<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, 1997
- ----- 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)
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) (Zip Code)
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 Issuer'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. -------.
State Issuer's revenues for the most recent fiscal year: $1,855,094.
Based upon the average bid and asked prices of the Issuer's Common Stock, the
aggregate market value of the Common Stock held by Non-affiliates of the Issuer
as of December 30, 1997 was approximately $804,000.
Number of shares outstanding as of December 30, 1997: 4,468,772.
Index for exhibits is located on page 29. This document contains 31 pages.
1
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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 1998 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>
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) Business Development
The Company designs, manufactures and markets emergency parachute
recovery systems for use with light aircraft. The Company has
products in both the recreational and general aviation markets. The
Company believes it was one of the first and is the only remaining US
manufacturer of whole aircraft recovery systems. In addition, the
Company has designed systems for use in the highly competitive
military and civilian unmanned aircraft markets.
The Company began with products for ultralight aircraft in the
early 1980's and expanded its efforts in the general aviation market in
the late 1980's with the design and testing of a recovery system for
the Cessna 150/152 model aircraft. The development of the Cessna
150/152 model system was the primary purpose for the Company going
public in 1986, with a secondary offering in 1988. In early 1993, the
Company received Federal Aviation Administration ("FAA") approval for
the GARD-150 product for installation on FAA-certified Cessna 150/152
aircraft.
Beginning in 1994, the Company sought and established relationships
with outside sources for research and development funding in
order to continue its efforts towards long-term product development
and expansion. During 1994, the Company began receiving outside
funding for certain research and development projects including two
projects that are ongoing at the present time. Since that time, the
Company has established additional funding sources for its research
and development. Outside funding for research and development
activities is an ongoing objective for the Company.
The Company is currently working under an agreement to receive
research and development funding from a privately held company that is
developing a four-place composite, certified aircraft. This company has
agreed to install one of the Company's emergency parachute system on
each aircraft as standard equipment. 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 Company has been
informed that certification and production of this aircraft is
expected to begin during the Company's fiscal year 1998. There can be
no assurances that this aircraft will actually receive certification
during the Company's fiscal year 1998 or at any future time, nor that
its volumes, if certified, will have a material affect on the Company.
Another ongoing project is the Company's Small Business Innovation
Research grant (SBIR) through NASA. The purpose of the grant
is to perform research of low-cost, lightweight aircraft emergency
recovery systems. The Company received a Phase I grant during 1994.
All work under this Phase I grant was completed during fiscal year
1995. With the completion of Phase I, the Company applied for and
received a Phase II grant to continue on with the research that it
began in the first phase. The Phase II grant, which began in March
1996, is for a maximum of $582,000 over a period of 24 months.
In June 1996, the Company received a development contract for a
recovery system for a prototype unmanned aircraft being developed by a
government contractor. The contract with revisions, covers an 18 month
period and a maximum amount of $151,000, calls for the development and
delivery of a series of recovery devices both for use in testing, and
possibly in future production models. This project is a development
project for the government contractor and may or may not be successful.
3
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Item 1. Description of Business (Continued)
(b) Narrative Description of Business
PRINCIPAL PRODUCTS:
The Company's principal product line is whole aircraft emergency
parachute recovery systems. The systems, in an in-air 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. The Company's contract engineering services also deal
with long-term product development and expansion of the ballistically
deployed parachute recovery systems.
Recreational Aviation Products:
These products 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
directly to individuals and through dealers and distributors who
also market and sell the aircraft and related products.
General Aviation Products:
The Company's attempt to enter the general aviation market began
in the mid 1980's when it began development of an emergency parachute
recovery system for the Cessna 150/152 series of aircraft. In 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.
Although sales for the GARD-150 were disappointing, media attention
for this new product resulted in domestic and international television
and radio broadcasts as well as coverage in domestic and international
aviation and non-aviation magazines. The Company believes that the
successful completion of the product for the Cessna 150/152, which
generated media attention for both the product and the Company,
created interest in the Company's product by outside companies.
Contract Research and Development:
Contract research and development has allowed the Company to expand
its product line and expertise in whole aircraft recovery systems. In
addition, the Company's expertise has allowed us to receive new and
follow on contracts for both government contractors and civilian
companies.
The Company is currently involved in three contract research and
development projects. One of the projects is for a privately held
company that is developing a four-place all composite general aviation
aircraft. This company has agreed to install one of the Company's
emergency parachute system on each aircraft as standard equipment. If
successfully certified, this aircraft will be the first FAA certified
aircraft to offer one of the Company's recovery systems as standard
equipment. Certification is scheduled to be completed during the
Company's fiscal year 1998. See Note 2 of Notes to Financial Statements
for further information.
