:
|
|||||||
Depreciation
and amortization
|
613,166
|
108,265
|
|||||
Gain
on disposal of building sale
|
(87,956
|
)
|
(87,953
|
)
|
|||
Stock
option expense
|
103,317
|
-
|
|||||
Non-cash
loan fee
|
1,918
|
28,875
|
|||||
Change
in operating assets and liabilities
|
(2,014,912
|
)
|
(84,760
|
)
|
|||
Net
Cash (Used In) Provided By Operating Activities
|
(1,319,788
|
)
|
312,839
|
||||
Cash
Flows From Investing Activities
|
|||||||
Notes
receivable
|
-
|
(1,326,453
|
)
|
||||
Other
assets, capitalized acquisition costs
|
(1,066,564
|
)
|
-
|
||||
Purchases
of fixed assets
|
(1,163,743
|
)
|
(651,864
|
)
|
|||
Net
Cash Used in Investing Activities
|
(2,230,307
|
)
|
(1,978,317
|
)
|
|||
Cash
Flows From Financing Activities
|
|||||||
Principal
payments on notes payable
|
(4,675,832
|
)
|
(27,330
|
)
|
|||
Principal
payments on capitalized lease obligations
|
(20,789
|
)
|
(2,774
|
)
|
|||
Dividend
payments on Series C and Series D-1 Preferred
|
(352,894
|
)
|
-
|
||||
Proceeds
from revolving credit facility
|
1,926,853
|
-
|
|||||
Employee
stock purchase plan
|
122,086
|
48,343
|
|||||
Other
assets, capitalized revolving credit facility costs
|
(175,000
|
)
|
-
|
||||
Proceeds
from issuance of preferred stock
|
4,316,850
|
600,881
|
|||||
Proceeds
from issuance of common stock
|
352,395
|
-
|
|||||
Net
Cash Provided by Financing Activities
|
1,493,669
|
619,120
|
|||||
Net
Decrease in Cash
|
(2,056,426
|
)
|
(1,046,358
|
)
|
|||
Cash
at Beginning of Period
|
5,750,038
|
5,068,601
|
|||||
Cash
at End of Period
|
$
|
3,693,612
|
$
|
4,022,243
|
Nine-Months
Ending June 30,
|
2006
|
2005
|
|||||
Supplemental
Disclosures of Cash Flow Information:
|
|||||||
Cash
paid during the period for:
|
|||||||
Interest
|
$
|
18,471
|
$
|
2,283
|
|||
Taxes
|
21,000
|
1,600
|
|||||
Noncash
Investing and Financing Activities:
|
|||||||
During
the nine-months ended September 30, 2006 the Company entered into
capital
leases in the amount of
|
|||||||
approximately
$184,000.
|
|||||||
During
the nine-months ended September 30, 2006 and 2005 the Company converted
$122,086 and $47,702
|
|||||||
of
employee stock purchase plan contributions into 104,845 and 34,040
shares
of common stock,
|
|||||||
respectively.
|
|||||||
During
the nine-months ended September 30, 2006 and 2005 the Company declared
dividends payable
|
|||||||
of
$127,297 and $128,057, repectively to the holders of its Series
C
preferred stock.
|
|||||||
During
the nine-months ended September 30, 2005 the Company paid dividends
valued
at
|
|||||||
$174,976
in the form of 113,621 shares of common stock to the holders of
its Series
C preferred stock.
|
|||||||
During
the nine-months ended September 30, 2006 the Company declared dividends
payable
|
|||||||
of
$331,922 to the holders of its Series D-1 preferred stock and paid
$211,551 of these dividends.
|
|||||||
During
the nine-months ended September 30, 2006 the Company issued 310,009
shares
of common stock and
|
|||||||
expensed
$1,918 and accrued $348,082 to be spread over the next twelve months
in
non-cash loan fees for
|
|||||||
the
addition expenses incurred under our new revolving credit facilty
with
Laurus Master Fund.
|
· |
A
grant of preemptive rights to the investors to participate in future
financings until January 12, 2007;
|
· |
An
agreement not to effect any transaction involving the issuance of
securities convertible, exercisable or exchangeable for the Company's
common stock at a price per share or rate which may change over time,
so
long as any shares of Series D-1 Preferred Stock are
outstanding.
