<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- ----- Act of 1934 (Fee Required)
For the fiscal year ended September 30, 1995
- ----- Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from __________ to __________
Commission File number 0-15318
BALLISTIC RECOVERY SYSTEMS, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C>
Minnesota 41-1372079
--------- ----------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
1845 Henry Avenue, South St. Paul, Minnesota 55075-3541
- -------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Issuer's telephone number including area code: (612) 457-7491
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Check whether the Issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 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:
X Yes No
- ---- ----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Registration S-B contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X .
-----
State issuer's revenues for the most recent fiscal year: $1,137,134.
Based upon the average bid and asked prices of the Registrant's Common Stock,
the aggregate market value of the Common Stock held by Non-affiliates of the
Registrant as of December 15, 1995 was approximately $846,000.
Number of shares outstanding as of December 15, 1995: 4,454,474.
Index for exhibits is located on page 27. This document contains 32 pages.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Definitive Proxy Statement to be used in connection
with the election of directors at the 1996 annual shareholders meeting (the
"Proxy Statement") are incorporated by reference into Part III, Items 9-12 as
follows:
<TABLE>
<CAPTION>
Part of Form 10-K Portion of Proxy Statement
- ----------------- --------------------------
<S> <C> <C> <C>
1. Part III, Item 9. 1. Proposal 1: Election
Directors and Executive of Directors.
Officers of the Registrant.
2. Part III, Item 10. 2. Proposal 1: Executive
Executive Compensation. Compensation.
3. Part III, Item 11. 3. Common Stock Ownership of
Security Ownership of Principal Shareholders and
Certain Beneficial Management.
Owners and Management.
4. Part III, Item 12. 4. Certain Relationships and
Certain Relationships and Related Transactions.
Related Transactions.
</TABLE>
2
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PART I
Item 1. Description of Business
Ballistic Recovery Systems, Inc. (the "Company") was incorporated in 1980 under
the laws of the State of Minnesota.
(a) General Development of Business
The Company is engaged in the design, development,
manufacturing, marketing and distribution of parachute recovery
systems for use with recreational ("Sport Aviation") and general
aviation ("GARD") aircraft. In 1993, the Company received Federal
Aviation Administration ("FAA") approval of the GARD-150 product for
installation on FAA-certified aircraft.
Following the receipt of FAA approval, it became the intention
of the Company to find outside sources for research and development
funding in order to continue its efforts towards long-term product
development and expansion. In 1994, the Company began work on two
contract engineering projects. One of the projects is ongoing and
calls for the development of a larger version of the GARD-150 system
for use in a new certified general aviation aircraft. The other
project was suspended during fiscal year 1995 due to lack of funding.
It is the intention of the Company to continue to look for additional
contract engineering opportunities.
Also in 1994, the Company received a Phase I, Small Business
Innovation Research grant (SBIR) through NASA for use in the research
of low-cost, lightweight aircraft emergency recovery systems. Phase I
was completed during fiscal year 1995 and a Phase II proposal was
submitted in June 1995. The Company has received notification that it
was selected to negotiate a Phase II contract. The negotiations are
ongoing and should be completed by the Company's second quarter of
fiscal year 1996. The contract is for a maximum 24 month period and a
maximum of $600,000. The Company intends to continue applying for
other government funding through the SBIR program as well as other
NASA sponsored programs.
(b) Narrative Description of Business
PRINCIPAL PRODUCTS:
The Company's principal product line is ballistically deployed
parachute recovery systems. The systems, in an emergency situation,
may be activated by the pilot releasing a parachute that is designed
to open quickly, slow the decent of the aircraft, and lower it safely
to the ground to prevent or reduce human injury and damage to the
aircraft.
Sport Aviation Products:
These systems are used by unregistered aircraft such as ultralights,
hang gliders, paragliders and aircraft registered with the FAA as
experimental. The Company manufactures these products and sells them
to individuals through dealers who also market and sell the aircraft
and related products.
3
<PAGE> 4
Item 1. Description of Business - (Continued)
(b) Narrative Description of Business - (Continued)
General Aviation Recovery Device (GARD-150):
In 1985, the Company began developing a parachute recovery system for
general aviation aircraft. This system employs similar technology as
the Company's systems for lighter aircraft. In May 1993, this system,
known as the GARD-150, received a Supplemental Type Certificate (STC)
from the FAA which allows owners of Cessna 150/152 model aircraft to
install the system.
The Company began marketing the GARD-150 in mid-1993 which
resulted in the sale of six systems to date. Although sales of the
GARD-150 were soft, the GARD-150 gained media interest. The media
attention resulted in domestic and international television and radio
broadcasts as well as coverage in domestic and international aviation
and non-aviation magazines. Marketing efforts for the GARD-150 product
have been suspended with the exception of the pursuit of additional
media coverage. The Company believes that this pursuit has been
successful on an ongoing basis even into fiscal year 1996.
Contract Research and Development:
Following the receipt of the STC on the GARD-150 product, the Company
was approached by several aircraft manufacturers that
expressed interest in developing parachute systems for their aircraft.
In 1994, the Company received initial funding and signed letters of
intent for two research and development contracts for larger emergency
parachute systems. One of the projects is ongoing for a company that
is developing a four place composite, certified aircraft. The other
project was for a company that is developing three experimental
category aircraft consisting of two place, five place and seven place
composite aircraft. This project was suspended in 1995. The
successful completion of either of these projects cannot be assured.
Also, there can be no assurance that if the projects are completed,
that they will produce revenues for the Company or that they will
produce technology that can be applied to other similar aircraft, or
that if produced, will be successfully marketed and sold. See Note 3
of Notes to Financial Statements for further information.
MANUFACTURING OPERATIONS AND SUPPLIERS:
Assembly of the Company's product line is performed by the Company's
personnel in a South St. Paul, Minnesota facility, using component
parts made to its specifications. Parachutes and ballistic devices are
each purchased from two vendors. Other components are purchased from a
variety of suppliers. The Company routinely searches for new vendors
and feels alternate sources can be found should any of these vendors be
unable to meet the Company's needs.
PATENTS:
On August 26, 1986, United States Patent No. 4,607,814 was issued to
Boris Popov, founder of the Company, for an explosively deployed
parachute system for ultralight aircraft. The patent, which with the
payment of continuing maintenance fees, is effective until 2003 and has
been assigned by Mr. Popov to the Company. This patent does not cover
the rocket charge deployment aspect of the system currently being sold
by the Company.
