<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
- ----- Act of 1934 (No Fee Required)
For the quarterly period ended June 30, 1999
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)
(651) 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 August 10,1999: 5,844,606
-------------------
1
<PAGE>
INDEX
BALLISTIC RECOVERY SYSTEMS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Balance sheets as of June 30, 1999 and September
30, 1998. 3
Statements of operations for the three months and nine
months ended June 30, 1999 and 1998. 4
Statements of cash flow for the nine months ended
June 30, 1999 and 1998. 5
Notes to financial statements at June 30, 1999. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION - Item I. Financial Statements
BALLISTIC RECOVERY SYSTEMS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 161,673 $ 20,100
Accounts receivable - net of allowance for doubtful
accounts of $2,500 and $2,500, respectively 103,461 401,822
Inventories 327,591 252,713
Deferred tax asset - current portion 25,000 25,000
Prepaid expenses 4,201 3,198
------------ ------------
Total current assets 621,926 702,833
------------ ------------
Furniture, fixtures and leasehold improvements 164,925 160,139
Less accumulated depreciation (97,845) (81,611)
------------ ------------
Furniture, fixtures and leasehold improvements - net 67,080 78,528
------------ ------------
Other assets:
Patents less accumulated amortization of
$8,439 and $7,924, respectively 3,225 3,740
Deferred tax asset - long-term portion 275,000 275,000
Other intangible assets less accumulated amortization
of $5,140 and $5,140, respectively 52,588 46,258
Covenant not to compete less accumulated
amortization of $139,127 and $110,669, respectively 240,311 268,769
------------ ------------
Total other assets 571,124 593,767
------------ ------------
Total assets $ 1,260,130 $ 1,375,128
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 61,868 $ 166,159
Customer deposits 131,191 73,180
Accrued payroll 43,100 48,792
Other accrued liabilities 82,271 65,075
Line-of-credit borrowings 38,836 35,884
Current portion of bank note 14,657 13,566
Current portion of covenant not to compete 25,441 23,460
------------ ------------
Current liabilities 397,364 426,116
------------ ------------
Long-term bank note and covenant, less current portions 228,278 250,770
------------ ------------
Shareholders' equity:
Common stock ($.01 par value; 10,000,000 shares authorized;
5,696,927 issued and outstanding) 56,969 56,969
Additional paid-in capital 2,622,888 2,622,888
Accumulated deficit (2,045,369) (1,981,615)
------------ ------------
Total shareholders' equity 634,488 698,242
------------ ------------
Total liabilities and shareholders' equity $ 1,260,130 $ 1,375,128
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 548,490 $ 377,135 $ 1,254,403 $ 1,065,957
Cost of sales 334,548 259,407 807,242 739,310
----------- ----------- ----------- -----------
Gross profit 213,942 117,728 447,161 326,647
Selling, general and administrative 104,900 109,499 350,638 331,369
Research and development 40,258 (14,365) 79,668 (32,728)
----------- ----------- ----------- -----------
Income from operations 68,784 22,594 16,855 28,006
Other income (expense):
Interest expense (14,066) (11,551) (42,361) (34,008)
Covenant amortization (9,486) (9,486) (28,458) (28,458)
Other income (expense) (5,874) -- (9,790) --
----------- ----------- ----------- -----------
Net income (loss) $ 39,358 $ 1,557 $ (63,754) $ (34,460)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Primary earnings per share $ 0.01 $ (0.00) $ (0.01) $ (0.01)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding 4,657,469 4,895,332 4,657,469 4,895,332
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Fully diluted earnings per share $ 0.01 $ (0.00) $ (0.01) $ (0.01)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding 4,841,400 5,006,007 4,841,400 5,006,007
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF CASH FLOW
INCREASE (DECREASE) IN CASH
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flow from operating activity:
Net income (loss) $ (63,754) $ (34,460)
Adjustments to reconcile net income to net cash
from operating activity:
Depreciation and amortization 16,749 15,334
Amortization of covenant not to compete 28,458 28,457
Inventory valuation reserve 9,000 9,000
(Increase) decrease in:
Accounts receivable 298,361 (42,263)
Inventories (83,878) (28,896)
Prepaid expenses (1,003) (2,474)
Increase (decrease) in:
Accounts payable (104,291) 36,417
Accrued expenses 69,515 (20,717)
------------ ------------
Net cash from operating activities 169,157 (39,602)
------------ ------------
Cash flow from investing activities:
Investment in other intangible assets (6,330) (21,644)
Capital expenditures (4,786) (6,809)
------------ ------------
Net cash from investing activities (11,116) (28,453)
------------ ------------
Cash flow from financing activities:
Net borrowings under line-of-credit agreement 2,952 --
Principal payments on bank note (7,118) (8,292)
Principal payments on covenant not to compete (12,302) (22,963)
------------ ------------
Net cash from financing activities (16,468) (31,255)
------------ ------------
Increase (decrease) in cash 141,573 (99,310)
Cash - beginning of year 20,100 119,197
------------ ------------
Cash - end of period $ 161,673 $ 19,887
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(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 nine-month period ended June 30, 1999 are not necessarily indicative of
the results that may be expected for the year ended September 30, 1999. 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, 1998.
B. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
03/31/99 09/30/98
---------- ----------
<S> <C> <C>
Raw materials $235,922 $181,997
Work in process 56,844 43,851
Finished goods 34,825 26,865
---------- ----------
Total inventories $327,591 $252,713
---------- ----------
---------- ----------
</TABLE>
C. 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.
D. 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.
E. NEW PRODUCT DEVELOPMENT, R&D FUNDING AND INCOME RECOGNITION
The Company has recently completed work under an agreement to receive
research and development funding from a privately held company that has
developed a four-place composite, certified aircraft. This aircraft, which
was successfully certified on October 23, 1998, is the first FAA certified
aircraft to offer one of the Company's recovery systems as standard
equipment. Although there is no assurance that this product will contribute
to the future operations and profitability of the Company, production of
this aircraft is currently underway. First deliveries of completed
aircraft, which included the Company's parachute system, were made in
mid-July 1999.
6
<PAGE>
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
E. NEW PRODUCT DEVELOPMENT, R&D FUNDING AND INCOME RECOGNITION (CON'T)
Through the beginning of August 1999, the Company has delivered eight
completed parachute systems. The Company is currently in production of
additional parachute systems and will make scheduled deliveries from this
point on a progressive basis as aircraft production begins to accelerate.
The Company has retained the developed technology for the parachute systems
in general and the outside company has retained 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 $549,295 taken as an
offset to expense to date under this project due to the uncertainty of the
future of the project and the future viability of the product as developed.
In addition, it is the Company's belief that the establishment of a reserve
would have resulted in a misleading presentation of the research and
development costs incurred by the Company for this project. All purchase
discounts that will be earned upon delivery of completed product 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.
F. 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 36 months. The project was completed on March 8, 1999 when
final reports and test articles were submitted to NASA for their review.
The Company expects to be able to utilize the developed technology for a
wide range of applications. This expectation is based on the Company's
ability to further develop the technology either on its own or through
cooperative efforts with outside companies or agencies. The future
applications will depend on a complete review of market conditions, product
acceptance and available funding.
G. 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, was for a total of $150,000 and has been
completed during the Company's first quarter of fiscal year 1999. The
purchase order called for development funding for the recovery system as
well as the delivery of completed recovery systems. No assurances can be
made as to the success of the developed product or if its completion will
lead to future revenues.
7
<PAGE>
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
H. 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 contain
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 which were
completed in 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.
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>
1999 48,436 23,460
2000 48,436 26,176
2001 48,436 29,204
2002 48,436 32,583
2003 48,436 36,354
Thereafter 56,158 91,535
---------- ----------
$298,338 $239,312
---------- ----------
---------- ----------
</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>
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
I. 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 that 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
8.25% as of September 30, 1998, which computes to a total interest rate of
10.25%. 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. This loan is secured by all of the Company's assets.
J. LINE-OF CREDIT BORROWINGS
The Company is operating under a $150,000 line-of-credit for use in
operations. The line-of-credit is established on an annual renewal basis
and is secured by all of the Company's assets. The current line-of-credit
agreement began on February 28, 1999 and expires February 28, 2000. The
line calls for a variable interest rate of 2% over the bank's index rate,
currently 10.00%. The Company expects to renew the line each year following
the review of its financial results and projections with the bank.
K. INCOME TAXES
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.