|
Net
Income (Loss)
|
2005
|
|||
As
reported at September 30, 2005
|
$
|
348,412
|
||
Add:
Stock based employee compensation expense included in reported
net income
|
$
|
-
|
||
Deduct:
Stock based employee compensation expense determined under the
fair value
based method for all awards
|
$
|
553,989
|
||
Pro
forma at September 30, 2005
|
$
|
(205,577
|
)
|
|
Net
Income (Loss) Per Share:
|
||||
As
reported at September 30, 2005
|
$
|
0.02
|
||
Pro
forma at September 30, 2005
|
$
|
(0.01
|
)
|
Starsys
Total Assets
|
$
|
(7,851,494
|
)
|
|
Starsys
Total Liabilities
|
13,054,140
|
|||
Cash
to Starsys Stockholders
|
410,791
|
|||
Equity
to Starsys Stockholders
|
5,576,846
|
|||
Fees
Associated with Acquisition
|
1,056,079
|
|||
$
|
12,246,362
|
Other
Current Assets - September 30,
|
2006
|
|||
Prepaid:
|
||||
Financing
Fees
|
$
|
522,763
|
||
Computer
& Software
|
198,768
|
|||
Rent
|
40,103
|
|||
Insurance
|
103,433
|
|||
Taxes
|
20,406
|
|||
Other
Accuals
|
79,960
|
|||
Total
Other Current Assets
|
$
|
965,433
|
Other
Assets - September 30,
|
2006
|
|||
Prepaid
Rent
|
$
|
188,130
|
||
Deposits
|
134,933
|
|||
Total
Other Assets
|
$
|
323,063
|
For
the Nine Months Ended
|
||||||||||
September
30, 2006
|
||||||||||
|
Consolidated
|
Pro
Forma Adjustments
|
Consolidated
Pro Forma
|
|||||||
Net
Sales
|
$
|
24,649,426
|
$
|
(265,224
|
)
|
$
|
24,384,202
|
|||
Cost
of Sales *
|
$
|
18,081,469
|
(86,972
|
)
|
$
|
17,994,497
|
||||
Gross
Margin
|
6,567,957
|
(178,253
|
)
|
$
|
6,389,704
|
|||||
Operating
Expenses
|
||||||||||
Marketing
and sales expense
|
2,093,230
|
(178,253
|
)
|
1,914,978
|
||||||
Research
and development
|
270,310
|
-
|
270,310
|
|||||||
Stock
option expense *
|
115,693
|
-
|
115,693
|
|||||||
General
and administrative
|
4,300,929
|
-
|
4,300,929
|
|||||||
Total
Operating Expenses *
|
6,664,469
|
(178,253
|
)
|
6,486,216
|
||||||
Loss
from Operations
|
(96,512
|
)
|
-
|
(96,512
|
)
|
|||||
Non-Operating
Income
|
||||||||||
Interest
income
|
71,772
|
-
|
71,772
|
|||||||
Interest
expense
|
(40,954
|
)
|
-
|
(40,954
|
)
|
|||||
Non-cash
interest expense
|
(1,918
|
)
|
-
|
(1,918
|
)
|
|||||
Gain
on Building Sale
|
87,956
|
-
|
87,956
|
|||||||
Total
Non-Operating Income/(Expense)
|
116,856
|
-
|
116,856
|
|||||||
Income
Before Income Taxes
|
20,344
|
-
|
20,344
|
|||||||
Income
tax provision
|
14,290
|
-
|
14,290
|
|||||||
Net
Income
|
$
|
6,054
|
$
|
-
|
6,054
|
|||||
*
The following table shows how the Company's stock option
expense would be allocated to all expenses.
