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 March 31, 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 May 15,  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.

                                TABLE OF CONTENTS

    ITEM                                                  

    PART I.         FINANCIAL INFORMATION

    Item 1.         Financial Statements
    Item 2.         Results 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>
                                                             March 31, 1998
                                                          --------------------
<S>                                                       <C>  
                                     Assets

Current assets:
     Cash and cash equivalents                                 $4,916,000
     Certificate of deposit                                     1,061,000
     Short term investments                                     3,288,000
     Prepaid expenses and other current assets                    336,000
                                                          --------------------
              Total current assets                              9,601,000

Restricted cash                                                16,862,000
Property and equipment, net                                     1,679,000
Construction in progress                                          489,000
Other assets                                                      604,000
                                                          ====================                             
               Total assets                                   $29,235,000
                                                          ====================
</TABLE>
                  




                 See accompanying notes to financial statements.




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

                            Balance Sheet (continued)
                                   (unaudited)

<TABLE>
                                                            March 31, 1998
                                                      -------------------------
<S>                                                    <C>

                      Liabilities and Stockholders' Equity

Current liabilities:

     Accounts payable                                          $322,000
     Accrued  liabilities                                       610,000
                                                      -------------------------
         Total current liabilities                              932,000

Long term debt                                                8,500,000

Deferred revenue                                                950,000
                                                      -------------------------
         Total liabilities                                   10,382,000
                                                      -------------------------
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        (33,195,000)
                                                      -------------------------
         Total stockholders' equity                           18,853,000
                                                      =========================
         Total liabilities and stockholders' equity          $29,235,000
                                                      =========================
</TABLE>



                 See accompanying notes to financial statements.


<PAGE>

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

                             Statement of Operations
                                   (unaudited)

<TABLE>
                                                 Three Months Ended               Period from
                                                     March 31,                    January 26,
                                                                                1990 (inception)
                                                                                  To March 31,
                                              1997               1998                 1998
                                        ------------------ ------------------ ---------------------
<S>                                      <C>               <C>                 <C>  
Interest income                                  $289,000           $305,000            $1,748,000
Other income                                        1,000             30,000               845,000
                                        ------------------ ------------------ ---------------------
                                                  290,000            335,000             2,593,000
Costs and expenses
  Research and development costs                  326,000          1,621,000            20,070,000
  Preoperating costs                                   --                 --               282,000
  General and administrative expenses             481,000            877,000            10,911,000
  Loss on disposal of assets                        2,000                 --               742,000
  Interest expenses                                    --             79,000             2,080,000
  In-process research and development
  acquired                                             --                 --               761,000
                                        ------------------ ------------------ ---------------------
                                                  809,000          2,577,000            34,846,000
                                        ------------------ ------------------ ---------------------
Loss before extraordinary item                  (519,000)        (2,242,000)          (32,253,000)
Extraordinary loss on retirement of
Bridge Notes                                           --                 --             (942,000)
                                        ------------------ ------------------ ---------------------
       Net loss                                 (519,000)        (2,242,000)          (33,195,000)
                                        ================== ================== =====================
Net loss per share                                 (0.06)             (0.25)
                                        ================== ================== =====================
Weighted average number of shares
outstanding                                     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>      <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 Units                       6,000,000     $1,000
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 March 31, 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 Units                   $9,583,000  $4,166,000       12,566,000                    26,316,000
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 Notes        $473,000                                                                 473,000
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                                                                                (2,242,000)    (2,242,000)
                           ---------------- ------------ ----------- ---------------- -------------- --------------
Balance at March 31, 1998         $473,000  $11,290,000  $4,632,000      $35,652,000  $(33,195,000)     18,853,000
</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,
                                                                      Three Months Ended             1990 (inception) to
                                                                           March 31,                      March 31,
                                                                   1997                1998                 1998
                                                            ------------------- -------------------- --------------------
<S>                                                         <C>                 <C>                   <C>   
Cash flows from operating activities:
   Net loss                                                         $(519,000)          (2,242,000)         (33,195,000)
   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 from restricted cash invested                                          (107,000)            (243,000)
   Extraordinary loss on retirement of Bridge Notes                                                              942,000
   Depreciation and amortization                                        79,000              100,000            2,300,000
   Loss on disposal of assets                                            2,000                                   742,000
   Changes in assets and liabilities:
     (Increase) decrease in prepaid expenses and
       other current assets                                            (5,000)              304,000               45,000
     (Increase) decrease in other assets                                                  (187,000)            (604,000)
     Increase (decrease) in accounts payable                          (69,000)            (213,000)              322,000
     Increase (decrease) in accrued liabilities                         65,000              345,000              510,000
     Increase in deferred revenue                                       10,000              520,000              950,000
                                                            ------------------- -------------------- --------------------
       Net cash used in operating activities                         (437,000)          (1,480,000)         (25,117,000)
                                                            ------------------- -------------------- --------------------
Cash flows from investing activities:
     Restricted cash from long term debt                                                                     (8,500,000)
     Increase in construction in progress                                                  (43,000)            (489,000)
     Proceeds from insurance claims upon loss of aircraft                                                         30,000
     Proceeds from disposal of assets                                    3,000                                     3,000
     Capital expenditures                                            (265,000)             (63,000)          (4,714,000)
     Purchase of certificate of deposit                            (1,000,000)                               (1,061,000)
     Purchase of marketable securities                                                                       (8,637,000)
     Proceeds from sale of marketable securities                     1,525,000            1,225,000            5,349,000
                                                            ------------------- -------------------- --------------------
       Net cash provided by (used in) investing activities             263,000            1,119,000          (18,019,000)
                                                            ------------------- -------------------- --------------------
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     
                                                            ------------------- -------------------- --------------------
       Net cash provided by financing activities                            --                   --           48,052,000
                                                            ------------------- -------------------- --------------------
Net increase (decrease) in cash and cash equivalents                 (174,000)            (361,000)            4,916,000
Cash and cash equivalents at beginning of period                    24,222,000            5,277,000                   --
                                                            =================== ==================== ====================
Cash and cash equivalents at end of period                          24,048,000            4,916,000            4,916,000
                                                            =================== ==================== ====================
</TABLE>