4
<PAGE> 5
Item 1. Description of Business (Continued)
(b) Narrative Description of Business (Continued)
Contract Research and Development: (Continued)
The Company is also involved in the Small Business Innovation
Research grant (SBIR) program through NASA. The purpose of the grant
is to perform research of low-cost, lightweight aircraft emergency
recovery systems. The Company received initial funding during its
fiscal year 1995 through a Phase I grant, and received subsequent
funding through a Phase II grant beginning in fiscal year 1996. The
Phase II grant, which began in March 1996, is for a maximum of $582,000
for a period not to exceed 24 months. The purpose of the grant is not
only to provide research in areas of interest to NASA, but also to
develop products that can be commercialized by the small business
entity. The Company hopes that the research will lead to products that
have both military and civilian applications complimenting or enhancing
the Company's current product line. See Note 3 of Notes to Financial
Statements for further information.
In June 1996, the Company received a development contract for a
recovery system for a prototype unmanned aircraft being developed by a
government contractor. The contract, with revisions, covers an 18 month
period and is for a maximum amount of $151,000, and calls for the
development and delivery of a series of recovery devices both for use
in testing, and possibly in future production models. See Note 4 of
Notes to Financial Statements for further information.
The successful completion of any of these projects cannot be
assured. Also, there can be no assurance that if these 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 products, or that if produced, will be successfully marketed and
sold.
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
components manufactured to its specifications. The two primary
components, parachutes and ballistic devices are each purchased from
certain key suppliers. Other components are purchased from a variety
of suppliers or internally produced. 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. In addition, the
Company possesses or can acquire the expertise necessary for internal
production of all key components.
PATENTS:
On August 26, 1986, United States Patent No. 4,607,814 was
issued to the 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 to the Company. This patent does not cover the solid fuel
extraction device aspect of the systems currently being sold by the
Company.
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" as part of a parachute recovery system. The
two employees 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's 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 if possible. 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.
5
<PAGE> 6
Item 1. Description of Business (Continued)
(b) Narrative Description of Business (Continued)
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 been expanded to increase its presence in new and
existing markets as a means of reducing this seasonality. Nonetheless,
seasonality will remain an issue for the Company until its product line
expands to include aircraft that do not experience such seasonal
fluctuations in their use and production.
DEPENDENCE ON A SINGLE CUSTOMER:
During the fiscal years ended September 30, 1997 and 1996, the
Company was not dependent on any single customer that accounted for
more that 10% of its sales. The Company primarily distributes its
products through dealers and distributors who in turn sell to the end
consumer. The Company believes that in the event that any individual
dealers or distributors cease to represent the Company's products, that
alternative dealers or distributors can be established.
BACKLOG OF ORDERS:
As of September 30, 1997 and 1996, the Company had a backlog of
orders totaling approximately $223,000 and $294,000, respectively. The
1997 backlog is expected to be filled during fiscal year 1998.
RESEARCH AND DEVELOPMENT:
A summary of research and development is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Total research and development
expenditures $365,836 $164,762
Revenues recognized under contract
research and development
relationships (416,503) (119,747)
--------- ---------
Research and development, net ($50,667) $45,015
========= =======
</TABLE>
The sources of the outside funding included: current development of a
recovery system for the planned to be certified aircraft; the SBIR
grant; and the unmanned aircraft recovery system as discussed in
Notes 2, 3 and 4 of the Notes to Financial Statements.
6
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Item 1. Description of Business (Continued)
(b) Narrative Description of Business (Continued)
COMPETITION:
The Company sells its ballistically deployed parachute recovery
systems in the United States and internationally. The Company entered
into a covenant not to compete agreement on October 26, 1995 with
Second Chantz ("SCI"), whom the Company believes was 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. Competition is strong in the German market based
on price, but the Company believes that it continues to make relatively
strong sales in that 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, there are no other manufacturers 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.
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, although the Company
believes 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, 1997, the Company had 14 full-time and 2
part-time employees at its South St. Paul facility.
Item 2. Description of Property
The Company leases a stand alone 13,000 square foot office and
production facility located at Fleming Field Airport in South St. Paul,
Minnesota. The building is a World War II training hangar which the
Company renovated. (See Note 11 of Notes to Financial Statements).
Item 3. Legal Proceedings
The Company is not currently involved in any legal proceedings.
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.
7
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information
The Company was formerly listed on the NASDAQ stock exchange
after going public. However, the Company was delisted in 1992
following a change in the listing requirements by NASDAQ. Therefore,
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. Stock trading has been sporadic since the
1992 delisting. Exact trading prices are not known since there is no
mechanism in place to report the trading prices. However, several
Internet stock tracking services show the Company's trading volumes
with bid and ask prices as far back as August 1995. Based on
information provided by these Internet stock tracking services, the
Company believes that the asking price and the bid price would be $0.50
as of September 30, 1997.
