<PAGE>
 
                                 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, 1999

     [_]   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

                            3205 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, 1999, 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

                                                              Page
PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements                                 3
Item 2.    Plan of Operations                                   8

PART II.  OTHER INFORMATION                                    12

Item 6.   Exhibits and Reports on Form 8-K                     12


                                       2
<PAGE>
 
                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                                 BALANCE SHEET

<TABLE>
<CAPTION>
                                                                           March 31,
                                                                             1999
                                                                       -----------------
<S>                                                                    <C>
ASSETS
Current Assets:
  Cash and cash equivalents                                                $    581,000
  Short term investments                                                        475,000
  Prepaid expenses and other current assets                                      73,000
                                                                           ------------
         Total current assets                                                 1,129,000
Restricted cash                                                               9,011,000
Property, Plant and equipment, net                                           11,209,000
Other assets                                                                    183,000
                                                                           ------------
         Total assets                                                      $ 21,532,000
                                                                           ============
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                                                         $    775,000
  Accrued payable to contractor                                               1,157,000
  Capital lease obligation current portion                                       37,000
  Other accrued liabilities                                                     845,000
                                                                           ------------
         Total current liabilities                                            2,814,000
Long-term debt                                                                8,500,000
Capital lease obligation, long term                                             203,000
Deferred revenue                                                              1,380,000
                                                                           ------------
         Total liabilities                                                   12,897,000
                                                                           ------------
Stockholders' equity
  Preferred Stock, par value $.0001
    per share; 5,000,000 shares authorized;
    no shares issued and outstanding                                                 --
 
  Class A common, 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                            (43,413,000)
                                                                           ------------
Total stockholders' equity                                                    8,635,000
                                                                           ------------
Total liabilities and stockholder's equity                                 $ 21,532,000
                                                                           ============
</TABLE>
                 See accompanying notes to financial statements

                                       3
<PAGE>
 
                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                 STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                                                 Period from  
                                                                                   January 26,  
                                                  Three Months Ended                  1990      
                                                      March 31.                  (inception) to 
                                               -----------------------------        March 31,                     
                                                    1998            1999              1999
                                               -------------     -----------     --------------
<S>                                            <C>               <C>             <C>
Interest income                                  $   305,000         118,000       $  2,488,000
Other income                                          30,000           1,000          1,263,000
                                                 -----------      ----------       ------------
                                                     335,000         119,000          3,751,000
Cost and expenses:                                                             
Research and development costs                     1,621,000       1,578,000         26,496,000
Preoperating costs                                        --              --            282,000
General and administrative expenses                  877,000         809,000         15,501,000
Loss on disposal of assets                                --              --            755,000
Interest expense                                      79,000          74,000          2,427,000
In-process research and development acquired              --              --            761,000
                                                 -----------      -----------      ------------
                                                   2,577,000        2,461,000        46,222,000
                                                 -----------      -----------      ------------
Loss before extraordinary item                    (2,242,000)      (2,342,000)      (42,471,000)
Extraordinary loss on retirement of             
 Bridge Notes                                             --               --          (942,000) 
                                                                                   ------------ 
Net loss and comprehensive loss                  $(2,242,000)     $(2,342,000)     $(43,413,000)
                                                 ===========      ===========      ============
Loss per share before extraordinary item         $      (.25)     $      (.26)
                                                 -----------      -----------                         
Net loss and comprehensive loss per share        $      (.25)     $      (.26)
                                                 ===========      ===========                          
Weighted average number of shares outstanding      8,900,000        8,900,000
                                                 ===========      ===========                          
</TABLE>


                See accompanying notes to financial statements.

