<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 March 31, 2000
Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
For the transition period from to
------------ ------------
Commission file number 0-15318
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BALLISTIC RECOVERY SYSTEMS, INC.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
MINNESOTA 41-1372079
(State or Other Jurisdiction of (IRS Employer ID Number)
Incorporation or Organization)
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 May 10, 2000: 5,902,464
-------------
1
<PAGE>
INDEX
BALLISTIC RECOVERY SYSTEMS, INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
- ------------------------------
<S> <C> <C>
Item 1. Financial Statements (Unaudited). PAGE
Balance sheets as of March 31, 2000 and September
30, 1999. 3
Statements of operations for the three months and six
months ended March 31, 2000 and 1999. 4
Statements of cash flow for the six months ended
March 31, 2000 and 1999. 5
Notes to financial statements at March 31, 2000. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION - Item I. Financial Statements
BALLISTIC RECOVERY SYSTEMS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 2000 1999
---- ----
<S> <C> <C>
Current assets:
Cash $250 $181,902
Accounts receivable - net of allowance for doubtful
accounts of $2,500 and $2,500, respectively 30,930 59,074
Inventories 494,040 340,355
Deferred tax asset - current portion 25,000 25,000
Prepaid expenses 12,398 6,398
----------- -----------
Total current assets 562,618 612,729
----------- -----------
Furniture, fixtures and leasehold improvements 172,737 165,550
Less accumulated depreciation (114,740) (104,158)
----------- -----------
Furniture, fixtures and leasehold improvements - net 57,997 61,392
------------ -----------
Other assets:
Patents less accumulated amortization of
$8,954 and $8,611, respectively 2,711 3,054
Deferred tax asset - long-term portion 275,000 275,000
Other intangible assets less accumulated amortization
of $20,559 and $15,419, respectively 30,838 35,978
Covenant not to compete less accumulated
amortization of $167,585 and $148,613, respectively 211,853 230,825
----------- -----------
Total other assets 520,402 544,857
----------- -----------
Total assets $1,141,017 $1,218,978
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $98,746 $58,580
Customer deposits 67,142 94,257
Accrued payroll 32,084 35,958
Other accrued liabilities 44,809 67,450
Current portion of bank note 16,074 15,312
Current portion of covenant not to compete 27,648 26,175
----------- -----------
Current liabilities 286,503 297,732
----------- -----------
Long-term bank note and covenant , less current portions 183,394 207,275
----------- ------------
Shareholders' equity:
Common stock ($.01 par value; 10,000,000 shares authorized;
5,902,464 and 5,859,449 shares, respectively, issued
and outstanding) 58,845 58,595
Additional paid-in capital 2,642,449 2,631,762
Accumulated deficit (2,030,174) (1,976,386)
----------- -----------
Total shareholders' equity 671,120 713,971
----------- -----------
Total liabilities and shareholders' equity $1,141,017 $1,218,978
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended March 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $531,586 $392,399 $991,202 $705,913
Cost of sales 347,670 253,761 655,336 472,694
---------- --------- ---------- ----------
Gross profit 183,916 138,638 335,866 233,219
Selling, general and administrative 146,603 122,160 253,112 245,738
Research and development 44,214 (3,047) 79,928 39,410
----------- ---------- ----------- ------------
Income from operations (6,901) 19,525 2,826 (51,929)
Other income (expense):
Interest expense (7,056) (14,420) (16,045) (28,295)
Covenant amortization (9,486) (9,486) (18,972) (18,972)
Other income (expense) (11,473) (3,916) (21,597) (3,916)
------------ ----------- -----------------------
Net income (loss) ($34,916) ($8,297) ($53,788) ($103,112)
=========== ========== ========= ==========
Primary earnings per share ($0.01) ($0.00) ($0.01) ($0.02)
============ =========== ============ ============
Weighted average number of shares
outstanding 5,902,464 4,657,469 5,902,464 4,657,469
========= ========= ========= =========
Fully diluted earnings per share ($0.01) ($0.00) ($0.01) ($0.02)
============ =========== ============ ============
Weighted average number of shares