The following table sets forth the estimated high and low bid
prices for the periods indicated. The estimated bid prices shown are
based on information from several Internet stock tracking services.
These figures are strictly estimates and do not necessarily represent
actual transactions.
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Common Stock:
- -------------
1997 High $0.81 $0.69 $0.56 $0.56
Low $0.44 $0.44 $0.31 $0.31
1996 High $0.25 $0.50 $1.38 $1.19
Low $0.06 $0.06 $0.25 $0.69
(b) Holders
As of December 30, 1997, the Company estimates there were
approximately 1,100 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.
8
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS:
Sales
Sales for the current fiscal year were up by 7% over the prior year. This
increase follows a record year for the Company's recreational aircraft sales in
fiscal year 1996. The improvements in fiscal year 1997 and fiscal year 1996
are mainly attributed to the agreement signed by the Company at the beginning
of that fiscal year which resulted in the Company's only US competitor ceasing
operations. See Note 5 of Notes to Financial Statements for further
information.
Sales in the recreational aircraft market for the next fiscal year are expected
to be slightly lower than the current fiscal year as a result of a temporary
downturn in order volumes during the first quarter of fiscal year 1998. Order
flows, and therefore production, for the remainder of the year are expected to
continue at levels consistent with those of fiscal year 1997. As an offset to
the lower revenues in the recreational market, the Company anticipates
receiving orders and producing units in the general aviation market for the new
to-be-certified four-place composite aircraft which is currently under
development. Volume projections and timing of those volumes is uncertain at
this time. There can be no assurances that this aircraft will actually receive
certification during the Company's fiscal year 1998 or at any future time, nor
that its volumes, if certified, will have a material affect on the Company.
Gross Margin
The gross margin for the current fiscal year was down 3.6% from the prior
fiscal year as a result of several factors. The most significant factor was an
overall increase in component costs for the Company's products. The Company's
product components are primarily made of nylon and aluminum which have both
seen substantial increases in raw material costs to the Company's vendors.
Another factor includes the increase of operating expenses for the new
production facility that the Company moved into at the beginning of the current
fiscal year. An increase in labor efficiency generated by the new facility
helped to minimize the impact on the gross margin.
The Company increased its selling prices during the current fiscal year, but
due to the timing of the increase, it did not have an impact on selling prices
until the end of the fiscal year. It is expected that the increase will help
to increase the gross margin for the Company's fiscal year 1998.
Income from Operations
Fiscal year 1997 was the fourth consecutive year of profitability for the
Company. Income from operations increased by 29.1% over the prior fiscal year.
Several factors contributed to the improvement including holding SG&A costs at
levels consistent with that of the prior year. In addition, the Company was
able to generate outside funding to offset all of its research and development
expenditures as well as cover other expenses including administrative costs and
marketing efforts associated with those projects. Sources for outside funding
of research and development projects provided offsets to expenses amounting to
$417,000 in fiscal year 1997 as opposed to $120,000 in fiscal year 1996.
All of the outside research and development projects underway at the end of
fiscal year 1997 are expected to be completed during the Company's fiscal year
1998. The Company will continue to look for sources for further outside
funding of research and development, but there can be no assurances that the
Company will be successful in those efforts.
9
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Income Taxes Expense (Benefit)
The benefit recorded in the current fiscal year was a result of the valuation
of the Company's net operating loss carryforwards. The benefit was recorded
based on the Company's ability to demonstrate that there is a reasonable
likelihood of being able to utilize the carryforwards to offset State and
Federal taxes on future taxable income. If the Company continues to
demonstrate its ability to utilize even more of the carryforwards,
consideration will be given to the recording of additional benefits.
LIQUIDITY AND CAPITAL RESOURCES:
Management intends to fund all of its continuing operation out of its current
revenues with the exception of its contract research and development projects.
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 to maximize profitability.
Current contract research and development projects are expected to be completed
during the Company's fiscal year 1998. The Company will continue to look for
sources for contract research and development projects, but there can be no
assurances that the Company will be successful in its efforts.
The Company anticipates a need to make capital improvements to its current
production facility as well as expenditures to increase inventory levels as a
result of the production of general aviation units for the recovery system
currently under development. However, it is currently the intention of the
Company to fund the expenditures through current operations as well as revenues
generated by those units.
In addition, the cash flow needed for current debt service will be reduced by
the end of the first quarter of fiscal year 1998 as a portion of the covenant
not to compete debt will be retired.