                                       4
<PAGE>
 
                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                       Statement of Stockholders' Equity
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
 
                                                     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
 
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 from
 inception to 
 December 31, 1996
 
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
 overallotment 
 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 A   
 Common Stock                             99,676               (99,676)
 
Net Loss
------------------------------------------------------------------------------------------------------------------------------
Balance at
 December 31,  
 1998                  --         --   6,999,676     1,000    1,900,324       --    4,000,000       --   4,000,000         --
------------------------------------------------------------------------------------------------------------------------------
Net Loss
------------------------------------------------------------------------------------------------------------------------------ 
Balance at
 March 31,
 1999                   --     $  --   6,999,676    $1,000    1,900,324    $ --     4,000,000    $  --   4,000,000      $  --
==============================================================================================================================
</TABLE> 

<TABLE> 
<CAPTION>
                                                                                        Deficit
                                                                                      Accumulated
                                                                                       During the
                 Public           Class A          Class B          Additional        Development
                Warrants         Warrants         Warrants       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                                                           799,000                              799,000
 
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 from                           
 inception to 
 December 31,
 1996                                                                                   24,328,000       24,328,000
-----------------------------------------------------------------------------------------------------------------------------
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 overallotment
 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 A 
 Common Stock

Net Loss                                                                               (10,118,000)      (10,118,000)
-----------------------------------------------------------------------------------------------------------------------------
Balance at
 December 31,   
 1998            473,000          11,290,000       4,632,000        35,652,000         (41,071,000)      10,977,000
-----------------------------------------------------------------------------------------------------------------------------
Net Loss                                                                                (2,342,000)      (2,342,000)
-----------------------------------------------------------------------------------------------------------------------------
Balance at
 March 31,   
 1999           $473,000         $11,290,000      $4,632,000       $35,652,000        $(43,413,000)    $  8,635,000
=============================================================================================================================
</TABLE>

                                       5
<PAGE>
 
                   ADVANCED AERODYNAMICS & STRUCTURES, INC.
                       (A DEVELOPMENT STAGE ENTERPRISE)

                            STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                 PERIOD FROM
                                                                                                 JANUARY 26
                                                                    THREE MONTHS ENDED             1990
                                                                         MARCH 31,              (INCEPTION)
                                                                ---------------------------         TO
                                                                   1998              1999      MARCH 31, 1999
                                                                -----------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                             <C>            <C>             <C> 
  Net loss                                                      $(2,242,000)   $(2,342,000)    $(43,413,000)
  Adjustments to reconcile net loss to net cash                                          
     used in operating activities:                                                                1,207,000
     Noncash stock compensation expense                                                             336,000
     Noncash interest expense-                                                              
     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)       (10,000)        (474,000)
     Extraordinary loss on retirement of Bridge Notes                     -                         942,000
     Depreciation and amortization                                  100,000        203,000        2,843,000
     Loss on disposal of assets                                                                     755,000
     Changes in assets and liabilities:                                                                    
       Increase in prepaid expenses and other current assets        304,000         15,000          100,000
       Increase in other assets                                    (187,000)         4,000         (183,000)
       Increase (decrease) in accounts payable                     (213,000)       512,000          775,000
       Increase (decrease) in accrued liabilities                   345,000       (259,000)       1,902,000
       Increase in deferred revenue                                 520,000         40,000        1,380,000
                                                                -----------    -----------     ------------ 
Net cash used in operating activities                            (1,480,000)    (1,837,000)     (32,259,000)
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                   
   Increase in construction in progress                             (43,000)                       (446,000)
   Proceeds from insurance claims upon loss of aircraft                                              30,000
   Proceeds from disposal of assets                                                                   3,000
   Capital expenditures                                             (63,000)       (81,000)      (5,813,000)
   Purchase of certificate of deposit                                                            (1,061,000)
   Proceeds from redemption of certificate of deposit                                             1,061,000
   Purchase of investments                                                                      (11,658,000)
   Proceeds from sale of investments                              1,225,000        353,000       11,183,000
   Restricted cash from long term debt                                                           (8,500,000)
                                                                -----------    -----------     ------------ 
Net cash (used in) provided by investing activities               1,119,000        272,000      (15,201,000)
                                                                -----------    -----------     ------------ 
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
   Net proceeds from loans from officers                                                            336,000
   Payment of obligation under Capital Lease Obligations                            (7,000)          (7,000)
   Repayment of other short term loans                                                              (44,000)           
   Repayment of bridge financing                                                                 (7,000,000)
                                                                -----------    -----------     ------------ 
Net cash (used in) provided by financing activities                                 (7,000)      48,041,000
                                                                -----------    -----------     ------------ 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS               (361,000)    (1,572,000)         581,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                  5,277,000a     2,153,000                     
                                                                -----------    -----------     ------------ 
CASH AND CASH EQUIVALENTS AT END OF PERIOD                      $ 4,916,000        581,000          581,000
                                                                ===========    ===========     ============
SUPPLEMENTAL CASH FLOW INFORMATION:                                                           
   Cash paid for interest                                            79,000         86,000        1,257,000
SUPPLEMENTAL DISCLOSURE OF NONCASH                                                            
INVESTING AND FINANCING ACTIVITIES:                                                           
   Stockholder advances converted to common stock                                                10,728,000
   Loans from officer converted to common stock                                                      36,000
   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                                                         8,291,000
     restricted cash                                        
</TABLE>