outstanding 6,229,066 4,841,400 6,229,066 4,841,400
========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF CASH FLOW
Increase (Decrease) in Cash
For the Six Months Ended March 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flow from operating activity:
Net income (loss) ($53,788) ($103,112)
Adjustments to reconcile net income to net cash
from operating activity:
Depreciation and amortization 16,065 11,165
Amortization of covenant not to compete 18,972 18,972
Inventory valuation reserve 6,000 6,000
(Increase) decrease in:
Accounts receivable 28,144 205,777
Inventories (159,685) (84,874)
Prepaid expenses (6,000) (303)
Increase (decrease) in:
Accounts payable 40,166 (46,706)
Accrued expenses (53,630) 67,480
------ ------
Net cash from operating activities (163,756) 74,399
-------- -------
Cash flow from investing activities:
Investment in other intangible assets --- (1,875)
Capital expenditures (7,187) (2,163)
-------- ------
Net cash from investing activities (7,187) (4,038)
----- -----
Cash flow from financing activities:
Net borrowings under line-of-credit agreement --- 2,952
Principal payments on bank note (8,916) (5,528)
Exercise of stock options 10,937 ---
Principal payments on covenant not to compete (12,730) (7,418)
------- -----
Net cash from financing activities (10,709) (9,994)
------ -----
Increase (decrease) in cash (181,652) 60,367
Cash - beginning of year 181,902 20,100
------- ------
Cash - end of period $250 $80,467
======== =======
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended March 31, 2000 are not necessarily indicative of
the results that may be expected for the year ended September 30, 2000. 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, 1999.
B. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
03/31/00 09/30/99
-------- --------
<S> <C> <C>
Raw materials $334,515 $230,455
Work in process 128,951 88,837
Finished goods 30,574 21,063
---------- ----------
Total inventories $494,040 $340,355
======== ========
</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
During fiscal year 1999, the Company began delivery of systems for a newly
certified aircraft known as the Cirrus Design SR20 (SR20). The SR20
aircraft received Federal Aviation Administration (FAA) certification in
October 1998 and includes the Company's parachute system as a standard
equipment feature. The development of the system for the SR20 was a joint
effort between the Company and Cirrus Design under an agreement that began
in 1994 and culminated with FAA certification in late 1998. Under terms of
the agreement, 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.
6
<PAGE>
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
(UNAUDITED)
E. NEW PRODUCT DEVELOPMENT, R&D FUNDING AND INCOME RECOGNITION (CONTINUED)
The Company completed a project through the Small Business Innovation
Research grant (SBIR) program administered by NASA. The purpose of the
grant was to perform research on 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, was for a maximum of $582,000 and was completed during
the Company's fiscal year 1999. The purpose of the grant was 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. The Company received preliminary approval of its patent
application in February 2000 for technology developed under the contract.
Final patent grant is expected by the end of the Company's current fiscal
year.
Also during fiscal year 1999, the Company completed work under a
development contract for a recovery system for a prototype-unmanned
aircraft being developed by a government contractor. The contract that
began in 1996 was for a maximum amount of $150,000, and called for the
development and delivery of a series of recovery devices both for use in
testing, and possibly in future production models.
At the end of fiscal year 1999, the Company began efforts to generate
interest in a recovery system for the certified Cessna 172 aircraft. The
Company began a marketing and media campaign designed to solicit purchase
commitments from owners of Cessna 172 aircraft which would in turn provide
partial or complete funding for the development and certification of the
system. To date, the Company has received three signed purchase commitments
and requests for contracts from 50 additional prospects. The Company plans
to continue its efforts during fiscal year 2000 and assess the viability of
such development during that year.