|
||||||||||
Cost
of Sales
|
$
|
10,287
|
$
|
-
|
10,287
|
|||||
Marketing
and sales
|
717
|
-
|
717
|
|||||||
Research
and development
|
-
|
-
|
-
|
|||||||
General
and administrative
|
90,138
|
-
|
90,138
|
|||||||
$
|
101,142
|
$
|
-
|
101,142
|
For
the year ended December 31, 2005
|
||||||||||
|
Consolidated
|
Adjustments
|
Consolidated
Pro Forma
|
|||||||
Net
Sales
|
$
|
26,767,741
|
$
|
-
|
$
|
26,767,741
|
||||
Cost
of sales
|
$
|
21,627,078
|
-
|
21,627,078
|
||||||
Gross
Margin
|
5,140,663
|
-
|
5,140,663
|
|||||||
Operating
Expenses
|
||||||||||
Marketing
and sales expense
|
673,636
|
-
|
673,636
|
|||||||
Research
and development
|
31,940
|
-
|
31,940
|
|||||||
General
and administrative
|
7,082,709
|
-
|
7,082,709
|
|||||||
Total
Operating Expenses
|
7,788,285
|
-
|
7,788,285
|
|||||||
Income/(Loss)
from Operations
|
(2,647,622
|
)
|
-
|
(2,647,622
|
)
|
|||||
Non-Operating
Income/(Expense)
|
||||||||||
Interest
income
|
105,840
|
-
|
105,840
|
|||||||
Rental
income
|
88,146
|
88,146
|
||||||||
Interest
expense
|
(509,398
|
)
|
-
|
(509,398
|
)
|
|||||
Gain
on building sale
|
117,272
|
-
|
117,272
|
|||||||
Loan
fee - equity compensation
|
(28,875
|
)
|
-
|
(28,875
|
)
|
|||||
Total
Non-Operating Income/(Expense)
|
(227,015
|
)
|
-
|
(227,015
|
)
|
|||||
Income/(Loss)
Before Income Taxes
|
(2,874,637
|
)
|
-
|
(2,874,637
|
)
|
|||||
Income
tax provision
|
1,600
|
-
|
1,600
|
|||||||
Net
Income/(Loss)
|
$
|
(2,876,237
|
)
|
$
|
-
|
(2,876,237
|
)
|
|||
Net
Income/(Loss) Per Share:
|
||||||||||
Net
Income/(Loss)
|
$
|
(0.08
|
)
|
$
|
(0.08
|
)
|
||||
Shares
Outstanding
|
29,551,305
|
4,836,696
|
34,388,001
|
· |
General
and administrative expenses increased approximately $3.3 million
from
approximately $645,000, or 10.9% of net sales, for the nine-months
ended
September 30, 2005 to approximately $4.0 million, or 17.5% of net
sales,
for the same nine-month period in 2006. This increase is attributed
mainly
to the acquisition of Starsys general and administrative costs and
the
addition of our new Chief Executive Officer. With the addition of
our new
Chief Executive Officer, Mr. Benson (formerly our Chief Executive
Officer)
became our Chief Technology Officer with most of his 2006 expenses
being
charged to research and development. Most of Mr. Benson’s expenses in 2005
were charged to marketing and sales. In addition, we have created
a
corporate business management group and we expect to recognize some
cost
saving and efficiencies as the companies consolidate and eliminate
redundancies in certain general and administrative functions.
|
· |
Research
and development expenses increased to approximately $276,000, or
1.2% of
net sales, for the nine-months ended September 30, 2006, from
approximately $9,600, or 0.2% of net sales, during the same period
in
2005. The total dollar value increased by approximately $266,000,
mainly
due to the creation of the Chief Technology Officer position at the
end of
2005, the reallocation of Mr. Benson’s expenses from marketing and sales
to research and development and an investment in some new technologies.
Most of our scientific work is performed under contracts and therefore
is
accounted for as costs of sales, rather than as R&D expense. On
September 28, 2006, Mr. Benson has
stepped down from his role as Chief Technology Officer in order to
launch
a new independent venture, Benson Space Company, focused on the marketing
of commercial space tourism.
|
· |
Marketing
and sales expenses increased to approximately $1.9 million, or 8.2%
of net
sales, for the nine-months ended September 30, 2006, from approximately
$493,000, or 8.3% of net sales, during the same period in 2005. The
total
dollar increase of approximately $1.4 million was mainly due to costs
related to bidding a number of proposals, including approximately
$800,000
for our NASA COTS proposal, during the first nine-months of 2006
as well
as absorbing a larger marketing and sales organization as part of
the
merger with Starsys.