The Company is currently involved in three outside funded research and
development projects. The first of the three began in 1994 and calls for the
development of an emergency parachute system for use on a four-place composite,
certified aircraft. The agreement is with a privately held company that
anticipates certification and production beginning during the Company's fiscal
year 1998. If successfully certified, the aircraft will become the first FAA
certified aircraft to offer one of the Company's parachute systems as standard
equipment.
The second ongoing project is the Company's Small Business Innovation Research
grant (SBIR) through NASA. The purpose of the grant is to perform research of
low-cost, lightweight aircraft emergency recovery systems. The Company
received a Phase I grant during 1994. All work under this Phase I grant was
completed during fiscal year 1995. With the completion of Phase I, the Company
applied for and received a Phase II grant to continue on with the research that
it began in the first phase. The Phase II grant, which began in March 1996, is
for a maximum of $582,000 over a period of 24 months.
The third project began in June 1996, when the Company received a development
contract for a recovery system for a prototype unmanned aircraft being
developed by a government contractor. The contract, with revisions, covers an
18 month period and is for a maximum amount of $151,000, and calls for the
development and delivery of a series of recovery devices both for use in
testing, and possibly in future production models.
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 sales, 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.
10
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES: (CONTINUED)
The Private Securities Litigation Reform Act of 1995 provides "safe harbor" for
forward looking statements. Certain information included in this Form 10-KSB
and other materials filed or to be filed by the Company with the Securities and
Exchange Commission (as well as information included in oral statements or
other written statements made or to be made by the Company) contain statements
that are forward-looking, such as statements relating to plans for research
projects and other business development activities as well as other capital
spending, financial sources and the effects of competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include,
but are not limited to, the elimination of funding for new research and
development projects, the decline in unregistered aircraft sales, potential
product liability claims, dependence on discretionary consumer spending,
dependence on existing management, general economic conditions, changes in
federal or state laws or regulations.
11
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Item 7. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Pg.
<S> <C>
(1) Financial Statements for the years ended September 30, 1997 and 1996:
Independent Auditors' Report 13
Balance Sheets as of September 30, 1997 and 1996 14
Statements of Operations for the years ended September 30, 1997
and 1996 15
Statements of Shareholders' Equity for the years ended
September 30, 1997 and 1996 16
Statements of Cash Flows for the years ended September 30,
1997 and 1996 17
Notes to Financial Statements 18
</TABLE>
(2) Financial Statement Schedules of Supplemental Information are no
longer required under Regulation S-B.
12
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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, 1997 and 1996 and the related statements of
operations, shareholders' equity, 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 financial statements referred to above present fairly, in
all material respects, the financial position of Ballistic Recovery Systems,
Inc. as of September 30, 1997 and 1996, and the results of operations, cash
flows and changes in shareholders' equity for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Callahan, Johnston & Associates, LLC
Callahan, Johnston & Associates, LLC
Minneapolis, Minnesota
November 21, 1997
13
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PART II - Item 7. Financial Statements
BALLISTIC RECOVERY SYSTEMS, INC.
BALANCE SHEETS
September 30, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash $119,197 $117,343
Accounts receivable - net of allowance for doubtful
accounts of $12,500 and $12,500, respectively 210,006 73,793
Inventories 266,484 307,213
Deferred tax asset - current portion 138,000 ---
Prepaid expenses 2,984 4,197
-------------- --------------
Total current assets 736,671 502,546
------------ ------------
Furniture, fixtures and leasehold improvements 147,473 75,747
Less accumulated depreciation (60,184) (59,901)
------------- -------------
Furniture, fixtures and leasehold improvements - net 87,289 15,846
------------- -------------
Other assets:
Patents less accumulated amortization of
$7,238 and $6,552, respectively 4,426 5,112
Deferred tax asset - long-term portion 62,000 ---
Covenant not to compete less accumulated
amortization of $72,726 and $34,782, respectively 306,712 344,656
------------ -------------
Total other assets 373,138 349,768
------------ ------------
Total assets $1,197,098 $868,160
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $51,961 $60,923
Customer deposits 95,401 126,017
Accrued payroll 31,031 26,314
Other accrued liabilities 141,744 117,747
Line-of-credit borrowings --- 25,000
Current portion of bank note 12,219 ---
Current portion of covenant not to compete 30,806 31,334
------------ -------------
