<PAGE> 1
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 (No Fee Required) For the quarterly period ended DECEMBER
31, 1995
Transition Report Under 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
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BALLISTIC RECOVERY SYSTEMS, INC.
----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
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)
(612) 457-7491
----------------------------------------------
(Issuer's Telephone Number Including Area Code)
N/A
- --------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by section
13 or 15(d) of the Securities 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.
Yes X No
------ ------
Number of shares outstanding as of February 12, 1996: 4,454,474
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1
<PAGE> 2
INDEX
BALLISTIC RECOVERY SYSTEMS, INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited). PAGE
----
<S> <C>
Balance sheets as of December 30, 1995 and September
30, 1995. 3
Statements of operations for the three months ended
December 30, 1995 and 1994. 4
Statements of cash flow for the three months ended
December 30, 1995 and 1994. 5
Notes to financial statements at December 30, 1995. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
PART II. OTHER INFORMATION
- ---------------------------------------------
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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</TABLE>
2
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PART I FINANCIAL INFORMATION - Item I. Financial Statements
BALLISTIC RECOVERY SYSTEMS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 30, September 30,
ASSETS 1995 1995
------------ -------------
<S> <C> <C>
Current assets:
Cash $ 31,141 $ 16,977
Accounts receivable - net of allowance for doubtful
accounts of $5,000 65,537 66,038
Inventories 167,225 175,354
Prepaid expenses 11,399 2,969
----------- -----------
Total current assets 275,302 261,338
----------- -----------
Furniture and fixtures 67,005 67,005
Less accumulated depreciation (54,737) (53,061)
----------- -----------
Furniture and equipment - net 12,268 13,944
----------- -----------
Other assets:
Patents less accumulated amortization of
$6,037 and $5,866, respectively 5,627 5,799
Covenant not to compete less accumulated
amortization of $6,324 (Note F) 373,114 ---
----------- -----------
Total assets $ 666,311 $ 81,081
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 65,028 $ 61,563
Customer deposits 96,638 75,183
Accrued payroll 18,716 20,099
Other accrued liabilities 73,228 62,114
Deferred research and development funding (Note D) --- 7,789
Current portion of covenant not to compete (Note F) 31,632 ---
----------- -----------
Current and total liabilities 285,242 226,748
----------- -----------
Long-term covenant not to compete, less current portion (Note F) 337,408 ---
----------- -----------
Shareholders' equity:
Common stock ($.01 par value; 10,000,000 shares
authorized; shares issued and outstanding of
4,454,474) 44,545 44,545
Additional paid-in capital 2,620,282 2,620,282
Accumulated deficit (2,621,166) (2,610,494)
----------- -----------
Total shareholders' equity 43,661 54,333
----------- -----------
Total liabilities and shareholders' equity $ 666,311 $ 281,081
=========== ===========
</TABLE>
See Notes to Financial Statements.
3
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BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
For the Three Months Ended December 30, 1995 and 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Sales $ 285,932 $ 163,220
Cost of sales 186,026 109,911
--------- ---------
Gross profit 99,906 53,309
Selling, general and administrative 81,465 60,070
Research and development 18,032 330
--------- ---------
Income from operations 409 (7,091)
Other income (expense):
Interest expense (4,757) (2,561)
Covenant not to compete amortization (6,324) ---
--------- ---------
Net income (loss) ($10,672) ($9,652)
========= =========
Earnings (loss) per share ($0.00) ($0.00)
========= =========
Weighted average number of shares outstanding 4,454,474 4,416,324
========= =========
</TABLE>
See Notes to Financial Statements.
4
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BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF CASH FLOW
Increase (Decrease) in Cash
For the Three Months Ended December 30, 1995 and 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Cash flow from operating activity:
Net income ($10,672) ($9,652)
Adjustments to reconcile net income to net cash
from operating activity:
Depreciation and amortization 1,851 1,502
Amortization of discount on debt --- 423
Amortization of covenant not to compete 6,324 ---
Inventory valuation reserve 6,000 6,000
(Increase) decrease in:
Accounts receivable 501 11,494
Inventories 2,129 7,703
Prepaid expenses (8,430) (4,041)
Increase (decrease) in:
Accounts payable 3,466 (13,502)
Accrued expenses 23,394 (15,247)
--------- --------
Net cash from operating activities 24,563 (15,320)
--------- --------
Cash flow from investing activities:
Capital expenditures --- (1,421)
--------- --------
Net cash from investing activities --- (1,421)
--------- --------
Cash flow from financing activities:
Principal payments on debt --- (7,025)
Principal payments on covenant not to compete (10,399) ---
--------- --------
Net cash from financing activities (10,399) (7,025)
--------- --------
Increase (decrease) in cash 14,164 (23,766)
Cash - beginning of year 16,977 53,138
--------- --------
Cash - end of period $ 31,141 $ 29,372
========= ========
</TABLE>
See Notes to Financial Statements.
5
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BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
December 30, 1995
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three month and nine month periods ended
December 30, 1995 are not necessarily indicative of the results that may
be expected for the year ended September 30, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's summary annual report for the year ended
September 30, 1995.
B. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
12/31/95 09/30/95
-------- --------
<S> <C> <C>
Raw materials $151,572 $166,544
Work in process 16,456 18,125
Finished goods 5,197 5,685
Less valuation reserve (6,000) (15,000)
-------- --------
Total inventories $167,225 $175,354
======== ========
</TABLE>
C. CUSTOMER DEPOSITS
The Company periodically receives partial or complete down payments for
orders. These down payments are recorded as customer deposits. The
deposits are recognized as revenue when the product is shipped.
D. 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.
Total funding received to date is $36,000, of which $28,212 was reflected
as an offset to research and development expenses and was netted in the
expense for 1995 and 1994. The remaining $7,789 was taken as an offset to
research and development expenses for the quarter ended December 31, 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.
6
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BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
(UNAUDITED)
D. 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 funding that was taken as an offset
to expense 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.
E. 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, but the exact timing of a
final contract as well as future funding has been delayed by the
government shutdowns and current budget negotiations in congress. The
Company is optimistic that a contract and funding will still be granted
during fiscal year 1996. The Phase II grant is for a maximum of $600,000
and for a maximum of 24 months.
F. COVENANT NOT TO COMPETE
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:
7
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BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
(UNAUDITED)
F. COVENANT NOT TO COMPETE - (Continued)
<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>
The covenant not to compete will be amortized on a straight-line method
over its ten year life.
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.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Sales for the first quarter of the current fiscal year were up
by 75% over the same prior year period. The increase in sales is
attributable to a continuing improvement in ultralight aircraft sales
for both currently existing aircraft designs as well as those of new
manufacturers. In addition, the sales plans that were implemented in
the second and third quarters of the previous fiscal year have expanded
the Company's dealer base and expanded sales to the existing dealers.
Throughout the current quarter, the flow of new orders has been
consistently larger than that of the previous fiscal year. This has
resulted in a much larger backlog which should contribute to higher
sales volumes for the remainder of the fiscal year.
The impact of the covenant not to compete that the Company
entered into at the end of October is still uncertain at this time.
The agreement effectively eliminated the Company's sole US competitor.
The Company began to receive inquiries and orders as a direct result of
the agreement beginning in November of the current year, and it is
expected that the Company will continue to receive orders as a result
of the agreement on an ongoing basis.
Gross margins also improved by 2.2% up to 34.9% from 32.7%. The
improvement was generated by increases in labor and overhead
efficiencies resulting from the higher and more efficient sales volumes
for the quarter.
Selling, general and administrative expenses went down as a
percentage of sales. The actual dollar increase in expenses was a
result of additional personnel added during the second quarter of the
prior fiscal year.
Gross research and development costs were basically flat with
that of the previous fiscal year, however, the net cost to the Company
increased by almost $18,000. This increase is a result of lower
funding for the current fiscal year quarter from both SBIR grants as
well as the other outside research and development projects that were
both in place in the prior fiscal year. Instead of working on outside
funded projects, the Company's engineers have been utilized to support
the sport aviation segment of the business, as well as develop
additional proposals for outside funded projects that may benefit the
Company in the future. As soon as additional outside funding is
received, the focus will shift back to those outside funded projects.
The other expense category increased as a direct result of the
covenant not to compete agreement entered into by the Company in
October of the current year.
LIQUIDITY AND CAPITAL RESOURCES:
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.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES: - (Continued)
- 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. Negotiations are still
underway, but the exact timing of a final contract as well as
future funding has been delayed by the government shutdowns and
current budget negotiations in congress. The Company is
optimistic that a contract and funding will still be granted
during fiscal year 1996.
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.
- 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. See Note F of Notes to
Financial Statements for further information.
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.
PART II. OTHER INFORMATION
Item 1. 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 6. Exhibits and Reports on Form 8-K
There are no exhibits and the Company did not file any reports on Form
8-K for the three months ended December 31, 1995.
10
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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.
BALLISTIC RECOVERY SYSTEMS, INC.
By /s/ Mark B. Thomas
-----------------------
Mark B. Thomas
Chief Executive Officer
Dated February 14, 1996
11
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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.
BALLISTIC RECOVERY SYSTEMS, INC.
By /s/ Mark B. Thomas
-----------------------
Mark B. Thomas
Chief Executive Officer
Dated February 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 31,141
<SECURITIES> 0
<RECEIVABLES> 70,537
<ALLOWANCES> 5,000
<INVENTORY> 167,225
<CURRENT-ASSETS> 275,302
<PP&E> 67,005
<DEPRECIATION> 54,737
<TOTAL-ASSETS> 666,311
<CURRENT-LIABILITIES> 285,242
<BONDS> 337,408
0
0
<COMMON> 44,545
<OTHER-SE> 884
<TOTAL-LIABILITY-AND-EQUITY> 666,311
<SALES> 285,932
<TOTAL-REVENUES> 285,932
<CGS> 186,026
<TOTAL-COSTS> 186,026
<OTHER-EXPENSES> 99,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,081
<INCOME-PRETAX> (10,672)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,672)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,672)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