|
· |
Our
stock option expense is based on a calculation using the minimum
value
method as prescribed by SFAS 123(R), otherwise known as the Black-Scholes
method. Under this method, we used a risk-free interest rate at the
date
of grant, an expected volatility, an expected dividend yield and
an
expected life of the options to determine the fair value of options
granted. The risk-free interest rate was estimated at 4.0%, expected
volatility ranged from 86.7% to 89.1% at the time all options were
granted, the dividend yield was assumed to be zero, and the expected
life
of the options was assumed to be three years based on the average
vesting
period of options granted. The total expense for the nine-months
ended
September 30, 2006 was approximately $101,000 as compared to no expense
during the same period in 2005, as we adopted SFAS 123(R) on January
1,
2006.
|
· |
Interest
expense for the nine-months ended September 30, 2006 and 2005 was
approximately $18,000 and $2,000, respectively, as we incurred no
interest
expense on our former revolving credit facility, which had a zero
balance
for the nine-months ended September 30, 2006 and 2005. We have recently
entered into a new revolving credit facility on September 29, 2006;
however, the interest expense for the two days was insignificant.
We
generated interest income in the nine-months ended September 30,
2006 and
2005 of approximately $43,000 and $70,000, respectively, due to our
cash
management practices.
|
· |
We
recognized approximately $88,000 of the deferred gain on the 2003
sale of
our Poway headquarters building during each of the nine-month periods
ended September 30, 2006 and 2005, and we will continue to amortize
the
remaining deferred gain of approximately $743,000 into non-operating
income over the remainder of the leaseback, which expires in January
2013.
|
For
the nine months ending
|
September
30, 2006
|
September
30, 2005
|
|||||
(Unaudited)
|
(Unaudited)
|
|
|||||
Net
Income
|
$
|
64,678
|
$
|
348,413
|
|||
Interest
Income
|
(43,466
|
)
|
(69,631
|
)
|
|||
Interest
Expense
|
18,471
|
2,282
|
|||||
Non-Cash
Interest Expense
|
1,918
|
28,875
|
|||||
Gain
on Building Sale
|
(87,956
|
)
|
(87,954
|
)
|
|||
Stock
Option Expense
|
101,142
|
0
|
|||||
Provision
for income taxes
|
14,290
|
1,200
|
|||||
Depreciation
and Amortization
|
613,166
|
108,271
|
|||||
EBITDA
*
|
$
|
682,243
|
$
|
331,457
|
For
the three months ending
|
3/31/04
|
6/30/04
|
9/30/04
|
12/31/04
|
3/31/05
|
6/30/05
|
9/30/05
|
12/31/05
|
3/31/06
|
6/30/06
|
9/30/06
|
|||||||||||||||||||||||
|
(Unaudited
|
) |
(Unaudited
|
)
|
(Unaudited
|
)
|
(Unaudited
|
)
|
(Unaudited
|
)
|
(Unaudited
|
)
|
(Unaudited
|
)
|
(Unaudited
|
)
|
(Unaudited
|
)
|
(Unaudited
|
)
|
(Unaudited
|
)
|
||||||||||||
Net
Income (Loss)
|
$
|
(442,549
|
)
|
$
|
(1,286,866
|
)
|
$
|
(602,888
|
)
|
$
|
(694,750
|
)
|
$
|
101,223
|
$
|
110,938
|
$
|
136,251
|
$
|
152,851
|
$
|
7,017
|
$
|
36,204
|
$
|
21,457
|
||||||||
Interest
Income
|
-
|
-
|
(5,619
|
)
|
(13,386
|
)
|
(7,960
|
)
|
(36,824
|
)
|
(24,848
|
)
|
(36,208
|
)
|
(33,615
|
)
|
(7,137
|
)
|
(2,714
|
)
|
||||||||||||||
Interest
Expense
|
19,788
|
19,736
|
23,110
|
(6,707
|
)
|
1,222
|
609
|
452
|
590
|
5,283
|
5,346
|
7,842
|
||||||||||||||||||||||
Non-Cash
Interest Expense
|
464,000
|
1,329,313
|