4
<PAGE> 5
Item 1. Description of Business - (Continued)
(b) Narrative Description of Business - (Continued)
PATENTS: - (Continued)
On September 5, 1989, United States Patent No. 4,863,119 was
issued to the Company on behalf of two of the Company's employees
for a "Parachute Reefing Device" deployed as part of a ballistic
parachute system on an ultralight aircraft. The two employees have
assigned the patent to the Company, which with the payment of
continuing maintenance fees is effective until 2006. This patented
feature is utilized in the Company sport aviation line as well as in
its general aviation product. Current development projects also
utilize the reefing device as a integral design component.
When the Company completes development of additional ballistic
parachute recovery systems, it intends to apply for patents for such
systems. There can be no assurance, however, that any patents will be
granted or, if granted that they will be of material benefit to the
Company.
SEASONALITY:
Typically, the Company experiences seasonality in its sports
aviation line. The second and third quarters have the highest sales as
this product line is marketed to recreational pilots who tend to fly
their aircraft during the warmer months and equip their aircraft with a
recovery system near the beginning of the flying season. The Company's
sales efforts have expanded to increase its presence in the South
American and Australian markets as a means of reducing this
seasonality.
DEPENDENCE ON A SINGLE CUSTOMER:
During the fiscal years ended September 30, 1995 and 1994, the
Company was not dependent on any single customer that accounted for
more that 10% of its sales.
BACKLOG OF ORDERS:
As of September 30, 1995 and 1994, the Company had a backlog of
orders totaling approximately $150,000 and $87,000, respectively. The
1995 backlog is expected to be filled during fiscal year 1996.
RESEARCH AND DEVELOPMENT:
The Company spent a net of $18,913 and $73,848 on research and
development during the fiscal years ended September 30, 1995 and 1994,
respectively. The majority of the expenditures were for the expansion
and improvement of the Company's sport aviation product line. In 1994,
the Company received initial funding and signed letters of intent with
two companies for two research and development contracts for larger
emergency parachute systems. In 1995 additional funding was received
from one of these companies. Of this funding, $20,712 and $7,500 was
reflected as an offset to research and development expenses and is
netted in the totals for 1995 and 1994, respectively. See Note 3 of
Notes to Financial Statements for further information.
5
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Item 1. Description of Business - (Continued)
(b) Narrative Description of Business - (Continued)
RESEARCH AND DEVELOPMENT: - (Continued)
In December 1994, the Company was awarded a Phase I, Small
Business Innovation Research grant (SBIR) through NASA totaling
$69,736. This entire amount was reflected as an additional offset to
research and development expenses and is netted in the total for 1995.
See Note 4 of Notes to Financial Statements for further information.
COMPETITION:
The Company sells its ballistically deployed parachute recovery
systems in the United States and internationally. The Company entered
into an agreement on October 26, 1995 which effectively eliminates what
the Company believes is the only domestic competitor for ballistically
deployed parachute systems for the domestic sport aviation market.
Several foreign companies have or are attempting to introduce new
competitive products into the international sport aviation market. At
present, none of the foreign companies have successfully entered the
domestic market. The Company believes its current systems were the
first in the market and that its products and service are superior to
its competitors.
The Company has expanded its contract research and development
activities to include an expansion in the certified general aviation
market. At present, the Company is unaware of any other manufacturer
with the FAA Supplemental Type Certificate necessary for the Cessna
150/152 general aviation market. The Company is unaware of any other
manufacturer performing contract or self funded research and
development activities in an effort to obtain Supplemental Type
Certificates for any other FAA certified aircraft.
Although many companies with resources and capabilities greater
than those of the Company could develop, manufacture and market a
parachute recovery system competitive with that of the Company, the
Company estimates that such development and approval could take several
years to complete.
ENVIRONMENTAL COMPLIANCE:
The Company believes that it is in compliance with all current
federal and state environmental laws.
EMPLOYEES:
As of September 30, 1995, the Company had 11 full-time employees
at its South St. Paul facility. Most of these employees are employed
in more than one capacity.
Item 2. Description of Property
The Company leases its production facility located in a
one-story, 30,000 square foot commercial building at Fleming Field
Airport in South St. Paul., Minnesota. (See Note 9 of Notes to
Financial Statements). The Company occupies 10,000 square feet.
6
<PAGE> 7
Item 3. Legal Proceedings
The Company has been named in a lawsuit claiming that the
Company manufactured a device that exploded, causing injury to one
individual. The Company has submitted evidence supporting its position
that the product involved was not manufactured by the Company. The
Company has asked to be released from the lawsuit and believes it has
no exposure in this matter.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders through
a solicitation of proxies or otherwise during the fourth quarter.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information
Effective May 12, 1992, the Company's common stock was deleted
from the NASDAQ listings and there is currently no established trading
market for the stock. The stock is listed on the pink sheets and the
electronic bulletin board on the over the counter market. A small
number of shares have been traded since that date. The exact trading
price is not known since there is no mechanism in place to report the
trading prices. If the shares had been actively traded, the Company
believes that the current asking price would be $0.25 and the current
bid price would be $0.13 based on discussions with brokers familiar
with the Company's common stock.
The following table sets forth the estimated high and low bid
prices for the periods indicated. The estimated bid prices shown are
based on discussions with brokers familiar with the Company's common
stock. These estimates represent inter-dealer prices, without retail
markup, markdown, or commission, and do not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Common Stock:
- -------------
1995 High $0.13 $0.13 $0.13 $0.13
Low $0.06 $0.06 $0.06 $0.06
1994 High $0.25 $0.25 $0.13 $0.13
Low $0.25 $0.13 $0.13 $0.06
</TABLE>
(b) Holders
As of December 15, 1995, the Company estimates there were
approximately 1,200 beneficial owners of the Company's common stock.
(C) Dividends
No dividends have been paid on the Company's securities and it
is not anticipated that any dividends will be paid in the near future.
7
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS:
Fiscal year 1995 marks the second year of profitability for the
Company. The primary contributing factor was the Company's ability to generate
outside funding to offset the majority of research and development
expenditures. This was in part due to the receipt of the SBIR grant as well as
the two contract research and development projects. These three sources
generated $90,448 in outside funding that was taken as an offset to R&D
expenses. This compares with $12,911 in outside funding for research and
development that was generated from all sources in fiscal year 1994.
Sales in fiscal year 1995 were slightly better than sales of the prior
year. The backlog of orders at the end of fiscal year 1995 was $63,000 higher
than the backlog at the end of fiscal year 1994. Taken together, the sales
increase and the increase in the backlog reflect an improvement in sales
activity of approximately $87,000. This improvement was a result of an
increase in international order activity over the prior year and as a result of
intensified marketing and sales efforts in the domestic market. In addition,
the introduction of the new generation recovery system for the sport market was
responsible for stimulating additional interest in the product. Current sales
efforts are expected to expand sales even further than the increases that were
generated for fiscal year 1995.
