UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                   FORM 10-QSB

(Mark One)
   [x]          QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 1998

   [ ]                       TRANSITION REPORT UNDER
                      SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934.
                        For the transition period from to

                        Commission file Number 000-21749



                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
        (Exact name of small business issuer as specified in its charter)


            Delaware                                            95-4257380
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                             Identification No.)

                             3501 Lakewood Boulevard
                          Long Beach, California 90808
                    (Address of principal executive offices)

                                 (562) 938-8618
                           (Issuer's telephone number)


         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the Exchange  Act 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 [   ]

         As of August 13, 1998, the issuer had outstanding  6,999,676  shares of
Class A Common Stock, 1,900,324 shares of Class B Common Stock, 4,000,000 shares
of Class E-1 Common Stock and 4,000,000 shares of Class E-2 Common stock.


<PAGE>

                    ADVANCED AERODYNAMICS & STRUCTURES, INC.

                                      INDEX


    PART I.         FINANCIAL INFORMATION

    Item 1.         Financial Statements
    Item 2.         Plan of Operations

    PART II.        OTHER INFORMATION



<PAGE>


PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

                    Advanced Aerodynamics & Structures, Inc.
                        (A Development Stage Enterprise)


                                                           Balance Sheet
                                                            (unaudited)
                                                           -------------
<TABLE>
                                                           June 30, 1998
                                                           -------------
<S>                                                        <C>                              
Assets

Current assets:

     Cash and cash equivalents                              $3,704,000

     Certificate of deposit                                     12,000

     Short term investments                                  2,540,000

     Prepaid expenses and other current assets                 347,000
                                                            -------------
              Total current assets                           6,603,000

Restricted cash                                             15,326,000

Property and equipment, net                                  1,925,000

Construction in progress                                     2,334,000

Other assets                                                   595,000
                                                           --------------
               Total assets                                $26,783,000
                                                           ==============
</TABLE>
                                                                         




                 See accompanying notes to financial statements.




<PAGE>


                    Advanced Aerodynamics & Structures, Inc.
                        (A Development Stage Enterprise)

                            Balance Sheet (continued)
                                   (unaudited)
<TABLE>
                                                            June 30, 1998
                                                            -------------
<S>                                                         <C>
                                                               
Liabilities and Stockholders' Equity

Current liabilities:

     Accounts payable                                          $498,000

     Accrued liabilities                                        299,000
                                                            ----------------
         Total current liabilities                              797,000

Long term debt                                                8,500,000

Deferred revenue                                                960,000
                                                            ----------------
         Total liabilities                                   10,257,000
                                                            ----------------

Stockholders' equity

     Preferred Stock, par value $.0001 per share; 5,000,000
         shares authorized; no shares issued and outstanding         --
     Class A Common Stock, par value $.0001 per share;
         60,000,000 shares authorized; 6,999,676 shares 
         issued and outstanding                                   1,000
     Class B Common Stock, par value $.0001 per share;
         10,000,000 shares  authorized;  1,900,324 shares 
         issued and outstanding
     Class E-1 Common Stock, par value $.0001 per share;             --
         4,000,000 shares authorized; 4,000,000 shares 
         issued and outstanding                                      --
     Class E-2 Common Stock, par value $.0001 per share;
         4,000,000 shares authorized; 4,000,000 shares 
         issued and outstanding                                      --
     Warrants to purchase common stock:

         Public Warrants                                        473,000

         Class A Warrants                                    11,290,000

         Class B Warrants                                     4,632,000

     Additional paid-in capital                              35,652,000

     Deficit accumulated during the development stage       (35,522,000)
                                                           --------------
         Total stockholders' equity                          16,526,000
                                                           ==============
         Total liabilities and stockholders' equity         $26,783,000
                                                           ==============
</TABLE>



                 See accompanying notes to financial statements.