663,481
|
797,636
|
-
|
28,875
|
-
|
-
|
-
|
-
|
1,918
|
|||||||||||||||||||||||
Gain
on Building Sale
|
(29,318
|
)
|
(29,318
|
)
|
(29,318
|
)
|
(29,318
|
)
|
(29,318
|
)
|
(29,318
|
)
|
(29,318
|
)
|
(29,318
|
)
|
(29,318
|
)
|
(29,317
|
)
|
(29,316
|
)
|
||||||||||||
Stock
Option Expense
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
90,701
|
24,992
|
(14,551
|
)
|
||||||||||||||||||||||
Provision
for income taxes
|
-
|
-
|
-
|
1,600
|
400
|
400
|
400
|
400
|
4,235
|
5,000
|
5,055
|
|||||||||||||||||||||||
Depreciation
and Amortization
|
15,954
|
16,533
|
22,749
|
28,250
|
29,061
|
35,077
|
44,078
|
83,708
|
147,370
|
225,130
|
240,666
|
|||||||||||||||||||||||
EBITDA
|
$
|
27,874
|
$
|
49,398
|
$
|
71,515
|
$
|
83,325
|
$
|
94,628
|
$
|
109,758
|
$
|
127,015
|
$
|
172,023
|
$
|
191,673
|
$
|
260,218
|
$
|
230,357
|
SpaceDev,
Inc. and
Subsidiaries
|
||||||||||||||||||||||||||
Consolidated
Statements of Operations - Supplemental
Schedule
|
||||||||||||||||||||||||||
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||||||||||||||
At
September 30,
|
2006
|
%
|
2005
|
%
|
2006
|
%
|
2005
|
%
|
||||||||||||||||||
GAAP
Operating Income
|
$
|
4,239
|
0.1
|
%
|
$
|
82,937
|
1.4
|
%
|
$
|
(32,065
|
)
|
-0.1
|
%
|
$
|
223,185
|
3.8
|
%
|
|||||||||
FAS
123(R) stock -based compensation
|
(14,551
|
)
|
-0.2
|
%
|
-
|
0.0
|
%
|
101,142
|
0.4
|
%
|
-
|
0.0
|
%
|
|||||||||||||
Non-GAAP
Operating Income
|
(10,312
|
)
|
-0.1
|
%
|
82,937
|
1.4
|
%
|
69,077
|
0.3
|
%
|
223,185
|
3.8
|
%
|
|||||||||||||
Non-Operating
Income/(Expense)
|
||||||||||||||||||||||||||
Interest
income
|
2,714
|
0.0
|
%
|
24,848
|
0.4
|
%
|
43,466
|
0.2
|
%
|
69,632
|
1.2
|
%
|
||||||||||||||
Interest
expense
|
(7,842
|
)
|
0.0
|
%
|
(452
|
)
|
0.0
|
%
|
(18,471
|
)
|
-0.1
|
%
|
(2,283
|
)
|
0.0
|
%
|
||||||||||
Gain
on building sale
|
29,319
|
0.1
|
%
|
29,318
|
0.5
|
%
|
87,956
|
0.4
|
%
|
87,953
|
1.5
|
%
|
||||||||||||||
Non-Cash
loan fee
|
(1,918
|
)
|
0.0
|
%
|
0
|
0.0
|
%
|
(1,918
|
)
|
0.0
|
%
|
(28,875
|
)
|
-0.5
|
%
|
|||||||||||
Total
Non-Operating Income
|
22,273
|
0.1
|
%
|
53,714
|
0.9
|
%
|
111,033
|
0.5
|
%
|
126,427
|
2.1
|
%
|
||||||||||||||
Non-GAAP
Net Income Before Taxes
|
$
|
11,961
|
0.1
|
%
|
$
|
136,651
|
2.3
|
%
|
$
|
180,110
|
0.8
|
%
|
$
|
349,612
|
5.9
|
%
|
||||||||||
Income
tax provision
|
5,055
|
0.0
|
%
|
400
|
0.0
|
%
|
14,290
|
0.1
|
%
|
1,200
|
0.0
|
%
|
||||||||||||||
Non-GAAP
Net Income
|
$
|
6,906
|
0.0
|
%
|
$
|
136,251
|
2.3
|
%
|
$
|
165,820
|
0.7
|
%
|
$
|
348,412
|
5.9
|
%
|
||||||||||
Non-GAAP
Net Income
|
6,906
|
136,251
|
165,820
|
348,412
|
||||||||||||||||||||||
Less
Preferred Dividend Payments
|
(150,842
|
)
|
(42,737
|
)
|
(446,791
|
)
|
(128,210
|
)
|
||||||||||||||||||
Adjusted
Net Income/(Loss) for EPS Calculation
|
(143,936
|
)
|
93,514
|
(280,971
|
)
|
220,202
|
|
|||||||||||||||||||
Non-GAAP
Net Income Per Share
|
$
|
(0.00
|
) |
$
|
0.00
|
$
|
(0.01
|
)
|
$
|
0.01
|
|
|||||||||||||||
Weighted-Average
Shares Outstanding
|
29,027,350
|
21,241,448
|
28,419,751
|
21,777,211
|
||||||||||||||||||||||
Fully
Diluted Non-GAAP Net Income Per Share:
|
$
|
(0.00
|
) |
$
|
0.00
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
|||||||||||||||
Fully
Diluted Weighted-Average Shares Outstanding
|
29,027,350
|
23,831,994
|
28,419,751
|