Subsequent to the end of fiscal year 1995, the Company signed an
agreement with its only domestic competitor, Second Chantz Aerial Survival
Equipment, Inc., whereby such competitor would cease all business activities by
the end of January 1996. Their president and majority shareholder also entered
into a ten year covenant not to compete with the Company. The agreement calls
for covenant payments over a ten year period and is further discussed in Note
10 of Notes to Financial Statements. Although the exact impact on sales cannot
be determined at this time, it is anticipated that the elimination of the only
domestic competitor could have a positive impact on the sales of the Company.
However, no assurance can be given that such a positive impact will occur. The
Company believes that this impact is expected to be evident by the operating
results that will be presented for the Company's second quarter of fiscal year
1996. The Company expects to improve its profitability as a result of the
transaction and improve its cash flow after debt service.
The gross margin was affected for 1995 by increasing material costs and
the introduction of a new generation of recovery systems for the sport market.
This introduction generated charges to cost of sales for the materials that
became obsolete with its introduction as well as charges relating to higher
labor costs that resulted from the transition to the new model. Gross margins
for the coming fiscal year are expected to improve as a result of pricing
increases that are planned for mid-fiscal year and increased labor
efficiencies.
As noted earlier, research and development costs were offset by $90,448
in outside funding as compared to $12,911 in the prior fiscal year. This
resulted in a significant net reduction in reported research and development
expenses. The gross expenses actually increased by approximately $23,000 which
represented increases in payroll costs and expenses that were specifically
associated with the outside funded projects.
In 1994, the Company received initial funding and signed letters of
intent for two research and development contracts for larger emergency
parachute systems. In 1995, $13,000 in additional funding was received from
one of the companies. One of the projects is ongoing and is expected to
provide funding to the Company over the next several years. The other project
was suspended during fiscal year 1995. See Note 3 of Notes to Financial
Statements for further information.
8
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS: - (Continued)
In December 1994, the Company was successful in receiving a Phase I,
Small Business Innovation Research grant (SBIR) through NASA for use in the
research of low-cost, lightweight aircraft emergency recovery systems. Phase I
was completed during fiscal year 1995 and a Phase II proposal was submitted in
June 1995. The Company has received notification that it was selected to
negotiate a Phase II contract. The negotiations are ongoing and should be
completed by the end of the Company's first quarter of fiscal year 1996. The
contract is for a maximum 24 month period and a maximum of $600,000. See Note
4 of Notes to Financial Statements for further information.
LIQUIDITY AND CAPITAL RESOURCES:
Although the Company continues to experience cash flow difficulties,
the Company has taken, and is continuing to take steps to improve its
liquidity. Management intends to continue to improve the Company's operations
and cash flows in 1996. The following outlines management's plans:
* The Company's focus on research and development has
shifted over the past several years. Following the completion of the
GARD-150 project, it became the intention of the Company to find
outside sources for research and development funding in order to
continue its efforts towards long-term product development and
expansion. In 1994, the Company received initial funding and signed
letters of intent for two research and development contracts for larger
emergency parachute systems. One of the projects is ongoing for a
company that is developing a four place composite, certified aircraft.
The other project was for a company that is developing three
experimental category aircraft consisting of two place, five place and
seven place composite aircraft. The second project was suspended in
1995. The successful completion of either of these projects cannot be
assured. With the signing of these two agreements, the Company believes
that it has begun the process of possibly expanding its research and
development efforts into a profit center for the Company through
outside funding. In addition, the receipt of outside funding has
increased the Company's opportunities to develop products for expanded
applications throughout the general aviation and experimental aircraft
markets. It will always be the intention of the Company to retain the
rights to any developed technology and the rights to manufacture any
related products. See Note 3 of Notes to Financial Statements for
further information.
* In December 1994, the Company was awarded a Phase I, Small Business
Innovation Research grant (SBIR) through NASA for use in the research
of low-cost, lightweight aircraft emergency recovery systems. The
$70,000 grant was used to provide a feasibility study to determine
whether or not future funding through NASA in the form of a Phase II
grant is warranted. The Phase I research was completed in June 1995
and the Phase II grant was applied for as part of the final report.
The Company has been notified that it has been selected to negotiate a
Phase II contract. The negotiations are ongoing at present and are
expected to be completed by the Company's second quarter of fiscal
year 1996.
During fiscal 1995, the Company applied for an additional Phase
I SBIR grant, but was not granted that award. The Company anticipates
applying for additional grants over the coming fiscal years through the
SBIR program and other programs sponsored by NASA. No assurances can
be made as to the future success of the current grant nor the
likelihood of the receipt or success of any future grants.
9
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES: - (Continued)
o As noted in the Results of Operations section, the Company
entered into an agreement with its only domestic competitor to
effectively eliminate its domestic competition. The effect of this
transaction should be evident by the Company's second quarter of fiscal
year 1996. Although the agreement calls for debt service over a ten
year period, the Company believes that the agreement will have a
positive impact on both profitability and cash flow. See Note 10 of
Notes to Financial Statements.
This agreement in addition to other sales programs that have
been implemented by the Company over the past several years should
continue to strengthen the Company's revenues and profitability into
the future.
Management intends to fund all of its continuing operation out of its
current revenues with the exception of expanded research and development.
Management believes that the current business operation is adequate to support
the ongoing operations of the Company during the next twelve month period and
will maintain expenses at the necessary levels until further funding
opportunities materialize.
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Item 7. Financial Statements and Supplementary Data
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Page
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(1) Financial Statements for the years ended September 30, 1995 and 1994:
Independent Auditors' Report 12
Balance Sheets as of September 30, 1995 and 1994 13
Statements of Operations for the years ended September 30, 1995 and 1994 14
Statements of Shareholders' Equity (Deficit) for the years ended
September 30, 1995 and 1994 15
Statements of Cash Flows for the years ended September 30,
1995 and 1994 16
Notes to Financial Statements 17
</TABLE>
(2) Financial Statement Schedules of Supplemental Information are no longer
required under Regulation S-B.
11
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INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Ballistic Recovery Systems, Inc.
South St. Paul, Minnesota
We have audited the accompanying balance sheets of Ballistic Recovery Systems,
Inc. as of September 30, 1995 and 1994 and the related statements of
operations, shareholders' deficit, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes an assessment of the accounting principles used and significant
estimates made by management, as well as an evaluation of the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 1995 and 1994 financial statements referred to above
present fairly, in all material respects, the financial position of Ballistic
Recovery Systems, Inc. as of September 30, 1995 and 1994 and the results of
operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Carver, Callahan, Moquist & Johnston, P.A.