<PAGE>





                    Advanced Aerodynamics & Structures, Inc.
                        (A Development Stage Enterprise)

                            Statements of Operations
                                   (unaudited)

<TABLE>
                                                                                                            Period from
                                                                                                         January 26, 1990
                                               Three Months Ended              Six Months Ended           (inception) to
                                                    June 30,                       June 30,                  June 30,

                                               1997           1998            1997           1998              1998
                                          --------------- -------------- --------------- -------------- --------------------
<S>                                        <C>             <C>            <C>             <C>           <C>    
Interest income                                 $352,000       $285,000        $641,000       $590,000           $2,033,000

Other income                                       6,000         63,000           7,000         93,000              908,000

                                          --------------- -------------- --------------- -------------- --------------------
                                                 358,000        348,000         648,000        683,000            2,941,000
                                          --------------- -------------- --------------- -------------- --------------------
Costs and expenses

  Research and development costs                 906,000      1,754,000       1,232,000      3,375,000           21,824,000

  Preoperating costs                                   -              -               -              -              282,000

  General and administrative expense             706,000        819,000       1,187,000      1,696,000           11,730,000

  Loss on disposal of assets                     104,000              -         106,000              -              742,000

  Interest expense                                     -        102,000               -        181,000            2,182,000

  In-process research and development
    acquired                                           -              -               -              -              761,000

                                          --------------- -------------- --------------- -------------- --------------------
                                               1,716,000      2,675,000       2,525,000      5,252,000           37,521,000

                                          --------------- -------------- --------------- -------------- --------------------
Loss before extraordinary item               (1,358,000)    (2,327,000)     (1,877,000)    (4,569,000)         (34,580,000)

Extraordinary loss on retirement of
  Bridge Notes                                         -              -               -              -            (942,000)

                                          --------------- -------------- --------------- -------------- --------------------
       Net loss                              (1,358,000)    (2,327,000)     (1,877,000)    (4,569,000)         (35,522,000)

                                          =============== ============== =============== ============== ====================
Net loss per common share                         (0.15)         (0.26)          (0.21)         (0.51)

                                          =============== ============== =============== ============== ====================
Weighted average number of common
  shares outstanding                           8,900,000      8,900,000       8,900,000      8,900,000
                                          =============== ============== =============== ============== ====================
</TABLE>


                 See accompanying notes to financial statements.





<PAGE>


                     Advanced Aerodynamics & Structure, Inc.
                        (A Development Stage Enterprise)

                        Statement of Stockholders' Equity
                                   (unaudited)
<TABLE>
                                                                                     Common Stock
                             Preferred Stock           Class A               Class B             Class E-1             Class E-2
                            Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount    Shares     Amount
                           ---------- ---------- ---------- ---------- ---------- --------- ------------ -------- ---------- -------
<S>                        <C>         <C>       <C>        <C>         <C>       <C>
Common stock issued                                                      418,094   $   --       836,189  $   --     836,189   $   --
Common stock issued in
  exchange for in-
  process research and
  development                                                            201,494       --       402,988      --     402,988       --
Imputed interest on
  advances from
  stockholder
Net loss from inception
  to December 31,1994
                           ---------- ---------- ---------- ---------- ---------- --------- ------------ -------- ---------- -------
Balance at December 31,
1994                                                                     619,588       --     1,239,177      --   1,239,177       --

Imputed interest on
  advances from
  stockholder
Net loss
                           ---------- ---------- ---------- ---------- ---------- --------- ------------ -------- ---------- -------
Balance at December 31,
1995                                                                     619,588       --     1,239,177       --  1,239,177       --

Conversion of
  stockholder advances                                                   598,011       --     1,196,021       --  1,196,021       --
Conversion of officer
  loans                                                                  187,118       --       374,236       --    374,236       --
Stock issued in
  consideration for
  services in 1994,
  1995 and 1996                                                          595,283       --     1,190,566       --  1,190,566       --
Imputed interest on
  advances from
  stockholder
Net proceeds from initial
  public offering of                             6,000,000     $1,000
  Units
Net proceeds from
  exercise of over-
  allotment option                                 900,000        -- 
Warrants issued in
  connection with
  issuance of Bridge
  Notes
Net loss
                           ---------- ---------- ---------- ---------- ---------- --------- ------------ -------- ---------- -------
Balance at December
 31, 1996                                        6,900,000     $1,000  2,000,000       --     4,000,000      --   4,000,000       --
Adjustment to proceeds
 from initial public
 offering and exercise
 of over-allotment option
Net loss
                           ---------- ---------- ---------- ---------- ---------- --------- ------------ -------- ---------- -------
Balance at December 31,
1997                                             6,900,000     $1,000  2,000,000       --     4,000,000      --   4,000,000       --
Conversion of Class B to
 Class A Common Stock                               99,676         --   (99,676)       --
Net loss
                           ========== ========== ========== ========== ========== ========= ============ ======== ========== =======
Balance at June 30, 1998                         6,999,676     $1,000  1,900,324        --    4,000,000       --  4,000,000       --
</TABLE>