25,230,427
|
· |
General
and administrative expenses increased approximately $1.0 million
from
approximately $253,000, or 11.3% of net sales, for the three-months
ended
September 30, 2005 to approximately $1.3 million, or 18.3% of net
sales,
for the same three-month period in 2006. This increase is attributed
mainly to the acquisition of Starsys general and administrative costs
and
the addition of our new Chief Executive Officer. With the addition
of our
new Chief Executive Officer, Mr. Benson (formerly our Chief Executive
Officer) became our Chief Technology Officer with most of his third
quarter 2006 expenses being charged to research and development.
Most of
Mr. Benson’s expenses in the third quarter of 2005 were charged to
marketing and sales. In addition, we have created a corporate business
management group and we expect to recognize some cost saving and
efficiencies as the companies consolidate and eliminate redundancies
in
certain general and administrative functions.
|
· |
Research
and development expenses increased to approximately $71,000 or 1.0%
of net
sales for the three-months ended September 30, 2006, from approximately
$400, or 0.0% of net sales, during the same period in 2005. The total
dollar value increased by approximately $70,000, mainly due to creation
of
the Chief Technology Officer position at the end of 2005, the reallocation
of Mr. Benson’s expenses from marketing and sales to research and
development and an investment in some new technologies. Most of our
scientific work is performed under contracts and therefore is accounted
for as costs of sales, rather than as R&D expense. On September 28,
2006, Mr. Benson has
stepped down from his role as Chief Technology Officer in order to
launch
a new independent venture, Benson Space Company, focused on the marketing
of commercial space tourism.
|
· |
Marketing
and sales expenses increased to approximately $525,000, or 7.5% of
net
sales, for the three-months ended September 30, 2006, from approximately
$189,000, or 8.4% of net sales, during the same period in 2005. The
total
dollar increase of approximately $336,000 was mainly due to costs
related
to bidding a number of proposals, including approximately $139,000
for our
NASA COTS proposal during the three months ended September 30, 2006
as
well as absorbing a larger marketing and sales organization as part
of the
merger with Starsys.
|
· |
Our
stock option expense is based on a calculation using the minimum
value
method as prescribed by SFAS 123(R), otherwise known as the Black-Scholes
method. Under this method, we used a risk-free interest rate at the
date
of grant, an expected volatility, an expected dividend yield and
an
expected life of the options to determine the fair value of options
granted. The risk-free interest rate was estimated at 4.0%, expected
volatility was 86.7%, the dividend yield was assumed to be zero,
and the
expected life of the options was assumed to be three years based
on the
average vesting period of options granted. The total expense for
the
three-months ended September 30, 2006 was approximately ($15,000)
as compared to no expense during the same period in 2005, as we adopted
SFAS 123(R) on January 1, 2006. The credit was due to a recapture
of
expenses for conditional options where the conditions were not met.
