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 September 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 November 11, 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>
                                                                                     September 30, 1998
                                                                                 -------------------------
<S>                                                                               <C>
Assets

Current assets:
     Cash and cash equivalents                                                                  $3,378,000
     Certificate of deposit                                                                         12,000
     Short term investments                                                                      1,333,000
     Prepaid expenses and other current assets                                                     351,000
                                                                                 -------------------------
              Total current assets                                                               5,074,000

Restricted cash                                                                                 11,308,000

Property and equipment, net                                                                      1,904,000

Construction in progress                                                                         5,942,000

Other assets                                                                                       595,000

                   Total assets                                                                $24,823,000
                                                                                ==========================
</TABLE>




                 See accompanying notes to financial statements.





<PAGE>



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

                            Balance Sheet (continued)
                                   (unaudited)

<TABLE>
                                                                                    September 30, 1998
                                                                                -------------------------
<S>                                                                              <C>
Liabilities and Stockholders' Equity

Current liabilities:
     Accounts payable                                                                           $463,000
     Accrued liabilities                                                                         425,000
                                                                                -------------------------
         Total current liabilities                                                               888,000

Long term debt                                                                                 8,500,000

Deferred revenue                                                                               1,150,000
                                                                                -------------------------
         Total liabilities                                                                    10,538,000
                                                                                -------------------------
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                                        (37,763,000)
                                                                                -------------------------
         Total stockholders' equity                                                           14,285,000
         Total liabilities and stockholders' equity                                          $24,823,000
                                                                                =========================
</TABLE>


                 See accompanying notes to financial statements.



<PAGE>

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

                             Statement of Operations
                                   (unaudited)


<TABLE>
                                                                                                                      Period from
                                                                                                                   January 26, 1990
                                                       Three Months Ended                Nine Months Ended          (inception) to
                                                          September 30,                    September 30,             September 30,
                                                      1997             1998            1997             1998             1998
                                               ---------------  ---------------  ---------------  ---------------  ----------------
<S>                                            <C>              <C>              <C>               <C>             <C>
Interest income                                       $243,000         $209,000         $884,000         $799,000        $2,242,000
                                               ---------------  ---------------  ---------------  ---------------  ----------------
Other income                                                 -           94,000            7,000          187,000         1,002,000
                                               ---------------  ---------------  ---------------  ---------------  ----------------
                                                       243,000          303,000          891,000          986,000         3,244,000
Costs and expenses
  Research and development costs                     1,781,000        1,667,000        3,013,000        5,041,000        23,490,000
  Preoperating costs                                         -                -                -                -           282,000
  General and administrative expense                   827,000          795,000        2,014,000        2,491,000        12,525,000
  Loss on disposal of assets                                 -                -          106,000                -           742,000
  Interest expense                                           -           83,000                -          264,000         2,265,000
  In-process research and development
      acquired                                               -                -                -                -           761,000
                                               ---------------  ---------------  ---------------  ---------------  ----------------
                                                     2,608,000        2,545,000        5,133,000        7,796,000        40,065,000
                                               ---------------  ---------------  ---------------  ---------------  ----------------
Loss before extraordinary item                      (2,365,000)      (2,242,000)      (4,242,000)      (6,810,000)      (36,821,000)
Extraordinary loss on retirement of
    Bridge Notes                                             -                -                -                -          (942,000)
                                               ---------------  ---------------  ---------------  ---------------  ----------------
       Net loss                                     (2,365,000)      (2,242,000)      (4,242,000)      (6,810,000)     $(37,763,000)
                                               ===============  ===============  ===============  ===============  ================
Net loss per common share                                (0.27)           (0.25)           (0.48)           (0.77)
                                               ===============  ===============  ===============  ===============  ================
Weighted average number of 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>          <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 September 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>             <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                                                                                          (6,810,000)     (6,810,000)
Balance at September 30, 1998          $473,000   $11,290,000    $4,632,000      $35,652,000    $(37,763,000)      14,285,000
                             ================== =============  ============ ================  =============== ===============
</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,
                                                                         Nine Months Ended                 1990 (inception) to
                                                                           September 30,                       September 30,
                                                                     1997                   1998                   1998
                                                             ---------------------  --------------------- ---------------------