                                       6
<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 March 31, 1999 and the results of operations and
     cash flows for the three months ended March 31, 1999 and March 31, 1998
     respectively and for the period from January 26, 1990 to March 31, 1999.
     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, 1998 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 three month
     period ended March 31, 1999 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 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 has
     been using the proceeds from the IDBs to finance the construction and
     installation of a 200,000 square foot manufacturing facility and related
     manufacturing equipment.

4.   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.

                                       7
<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 to 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, 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.

     During the balance of 1999, the Company intends to focus its efforts in the
following areas:

     - Completion of the development of the JETCRUZER 500, including, among
       other things, pressurization, environmental systems, de-icing capability
       and autopilot certification.

     - Obtaining 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.

     - Establishing a production line in the Company's new manufacturing
       facility and acquiring production inventory and additional items of
       equipment, tooling and computer hardware and software systems.

     - Obtaining a production certificate from the FAA and commencing commercial
       production of the JETCRUZER 500.

     - Increasing its engineering, manufacturing and administrative staff in
       anticipation of increased development and production activities.
 
     The Company believes that the remaining net proceeds from its December 1996
initial public offering ("IPO"), and the expected proceeds of the sale and lease
back of the New Facility, if completed, (see "Subsequent Events") will be
sufficient to finance its plan of operations for at least the next twelve
months, based upon the current status of its business operations, its current
plans and current economic and industry conditions. If the Company is unable to
complete the sale and lease-back of the New Facility, or its estimates prove to
be incorrect, then during such period the Company may have to seek additional
sources of financing, reduce operating costs and/or curtail growth plans.

                                       8
<PAGE>
 
Liquidity and Capital Resources

     At March 31, 1999, the Company had negative working capital of $(1,685,000)
and stockholders' equity of $8,635,000. Since its inception in January 1990, the
Company has experienced continuing negative cash flow from operations, which,
prior to the December 1996 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 and debt and its December 1996 IPO.

     Prior to mid-1994, the activities of the Company were financed primarily by
(i) equity contributions from Mr. Song Gen Yeh and members of his immediate
family, who were at that time directors and principal stockholders of the
Company, in the aggregate amount of $7,280,000 and (ii) loans in the aggregate
amount of $10,728,000 from Mr. Yeh. The loans made by Mr. Yeh were repaid
through the issuance of 598,011 shares of Class B Common Stock, 1,196,021 shares
of Class E-1 Common Stock, and 1,196,021 shares of Class E-2 Common Stock of the
Company in June 1996. Additionally, in October 1993, the Company received a loan
of $60,000, bearing interest at a rate of 12%, from SIDA Corporation ("SIDA"), a
corporation then affiliated with Dr. Carl Chen, the President and Chief
Executive Officer and a Director of the Company; and, in February and July 1994,
the Company received loans in an aggregate amount of $565,000, bearing interest
at a rate of 12%, from four individuals who were at the time not affiliated with
the Company. One of such persons, C.M. Cheng, became a Director of the Company
in June 1996. These loans were repaid in September 1996 with the proceeds of the
Bridge Financing described below.