|
· |
Interest
expense for the three-months ended September 30, 2006 and 2005 was
approximately $7,800 and $500, respectively. We generated interest
income
in the three-months ended September 30, 2006 and 2005 of approximately
$2,700 and $25,000, respectively, as our funds available for investment
declined.
|
· |
We
recognized approximately $29,000 of the 2003 deferred gain on the
sale of
our Poway headquarters building during each of the three-months ending
September 30, 2006 and 2005, and we will continue to amortize the
remaining deferred gain of approximately $743,000 into non-operating
income over the remainder of the leaseback, which expires in January
2013.
|
For
the three months ending
|
September
30, 2006
|
September
30, 2005
|
|||||
|
(Unaudited)
|
(Unaudited)
|
|
||||
Net
Income
|
$
|
21,457
|
$
|
136,251
|
|||
Interest
Income
|
(2,714
|
)
|
(24,848
|
)
|
|||
Interest
Expense
|
7,842
|
452
|
|||||
Non-Cash
Interest Expense
|
1,918
|
-
|
|||||
Gain
on Building Sale
|
(29,319
|
)
|
(29,318
|
)
|
|||
Stock
Option Expense
|
(14,551
|
)
|
|||||
Provision
for income taxes
|
5,055
|
400
|
|||||
Depreciation
and Amortization
|
240,666
|
44,078
|
|||||
EBITDA
*
|
$
|
230,354
|
$
|
127,015
|
· |
failure
to successfully manage relationships with customers and other important
relationships;
|
· |
failure
of customers to accept new services or to continue using the products
and
services of the combined company;
|
· |
difficulties
in successfully integrating the management teams and employees of
the two
companies;
|
· |
potential
incompatibility of business cultures;
|
· |
challenges
encountered in managing larger, more geographically dispersed operations;
|
· |
the
loss of key employees;
|
· |
diversion
of the attention of management from other ongoing business concerns;
|
· |
potential
incompatibilities of processes, technologies and systems;
and
|
· |
potential
difficulties integrating and harmonizing financial reporting
systems.
|
· |
the
integration of the two companies is unsuccessful;
|
· |
the
combined company does not achieve the expected benefits of the merger
as
quickly as anticipated or the costs of or operational difficulties
arising
from the merger are greater than anticipated;
|
· |
the
combined company's financial results after the merger are not consistent
with the expectations of management or financial or industry analysts;
|
· |
the
anticipated operating and product synergies of the merger are not
realized;
|
· |
the
combined company experiences the loss of significant customers or
employees as a result of the merger; or
|
· |
Starsys'
business continues to incur major cost overruns or remains unprofitable
for other reasons.
|
· |
include
provisions that allow the government agency to terminate the contract
without penalty under some circumstances;
|
· |
be
subject to purchasing decisions of agencies that are subject to political
influence;
|
· |
contain
onerous procurement procedures; and
|
· |
be
subject to cancellation if government funding becomes unavailable.
|
· |
we
may not be awarded all stages of existing or future contracts;
|
· |
significant
contracts may be awarded to our competitors rather than to
us;
|
· |
the
timing of new technological advances and product announcements or
introductions by us and our competitors;
|
· |
changes
in the terms of our arrangements with customers or suppliers;
|
· |
our
current reliance on a few customers for a significant portion of
our net
sales;
|
· |
the
failure of our key suppliers to perform as expected;
|
· |
general
or particular political conditions that could affect spending for
the
products that we offer;
|
· |
changes
in perception of the safety of space
travel;
|
· |
delays
or failures to satisfy our obligations under our contracts on a timely
basis;
|
· |
the
failure of our products to successfully launch or operate;
|
· |
the
uncertain market for our technology and products;
|
· | the availability and cost of raw materials and components for our products; and |
· | the potential loss of or inability to hire key personnel. |
· |
designing,
constructing, integrating, or testing the microsatellite, microsatellite
components, or related ground
systems;
|
· |
delays
in receiving the license necessary to operate the microsatellite
systems;
|
· |
delays
in obtaining the customer's payload;
|
· |
delays
related to the launch vehicle;
|
· |
weather;
and
|
· |
other
events beyond our control.