                 See accompanying notes to financial statements


<PAGE>


                     Advanced Aerodynamics & Structure, Inc.
                        (A Development Stage Enterprise)

                  Statement of Stockholders' Equity (continued)
                                   (unaudited)

<TABLE>
                                                   Warrants
                                                                                         Deficit
                               Bridge                                                  Accumulated
                             Warrants to                                               During the
                              Purchase                                 Additional      Development
                            Common Stock      Class A     Class B    Paid-in Capital      Stage          Total
                           ---------------- ------------ ----------- ---------------- -------------- --------------
<S>                        <C>               <C>          <C>        <C>              <C>
Common stock issued                                                       $7,500,000                    $7,500,000
Common stock issued in
  exchange for in-
  process research and
  development                                                                361,000                       361,000
Imputed interest on
  advances from
  stockholder                                                                776,000                       776,000
Net loss from inception
  to December 31,1994                                                                 $(19,252,000)  $(19,252,000)
                           ---------------- ------------ ----------- ---------------- -------------- --------------
Balance at December 31,
1994                                                                      $8,637,000  $(19,252,000)  $(10,615,000)

Imputed interest on
  advances from
  stockholder                                                                 23,000                        23,000
Net loss                                                                                (1,688,000)    (1,688,000)
                           ---------------- ------------ ----------- ---------------- -------------- --------------
Balance at December 31,
1995                                                                      $8,660,000  $(20,940,000)  $(12,280,000)

Conversion of
  stockholder advances                                                    10,728,000                    10,728,000
Conversion of officer
  loans                                                                      336,000                       336,000
Stock issued in
  consideration for
  services in 1994,
  1995 and 1996                                                            1,507,000                     1,507,000
Imputed interest on
  advances from
  stockholder                                                                 11,000                        11,000
Net proceeds from initial
  public offering of                         $9,583,000  $4,166,000       12,566,000                    26,316,000
  Units
Net proceeds from
  exercise of over-
  allotment option                            1,707,000     466,000        1,922,000                     4,095,000
Warrants issued in
  connection with
  issuance of Bridge              $473,000                                                                 473,000
  Notes
Net loss                                                                                (3,388,000)    (3,388,000)
                           ---------------- ------------ ----------- ---------------- -------------- --------------
Balance at December
 31, 1996                         $473,000  $11,290,000  $4,632,000      $35,730,000  $(24,328,000)    $27,798,000
Adjustment to proceeds
 from initial public
 offering and exercise
 of over-allotment option                                                   (78,000)                      (78,000)
Net loss                                                                                (6,625,000)    (6,625,000)
                           ---------------- ------------ ----------- ---------------- -------------- --------------
Balance at December 31,
1997                              $473,000  $11,290,000  $4,632,000      $35,652,000  $(30,953,000)    $21,095,000
Conversion of Class B to
 Class A Common Stock                                                                                           --
Net loss                                                                                (4,569,000)    (4,569,000)
                           ================ ============ =========== ================ ============== ==============
Balance at June 30, 1998          $473,000  $11,290,000  $4,632,000      $35,652,000  $(35,522,000)    $16,526,000
</TABLE>


                 See accompanying notes to financial statements


<PAGE>

                    Advanced Aerodynamics & Structures, Inc.
                        (A Development Stage Enterprise)

                             Statement of Cash Flows
                                   (unaudited)

<TABLE>
                                                                                                         Period from
                                                                                                         January 26,
                                                                       Six Months Ended              1990 (inception) to
                                                                           June 30,                       June 30,
                                                                   1997                1998                 1998
                                                            ------------------- -------------------- --------------------
<S>                                                         <C>                 <C>                   <C>    