Carver, Callahan, Moquist & Johnston, P.A.
Minneapolis, Minnesota
November 13, 1995
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BALLISTIC RECOVERY SYSTEMS, INC.
BALANCE SHEETS
September 30, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash $16,977 $53,138
Accounts receivable - net of allowance for doubtful
accounts of $5,000 66,038 20,343
Inventories 175,354 149,209
Prepaid expenses 2,969 3,465
----------- -----------
Total current assets 261,338 226,155
----------- -----------
Furniture and fixtures 67,005 57,560
Less accumulated depreciation (53,061) (46,910)
----------- -----------
Furniture and equipment - net 13,944 10,950
----------- -----------
Other assets - patents less accumulated amortization of
$5,866 and $5,180, respectively 5,799 6,485
----------- -----------
Total assets $281,081 $243,590
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $61,563 $71,697
Customer deposits 75,183 24,935
Accrued payroll 20,099 16,364
Other accrued liabilities 62,114 98,408
Deferred research and development funding (Note 3) 7,789 15,500
Current portion of long-term debt -- 18,142
----------- -----------
Current and total liabilities 226,748 245,046
----------- -----------
Shareholders' equity (deficit):
Common stock ($.01 par value; 10,000,000 shares
authorized; shares issued and outstanding of
4,454,474 in 1995 and 4,416,324 in 1994) 44,545 44,164
Additional paid-in capital 2,620,282 2,610,377
Accumulated deficit (2,610,494) (2,655,997)
----------- -----------
Total shareholders' equity (deficit) 54,333 (1,456)
----------- -----------
Total liabilities and shareholders' equity (deficit) $281,081 $243,590
=========== ===========
</TABLE>
See Notes to Financial Statements and Independent Auditors' Report.
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BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
Years Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Sales $1,137,134 $1,113,357
Cost of sales 756,115 687,420
--------- ---------
Gross profit 381,019 425,937
Selling, general and administrative 307,641 300,752
Research and development 18,913 73,848
--------- ---------
Income from operations 54,465 51,337
Other income (expense):
Interest expense (9,167) (12,460)
Other Income - net 505 (4,913)
Legal settlement --- (750)
--------- ---------
Income before income taxes 45,803 33,214
Income taxes 300 300
--------- ---------
Net income $45,503 $32,914
========= =========
Primary earnings per share $0.01 $0.01
========= =========
Weighted average number of shares outstanding 4,454,474 4,416,324
========= =========
Fully diluted earnings per share $0.01 $0.01
========= =========
Weighted average number of shares outstanding 6,294,752 6,191,924
========= =========
</TABLE>
See Notes to Financial Statements and Independent Auditors' Report.
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BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Years Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock
------------------------ Additional Share-
Number of Paid-in Accumulated holders'
Shares Amount Capital Deficit Equity(Deficit)
------ ------ ------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Balance 9/30/93 4,416,324 $44,164 $2,610,377 ($2,688,911) ($34,370)
Net income -- -- -- 32,914 32,914
--------- ------- ---------- ------------ --------
Balance 9/30/94 4,416,324 44,164 2,610,377 (2,655,997) (1,456)
Issuance of stock in
lieu of director fees 38,150 381 9,905 -- 10,286
Net income -- -- -- 45,503 45,503
--------- ------- ---------- ------------ -------
Balance 9/30/95 4,454,474 $44,545 $2,620,282 ($2,610,494) $54,333
========= ======= ========== ============ =======
</TABLE>
See Notes to Financial Statements and Independent Auditors' Report.
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BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF CASH FLOW
Increase (Decrease) in Cash
Years Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flow from operating activity:
Net income $ 45,503 $ 32,914
Adjustments to reconcile net income to net cash
from operating activity:
Depreciation and amortization 7,137 7,827
Amortization of discount on debt 986 1,690
Inventory valuation reserve -- 15,000
Accounts receivable (45,695) 5,062
Inventories (26,145) (21,244)
Prepaid expenses 496 (93)
Accounts payable (10,135) (21,423)
Customer deposits 50,249 9,732
Accrued expenses (29,984) 42,238
--------- ---------
Net cash from operating activities (7,588) 71,703
--------- ---------
Cash flow from investing activities:
Capital expenditures (9,445) (2,756)
--------- ---------
Net cash from investing activities (9,445) (2,756)
--------- ---------
Cash flow from financing activities:
Principal payments on debt (19,128) (63,914)
--------- ---------
Net cash from financing activities (19,128) (63,914)
--------- ---------
Increase (decrease) in cash (36,161) 5,033
Cash - beginning of year 53,138 48,105
--------- ---------
Cash - end of period $ 16,977 $ 53,138
========= =========
Cash paid for:
Interest $ 9,326 $ 12,681
Income taxes 300 300
</TABLE>
A summary of non cash activity is as follows:
_ In 1995, additional common stock was issued in lieu of directors
fees due of $10,286.
_ In 1994, the Company recorded an inventory valuation reserve in
the amount of $15,000.
See Notes to Financial Statements and Independent Auditors' Report.
16
<PAGE> 17
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
1. Summary of Significant Accounting Policies
Business Description
Ballistic Recovery Systems, Inc. (the"Company") designs, manufactures and
distributes ballistic recovery parachute systems used on recreational
aircraft and has received approval for the production and distribution of
recovery systems for Cessna 150/152 model general aviation aircraft. The
Company has also been successful in its efforts to receive outside funding
to expand its research and development activities through research grants
and contract R&D services.
Accounts Receivable
The Company sells predominantly to domestic and foreign companies. The
Company grants uncollateralized credit to some customers, but the
majority of sales are prepaid or shipped cash on delivery (COD).
Inventories
Inventories are recorded at the lower of cost (determined on a first-in
basis) or market. Parachutes and ballistic devices are each purchased
from two vendors.
Customer Deposits
Customer deposits represent advance payments received from customers prior
to shipment of product. The deposits are recognized as revenue when the
product is shipped.
Furniture and Equipment
Furniture and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related
assets, ranging from five to seven years. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and the resulting gain or loss is recognized in
income for the period. The cost of maintenance and repairs is expensed as
incurred; significant renewals and betterments are capitalized. Deduction
is made for retirements resulting from renewals or betterments.
Patents
Patents are recorded at cost and are being amortized on a straight-line
method over 17 years.
Earnings Per Share
Earnings per common share is determined by dividing net income by the
weighted average number of common shares outstanding during the year.
17
<PAGE> 18
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
1. Summary of Significant Accounting Policies (Continued)
Income Taxes
Income and expenses are basically the same for financial statements and
income tax purposes. A deferred tax asset has not been reflected for
future benefit of the Company's net operating loss carry forwards due to
concerns over its eventual realization.