|
· |
problems
assimilating the purchased technologies, products or business
operations;
|
· |
problems
maintaining uniform standards, procedures, controls and policies;
|
· |
unanticipated
costs associated with the acquisition;
|
· |
diversion
of management's attention from our core business;
|
· |
adverse
effects on existing business relationships with suppliers and customers;
|
· |
incompatibility
of business cultures;
|
· |
risks
associated with entering new markets in which we have no or limited
prior
experience;
|
· |
dilution
of common stock and shareholder value as well as adverse changes
in stock
price.
|
· |
potential
loss of key employees of acquired businesses; and
|
· |
increased
legal and accounting costs as a result of the newly adopted rules
and
regulations related to the Sarbanes-Oxley Act of
2002.
|
· |
deviations
in our results of operations from
estimates;
|
· |
changes
in estimates of our financial
performance;
|
· |
changes
in our markets, including decreased government spending or the entry
of
new competitors;
|
· |
awards
of significant contracts to competitors rather than to
us;
|
· |
our
inability to obtain financing necessary to operate our
business;
|
· |
changes
in technology;
|
· |
potential
loss of key personnel;
|
· |
short
selling;
|
· |
changes
in market valuations of similar companies and of stocks
generally;
|
· |
the
Starsys merger;
|
· |
volume
fluctuations generally, including resales by former Starsys stockholders
or by Laurus; and,
|
· |
other
factors listed above in "Our operating results could fluctuate on
a
quarterly and annual basis, which could cause our stock price to
fluctuate
or decline."
|
· |
make
a special written suitability determination for the purchaser;
|
· |
receive
the purchaser's written agreement to a transaction prior to
sale;
|
· |
provide
the purchaser with risk disclosure documents which identify certain
risks
associated with investing in "penny stocks" and which describe the
market
for these "penny stocks" as well as a purchaser's legal remedies;
and
|
· |
obtain
a signed and dated acknowledgment from the purchaser demonstrating
that
the purchaser has actually received the required risk disclosure
document
before a transaction in a "penny stock" can be completed.
|
Issue
|
|
For
|
Against
|
Abstain
|
Sirangelo,
Mark
|
Total
|
21,215,854
|
-
|
166,094
|
Benson,
Jim
|
Total
|
21,197,185
|
-
|
184,763
|
Slansky,
Richard
|
Total
|
21,217,416
|
-
|
164,532
|
Blake,
Curt
|
Total
|
21,216,854
|
-
|
165,094
|
Estes,
Howell
|
Total
|
21,215,554
|
-
|
166,394
|
Huntress,
Wesley
|
Total
|
21,215,454
|
-
|
166,494
|
McClendon,
Scott
|
Total
|
21,214,359
|
-
|
167,589
|
Tibbitts,
Scott
|
Total
|
21,203,234
|
-
|
178,714
|
Walker,
Robert
|
Total
|
21,216,354
|
-
|
165,594
|
Issue
|
|
For
|
Against
|
Abstain
|
Accountants
|
Total
|
21,295,886
|
49,148
|
36,914
|
Exhibit
No.
|
Description
|
Filed
Herewith
|
Incorporated
by Reference
|
Form
|
Date
Filed with SEC
|
Exhibit
No.
|
10.1
|
Secured
Revolving Note issued to Laurus Master Fund, Ltd. dated September
29,2006
|
X
|
8-K/A
|
Oct.
10, 2006
|
99.1
|
|
10.2
|
Security
Agreement with Laurus Master Fund, Ltd. dated as of September
29,2006
|
X
|
8-K/A
|
Oct.
10, 2006
|
99.2
|
|
31.1
|
Rule
13a-14(a) certification of Chief Executive Officer
|
X
|
||||
31.2
|
Rule
13a-14(a) certification of Chief Financial Officer
|
X
|
||||
32.1
|
Section
1350/Rule 13a-14(b) certifications
|
X
|