Cash flows from operating activities:
 Net loss                                                          (1,877,000)          (4,569,000)         (35,522,000)
 Adjustments to reconcile net loss to
 net cash used in operating activities:
   Noncash stock compensation expense                                                                          1,207,000
   Noncash interest expense                                                                                      336,000
   Cost of in-process research and development acquired                                                          761,000
   Imputed interest on advances from stockholder                                                                 810,000
   Interest income, net on restricted cash invested                                       (251,000)             (387,000)
   Extraordinary loss on retirement of Bridge Notes                                                              942,000
   Depreciation and amortization                                       171,000              202,000            2,402,000
   Loss on disposal of assets                                          106,000                                   742,000
 Changes in assets and liabilities:
     (Increase) decrease in prepaid expenses and
       other current assets                                           (183,000)              85,000             (174,000)
     (Increase) decrease in other assets                              (354,000)            (178,000)            (595,000)
     (Decrease) increase in accounts payable                           (50,000)             (37,000)             498,000
     Increase (decrease) in accrued liabilities                         84,000               34,000              199,000
     Increase in deferred revenue                                       30,000              530,000              960,000
                                                            ------------------- -------------------- --------------------
       Net cash used in operating activities                        (2,073,000)          (4,184,000)         (27,821,000)
                                                            ------------------- -------------------- --------------------
Cash flows from investing activities:
     Restricted cash from long term debt                                                                      (8,500,000)
     Increase in construction in progress                                                                       (446,000)
     Proceeds from insurance claims upon loss of aircraft                                                         30,000
     Proceeds from disposal of assets                                    3,000                                     3,000
     Capital expenditures                                            (339,000)            (411,000)           (5,062,000)
     Purchase of certificate of deposit                            (1,000,000)                                (1,061,000)
     Proceeds from redemption of certificate of deposit                                   1,049,000            1,049,000
     Purchase of marketable securities                             (6,226,000)                                (8,637,000)
     Proceeds from sale of marketable securities                     2,026,000            1,973,000            6,097,000
                                                            ------------------- -------------------- --------------------
       Net cash (used in) provided by investing activities         (5,536,000)            2,611,000          (16,527,000)
                                                            ------------------- -------------------- --------------------
Cash flows from financing activities:
     Adjustment to net proceeds from initial public
     offering and
       exercise of over-allotment option                                                                        (78,000)
     Proceeds from long term debt                                                                              8,500,000
     Restricted cash collateral for long term debt                                                           (8,500,000)
     Advances from stockholder                                                                                10,728,000
     Proceeds from issuance of common stock prior to
       initial public offering                                                                                 7,500,000
     Net proceeds from initial public offering and
     exercise
       of over-allotment option                                                                               30,411,000
     Net proceeds from bridge financing                                                                        6,195,000
     Repayment of bridge financing                                                                           (7,000,000)
     Repayment of obligation under capital leases                                                               (40,000)
     Proceeds from loans from officer                                                                            336,000
     Repayment of bank notes                                                                                           -
     Repayment of loans from SIDA Corporation                                                                          -
     Repayment of other short-term loans                                                                               -
                                                            ------------------- -------------------- --------------------
       Net cash provided by financing activities                             -                    -           48,052,000
                                                            ------------------- -------------------- --------------------
Net (decrease) increase in cash and cash equivalents               (7,609,000)          (1,573,000)            3,704,000
Cash and cash equivalents at beginning of period                    24,222,000            5,277,000                    -
                                                            =================== ==================== ====================
Cash and cash equivalents at end of period                          16,613,000            3,704,000            3,704,000
                                                            =================== ==================== ====================
</TABLE>


<PAGE>


                    Advanced Aerodynamics & Structures, Inc.
                        (A Development Stage Enterprise)

                       Statement of Cash Flows (continued)
                                   (unaudited)
<TABLE>



<S>                                                         <C>                 <C>                          <C>    

     Supplemental cash flow information:
       Cash paid in interest                                                               $181,000            $ 1,036,000
     Supplemental disclosure of noncash investing and
     financing activities:
       Stockholder advances converted to common stock                                                          $ 10,728,000
       Loans from officer converted to common stock                                                               $ 336,000
       Common stock issued for noncash
          consideration and compensation                                                                        $ 1,507,000
       Liabilities assumed from ASI                                                                               $ 400,000
       Common stock issued for in-process research
          and development acquired                                                                                $ 361,000
       Equipment acquired under capital leases                                                                     $ 40,000
       Deposit surrendered as payment for rents due                                                                $ 80,000
       Construction in progress acquired with restricted                                    $ 1,888,000         $ 1,888,000
         cash
</TABLE>

                 See accompanying notes to financial statements

<PAGE>

                                     ADVANCED AERODYNAMICS & STRUCTURES, INC.
                                         (A Development Stage Enterprise)

                                           Notes to Financial Statements

1.       General

          In the opinion of the Company's management, the accompanying unaudited
          financial  statements  include all  adjustments  (which  include  only
          normal recurring adjustments) necessary for a fair presentation of the
          financial  position of the Company at June 30, 1998 and the results of
          operations  and cash flows for the six months  ended June 30, 1998 and
          1997.  Although the Company  believes  that the  disclosures  in these
          financial  statements are adequate to make the  information  presented
          not misleading,  certain information and footnote disclosures normally
          included in financial statements prepared in accordance with generally
          accepted accounting principles have been condensed or omitted pursuant
          to  the  rules  and   regulations   of  the  Securities  and  Exchange
          Commission.   Results  of  opeations  for  interim   periods  are  not
          necessarily indicative of results of operations to be expected for any
          other interim period or the full year.