During 1998 the Company reduced the valuation allowance relating to the
deferred tax assets to reflect current utilization and to recognize a
deferred tax asset. 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 assess 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 $300,000 of deferred tax assets will
be utilized. The remaining valuation allowance of $704,400 is maintained on
deferred tax assets which the company has not determined to be more likely
than not realized at this time.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS OVERVIEW:
During the current fiscal quarter, the Company turned the page of a new chapter
in its long history of providing whole aircraft parachute recovery systems. This
quarter marks the first time that a parachute system was delivered to a customer
that will install it as standard equipment on a certified general aviation
aircraft. The Cirrus Design SR20 is the first in a series of aircraft to be
manufactured by Cirrus Design Corporation that has chosen to offer the Company's
product as a standard feature. As of the beginning of August 1999, the customer
has firm orders for approximately 330 aircraft that will all include the
Company's parachute systems. The customer expects to be able to fill this
backlog of orders during the next 18 to 24 months. Future production volumes for
the aircraft, and therefore, the Company's parachute systems, will be dictated
by ultimate market demands. However, the customer believes that the market
demand for this model of aircraft will be 500 or more units annually once the
market stabilizes and the product gains further consumer acceptance. The Company
is currently discussing offering its product to the customer for future models
of aircraft that the customer plans to manufacture. The Company believes that
this will help to propel it forward into offering its systems to other
manufactures and customers in the certified general aviation market.
On March 30, 1999, the Company made its first two scheduled deliveries under the
open purchase order with Cirrus Design. The Company delivered an additional four
units during the current fiscal quarter. The first two end-customer deliveries
of the aircraft were made in July 1999 with the next delivery scheduled during
August 1999. Although not financially significant to date, the deliveries
signify the beginning of what the Company believes to be a modest yet steadily
increasing production and delivery of units to Cirrus Design. But, as always,
there can be no assurances that the Cirrus Design aircraft will be successful in
its continued market acceptance.
The current fiscal year continues to be a transition year for the Company.
Although the Company has begun serial production of parachute systems for the
Cirrus Design SR20, the current fiscal year will not be significantly impacted
due to relatively low initial volumes as the customer begins to accelerate
production of the aircraft. The Company has moved into a period of transition
from research and development to production and market development. This has
resulted in the Company's shift from its position of being able to sell its
research and development capabilities to a need to expend capital and resources
to get the developed products and technologies on the market and to look for new
applications for those products and technologies. The Company believes that this
shift, which has resulted in temporary operating losses, will result in revenue
growth and improved profitability.
In addition, the Company anticipated being able to expand its product line to
include other certified and uncertified aircraft as the recovery system gains
further market acceptance. The Company has been in discussions with the US
military and several foreign companies that have expressed interest in utilizing
the Company's newly developed technology. No assurance can be made as to the
future benefits that will be derived from these discussions.
At the end of July 1999, the Company announced a program that is intended to
lead to the introduction of a parachute recovery system for the Cessna 172
aircraft. The Cessna 172 is one of the most popular general aviation aircraft
with approximately 36,000 planes manufactured. Twenty-eight thousand Cessna
172's are estimated to be in active service in the United States at this time.
Under the program, the Company is asking 172 owners to make deposits towards the
purchase of a recovery system. Once a certain number of owners have made their
deposits, the Company will begin the certification process with the FAA. Once
certified, the Company will begin manufacturing and delivery of units to the
owners that have placed deposits. The Company expects to be successful in its
solicitation efforts, but no assurances can be made of its success or the
long-term financial benefits to the Company.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Another long-standing outside research and development project was for a
research grant under the SBIR program administered by NASA. Under the project,
the Company explored the possibilities of developing a new fabric for parachute
manufacturing that would reduce the weight and volume of currently existing
parachute recovery systems. Final testing was completed in February 1999 and
final reports and test articles were submitted to NASA on March 8, 1999. As a
result of the project, the Company applied for a patent for the new
manufacturing method that was developed. The Company expects to be able to
utilize the developed technology for a wide range of applications. This
expectation is based on the Company's belief in its ability to further develop
the technology either on its own or through cooperative efforts with outside
companies or agencies. The future applications will depend on a complete review
of market conditions, product acceptance and available funding. The Company has
begun discussions with a foreign company that has expressed interest in the
developed technology for currently existing commercial and military
applications. No assurance can be made as to the future benefits that will be
derived from these discussions.
SALES AND GROSS PROFIT
Sales and gross profit for the current fiscal year quarter were ahead of the
prior year. Part of the sales increase is a result of the first deliveries for
the Cirrus Design SR20. Domestic sales have been strong, but throughout the
prior fiscal year and continuing on into the current fiscal year, the
international markets for the Company's products have been affected by a number
of factors including: (1) the economic unrest in Asia; (2) a strong US currency
that raises the cost of the Company's exports; and (3) increased competition in
Europe. This has resulted in weaker sales internationally than in previous
years. In addition, certain markets may be reaching a saturation point for the
Company's product. The Company has expanded its efforts to improve international
business, but there can be no assurances that these efforts will produce
increased sales for the Company.
