<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 March 31, 1997
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
-------
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)
300 Airport Road, South St. Paul, Minnesota, 55075-3541
-------------------------------------------------------
(Address of Principal Executive Offices)
(612) 457-7491
---------------------------------------------
Issuer's Telephone Number Including Area Code)
----------------------------------------------------
(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 May 12, 1997: 4,454,474
------------------
1
<PAGE> 2
INDEX
BALLISTIC RECOVERY SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited). Page
----
<S> <C>
Balance sheets as of March 31, 1997 and September
30, 1996. 3
Statements of operations for the three months and six
months ended March 31, 1997 and 1996. 4
Statements of cash flow for the six months ended
March 31, 1997 and 1996. 5
Notes to financial statements at March 31, 1997. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION - Item I. Financial Statements
BALLISTIC RECOVERY SYSTEMS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash $40,365 $117,343
Accounts receivable - net of allowance of $12,500 90,054 73,793
Inventories 340,884 307,213
Prepaid expenses 13,743 4,197
---------- ----------
Total current assets 485,046 502,546
---------- ----------
Furniture and fixtures 151,064 75,747
Less accumulated depreciation (68,407) (59,901)
---------- ----------
Furniture and equipment - net 82,657 15,846
---------- ----------
Other assets:
Patents less accumulated amortization of
$6,895 and $6,552, respectively 4,769 5,112
Covenant not to compete less accumulated
amortization of $53,754 and $34,782, respectively 325,684 344,656
---------- ----------
Total other assets 330,453 349,768
---------- ----------
Total assets $898,156 $868,160
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $75,293 $60,923
Customer deposits 146,780 126,017
Accrued payroll 27,441 26,314
Other accrued liabilities 60,045 117,747
Line-of-credit borrowings --- 25,000
Current portion of bank note 8,500 ---
Current portion of covenant not to compete 32,100 31,334
---------- ----------
Current liabilities 350,159 387,335
---------- ----------
Long-term bank note and covenant not to compete,
less current portion 343,002 314,325
---------- ----------
Shareholders' equity:
Common stock ($.01 par value; 10,000,000 shares author-
ized; shares issued and outstanding of 4,454,474) 44,545 44,545
Additional paid-in capital 2,620,282 2,620,282
Accumulated deficit (2,459,832) (2,498,327)
---------- ----------
Total shareholders' equity 204,995 166,500
---------- ----------
Total liabilities and shareholders' equity $898,156 $868,160
========== ==========
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 4
BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended March 31, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $470,261 $483,757 $844,162 $769,689
Cost of sales 310,791 318,189 553,250 504,215
-------- -------- -------- --------
Gross profit 159,470 165,568 290,912 265,474
Selling, general and administrative 101,827 89,985 199,586 171,450
Research and development (5,961) 28,770 (2.152) 46,802
--------- -------- --------- ---------
Income from operations 63,604 46,813 93,478 47,222
Other income (expense):
Interest expense (12,145) (13,013) (22,842) (17,770)
Covenant amortization (9,486) (9,486) (18,972) (15,810)
Other income (expense) 407 --- (13,169) ---
--------- -------- --------- ---------
Net income $42,380 $24,314 $38,495 $13,642
========= ======== ======== ========
Primary earnings per share $0.01 $0.00 $0.01 $0.00
========= ======== ======== ========
Weighted average number of shares
outstanding 6,379,492 6,294,752 6,379,492 6,294,752
========= ========= ========= ========
Fully diluted earnings per share $0.01 $0.00 $0.01 $0.00
========= ========= ======== ========
Weighted average number of shares
outstanding 6,379,492 6,294,752 6,379,492 6,294,752
========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 5
BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF CASH FLOW
Increase (Decrease) in Cash
For the Six Months Ended March 31, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flow from operating activity:
Net income $38,495 $13,642
Adjustments to reconcile net income to net cash
from operating activity:
Depreciation and amortization 8,849 3,696
Amortization of covenant not to compete 18,972 15,810
Inventory valuation reserve 6,000 16,000
(Increase) decrease in:
Accounts receivable (16,261) (9,941)
Inventories (39,671) (46,746)
Prepaid expenses (9,546) (5,546)
Increase (decrease) in:
Accounts payable 14,370 15,035
Accrued expenses (35,812) 8,201
--------- ---------
Net cash from operating activities (14,604) 10,151
--------- ---------
Cash flow from investing activities:
Capital expenditures (75,317) (2,162)
--------- ---------
Net cash from investing activities (75,317) (2,162)
--------- ---------
Cash flow from financing activities:
Net borrowing under line-of-credit agreement (25,000) (35,000)
Proceeds from bank note 70,000 ---
Principal payments on bank note (3,098) ---
Principal payments on covenant not to compete (28,959) (15,101)
--------- ---------
Net cash from financing activities 12,943 19,899
--------- ---------
Increase (decrease) in cash (76,978) 27,888
Cash - beginning of year 117,343 16,977
--------- ---------
Cash - end of period $40,365 $44,865
========= =========
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 6
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
(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 six month period ended March 31,
1997 are not necessarily indicative of the results that may be
expected for the year ended September 30, 1997. 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, 1996.
B. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
03/31/97 09/30/96
-------- --------
<S> <C> <C>
Raw materials $256,884 $195,291
Work in process 55,000 50,146
Finished goods 60,000 86,776
Less valuation reserve (31,000) (25,000)
-------- --------
Total inventories $340,884 $307,213
======== ========
</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 projects is ongoing for a companies is
developing a four place composite, certified aircraft. If
successfully certified, this aircraft will be the first FAA certified
aircraft to offer one of the Company's recovery systems as standard
equipment. The other project was for a company is developing three
experimental category aircraft. This second project was suspended
during fiscal year 1995. Both of the companies are privately held.
Under the ongoing contract, funding earned was reflected as an offset
to research and development expenses for the quarters ended March 31,
1997 and 1996. At the end of March 31, 1997, the Company had a
receivable due under this contract of $23,035. There was no balance
due or deferred at the end of the prior year quarter.
Additional funding, although not guaranteed, is expected to be
received on a monthly basis over the next 9 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
<PAGE> 7
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
(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 taken as an offset to expense to date under
these projects 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
$69,736 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
$69,736 grant was recognized as an offset to research and development
expenses during fiscal year 1995.
The Company signed a Phase II contract with NASA on March 8, 1996 and
work on that project commenced at that time. The total contract award
was for a firm fixed price grant of $581,875 for a period not to
exceed 24 months.
Funding earned was reflected as an offset to research and development
expenses for the quarters ended March 31, 1997 and 1996 for work
performed on the Phase II project. As of March 31, 1997 and 1996, the
Company had established a receivable for $23,346 and $5,784,
respectively for this contract.
F. ADDITIONAL CONTRACT RESEARCH AND DEVELOPMENT
In June 1996, the Company received a purchase order from a defense
subcontractor for the development of a parachute recovery system for
an unmanned aircraft that is being developed for possible military
use. The purchase order, with revisions, is for a total of $117,814
and covers an 18 month period. The purchase order calls for
development funding for the recovery system as well as the delivery of
completed recovery systems. Work is current underway on the purchase
order. No assurances can be made as to the success of the development
project or if its completion will lead to future revenues. Also, no
assurances can be made that the project will proceed as intended in
the purchase order.
7
<PAGE> 8
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
(UNAUDITED)
G. 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 US competitor, whereby:
1. SCI ceased 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 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: principal 400,000 295,706
interest 84,362 ---
-------- --------
$584,362 $379,438
======== ========
</TABLE>
The non interest bearing note calls for monthly payments of $1,500 for
forty six months (February 1996 to November 1999). The 4% ten year
note calls for monthly payments of $4,036 (November 1995 to October
2005). Payments under this agreement are unsecured.
The present value of the Company's obligation under this agreement was
recorded as an intangible asset and is being amortized over ten years
as shown in the accompanying financial statements.
Future payments under this agreement are as follows:
<TABLE>
<CAPTION>
Future Present
Dollars Dollars
------- -------
<S> <C> <C>
1997 $77,184 $43,747
1998 66,436 34,960
1999 66,436 39,005
2000 62,436 39,935
2001 48,436 29,204
Thereafter 197,781 158,808
-------- --------
$496,961 $345,659
======== ========
</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.
8
<PAGE> 9
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
(UNAUDITED)
H. LONG TERM DEBT
In November 1996, the Company received a loan for use in renovating
and improving a new production facility. The new facility was
obtained under a long term lease which was signed on October 1, 1996.
The loan in the amount of $70,000 is for a period of 5 years with
payments commencing December 1996 at an interest rate of 2% over the
banks index rate. The current rate is 10.5%. The note is
collateralized by the assets of the Company.