          The financial  information in this quarterly  report should be read in
          conjunction  with the audited  December 31, 1997 financial  statements
          and notes  thereto  included in the  Company's  annual report filed on
          Form 10-KSB.

          The Company is a development stage  enterprise.  In December 1996, the
          Company  successfully  completed an initial public offering to finance
          the continued development, manufacture and marketing of its product to
          achieve commercial viability.  The net proceeds from the offering were
          and will be used to amend its Federal Aviation  Administration ("FAA")
          Type Certificate for technical  revisions to its product,  to obtain a
          FAA Production  Certificate for its product, to repay borrowings under
          a bridge loan, to expand the Company's sales and marketing efforts, to
          establish  a new  manufacturing  facility,  and to acquire  production
          materials and additional tooling and equipment.

2.       Net Loss Per Share of Common Stock

          The Company's net loss per share of Common Stock was computed based on
          the  weighted  average  number of shares of common  stock  outstanding
          during the six month  period ended June 30, 1998 and 1997 and excludes
          all outstanding shares of Class E-1 and Class E-2 Common Stock because
          the conditions for the lapse of  restrictions  on such shares have not
          been  satisfied.  There is no  difference  between the loss per common
          share  amounts  computed for basic and dilutive  purposes  because the
          impact of options and warrants outstanding are anti-dilutive.

3.       Industrial Development Bonds

          On August 5,  1997,  the  Company  entered  into a loan  agreement  in
          connection  with industrial  development  bonds ("IDBs") issued by the
          California Economic Development  Financing Authority.  The Company has
          established  in the  trustee's  favor a bank  letter of credit for the
          principle  amount of $8,500,000,  plus 45 days accrued interest on the
          bonds,  which is secured by $8,500,000 of Company restricted cash. The
          bonds mature  August 1, 2027,  at which time all  outstanding  amounts
          become due and payable.  The Company  will use the  proceeds  from the
          IDBs to finance the  construction and installation of a 200,000 square
          foot manufacturing facility and related manufacturing equipment.



<PAGE>


                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A Development Stage Enterprise)

                          Notes to Financial Statements


4.       Land Lease for Manufacturing and Headquarters Facility

          On October 17, 1997,  the Company  entered into an agreement  with the
          City of Long Beach for  approximately  10 acres of land located on the
          Long Beach  Airport.  The  purpose of the lease is to  effectuate  the
          construction of an approximately 200,000 square foot manufacturing and
          headquarters  facility.  The lease term  commenced on January 14, 1998
          and has a term of 30 years  with an option to renew for an  additional
          10 years.  The lease  also  contains  options to lease  other  airport
          properties.  The  monthly  rent  under  the  lease  is  $4,500,  which
          escalates to $15,600 after 5 years.

5.       Contract to Construct a Manufacturing and Headquarters Facility

          The Company  entered into an agreement  with  Commercial  Developments
          International/West   (Design/Builder)   whereby  Design/Builder  shall
          design and build an  approximately  200,000 square foot  manufacturing
          and headquarters  facility. The contract sum for this project is "cost
          plus  fixed  fees"  with a  guaranteed  maximum  price of  $6,300,000,
          subject to the cost of change  orders,  if any.  Any savings  realized
          upon  completion  and  acceptance of the project will be shared by the
          Design/Builder and the Company.  The Company believes that the project
          will be completed in the third quarter of 1998.

6.       Conversion of Shares

          In February of 1998 a  shareholder  of the  Company  converted  99,676
          shares  of Class B Common  Stock to  99,676  shares  of Class A Common
          Stock. The conversion  resulted in an increase in Class A Common Stock
          to  6,999,676  and a decrease in the number of  outstanding  shares of
          Class B Common Stock to 1,900,324.  This  transaction had no impact on
          earnings  per share as both  classes  of shares  are  included  in the
          calculation of weighted average number of common stock outstanding.
 