<PAGE>


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

                       Statement of Cash Flows (continued)
                                   (unaudited)


<TABLE>
                                                                                                         Period from
                                                                                                         January 26,
                                                                      Three Months Ended             1990 (inception) to
                                                                           March 31,                      March 31,
                                                                   1997                1998                 1998
                                                            ------------------- -------------------- --------------------
<S>                                                         <C>                 <C>                   <C>   
     Supplemental cash flow information:
       Cash paid for interest                                                                $79,000           $ 934,000
     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
</TABLE>

                 See accompanying notes to financial statements


<PAGE>


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


                    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 March 31, 1998 and the results of
         operations and cash flows for the three months ended March 31, 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  operations  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. On December 3, 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 of 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

         The  Company's  net loss per share was  computed  based on the weighted
         average number of shares of common stock  outstanding  during the three
         month period ended March 31, 1997 and 1998 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 share amounts computed for
         basic and dilutive  purposes because the impact of options and warrants
         outstanding are anti-dilutive.




<PAGE>



3.       Industrial Development Bonds

         On August  5,  1997,  the  Company  entered  into a loan  agreement  in
         connection with industrial  development  bonds 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.


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. As a result,  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 the third quarter 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,  pressurization,  environmental
          systems,  de-icing capability and autopilot certification,  as well as
          lengthening  its fuselage.

     *    To  obtain  an  amendment  to its  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  Faciliy")
          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.

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

     *    To increase its engineering, manufacturing and administrative staff in
          anticipation of increased development and production  activities. 

     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 plan of operations  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
plans.


                                       
<PAGE>

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




Liquidity and Capital Resources

     At March 31,  1998,  the  Company  had working  capital of  $8,669,000  and
stockholders'  equity of  $18,853,000.  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 incure  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  and the  establishment  of sales and
marketing   capabilities  and  the  progress  of  the  Company's   research  and
development program for the JETCRUZER 500 and other proposed aircraft.

     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 if
delays are  encountered in amending the current Type  Certificate,  the time and
cost  of  obtaining  such  certification  may  be  substantial,  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 March 31, 1998
other than as discussed in this report.  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  50 employees  over the next six months and 150 employees over the
next twelve months, including engineers and manufacturing  technicians 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  construcing  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  recieved  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 IBDs which  expire on August 5,
2002, if not terminated by the Company or the Bank.

Item 2.  Changes in Securities

         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 the number of outstanding shares of Class
A Common  Stock from  6,900,000  to  6,999,676  and a decrease  in the number of
outstanding shares of Class B Common Stock from 2,000,000 to 1,900,324 shares.

Item 5.  Other Information

Stock Option Plan

     On March 2, 1998,  the Board of  Directors  authorized  the adoption of the
1998  Stock  Option  Plan  the  ratification  of  which  will  be  subject  to a
shareholder vote at the Company's annual meeting to be held on July 20, 1998.



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


                           PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports of 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 Authoroity
*****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
*****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
     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:

     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:  May 15, 1998                    ADVANCED AERODYNAMICS & STRUCTURES, INC.


                                        By: /s/ Carl L. Chen
                                           ------------------------------------
                                           Carl L. Chen, President


                                        By: /s/ Dave Turner
                                           ------------------------------------
                                           Dave Turner, Chief Financial Officer