I. LINE OF CREDIT
In December 1996, the Company re-negotiated a $35,000 line-of-credit
for use in operations. The line-of-credit is established on a annual
renewal basis which expires in mid-December 1997. The line calls for
a variable interest rate of 2% over prime. There was no outstanding
balance at March 31, 1997.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Sales for the second quarter of the current fiscal year were basically
flat with those of the same prior year period. This stability was
anticipated due to the strong performance in the prior fiscal year
quarter. On a year to date basis, the increase in sales is
attributable to continuing improvement in ultralight aircraft sales
for both currently existing aircraft designs as well as those of new
manufacturers. In addition, the Company believes that the departure
of the Company's only domestic competitor, during the Company's first
quarter of fiscal year 1996, has stimulated an increase in the
Company's sales. The sales plans that were implemented in previous
fiscal years have also contributed by expanding the Company's dealer
base and expanding sales to the existing dealers. At the beginning of
the current quarter, the flow of new orders had begun to stabilize at
levels consistent with that of the previous year.
Gross margins held basically flat as well compared to the prior year
despite the increase in operating expenses for the new production
facility. This is mainly attributed to improving labor efficiency
generated by the new facility.
Selling, general and administrative expenses were up as a percentage
of sales. The dollar increase in expenses was a result of several
factors including the increase in sales and administrative staff
salaries, increased support costs due to the increased sales volumes,
and increased travel expenses. In addition, the new production
facility has increased the operating costs of the company in the form
of increased rent, utilities and depreciation.
Net research and development costs were lower for the current fiscal
year quarter compared to the prior year as a result of the outside
research and development projects with which the Company is involved.
This trend is consistent with the Company's desire to establish
outside funding for the majority of its research and development
efforts.
The other income and expense category was consistent with that of the
prior year. On a year to date basis for the period ending March 31,
1997, the Company incurred one-time expenses in moving to and
renovating its new production facility. The expense of $13,169
represents costs that are not classified as leasehold improvements and
are therefore expensed when incurred.
LIQUIDITY AND CAPITAL RESOURCES:
Management intends to continue to improve the Company's operations and
cash flows in 1997 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 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.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 signed a Phase II contract with NASA on March 8, 1996 and
work on that project commenced at that time. The total contract award
was for a firm fixed price grant of $581,875 for a period not to
exceed 24 months. No assurances can be made as to the future success
of this project, or whether or not all of the contract amount will be
allocated and received over the life of the contract.
The Company anticipates pursuing additional grants and contracts over
the coming fiscal years through the SBIR program and other programs
sponsored by NASA, other government agencies and private companies.
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 or contracts.
In October 1995, the Company entered into a non-compete agreement with
its only domestic competitor, SCI. As a result of other sales efforts
that were underway, the exact benefit of the SCI transaction in terms
of sales volumes cannot be specifically determined. 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.
In July 1996, the Company received a purchase order from a defense
subcontractor for the development of a parachute recovery system for
an unmanned aircraft that is being developed for possible military
use. The purchase order was for a total of $117,814 and covers an 18
month period. The purchase order calls for development funding of the
recovery system as well as the delivery of completed recovery systems.
No assurances can be made as to the success of the development project
or if its completion will lead to future revenues. Also, no
assurances can be made that the project will proceed as intended in
the purchase order.
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 is not currently involved in any legal proceedings.
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 March 31, 1997.
11
<PAGE> 12
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 and Chief
Financial Officer
Dated May 15, 1997
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 40,365
<SECURITIES> 0
<RECEIVABLES> 102,554
<ALLOWANCES> 12,500
<INVENTORY> 340,884
<CURRENT-ASSETS> 485,046
<PP&E> 151,064
<DEPRECIATION> 68,407
<TOTAL-ASSETS> 898,156
<CURRENT-LIABILITIES> 350,159
<BONDS> 343,002
0
0
<COMMON> 44,545
<OTHER-SE> 160,450
<TOTAL-LIABILITY-AND-EQUITY> 898,156
<SALES> 844,162
<TOTAL-REVENUES> 844,162
<CGS> 553,250
<TOTAL-COSTS> 553,250
<OTHER-EXPENSES> 197,434
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,814
<INCOME-PRETAX> 38,495
<INCOME-TAX> 0
<INCOME-CONTINUING> 38,495
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,495
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