Current liabilities 363,162 387,335
----------- -----------
Long-term bank note and covenant , less current portions 289,639 314,325
----------- ------------
Shareholders' equity:
Common stock ($.01 par value; 10,000,000 shares authorized;
4,468,772 and 4,454,474 shares, respectively, issued
and outstanding) 44,688 44,545
Additional paid-in capital 2,625,639 2,620,282
Accumulated deficit (2,126,030) (2,498,327)
----------- -----------
Total shareholders' equity 544,297 166,500
------------ ---------------
Total liabilities and shareholders' equity $1,197,098 $868,160
========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
14
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BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Sales $1,855,094 $1,731,414
Cost of sales 1,222,546 1,078,789
---------- ----------
Gross profit 632,548 652,625
Selling, general and administrative 429,801 411,244
Research and development, net (Notes 2, 3 and 4) (50,667) 45,015
---------- ----------
Income from operations 253,414 196,366
Other income (expense):
Interest expense (44,532) (41,617)
Covenant amortization (37,944) (34,782)
Other - net 3,358 (7,500)
---------- ----------
Income before income taxes 174,296 112,467
Income taxes expense (benefit) (Notes 1 and 9) (198,000) 300
---------- ----------
Net income $372,296 $112,167
========== ==========
Primary earnings per share $0.08 $0.02
========== ==========
Weighted average number of shares outstanding 4,895,332 5,042,576
========== ==========
Fully diluted earnings per share $0.07 $0.02
========== ==========
Weighted average number of shares outstanding 5,006,007 5,582,692
========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
15
<PAGE> 16
BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock
------------ Additional Share-
Number of Paid-in Accumulated holders'
Shares Amount Capital Equity(Deficit) Equity
--------- ------ ---------- ---------------- --------
<S> <C> <C> <C> <C> <C>
Balance 10/1/95 4,454,474 $44,545 $2,620,282 ($2,610,493) $54,334
Net income -- -- -- 12,167 112,167
--------- -------- ---------- ----------- --------
Balance 9/30/96 4,454,474 $44,545 $2,620,282 ($2,498,326) $166,501
Issuance of stock in
lieu of director fees 14,298 143 5,357 -- 5,500
Net income -- -- -- 372,296 372,296
--------- -------- ---------- ----------- --------
Balance 9/30/97 4,468,772 $44,688 $2,625,639 ($2,126,030) $544,297
========= ======== ========== =========== ========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
16
<PAGE> 17
BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF CASH FLOW
Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activity:
Net income $372,296 $112,167
Adjustments to reconcile net income to net cash
from operating activity:
Depreciation and amortization 14,141 7,527
Provision for deferred tax benefit (200,000) ---
Amortization of covenant not to compete 37,944 34,782
Inventory valuation reserve 25,000 10,000
Loss on disposal of fixed assets 773 ---
Discount on covenant not to compete (17,345) ---
Stock issued in lieu of board fees 5,500 ---
Provision for bad debts --- 7,500
(Increase) decrease in:
Accounts receivable (136,213) (15,255)
Inventories 15,729 (141,859)
Prepaid expenses
1,213 (1,227)
Increase (decrease) in:
Accounts payable (8,962) (640)
Customer deposits (30,616) 50,834
Accrued expenses
28,715 54,059
-------- --------
Net cash flows from operating activities 108,175 117,888
-------- --------
Cash flows from investing activities:
Capital expenditures (85,671) (8,743)
-------- --------
Net cash flows from investing activities (85,671) (8,743)
-------- --------
Cash flows from financing activities:
Net borrowing under line-of-credit agreement (25,000) 25,000
Proceeds form bank note 70,030 ---
Principal payments on debt (9,327) ---
Principal payments on covenant not to compete (56,353) (33,779)
-------- --------
Net cash flows from financing activities (20,650) (8,779)
-------- --------
Increase (decrease) in cash 1,854 100,366
Cash - beginning of year 117,343 16,977
-------- --------
Cash - end of period $119,197 $117,343
======== ========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements.
17
<PAGE> 18
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1. Summary of Significant Accounting Policies
Nature of Business
Ballistic Recovery Systems, Inc. (the "Company") designs,
manufactures and distributes ballistically deployed emergency parachute
systems used on recreational aircraft and certain models of 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. The
Company is currently developing an emergency recovery system for a
four-place general aviation aircraft. that is expected to be certified
and produced with the Company's parachute as standard equipment
beginning in the Company's fiscal year 1998. Other research and
development contracts currently underway also have the potential to
produce future business for the Company. The Company's products are
sold both domestically and internationally.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Accounts Receivable
The Company sells 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). In
addition, the Company's research and development projects are billed to
its customers on an uncollateralized credit basis with terms of between
net 15 and net 30 days. The estimated loss that management believes is
probable is included in the allowance for doubtful accounts. Due to
uncertainties in the collection process, however, it is at least
reasonably possible that management's estimate will change during the
next year. That amount cannot be estimated.