2. Continued Existence
The Company's continued existence is dependent upon management's ability to
continue to improve operational results and resolve liquidity problems.
Management intends to continue to improve the Company's operations and cash
flows in 1996 by continuing to monitor and enhance cost saving plans
adopted in the prior years and implementation of new ones. The following
outlines management's plans:
* The Company's focus on research and development has shifted over the
past several years. Following the completion of the GARD-150 project,
it became the intention of the Company to find outside sources for
research and development funding in order to continue its efforts
towards long-term product development and expansion. In 1994, the
Company received initial funding and signed letters of intent
for two research and development contracts for larger emergency
parachute systems. One of the projects is ongoing and that company is
developing a four place composite, certified aircraft. The other
project was for a company developing three experimental category
aircraft consisting of two place, five place and seven place composite
aircraft. This project was suspended in 1995. The successful
completion of either of these projects cannot be assured. With the
signing of these two agreements, the Company believes that it has
begun the process of possibly expanding its research and development
efforts into a profit center for the Company through outside funding.
In addition, the receipt of outside funding has increased the
Company's opportunities to develop products for expanded applications
throughout the general aviation and experimental aircraft markets. It
will always be the intention of the Company to retain the rights to
any developed technology and the rights to manufacture any related
products. See Note 3 of Notes to Financial Statements for further
information.
* In December 1994, the Company was awarded a Phase I, Small Business
Innovation Research grant (SBIR) through NASA for use in the research
of low-cost, lightweight aircraft emergency recovery systems. The
$70,000 grant was used to provide a feasibility study to determine
whether or not future funding through NASA in the form of a Phase II
grant is warranted. The Phase I research was completed in June 1995
and the Phase II grant was applied for as part of the final report.
The Company has been notified that it has been selected to negotiate a
Phase II contract. The negotiations are ongoing at present and are
expected to be completed by the Company's second quarter of fiscal
year 1996.
During fiscal 1995, the Company applied for an additional Phase I SBIR
grant, but was not granted that award. The Company anticipates
applying for additional grants over the coming fiscal years
through the SBIR program and other programs sponsored by NASA. No
assurances can be made as to the future success of the current grant
nor the likelihood of the receipt or success of any future grants.
18
<PAGE> 19
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
2. Continued Existence - (Continued)
* In October 1995, the Company entered into an agreement with its only
domestic competitor to effectively eliminate its domestic competition.
The effect of this transaction should be evident by the Company's
second quarter of fiscal year 1996. Although the agreement calls for
debt service over a ten year period, the Company believes that the
agreement will have a positive impact on both profitability and cash
flow.
This agreement in addition to other sales programs that have been
implemented by the Company over the past several years should
continue to strengthen the Company's revenues and profitability into
the future.
Management intends to fund all of its continuing operation out of its
current revenues with the exception of expanded research and development.
Management believes that the current business operation is adequate to
support the ongoing operations of the Company during the next twelve month
period and will maintain expenses at the necessary levels until further
funding opportunities materialize.
3. Research and Development Funding and Income Recognition
In 1994, the Company received initial funding and signed letters of intent
for two research and development contracts for larger emergency parachute
systems. One of the companies is developing a four place composite,
certified aircraft and this project is ongoing. The other company is
developing three experimental category aircraft consisting of two place,
five place and seven place composite aircraft. This second project was
suspended during fiscal year 1995. Both of the companies are privately
held.
The initial funding called for the preparation of formalized development
plans and time lines. In addition, preliminary engineering drawings,
including proposed canopy configurations and designs, were prepared, as
well as preliminary engineering support. Additional funding in the amount
of $13,000 was received during fiscal year 1995.
Of the initial and additional funding received of $36,000, $20,712 and
$7,500 were reflected as an offset to research and development
expenses and is netted in the expense for 1995 and 1994, respectively. The
remaining $7,789 is reflected as deferred research and development funding
at September 30, 1995.
Additional funding, although not guaranteed, is expected to be received on
a monthly basis over the next 18 to 24 months as the research and
development progresses. Although exact time lines and production volumes
are uncertain, it is expected that manufacturing of production units will
commence at the end of the funding time line.
19
<PAGE> 20
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
3. Research and Development Funding and Income Recognition - (Continued)
The Company will retain the developed technology for the parachute systems
in general and the outside companies will retain the developed technology
that is specific to their individual aircraft. In order to retain the
developed technology, the Company will offer the company with the ongoing
project, a discount on future purchases of completed systems which will
total 110% of the advanced amount. The other company's project has been
suspended and future work with this company is not certain. The Company
did not establish a liability for the initial $28,211 taken as an offset to
expense for 1995 and 1994 due to the uncertainty of the future of the
project and the future viability of the products to be developed. In
addition, the Company feels that the establishment of a reserve for a
potential future obligation would be misleading to the financial statements
as presented. Any future purchase discounts that will be earned upon
completion of the project will be offset against any future sales made to
that company.
The Company expects to be able to utilize the developed technology for
applications on a wide range of aircraft. The future applications will
depend on a complete review of market conditions, product acceptance
and available funding.
4. Small Business Innovation Research Grant (SBIR)
In December 1994, the Company was awarded a Phase I, Small Business
Innovation Research grant (SBIR) through NASA for use in the research of
low-cost, lightweight aircraft emergency recovery systems. The $70,000
grant over a six month period was used by the Company to expand its
research in the area of lightweight fabrics and components for use in
recovery systems. The Phase I was completed in June 1995 and a proposal
for Phase II funding was submitted at that time. The Company has been
notified by NASA that it has been selected to negotiate a Phase II
contract. Negotiations are still underway and a final contract is
anticipated by the Company's second quarter of fiscal year 1996. The Phase
II grant is for a maximum of $600,000 and for a maximum of 24 months.
5. Other Financial Information
Inventories
Inventories consisted of the following at September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw materials $166,544 $115,100
Work in process 18,125 41,345
Finished goods 5,685 7,764
Less valuation reserve (15,000) (15,000)
-------- --------
Total Inventories $175,354 $149,209
======== ========
</TABLE>
Depreciation Expense
Depreciation expense totaled $6,451 in 1995 and $7,141 in 1994.
20
<PAGE> 21
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
5. Other Financial Information (Continued)
Major Customers
During the fiscal years ended September 30, 1995 and 1994, the Company was
not dependent on any single customer that accounted for more than 10% of
its sales.
Export Sales
The Company's international sales are made through independent
representatives in various foreign countries. International sales as a
percentage of total sales were 44% in 1995 and 39% in 1994.