     In the second half of 1994, the Company's expenditures decreased because
capital constraints required a reduction of the Company's development
activities. The Company's capital requirements during that period were satisfied
primarily by a loan from General Bank in the principal amount of approximately
$550,000, bearing interest at the prime rate plus 1 1/2%, which loan was
guaranteed by the Small Business Administration, the California Export Finance
Office and Dr. Chen and secured by substantially all of the Company's assets.
The Company also received an additional $50,000 loan from SIDA.

     During 1995 and 1996, the Company's capital requirements were met by
additional advances of $350,000 pursuant to the bank loan described above and
loans by Dr. Chen, bearing interest at a rate of 12%, in the aggregate principal
amount of $562,000. In June 1996, $336,000 of indebtedness owed by the Company
to Dr. Chen was converted into 187,118 shares of Class B Common Stock, 374,236
shares of Class E-1 Common Stock, and 374,236 shares of Class E-2 Common Stock.

     In September 1996, the bank loan, in the aggregate principal amount of
$900,000 plus $15,000 in accrued interest, $226,000 of the principal amount owed
to Dr. Chen, together with interest thereon of $36,000, and the loan from SIDA,
in the aggregate principal amount of $110,000 plus $31,000 in accrued interest,
were repaid with the proceeds of the Bridge Financing described below.

     In August 1996, the Company completed the Bridge Financing of $7,000,000
principal amount of Bridge Notes and 3,500,000 Bridge Warrants (which were
automatically converted to Class A Warrants upon completion of the IPO). The net
proceeds of the Bridge Financing were approximately $6,195,000 after deducting
commissions and a non-accountable expense allowance aggregating $805,000 paid to
the placement agent and other expenses of the Bridge Financing. The net proceeds
of the Bridge Financing were used to repay bank and other outstanding
indebtedness, loans from officers and directors, accrued compensation and past
due accounts payable and as working capital. The Company used a portion of the
net proceeds of the IPO to repay the Bridge Notes. Additionally, in 1996, the
Company recognized a extraordinary loss of approximately $942,000, representing
the combined unamortized debt discount and issuance costs arising from the
Bridge Financing, in the quarter in which the Bridge Notes were repaid.

                                       9
<PAGE>
 
     The Company 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 and other proposed aircraft.

     The Company expects that the remaining net proceeds of the December 1996
IPO, and the expected proceeds of the sale and lease back of the New Facility,
if completed, will enable it to meet its liquidity and capital requirements for
at least the next twelve months, by which time the Company expects to have
received a Type Certificate amendment and a production certificate for the
JETCRUZER 500 and to have commenced commercial production and sale of the
JETCRUZER 500. Such proceeds will be used primarily for amendment of the Type
Certificate, the purchase of equipment and tooling 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 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, received the required regulatory
approvals and successfully commenced commercial production of its aircraft by
the third quarter of 2000, the Company may require additional funding to fully
implement its proposed business plan. Other than the sale and lease-back
described above, 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 financings
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 substantially reduce operations.

     The Company has moved into an approximately 200,000 square foot
manufacturing and headquarters facility (the "New Facility"). The primary
financing for this project is the Company's obligation under a loan agreement
related to proceeds received from $8,500,000 in the issuance of Industrial
Development Bonds (IDB) by the California Economic Development Financing
Authority (the "Authority"). The Company was required to provide cash collateral
to 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 will expire on
August 5, 2002, if not terminated earlier by the Company or the Bank.

     The Company leases approximately 10 acres of land located on the Long Beach
Airport in Long Beach, California. The lease 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
currently under the lease is $4,500. An escalation clause in the lease increases
the monthly rent to $7,500 beginning July 1999. The lease contains incremental
increases which escalate the monthly rent to approximately $15,600 after 5
years.

     The Company contracted with Commercial Developments International/West
(Design/Builder) to design and build their approximately 200,000 square foot
manufacturing and headquarters facility (the "New Facility") on the above
mentioned leased property. The facility was substantially completed during 1998,
and on November 16, 1998, the Company moved in. The total cost for the New
Facility, including its design, construction, licenses, fees and change orders
was approximately $9,000,000.

     The Company has purchased a new integrated manufacturing, production and
cost control computer system, to support future Company growth and production
requirements. The system has been certified as Year 2000 compliant. Management
expects to have the new system installed and running during second half  of 1999
and estimates the associated costs to be immaterial to the Company's operations.