Two customers account for 74% of accounts receivable at September
30, 1997.
Inventories
Inventories are recorded at the lower of cost (determined on a
first-in basis) or market. The estimated loss that management believes
is probable is included in the inventory valuation allowance. Due to
uncertainties, however, it is at least reasonably possible that
management's estimate will change during the next year. That amount
cannot be estimated.
Customer Deposits
The Company requires order deposits from most of its domestic
and international customers. These deposits represent either 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.
18
<PAGE> 19
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1. Summary of Significant Accounting Policies (Continued)
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related
assets, ranging from three 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.
Intangibles
Patents are recorded at cost and are being amortized on a
straight-line method over 17 years. The covenant not to compete is
recorded at cost and is being amortized using the straight-line method
over the ten year term of the agreement.
Earnings Per Share
Earnings per common share is determined using the treasury
stock method. Under this method, earnings per share is determined by
dividing net income by the weighted average number of common shares and
common equivalent shares outstanding during the year. Options are
considered common equivalent shares in calculating the primary earnings
per share when the average market price of the common stock obtainable
on exercise during the period exceeds the exercise price of the
options. Options are considered common equivalent shares in
calculating fully diluted earnings per share when the ending market
price of the common stock obtainable on exercise exceeds the exercise
price of the options.
Income Taxes
Timing differences relate primarily to: allowances for doubtful
accounts; inventory valuation allowances; and accrued expenses not
currently deductible. Beginning in fiscal year 1997 a deferred tax
asset, net of a valuation reserve, has been reflected for future
benefit of the Company's net operating loss carry forwards and net
timing differences.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Advertising Expenses
Advertising expenses are recognized in the period incurred.
Advertising expenses totaled $28,929 in 1997 and $26,774 in 1996.
19
<PAGE> 20
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
2. Research and Development Funding and Income Recognition
The Company is currently working under an agreement to receive
research and development funding from a privately held company that 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.
Although not guaranteed, certification and production of this aircraft
is expected to begin during the Company's fiscal year 1998.
Under this agreement, $163,599 and $23,304 was reflected as an
offset to research and development expenses and is netted in the
expense for 1997 and 1996, respectively. At the end of fiscal year
1997, the Company had a receivable due under the first contract of
$73,649. Additional funding, although not guaranteed, is expected to
be received on a monthly basis over the next six to twelve months as
the research and development progresses.
The Company will retain the developed technology for the
parachute systems in general and the outside company will retain the
developed technology that is specific to their individual aircraft. In
order to retain the developed technology, the Company has offered the
outside company a discount on future purchases of completed systems
which will total 110% of the advanced amount.
The Company did not establish a liability for the $197,114 taken
as an offset to expense to date under this projects due to the
uncertainty of the future of the project and the future viability of
the products to be developed. 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.
3. Small Business Innovation Research Grant (SBIR)
On March 8, 1996, the Company signed a follow on Phase II
contract under the Small Business Innovation Research grant program
(SBIR) through NASA for use in the research of low-cost, lightweight
aircraft emergency recovery systems. The Phase II contract follows a
Phase I award in 1995. The Company has used the grant to expand its
research in the area of lightweight fabrics and components for use in
recovery systems. The total contract award was for a firm fixed price
grant of $581,875 for a period not to exceed 24 months.
For the years ended September 30, 1997 and 1996, the Company
recognized $157,842 and $82,321, respectively, as an offset to research
and development expenditures for work performed on the Phase II
project. As of September 30, 1997, the Company had recorded a
receivable for $80,837 for this contract.
20
<PAGE> 21
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
4. 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
$151,000 and covers approximately 18 months. The purchase order calls
for development funding for the recovery system as well as the delivery
of completed recovery systems. $90,896 and $14,123, respectively, has
been recognized as an expense offset under this purchase order as of
September 30, 1997 and 1996. As of September 30, 1997, the Company had
recorded a receivable for $21,813 for this contract. 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.
5. 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 called for monthly payments of
$1,500 for forty-six months (February 1996 to November 1999). However,
the Company negotiated a discount on this note and accelerated payments
to be completed by December 1997. This discount represented reductions
in principal and interest payments amounting to approximately $17,000
and was reflected as Other Income in the financial statements for the
period ending September 30, 1997. The 4% ten year note calls for
monthly payments of $4,036 (November 1995 to October 2005). Payments
under this agreement are unsecured.
21
<PAGE> 22
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
5. Covenant Not to Compete (Continued)
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:
Future Present
Dollars Dollars
------- -------
1998 60,276 30,806
1999 48,436 25,302
2000 48,436 26,176
2001 48,436 29,204
2002 48,436 32,583
Thereafter 91,882 126,170
-------- --------
$345,902 $270,241
======== ========
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.