6. Long-Term Debt
Long-term debt consisted of the following at September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Note payable, to a shareholder/director, collateralized
by the STC on the GARD product, 10% interest, with
monthly principal and interest payments of $2,482. The
final payment is due May 1995. $ -- $ 18,142
Less current portion -- (18,142)
------------ ---------
Long-term debt $ -- $ --
=========== ============
</TABLE>
7. Income Taxes
Below is a reconciliation between expected income tax expense that would
result from applying domestic federal statutory rates to pretax income and
income tax expense as recorded in the financial statements for the years
ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Expected income tax expense $6,800 15.0% $4,900 15.0%
State income taxes, net of federal
tax benefit 700 1.5 500 1.5
Benefit of net operation loss (7,500) (16.5) (5,400) (16.5)
State minimum fee 300 0.1 300 0.1
-------- -------- --------- ---------
Income tax expense $300 0.1% $300 0.1%
======== ======== ======== ========
</TABLE>
21
<PAGE> 22
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
7. Income Taxes (Continued)
The net deferred tax asset consists primarily of net operating loss carry
forwards, capital loss carry forwards and recognition of loss on disposal of
intangible asset. Below is a summary of the net deferred tax asset at
September 30:
<TABLE>
<CAPTION>
1995 1994
-------------------------------- ---------------------------------
Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal $ 16,000 $ 636,000 $ 652,000 $ 12,000 $ 651,000 $ 663,000
State 7,000 76,000 83,000 5,000 82,000 87,000
------- -------- -------- ------ ------- -------
23,000 712,000 735,000 17,000 733,000 750,000
Valuation
allowance (23,000) (712,000) (735,000) (17,000) (733,000) (750,000)
------- -------- -------- ------ ------- -------
Net deferred tax
asset $ --- $ --- $ --- $ --- $ --- $ ---
======= ======== ======== ====== ======= =======
</TABLE>
The Company has net operating loss and research and development credit
carry forwards available to offset future taxable income. If not utilized,
these carry forwards will expire as follows:
<TABLE>
<CAPTION>
Net Operating Loss
------------------ R & D
Year Federal Minnesota Credits
---- ------- --------- -------
<S> <C> <C> <C>
2001 $ 553,000 $ -- $ 4,000
2002 519,000 148,000 4,000
2003 713,000 213,000 5,000
2004 132,000 50,000 --
2005 113,000 13,000 --
2006 457,000 97,000 --
2007 182,000 182,000 --
------- ------- -----
Total $2,669,000 $703,000 $13,000
========== ======== =======
</TABLE>
8. Common Stock
Stock Options
In fiscal 1988, the Company adopted a non qualified stock option plan that
authorizes the grant to officers and other employees of non qualified stock
options for a maximum of 200,000 shares. Under the terms of the plan, the
options become exercisable in annual increments of one-third of the shares
covered by the option, beginning one year after grant, the exercise price
of each option must be at least 85% of the fair market value of the stock
as of the date of grant, and the maximum term of each option is 10 years.
In fiscal 1991, the Board of Directors authorized, and the shareholders
approved at the annual meeting, an increase in the number of shares
available under
22
<PAGE> 23
the plan to 400,000.
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
8. Common Stock (Continued)
Stock Options (Continued)
In fiscal 1990, the Company adopted a stock option plan for non employee
directors. The plan is authorized to grant options for a maximum, in the
aggregate, of 300,000 shares of the Company's common stock to non employee
directors. Under the plan, an option to purchase 10,000 shares of common
stock, at an exercise price equal to the fair market value of the stock on
the date of grant, is to be granted each year on the next business day
following the annual shareholders meeting or April 1, whichever is later,
to each non employee director then in office. Each option becomes
exercisable in increments of 25% per quarter during the year of service and
terminates 10 years following the date of grant.
In addition to options issued pursuant to the above-described plans, the
Company has issued options to various officers, employees and others.
Transactions during 1995 and 1994, for the plans and other issuances above
were as follows:
<TABLE>
<CAPTION>
Number Option Price
Of Shares Range per Share
--------- ---------------
<S> <C> <C>
Balance at September 30, 1993 1,743,772 $0.25 to $0.8125
Granted 91,656 $0.25 to $0.46875
Canceled (28,000) $0.4375
-----------
Balance at September 30, 1994 1,807,428 $0.25 to $0.8125
Granted 285,000 $.025 to $0.4375
Canceled (50,000) $0.5625
Exercised (7,150) $0.3125 to $0.453
-----------
Balance at September 30, 1995 2,042,428 $0.25 TO $0.8125
=========
At September 30, 1995:
Options vested and exercisable 1,840,278
Shares available for options 324,240
</TABLE>
9. Commitments and Contingencies
Leases
The Company leases its South St. Paul facility under a lease which extends
through November 1996. The Company also leases office equipment under
various operating leases. Total rental expense for operating leases during
1995 and 1994 was $19,632 and $21,936, respectively.
23
<PAGE> 24
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
9. Commitments and Contingencies (Continued)
Leases (Continued)
Future minimum lease payments required on non cancelable operating leases at
September 30, 1995 are as follows:
<TABLE>
<S> <C>
1996 $19,632
1997 3,272
Thereafter --
--------
$22,904
========
</TABLE>
10. Subsequent Event
On October 26, 1995 the Company entered into an agreement with the
president and majority shareholder of Second Chantz Aerial Survival
Equipment, Inc. (SCI), the Company's sole U.S. competitor, whereby:
1. SCI will cease all business activities, and
2. SCI's president and majority shareholder entered into a ten year
covenant not to compete with the Company.
In exchange for the above the Company has agreed to make payments on
the covenant not to compete. The agreement did not involve a stock or asset
purchase. In addition, the Company did not agree to assume any liabilities
of SCI or its president. The payments required under this agreement
contains a non-interest bearing portion and a portion that bears interest at
a rate below the Company's incremental borrowing rate. Under generally
accepted accounting principles the future payments have been discounted at
the Company's incremental borrowing rate of 11.0% as follows:
<TABLE>
<CAPTION>
Future Present
Dollars Dollars
--------- ---------
<S> <C> <C>
Cash at signing $ 5,000 $ 5,000
Parachute systems 15,000 15,000
Non-interest bearing four year note 80,000 63,732
4% ten year note 400,000 295,706
--------- ---------
$ 500,000 $ 379,438
========= =========
</TABLE>
24
<PAGE> 25
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
10. Subsequent Event (Continued)
The pro forma effect on the Company's balance sheet at September 30, 1995
is as follows:
<TABLE>
<CAPTION>
As Pro forma
Presented Presentation
---------- ------------
<S> <C> <C>
Current assets $ 261,338 $ 256,338
Furniture and equipment, net 13,944 13,944
Other assets, net 5,799 385,237
--------- ---------
Total Assets $ 281,081 $ 655,519
========= =========
Current liabilities $ 226,748 $ 271,176
Long-term debt - 330,010
Shareholders' equity 54,333 54,333
--------- ---------
Total liabilities and shareholder' equity $ 281,081 $ 655,519
========= =========
</TABLE>
The covenant not to compete will be amortized on a straight-line method over
its ten year life. Future minimum maturities under this agreement are as
follows:
<TABLE>
<S> <C>
1996 $ 29,428
1997 31,702
1998 35,370
1999 39,463
2000 35,517
Thereafter 187,958
---------
$ 359,438
=========
</TABLE>
The Company also granted SCI's president an option to purchase 50,000 shares of
the Company's common stock at an exercise price of $.25. This option has a
ten year life and vests 20% per year over five years.