<S>                                                           <C>                    <C>                   <C>
Cash flows from operating activities:
   Net loss                                                           (4,242,000)           (6,810,000)          (37,763,000)
   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                                              (336,000)             (472,000)
   Extraordinary loss on retirement of Bridge Notes                                                                  942,000
   Depreciation and amortization                                          272,000              323,000             2,523,000
   Loss on disposal of assets                                             106,000                                    742,000
   Changes in assets and liabilities:
     (Increase) decrease in prepaid expenses and
       other current assets                                             (290,000)              576,000               317,000
     (Increase) decrease in other assets                                (689,000)             (178,000)             (595,000)
     Increase (decrease) in accounts payable                             (34,000)              (72,000)              463,000
     Increase (decrease) in accrued liabilities                          285,000               160,000               325,000
     Increase in deferred revenue                                        370,000               720,000             1,150,000
       Net cash used in operating activities                          (4,222,000)           (5,617,000)          (29,254,000)
                                                            --------------------- ---------------------  --------------------
Cash flows from investing activities:
     Restricted cash from long term debt                              (8,500,000)                                 (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                                               (787,000)             (511,000)           (5,162,000)
     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                                (6,212,000)                                 (8,637,000)
     Proceeds from sale of marketable securities                       3,326,000             3,180,000             7,304,000
       Net cash (used in) provided by investing activities           (13,170,000)            3,718,000           (15,420,000)
                                                            --------------------- ---------------------  --------------------
Cash flows from financing activities:
     Adjustment to net proceeds from initial public offering and
       exercise of over-allotment option                                 (78,000)                                    (78,000)
     Proceeds from long term debt                                        170,000                                   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                          92,000                    --            48,052,000
                                                            --------------------- ---------------------  --------------------
Net (decrease) increase in cash and cash equivalents                 (17,300,000)           (1,899,000)            3,378,000
Cash and cash equivalents at beginning of period                       24,222,000            5,277,000                    --
Cash and cash equivalents at end of period                              6,922,000            3,378,000             3,378,000
                                                            ===================== =====================  ====================
</TABLE>


<PAGE>



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

                                           Statement of Cash Flows (continued)
                                                       (unaudited)


<TABLE>
<S>                                                                                         <C>                 <C>
Supplemental cash flow information:
  Cash paid for interest                                                                       $264,000           $1,119,000

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 cash                                     $5,496,000           $5,942,000
</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 September 30, 1998 and the results of operations
     and cash flows for the nine months ended  September  30, 1998 and September
     30, 1997  respectively.  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 Common Share

     The Company's net loss per common share was computed  based on the weighted
     average number of shares of common stock outstanding  during the nine month
     period  ended  September  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 (IDB) 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 is
     using  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)



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 "New 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  and occupied on November 16,
     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 losses per common  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  $6,500,000.
     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 and first  half of 1999,  the  Company  intends to
     focus its efforts in the following areas:

                           * Completing  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.

                           * Obtaining  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.

                           * Completing 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.

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

     Based upon the current  status of the Company's  business  operations,  its
     current  plans and current  economic and industry  conditions,  the Company
     believes that the net proceeds from the Company's  initial public  offering
     ("December  IPO")  of stock  in  December  1996,  along  with a new  credit
     agreement which is currently being negotiated by the Company (to be secured
     by the  New  Facility),  will be  sufficient  to  finance  its  efforts  in
     obtaining


<PAGE>

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



     an  amendment  to its  Type  Certificate  through  1999.  If the  Company's
     estimates prove to be incorrect or it is unable to successfully negotiate a
     new credit  facility,  then during such period the Company may have to seek
     alternative sources of financing, reduce operating costs and/or curtail its
     growth plan.

Year 2000 Compliance

     The Company has selected a new software and hardware vendor and has entered
     into an agreement for the purchase of a new hardware and software  package.
     The Company has received assurances from such vendors that the hardware and
     software is Year 2000 compliant. Although the Company does not perceive any
     problems withs its new computer system, the failure of the new hardware and
     software  package  to be Year 2000  compliant  may  result  in  significant
     unexpected  costs which may have a material adverse effect on the Company's
     results of  operations.  The  Company  is  currently  assessing  vendors to
     utilize  when  production  of the  JETCRUZER  500  begins.  The  process of
     evaluation  includes both the  significance  of the vendor to the Company's
     operation and their exposure to the Year 2000 problem.

Liquidity and Capital Resources

     At  September  30,  the  Company  had  working  capital of  $4,186,000  and
     stockholders'  equity of $14,285,000.  Since its inception in January 1990,
     the Company has experienced  continuing negative cash flow from operations,
     which,  prior to the December IPO,  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,  debt and the
     December IPO.

     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  and
     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 December IPO, along with a
     new credit agreement which is currently being negotiated by the Company (to
     be secured by the New  Facility),  will enable it to meet its liquidity and
     capital  requirements  at least  through the end 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 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  further  delays  are
     encountered in amending the current Type Certificate,  the time and cost of
     obtaining  such  certification  may be  substantial,  which  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 end of 1999,
     the Company may require  additional funding to fully implement its proposed
     business plan.  Although the Company is negotiating a new credit agreement,
     it 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 the new
     credit  agreement or 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 are 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 September 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,  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 Company intends to move into, and be operational in the New Facility on
     November 16, 1998. The primary  financing for this project is the Company's
     obligation  under a loan  agreement  related to proceeds  received from the
     $8,500,000  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 by the Company or the Bank.







<PAGE>


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



PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

         (a)        Exhibits:


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

     *             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.


<PAGE>


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



     ***** 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
     ******10.23   Standard Sublease between Q.E.P. Company, 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.

******Incorporated  by  reference to the  Company's  Report on Form 10-QSB filed
      with the Securities and Exchange Commission on August 14, 1998.

          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: November 13, 1998        ADVANCED AERODYNAMICS & STRUCTURES,
                                     INC.


                                     By:_______________________________________
                                        Carl L. Chen, President


                                     By:_______________________________________
                                        Dave Turner, Chief Financial Officer