6. Long-Term Debt
On November 5, 1996, the Company signed a note payable with the
bank in the amount of $70,030. The purpose of the loan was to pay for
renovations to the current production facility which the company took
possession of on October 1, 1996. The note calls for interest at a
rate 2% over the bank's index rate which was 8.25% at the time of
signing. The index rate was 8.75% as of September 30, 1997 which
computes to a total interest rate of 10.75%. The note has scheduled
payments over a sixty month period of $1,501 per month. The scheduled
maturity date of the note is November 5, 2001. However, the note has a
demand provision which can be exercised by the bank at any time, but no
demand for payment in full is expected during the term of the note.
The balance on the loan at September 30, 1997 was $60,703. This loan
is secured by all of the Company's assets.
Future maturities on long-term debt at September 30, 1997 are as
follows:
1998 $ 12,219
1999 13,566
2000 15,061
2001 16,721
2002 3,136
--------
$60,703
========
22
<PAGE> 23
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
7. Other Financial Information
Inventories
Inventories consisted of the following at September 30, 1997 and 1996:
1997 1996
---- ----
Raw materials $160,555 $170,291
Work in process 54,637 50,146
Finished goods 51,292 86,776
-------- --------
Total Inventories $266,484 $307,213
======== ========
Depreciation Expense
Depreciation expense totaled $13,455 in 1997 and $6,840 in 1996.
Major Customers
During the fiscal years ended September 30, 1997 and 1996, the
Company was not dependent on any single customer that accounted for
more that 10% of its sales. The Company primarily distributes its
products through dealers and distributors who in turn sell to the end
consumer. The Company believes that in the event that any individual
dealers or distributors cease to represent the Company's products, that
alternative dealers or distributors can be established.
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 39% in 1997 and 41% in 1996.
Major Suppliers
During the fiscal years ended September 30, 1997 and 1996, the
Company purchased its rockets and parachutes from certain key vendors.
The Company routinely searches for new suppliers and feels alternate
sources can be found should any of these suppliers be unable to meet
the Company's needs.
8. Line-of Credit Borrowings
In December of both 1996 and 1995, the Company negotiated a
$35,000 line-of-credit for use in operations. The line-of-credit was
established on a annual renewal basis and is secured by all of the
Company's assets. The latest line-of-credit expires February 28,
1998. The line calls for a variable interest rate of 2% over prime.
At September 30, 1997, there was no outstanding balance under the line.
The Company expects to renew the line each year following the review of
its financial results and projections with the bank.
23
<PAGE> 24
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
9. Income Taxes
Income taxes benefit (expense) consisted of the following at
September 30:
1997 1996
---- ----
Current: $ --- $ ---
Federal (2,000) (300)
----------- ---------
State (2,000) (300)
----------- ---------
Deferred:
Federal 138,000 ---
State 62,000 ---
----------- ---------
200,000 ---
----------- ---------
Income tax benefit (expense) $198,000 ($300)
=========== =========
The reconciliation between expected federal income tax rates and actual tax
rates is as follows:
1997 1996
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
Expected federal tax benefit
(expense) ($59,000) (34.0%) ($38,000) (34.0%)
Surtax exemption 8,000 4.6% 11,000 9.8%
State income tax, net of federal
tax benefit (11,000) (6.3%) (7,000) (6.2%)
Valuation and utilization of net
operating loss carryforwards 262,000 150.4% 34,000 30.4%
State minimum fees (2,000) (1.1%) (300) (0.1%)
-------- ----- ------- -----
Income tax benefit (expense) $198,000 113.6% ($300) (0.1%)
======== ===== ======= =====
24
<PAGE> 25
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
9. Income Taxes (Continued)
Differences between accounting rules and tax laws cause differences
between the bases of certain assets and liabilities for financial
reporting purposes and tax purposes. The tax effects of these
differences, to the extent they are temporary, are recorded as deferred
tax assets and liabilities under SFAS 109, and consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 5,000 $ 5,000
Inventory valuation allowance 19,900 9,900
Section 263A adjustment 10,000 12,600
Depreciation of leaseholds 1,800 ---
Vacation accrual 4,700 ---
Bonus accrual --- 8,000
Other accruals 24,300 14,100
Net operating loss carryforwards 933,000 995,000
---------- -------------
Gross deferred tax asset 998,700 1,044,600
Valuation allowance (798,700) (1,044,600)
Net deferred tax asset 200,000 ---
Deferred tax liability --- ---
---------- -------------
Net deferred tax asset (liability) $ 200,000 $ ---
========== ===============
Current deferred tax asset $ 138,000 $ ---
Long-term deferred tax asset 62,000 ---
---------- -------------
$ 200,000 $ ---
========== ===============
</TABLE>
During 1997, the Company reduced the valuation allowance to reflect the
deferred tax assets utilized in 1997 to reduce current income taxes,
approximately $62,000, and to recognize a deferred tax asset of
$200,000. The recognized deferred tax asset is based upon expected
utilization of the net operating loss carryforwards and reversal of
certain timing differences.