25
<PAGE> 26
PART II (Continued)
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
There have been no disagreements with the Company's independent
certified public accountants on accounting principles or
practices or financial statement disclosures.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16(a) of the Exchange Act
The information required by this item is incorporated by reference
from the Proxy Statement.
Item 10. Executive Compensation
The information required by this item is incorporated by reference
from the Proxy Statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference
from the Proxy Statement.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference
from the Proxy Statement.
26
<PAGE> 27
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Page Exhibit
Number Number Description
------ ------ -----------
<S> <C> <C>
3.1 Company's Articles of Incorporation,
as amended, appear as Exhibit 3.1 to the
Company's Registration Statement on Form
S-1 (No. 33-21843) filed May 12, 1988
("Form S-1") and are incorporated herein
by reference.
3.2 Company's Restated Bylaws as
amended, were filed as Exhibit 3.2, under
Form 8, Amendment No. 1 ("1990
Amendment") to Company's Report on Form
10-K for the fiscal year ended September
30, 1990 (the "1990 10-K") and are
incorporated herein by reference.
10.1 Covenant not to Compete Agreement dated
October 26, 1995 between the Company
and the President and majority
shareholder of Second Chantz Aerial
Survival Equipment, Inc. is filed
as an exhibit to this 10-KSB filing.
10.2 Non-qualified Stock Option Plan appears
as Exhibit 10-1 to Amendment No. 1 to
the Form S-1 and is incorporated herein
by reference.
10.3 Stock Option Plan for Non-employee
Directors dated February 12, 1990
appears as Exhibit 10.5 to the 1989
10-K and is incorporated herein by
reference.
</TABLE>
(b) The Company did not file any Current Reports on Form 8-K during the fourth
quarter ended September 30, 1995.
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALLISTIC RECOVERY SYSTEMS, INC.
By /s/ Mark B. Thomas
------------------
Mark B. Thomas
Principal Executive Officer, Principal Financial Officer and Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Darrel D. Brandt Director December 28, 1995
- --------------------------
Darrel D. Brandt
/s/ Boris Popov Director December 28, 1995
- --------------------------
Boris Popov
/s/ Robert L. Nelson Director December 28, 1995
- --------------------------
Robert L. Nelson
/s/ Thomas H. Adams Director December 28, 1995
- -------------------------
Thomas H. Adams
</TABLE>
28
<PAGE> 1
EXHIBIT # 10.1
AGREEMENT NOT TO COMPETE
THIS AGREEMENT is dated this 26th day October, 1995 by John Dunham an
individual and Ballistic Recovery Systems, Inc., ("BRS") a Minnesota
corporation.
John Dunham desires and intends to enter this Covenant Not to Compete related
to the design, development,manufacturing, marketing and distribution of "Whole
Aircraft Recovery Systems" to BRS, based upon the terms and conditions set
forth.
BRS desires to compensate John Dunham for his Covenant Not to Compete (the
"Agreement") with BRS based upon the terms and conditions set forth.
In consideration of the covenants and agreements contained herein and for other
good and valuable consideration, the value of which is acknowledged and the
parties agree as follows:
Except as specifically consented to by BRS in writing, from the date of this
Agreement and for a Ten (10) year period, John Dunham shall not, in the United
States of America, Canada or worldwide, either directly or indirectly compete
with BRS in any of BRS's current or future markets, provided BRS is not in
default under the Agreement, as set forth:
1. John Dunham has all requisite corporate power and authority for and on
behalf of Second Chantz Aerial Survival Equipment, Inc. ("SCI"). Upon
execution of the terms of this Agreement, SCI shall cease all business
activities, as set forth herein.
2. John Dunham is in the business of designing, developing, manufacturing,
marketing and distributing "Whole Aircraft Recovery Systems" and components
which includes, but is not limited to: Ultralights, R.P.V.'s, Hanggliders,
Paragliders, Home build Aircraft, Microlights, Rotorcraft, Balloons and
Certified Aircraft. Other "recovery systems" used for applications other
than "Whole Aircraft Recovery Systems" shall be excluded.
3. During the term of this Covenant Not to Compete, John Dunham will neither
directly or indirectly, own, manage, finance, operate or control,
participate in, act as a consultant or advisor, or be connected in any way
with business activities which are competitive or become competitive with
BRS and further will not disclose trade secrets, price lists, customer
lists, financial information, technical information, or other confidential
information concerning BRS or SCI business affairs, for the Ten year term.
4. John Dunham directing SCI will cease taking customer orders within Two (2)
working days from the date of execution of this Agreement. John Dunham
will direct SCI to fill the current backlog of orders that it has as of
the date of execution of this Agreement and be completed within Ninety (90)
days of execution.
5. John Dunham will continue to service SCI parachute units for Ninety (90)
days after the execution of this Agreement. BRS agrees not to service SCI
units, but will provide update options to BRS units for all SCI customers.
29
<PAGE> 2
6. All repairs and re-pack work will be discontinued by SCI and Dunham Ninety
(90) days after execution of this Agreement, except for warranty service,
set forth herein.
7. John Dunham has the option of becoming an exclusive North American
distributor for BRS parachutes designed for the Air Creation Trike and
would receive the most favorable OEM pricing which is currently
twenty-eight (28%) percent. John Dunham shall further have the option to
become a distributor for other BRS systems.
8. John Dunham retains the rights to produce the patented invention termed
the A.I.R.(R) Rocket device for "Whole Aircraft Recovery Systems" and other
applications, which are beyond the scope of this Agreement. Should BRS
decide to introduce the A.I.R.(R) Rocket into its product line, John Dunham
agrees to supply the product for "Whole Aircraft Recovery Systems"
exclusively to BRS. John Dunham will provide BRS with plans and
specifications of the A.I.R.(R) Rocket System which are presently
available. John Dunham will further work diligently to help integrate his
A.I.R.(R) Rocket into the BRS product line. John Dunham will supply free
of charge several working samples and parachute container for BRS
inspection and tests. Any sales for the A.I.R.(R) Rocket Device for UP
Europe shall be sold exclusively through BRS.