<PAGE>


                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A Development Stage Enterprise)


Item 2.  Plan of Operations

         Certain  statements  contained  in this  report,  including  statements
concerning the Company's future cash and financing  requirements,  the Company's
ability to obtain market  acceptance of its aircraft,  the Company's  ability to
obtain  regulatory  approval for its aircraft,  and the  competitive  market for
sales of small business aircraft and other statements contained herein regarding
matters that are not historical  facts, are forward looking  statements.  Actual
results  may  differ  materially  from  those set forth in the  forward  looking
statements, which statements involve risks and uncertainties,  including without
limitation those risks and uncertainties set forth in the Company's Registration
Statement on Form SB-2 (No. 333-12273) under the heading "Risk Factors."

         The Company is a  development  stage  enterprise  organized  to design,
develop,  manufacture and market propjet and jet aircraft intended primarily for
business use. Since its inception,  the Company has been engaged  principally in
research and  development of its proposed  aircraft.  In March 1990, the Company
made  application to the FAA for a Type Certificate for the JETCRUZER 450, which
Certificate  was ultimately  granted in June 1994. The Company has not generated
any operating revenues to date and has incurred losses from such activities. The
Company  believes it will  continue to  experience  losses until such time as it
commences the sale of aircraft on a commercial scale.

         Prior to commencing  commercial sales of the JETCRUZER 500, the Company
will need to, among other  things,  complete the  development  of the  aircraft,
obtain  the   requisite   regulatory   approvals,   establish   an   appropriate
manufacturing  facility, hire additional engineering and manufacturing personnel
and expand its sales and marketing efforts.  The Company estimates that the cost
to complete  development of the JETCRUZER 500 and obtain an amendment of its FAA
Type Certificate will be approximately $5,000,000. This amount includes the cost
of  equipment  and  tooling,  static and flight  testing of the aircraft and the
employment of the necessary personnel to build and test the aircraft.

         The  Company   expects  to  receive   progress   payments   during  the
construction  of aircraft  and final  payments  upon the  delivery of  aircraft.
However,  the Company believes it will continue to experience  losses until such
time as it commences the sale of aircraft on a commercial scale.

         Through the end of 1998,  the  Company  intends to focus its efforts in
the following areas:

                  * To complete the development of the JETCRUZER 500, including,
                  among  other  things,   adding  a  larger  engine,   a  larger
                  propeller,  pressurization,  environmental  systems,  de-icing
                  capability and autopilot certification, as well as lengthening
                  its fuselage.

                  * To obtain an amendment to JETCRUZER  450's Type  Certificate
                  to include the JETCRUZER 500, including the manufacture of FAA
                  conformed  models of the  JETCRUZER  500 and static and flight
                  testing.

                  * To establish an  appropriate  manufacturing  facility  ("New
                  Facility")  capable  of  producing  the  JETCRUZER  500  on  a
                  commercial scale,  including the establishment of a production
                  line  in such  facility,  and the  acquisition  of  production
                  inventory  and  additional  equipment,  tooling  and  computer
                  hardware and software systems.




<PAGE>



                  * To obtain a production certificate from the FAA and commence
                  commercial production of the JETCRUZER 500.

         The Company  believes that the net proceeds from the Company's  initial
public offering  ("IPO") of stock in December 1996 will be sufficient to finance
its  efforts  in  obtaining  an  amendment  to  its  Type  Certificate   through
approximately  the first quarter of 1999,  based upon the current  status of its
business  operations,  its  current  plans and  current  economic  and  industry
conditions.  If the Company's  estimates  prove to be incorrect,  however,  then
during such period the Company may have to seek additional sources of financing,
reduce operating costs and/or curtail growth plan.

Year 2000 Compliance

          As of June 30, 1998,  the Company was in the final stages of selecting
a new software and hardware  vendor for the purchase of a new hardware and a new
software  package for the Company (with such vendor to be selected based in part
on its assurances  that the hardware and software will be Year 2000  compliant).
While it is estimated that the total cost (hardware and software) to install the
new software  package will be  substantial,  mangaement does not believe that it
will be material in relationship to the Company's financial position, results of
operations  and cash flows.  Although the Company does not perceive any problem,
there  can be no  assurance  that the  implementation  of the new  hardware  and
software  package  will  not  involve  significant   unexpected  costs  or  that
unanticipated  problems  encountered  will not have a material adverse effect on
the Company's results of operations.


Liquidity and Capital Resources

         At June 30, 1998,  the Company had working  capital of  $5,806,000  and
stockholders'  equity of  $16,526,000.  Since its inception in January 1990, the
Company has experienced  continuing  negative cash flow from operations,  which,
prior to its IPO in December of 1996, resulted in the Company's inability to pay
certain  existing  liabilities in a timely manner.  The Company has financed its
operations  through  private  funding of equity and debt and its IPO in December
of 1996.