Sales in the recreational aircraft market for fiscal year 1999 are expected to
be even or slightly higher than the prior fiscal year as a result of the
Company's efforts to improve international business and the improvement in
domestic aircraft sales. In addition to recreational market sales, it is
expected that the Company will continue delivery of systems for the newly
certified Cirrus Design SR-20 aircraft. The Company made its first two scheduled
deliveries on March 30, 1999. These deliveries were under an open purchase order
for the first 100 units. These first 100 units are expected to be delivered
within 12 months from the date of first delivery. However, volume projections
and timing of those volumes is uncertain at this time. Although certified, there
can be no assurances that this aircraft will actually be produced in volumes
that will have a material effect on the Company.
OPERATING EXPENSES:
Outside funding has offset a portion of research and development costs for both
fiscal years. Net research and development costs were higher in the current
fiscal year as the Company made contributions towards the expenses necessary to
complete development and testing of certain projects. In addition, personnel
added to complete certain outside research and development projects increased
the Company's expenses while funding for those projects was being reduced or had
come to an end. The Company believes that these added expenses were necessary to
complete its obligations under those projects. All of the outside research and
development projects underway at the end of fiscal year 1998 have been completed
during the Company's fiscal year 1999. 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.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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.
The Company has also established a line-of-credit for use in operations as
required. 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 and adjust expenses as necessary to improve
profitability. Current contract research and development projects have been
completed during the Company's fiscal year 1999. 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 that
was recently certified. However, it is currently the intention of the Company to
fund the expenditures through current operations as well as revenues generated
by those units.
With the receipt of certification on October 23, 1998, the Cirrus Design SR-20
aircraft became the first FAA certified aircraft to offer one of the Company's
parachute systems as standard equipment. Production of the aircraft is currently
underway and the first two end-customer aircraft were delivered in July 1999.
The Company made its first two scheduled deliveries of parachute systems on
March 30, 1999 with four additional units delivered during the current fiscal
quarter. The Company is currently building parachute systems under an open
100-unit purchase order, which is expected to be filled within the next 12
months. Although certified, there can be no assurances that this aircraft will
actually be produced in volumes that will have a material effect on the Company.
The Company completed work on its Small Business Innovation Research grant
(SBIR) through NASA on March 8, 1999. The purpose of the grant was to perform
research of low-cost, lightweight aircraft emergency recovery systems. The Phase
II grant, which began in March 1996, was for a maximum of $582,000. The Company
is currently looking for applications of the developed technology and is in
discussions with a foreign company that is interested in the technology for
their current military and commercial products.
The Private Securities Litigation Reform Act of 1995 provides "safe harbor" for
forward-looking statements. Certain information included in this Form 10-QSB 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,
anticipated Cirrus delivery schedules, other business development activities as
well as other capital spending, financial sources, the effects of competition
and resolution of any Year 2000 issues. 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.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company was named in a lawsuit based on the crash of an ultralight
aircraft. The Company was released from the lawsuit during the first
quarter of the current fiscal year. The Company believes that there is
no potential for further liability in this matter.
The Company was named in a lawsuit based on a claim from a former
supplier of the Company. The Company has made a counter claim against
the vendor for damages sustained by the Company. The Company believes
that its counter claim is valid and that the potential for future
liability in this matter is not material to the Company's financial
position.
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 June 30, 1999.
13
<PAGE>
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 August 12, 1999
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 161,673
<SECURITIES> 0
<RECEIVABLES> 105,961
<ALLOWANCES> 2,500
<INVENTORY> 327,591
<CURRENT-ASSETS> 621,926
<PP&E> 164,925
<DEPRECIATION> 97,845
<TOTAL-ASSETS> 1,260,130
<CURRENT-LIABILITIES> 397,364
<BONDS> 228,278
0
0
<COMMON> 56,969
<OTHER-SE> 577,569
<TOTAL-LIABILITY-AND-EQUITY> 1,260,130
<SALES> 1,254,403
<TOTAL-REVENUES> 1,254,403
<CGS> 807,242
<TOTAL-COSTS> 807,242
<OTHER-EXPENSES> 430,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,609
<INCOME-PRETAX> (63,754)
<INCOME-TAX> 0
<INCOME-CONTINUING> (63,754)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (63,754)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