9. Any and all inquiries regarding warranty service of the A.I.R.(R) Rocket
will be forwarded by BRS to John Dunham for servicing and shall continue so
long as John Dunham designates.
10. As a condition to this Agreement, it is understood and the parties agree
that all press releases and other announcements, regarding this Agreement,
whether written or oral shall be subject to mutual agreement and consent
prior to dissemination.
11. It is understood that as a condition to this Agreement (whether written or
oral) any and all information concerning this Agreement, including the
parties, terms, conditions, consideration shall remain in strict
confidence. No portion of its contents shall be unnecessarily disclosed,
released, or divulged to any person, corporation, business, opposing
attorney, or the public. That any necessary disclosure imposed on BRS by
law, shall be limited to only that information imposed by law and as set
forth in this Agreement.
12. BRS agrees and acknowledges that it has all requisite corporate power and
authority to enter into this valid and binding contract and to consummate
the transactions contemplated. This agreement and any other agreements and
instruments to be executed by BRS in connection have been or will be duly
executed and authorized by all necessary action, corporate or otherwise and
constitute a legal, valid, and binding obligation of BRS and be enforceable
in accordance with the terms. The execution of this Agreement will not
result in a breach or be in conflict with any other agreement, Article of
Incorporation or Bylaw, or other regulation applicable to BRS.
13. This Agreement shall be governed by, construed and enforced in accordance
with the laws of the State of Nevada.
14. This Agreement, the exhibits and the documents delivered with this
Agreement contain or will contain the entire agreement between the parties
and supersede all previous oral and written commitments, negotiations and
understandings.
30
<PAGE> 3
15. Any provision of this Agreement which is invalid, illegal or unenforceable
shall be ineffective as to the other provisions of this Agreement and will
not affect the legality and enforceability of the remaining provisions.
16. BRS, SCI, and John Dunham and their respective directors, officers,
employees and assigns shall jointly and severally, indemnify and hold
harmless one another and their representatives and assigns at all times
from any and all claims, losses, damages, liabilities, assessments, suits,
actions, legal or otherwise, including any costs, expenses or accounting
for any actions incurred or suffered by the other party in connection with
a breach by BRS, SCI, or John Dunham of any obligation contained in this
Agreement.
17. The parties agree and understand that any breach of this Agreement will
cause one another irreparable harm for which there is no adequate remedy at
law, and, in addition to whatever rights they may otherwise have under
applicable law; further, each party consents to special damages of a
reasonable amount for the breach of any of the covenants or agreements
herein. Any controversy, claim or dispute arising from the breach of this
Agreement shall be initially submitted to binding arbitration in the state
of John Dunham's residence first and any subsequent to the state of BRS
choosing.
18. In the event of a dispute or breach of this Agreement, the party against
whom such claim is finally determined agrees to pay the court costs and
reasonable attorney fees of the party who prevails on such claim.
19. This Agreement shall inure and be assignable to the benefit of and be
binding upon the parties and their respective permitted successors, heirs
and assigns.
20. BRS, SCI and John Dunham and their respective directors, officers,
employees, and assigns shall jointly and severally, indemnify and hold
harmless one another and their representatives and assigns at all times as
a result of any claims against, or liabilities or obligations of BRS, SCI
and John Dunham related to their respective business or the products.
(I) BRS disclaims any and all responsibility and liability for
John Dunham's and SCI's, past, present, and future products and
business activities; and
(II) John Dunham and SCI disclaim any and all responsibility and
liability for BRS's, past, present, and future products and business
activities.
IN CONSIDERATION of the representations, covenants and agreements set forth,
the parties agree to the following terms: BRS promises to pay John Dunham, his
successors, heirs or assigns, Five Hundred Thousand Dollars ($500,000.00) as
follows:
a. Upon execution of this Agreement, BRS shall immediately pay to John
Dunham, a payment of Five Thousand Dollars ($5,000.00) by certified
check.
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b. Simultaneously with the execution of this Agreement, BRS shall
give an invoice crediting John Dunham in the amount of Fifteen Thousand
Dollars ($15,000.00) for BRS complete, assembled parachute systems the
model designated by John Dunham and delivery taken of no more than four
(4) units per month in each of January and February 1996, with the
remaining units taken at any time thereafter.
c. Eighty-Thousand Dollars ($80,000.00) which amount shall not
accrue interest, shall be payable over a maximum of four (4) years.
Any amount unpaid shall be paid in full on November 1, 1999. The
parties have agreed to a minimum monthly payment of Fifteen Hundred
Dollars ($1500.00) payable by check to John Dunham as designated. The
first payment will be due One Hundred (100) days from the date of
execution of this Agreement and continuing the tenth day of each
month thereafter.
d. The remaining balance of Four Hundred Thousand Dollars
($400,000.00) is payable over a maximum of Ten (10) years. Any
amount unpaid shall be paid in full on November 1, 2005, with amortized
interest of Four (4%) percent per annum. Simultaneously with the
execution of this Agreement, BRS will pay to John Dunham as designated,
on the first day of each month and continuing until paid in full. BRS
may pre-pay any amount outstanding under this agreement in whole or in
part without penalty.
e. BRS shall grant to John Dunham, simultaneously with the
execution of this Agreement, a stock option of Fifty-Thousand (50,000)
shares of BRS voting common stock. The strike price (issue price) will
be $0.25 cents per share with a ten (10) year life and will vest on the
following schedule:
i. 20% vesting at the time of the execution of this agreement;
ii. 20% vesting on the first anniversary date;
iii. 20% vesting on the second anniversary date;
iv. 20% vesting on the third anniversary date; and
v. 20% vesting on the fourth anniversary date.
In the event BRS fails to make any payment or payments required to be made
under this Agreement, and having thirty (30) days to cure the default, following
written notice by John Dunham to BRS the Covenant Not to Compete granted to BRS
shall automatically and without further action terminate and be null and void
and BRS shall be in breach of this contract and subject to the conditions set
forth and John Dunham will be entitled to all remedies at law, including
liquidated damages.
In Witness Whereof, each of the parties has executed this Agreement as of this
26th day of October, 1995.
BALLISTIC RECOVERY SYSTEMS, INC. JOHN DUNHAM
BY: /s/ Mark B. Thomas BY: /s/ John Dunham
-------------------------------------------- ------------------
Chief Financial Officer/Chief Operations Officer
duly authorized by the Board of Directors of BRS
to enter into this agreement.
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