The Company has assessed its past earnings history and trends, sales
backlog, budgeted sales, and expiration dates of carryforwards and has
determined that it is more likely than not that $200,000 of deferred
tax assets will be realized. The remaining valuation allowance of
$798,700 is maintained on deferred tax assets which the Company has not
determined to be more likely than not realized at this time.
25
<PAGE> 26
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
9. Income Taxes (Continued)
At September 30, 1997, the Company has carryforwards available
to offset future taxable income, as follows:
<TABLE>
<CAPTION>
State
Federal Federal State R&D
Regular AMT NOL Credit
------- --- --- ------
<S> <C> <C> <C> <C>
2001 $ --- $ --- $ --- $ 4,000
2002 --- --- --- 4,000
2003 158,000 174,000 --- 5,000
2004 519,000 512,000 --- ---
2005 713,000 706,000 --- ---
2006 132,000 126,000 --- ---
2007 113,000 107,000 12,000 ---
2008 457,000 450,000 97,000 ---
2009 181,000 175,000 182,000 ---
----------- ---------- --------- --------
$2,273,000 $2,250,000 $291,000 $13,000
=========== ========== ========= ========
</TABLE>
10. Common Stock
Stock Options
In fiscal year 1988, and as amended in fiscal year 1991, 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 400,000 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 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 on a discretionary basis.
26
<PAGE> 27
\
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
10. Common Stock (Continued)
Stock Options (Continued)
Transactions during 1997 and 1996, 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, 1995 2,035,278 $0.25 to $0.8125
Granted 140,000 $0.25 to $0.8125
Canceled (62,760) $0.4375 to $0.8125
-----------
Balance at September 30, 1996 2,112,518 $0.25 to $0.8125
Granted 60,000 $0.56 to $0.69
-----------
Balance at September 30, 1997 2,172,518 $0.25 to $0.8125
===========
At September 30, 1997:
Options vested and exercisable 2,042,518
Shares available for options 234,240
</TABLE>
11. Commitments and Contingencies
Leases
The Company leases its production facility on an airport in
South St. Paul, Minnesota. Total rental expense for operating leases
during 1997 and 1996 was $31,672 and $19,632, respectively.
Future minimum lease payments required on non cancelable
operating leases at September 30, 1997 are as follows:
1998 $ 28,200
1999 28,200
2000 28,200
2001 28,200
2002 28,200
Thereafter 7,050
---------
$148,050
=========
12. Supplemental Cash Flow Information
1997 1996
---- ----
Cash paid for:
Interest $44,532 $41,617
Income taxes 1,637 300
27
<PAGE> 28
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
12. Supplemental Cash Flow Information (Continued)
Summary of non cash activity:
- On October 26, 1995, the Company entered into a covenant not to
compete agreement as described in Note 5. Consideration for this
agreement included $374,438 in non cash consideration.
- In 1997, common stock was issued in lieu of directors fees of $5,500.
28
<PAGE> 29
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.
PART IV
Item 13.Exhibits, Lists and Reports on Form 8-K.
<TABLE>
<CAPTION>
(a) Exhibits
--------
<S> <C> <C>
Page Exhibit
Number Number Description
------ ------ -----------
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 the 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. appears as Exhibit 10.1 to the Company's Report on Form 10-KSB
for the fiscal year ended September 30, 1995 and is incorporated herein by
reference.
</TABLE>
29
<PAGE> 30
PART IV (CONTINUED)
Item 13.Exhibits, Lists and Reports on Form 8-K (Continued).
<TABLE>
<CAPTION>
(a) Exhibits
--------
<S> <C> <C>
Page Exhibit
Number Number Description
------ ------ -----------
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, 1997.
30
<PAGE> 31
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 January 12, 1998
- ---------------------------
Darrel D. Brandt
/s/ Boris Popov Director January 12, 1998
- ----------------------------
Boris Popov
/s/ Robert L. Nelson Director January 12, 1998
- --------------------------
Robert L. Nelson
/s/ Thomas H. Adams Director January 12, 1998
- -----------------------
Thomas H. Adams
</TABLE>
31
<TABLE> <S> <C>
<ARTICLE> 5
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