The Company also  expects to continue to incur losses until such time,  if ever,
as it obtains  regulatory  approval for the JETCRUZER 500 and related production
processes and market  acceptance for its proposed aircraft at selling prices and
volumes  which  provide  adequate  gross  profit  to cover  operating  costs and
generate  positive cash flow. The Company's  working capital  requirements  will
depend upon numerous  factors,  including the level of resources  devoted by the
Company  to the  scale-up  of  manufacturing,  the  establishment  of sales  and
marketing   capabilities  and  the  progress  of  the  Company's   research  and
development program for the JETCRUZER 500.

The Company  expects  that the net  proceeds  of the IPO in  December  1996 will
enable it to meet its  liquidity and capital  requirements  at least through the
first quarter of 1999, by which time the Company expects to have received a type
certificate  and a production  certificate  for the  JETCRUZER 500 and commenced
commercial  production  and sale of the JETCRUZER  500. Such proceeds are being,
and will be used primarily for amendment of the Type  Certificate,  the purchase
of equipment and tooling,  the  establishment of a manufacturing  facility,  and
sales and marketing.  The Company's capital requirements are subject to numerous
contingencies associated with development stage companies.  Specifically, delays
encountered by the Company in amending the current Type  Certificate  may render
it impossible for the Company to complete such new or amended  certification and
may therefore  have a material and adverse  effect on the Company's  operations.
Further,  if the Company has not completed the  development of the JETCRUZER 500
or  received  the  required  regulatory  approvals  and  successfully  commenced
commercial  sales of its aircraft by the first quarter of 1999,  the Company may
require  additional  funding to fully implement its proposed  business plan. The
Company has no commitments  from any third parties for any future  funding,  and
there can be no assurance  that the Company will be able to obtain  financing in
the future from bank  borrowings,  debt or equity  financing or other sources on
terms acceptable to the Company or at all. In the event necessary financing were
not obtained,  the Company would be materially and adversely  affected and might
have to cease or substantially reduce operations.

         The Company had no other material capital  commitments at June 30, 1998
other than as discussed  in this  report.  Upon the granting of the Amended Type
Certificate,  the Company  intends to hire a number of additional  employees and
complete  the New  Facility,  both of which  will  require  substantial  capital
resources. The Company anticipates that it will hire approximately 150 employees
over the next twelve months necessary to produce its aircraft.



<PAGE>


                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A Development Stage Enterprise)



Charge to Income in the Event of Conversion of Performance Shares

         In the event the Company  attains  certain  earnings  thresholds or the
Company's Class A Common Stock meets certain minimum bid price levels, the Class
E Common Stock will be  converted  into Class B Common  Stock.  In the event any
such converted Class E Common Stock is held by officers, directors, employees or
consultants,  the maximum  compensation expense recorded for financial reporting
purposes  will be an amount  equal to the fair value of the shares  converted at
the time of such  conversion  which  value  cannot be  predicted  at this  time.
Therefore,  in the event the Company  attains such earnings  thresholds or stock
price levels, the Company will recognize a substantial charge to earnings during
the  period in which  such  conversion  occurs,  which  would have the effect of
increasing the Company's loss or reducing or eliminating  its earnings,  if any,
at that time. In the event the Company does not attain these earnings thresholds
or minimum bid price levels, and no conversion  occurs, no compensation  expense
will be recorded for financial reporting purposes.

Financing of Manufacturing and Headquarters Facility

         The Company is in the process of constructing an approximately  200,000
square foot  manufacturing and headquarters  facility (the "New Facility").  The
primary  financing  for this project is the  Company's  obligation  under a loan
agreement  related to  proceeds  received  from  $8,500,000  in the  issuance of
industrial  development  bonds ("IDBs") by the California  Economic  Development
Financing Authority.  The Company was required to provide cash collateral to The
Sumitomo  Bank,  Limited (the "Bank") in the amount of $8,500,000 for a stand by
letter of credit in favor of the holders of the IDBs which  expires on August 5,
2002, if not terminated earlier `by the Company or the Bank.



<PAGE>
                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A Development Stage Enterprise)


                           PART II - OTHER INFORMATION

Item 5.  Other Information

          The Company  entered into a lease  agreement  dated June 16, 1998 with
Q.E.P.  Company,  Inc. for approximately  16,000 square feet of industrial space
located in Los Angeles,  California for the warehousing and assembly of aircraft
parts. The lease agreement  commenced on July 6, 1998 and is on a month-to-month
basis.  The  Company  is paying  $5,120  per month  under the terms of the lease
agreement.

Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits:


Exhibit No.                Description
-------------------------------------------------------------------------------

*        3.1    Certificate of Incorporation
**       3.2    Bylaws
*        3.3    Amendment to Certificate of Incorporation
*        4.1    Specimen Certificate of Class A Common Stock
*        4.2    Warrant Agreement (including form of Class A and
                Class B Warrant Certificates
*        4.3    Form of Underwriter's Unit Purchase Option
*       10.1    Form of Indemnification Agreement
**      10.2    Amended 1996 Stock Option Plan
*       10.3    Employment Agreement dated as of May 1, 1996 between
                the Company and Dr.  Carl L. Chen
*       10.4    Agreement of Merger dated July 16, 1996 between
                Advanced Aerodynamics and Structures, Inc.,
                California corporation, and Advanced Aerodynamics
                & Structures, Inc., a Delaware corporation
**      10.5    Lease dated December 19, 1996 between Olen
                Properties Corp., a Florida corporation, and the Company
***     10.6    Standard Sublease dated June 27, 1997 with Budget
                Rent-a-Car of Southern California
***     10.7    Standard Sublease dated July 16, 1997 with Budget
                Rent-a-Car of Southern California
***     10.8    Standard Industrial/Commercial Multi-Tenant Lease-Gross
                dated March 12, 1997 with the Golgolab Family Trust
*****   10.9    Loan Agreement dated as of August 1, 1997 between the
                Company and the California Economic Development Authority
*****  10.10    Indenture of Trust dated as of August 1, 1997 between
                the California Economic Development Authority and
                First Trust of California, National Association
****   10.11    Official  Statement dated August 5, 1997
*****  10.12    Letter of Credit issued by The Sumitomo Bank, Limited 
*****  10.13    Reimbursement Agreement dated as of August 1, 1997
                between the Company and The Sumitomo Bank, Limited
*****  10.14    Purchase Contract dated August 1, 1997 by and among
                Rauscher Pierce Refnes, Inc., the California Economic
                Development Authority and the Treasurer of the State
                of California, and approved by the Company
*****  10.15    Remarketing Agreement dated as of August 1,1997
                between the Company and Rauscher Pierce Refnes, Inc.
*****  10.16    Blanket Letters of Representations of the California
                Economic Development Authority and First Trust of
                California, National Association 


<PAGE>


*****  10.17    Tax Regulatory Agreement dated as of August 1, 1997
                by and among the California Economic Development
                Authority, the Company and First Trust of California,
                National Association
*****  10.18    Custody, Pledge and Security Agreement dated as of August 1,
                1997 between the Company and The Sumitomo Bank, Limited
*****  10.19    Investment Agreement dated August 5, 1997 by and
                between the Company and The Sumitomo Bank, Limited
*****  10.20    Specimen Direct Obligation Note between the Company
                and The Sumitomo Bank, Limited
****   10.21    Lease Agreement dated October 17, 1997 between the
                Company and the City of Long Beach
****   10.22    Construction Agreement dated October 29,1997 between the
                Company and Commercial Developments International/West
       10.23    Standard Sublease between Q.E.P., Inc. and the Company
       27       Financial Data Schedule

   * Incorporated by reference to the Company's  Registration  Statement on Form
SB-2 (333-12273) declared effective by the Securities and Exchange Commission on
December 3, 1996.

   **  Incorporated  by reference to the  Company's  Report on Form 10-KSB filed
with the Securities and Exchange Commission on March 31, 1997.

   *** Incorporated by reference by the Company's Post-Effective Amendment No. 1
to Form SB-2  Registration  Statement  filed with the  Securities  and  Exchange
Commission on August 5, 1997.

   ****  Filed  by paper  pursuant  to the  Company's  request  for a  temporary
hardship  exemption  relating  to its  report  on Form  10-QSB  filed  with  the
Securities and Exchange Commission on November 14, 1997.

   *****  Incorporated by reference to the Company's Report on Form 10-QSB filed
with the Securities and Exchange Commission on November 14, 1997.

     Reports on Form 8-K:

     (b) None



<PAGE>


                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A Development Stage Enterprise)


                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated: August 14, 1998                  ADVANCED AERODYNAMICS & STRUCTURES,
                                        INC.


                                        By:____________________________________
                                           Carl L. Chen, President          

                                        By:____________________________________
                                           Dave Turner, Chief Financial Officer