     The Company had no material capital commitments at March 31, 1999, other
than discussed in this report. The Company intends to hire a number of
additional employees which will require substantial capital resources. The
Company anticipates that it will hire up to 200 employees over the next twelve
months, including engineers and manufacturing technicians necessary to produce
its aircraft.

                                       10
<PAGE>
 
                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A Development Stage Enterprise)

YEAR 2000 COMPLIANCE

     Management believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted below, the Company has not yet
completed all necessary phases of the Year 2000 program.
<TABLE>
<CAPTION>
                       ASSESSMENT        REMEDIATION         TESTING           IMPLEMENTATION
-------------------------------------------------------------------------------------------------
<S>                  <C>               <C>                <C>                 <C>
Information          100% Complete     70% Complete       70% Complete        65% Complete
TECHNOLOGY                             Expected           Expected            Expected completion
                                       completion date    completion date     Date June 1999
                                                          August 1999         September 1999
-------------------------------------------------------------------------------------------------
OPERATING            100% Complete     90% Complete       50% Complete        50% Complete
EQUIPMENT
 WITH EMBEDDED CHIPS                   Expected           Expected            Expected
 OR SOFTWARE                           completion date    completion date     completion date
                                       June 1999          July 1999           Aug 1999
-------------------------------------------------------------------------------------------------
PRODUCTS             100% Complete     N/A                N/A                 N/A
-------------------------------------------------------------------------------------------------
3RD PARTY            100% Complete     N/A                N/A                 N/A
-------------------------------------------------------------------------------------------------
</TABLE>

     In May 1998, the Company signed a contract with Baan Business Systems of
California for license and implementation of the Baan ERP system. The Company
has received assurances from Baan that the hardware and software is Year 2000
compliant. Training and implementation began in the 3rd quarter of 1998 and is
scheduled to be completed in the 2nd half of 1999. Although the Company does not
perceive any problems with its new computer system, the failure of the new
hardware and software package to be Year 2000 compliant might result in
significant unexpected costs which would have a material adverse effect on the
Company's results of operations. The Company has completed its assessment of its
major vendors and has concluded there is no significant Year 2000 problem with
such vendors or their products.

     The Company is currently assessing various other vendors, which it plans to
utilize when production of the JETCRUZER 500 begins. The process of evaluation
includes both the significance of the vendors to the Company's operation and
their exposure to the Year 2000 problem. The Company does not anticipate any
material costs in completing its Year 2000 program.

     The Company currently has no contingency plans in place in the event it
does not complete all phases of the Year 2000 program. The Company plans to
evaluate the status of completion in October 1999 and determine whether such a
plan is necessary.

Subsequent Events
-----------------

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 

                                       11
<PAGE>
 
these earnings thresholds or minimum bid price levels, and no conversion occurs,
no compensation expense will be recorded for financial reporting purposes.

Issuance of Convertible Preferred Stock

     In March of 1999, the Company executed a non-binding term sheet with an 
institutional investor for the issuance of approximately 4,000 shares of
Convertible Preferred Stock at a price per share of $1,000. Discussions
concerning this Convertible Preferred Stock financing have not proceeded while
the Company has addressed the sale and lease-back transaction described below.

Sale and Lease-Back of New Facility

     In April 1999, the Company signed a Letter of Intent to sell its 200,000
square-foot building and lease it back. The purchase price of the building is
$9,800,000 and the term of the lease is twenty years plus an option to extend
the lease for an additional ten years. In accordance with the Letter of Intent,
the purchaser has deposited $100,000 into an escrow account.

     If the transaction is completed, monthly payments under the terms of the
lease-back will be $106,167 and will be adjusted annually, after the first year,
for changes in the Consumers' Price Index, not to exceed 3% per annum. The rent
for periods after the twentieth year would be at fair market rental value.

PART II.  OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K

          (a)  Exhibits

               27.  Financial Data Schedule

          (b)  Reports on Form 8-K

               None
                                       12

<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 17, 1999               ADVANCED AERODYNAMICS & STRUCTURES, INC.


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


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