F. PURCHASE AND SUPPLY AGREEMENT
On September 17, 1999, the Company entered into a Purchase and Supply
Agreement with Cirrus Design Corporation (Cirrus), the manufactured of the
SR20 aircraft that utilizes the Company's parachute system as standard
equipment. Under the Agreement, Cirrus has been issued four warrants to
acquire an aggregate of up to 1.4 million shares of restricted Company
stock. In order to execute the warrants, Cirrus must meet certain purchase
levels of the Company's emergency parachute systems for the SR20 aircraft
over the subsequent five years. The purchase levels that must be achieved
along with the corresponding number of shares under each warrant and
warrant strike price are as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE PER
WARR # EXERCISE PERIOD WARRANT SHARES WARRANT SHARE PURCHASE COMMITMENT
------ --------------- -------------- ------------- --------------------
<S> <C> <C> <C> <C>
1 01-2002 to 02-2003 250,000 $1.00 250 units in calendar 2002
2 01-2003 to 02-2004 250,000 $1.00 400 units in calendar 2003
3 01-2003 to 02-2004 250,000 $1.25 400 units in calendar 2003
4 01-2004 to 02-2005 650,000 $1.25 500 units in calendar 2004
</TABLE>
If the minimum purchase levels are met, then Cirrus has the right to
exercise the warrant during the exercise period for the stated exercise
price. In the event that Cirrus does not meet the minimum purchase levels,
Cirrus will forfeit the right to exercise the corresponding warrant.
7
<PAGE>
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
(UNAUDITED)
F. PURCHASE AND SUPPLY AGREEMENT (CONTINUED)
If Cirrus fulfills their purchase commitments and exercises their warrants,
the impact on equity may be as follows (Assumes equity contributions based
on the exercise of all warrants near the end of the exercise period):
<TABLE>
<CAPTION>
FISCAL YEAR EQUITY CONTRIBUTION
<S> <C>
2003 $ 250,000
2004 562,500
2005 812,500
Total $1,625,000
</TABLE>
G. COVENANT NOT TO COMPETE
On October 26, 1995 the Company entered into an agreement with the
president and majority shareholder of Second Chantz Aerial Survival
Equipment, Inc. (SCI), whereby SCI ceased all business activities, and
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% resulting in a resulting in a
present dollar valuation of $379,438 on the $584,362 future dollar
valuation. The carrying amount of this debt approximates fair value because
the interest rate approximates the Company's incremental borrowing rate.
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 that were
completed in December 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>
2000 48,436 26,176
2001 48,436 29,204
2002 48,436 32,583
2003 48,436 36,354
2004 48,436 40,561
Thereafter 7,722 49,255
----- ------
$249,902 $214,133
======== ========
</TABLE>
8
<PAGE>
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
(UNAUDITED)
G. COVENANT NOT TO COMPETE (CONTINUED)
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.
H. 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 March 31, 2000, 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. The carrying amount of this debt approximates fair value
because the interest rate changes with market rates. This loan is secured
by all of the Company's assets.
I. LINE OF CREDIT BORROWINGS
Beginning February 28, 2000, the Company has been operating under a
$250,000 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 line calls for a variable interest rate of 2% over
the bank's index rate. At March 31, 2000, there was no outstanding balance
under the line, which carried an interest rate of 10.25%. The Company
expects to renew the line each year following the review of its financial
results and projections with the bank.
J. 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 and projected utilization. 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 $300,000 of deferred tax
assets will be utilized. The remaining valuation allowance of $680,000 at
March 31, 2000 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:
The Company's prior fiscal year marked 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 (SR20) is the first
in a series of aircraft to be manufactured by Cirrus Design Corporation (Cirrus)
that has chosen to offer the Company's product as a standard feature. As of the
beginning of May 2000, the customer has firm orders for approximately 575
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 24 months.
Future production volumes for the aircraft, and therefore, the Company's
parachute systems, will be dictated by ultimate market demands. The Company
expects to offer its product to the customer for future models of aircraft that
the customer plans to manufacture. The Company is currently testing a parachute
system for the next aircraft model for the customer. The next model of aircraft
is expected to be certified during the Company's fiscal year 2001. 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.
In March 1999, the Company made its first two scheduled deliveries under an open
purchase order with Cirrus. The open purchase order, which exceeds 100 units,
has deliveries scheduled through January 2001. Through the end of the second
fiscal quarter, the Company has delivered 35 units. These sales accounted for
approximately 26% of the Company's total revenues for the current fiscal year
quarter and 24% of the year to date revenues. The Company believes that the
customer will gradually accelerate its production schedule as indicated in
current purchase orders. Although there can be no assurances that the Cirrus
aircraft will be successful in its continued market acceptance, the Company
expects to make an increasing number of sales to Cirrus as they continue to
increase production and fill their increasing backlog of customer orders.
During the prior fiscal year 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 reduction in operating profits, 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. As of the beginning of May 2000,
the Company has received signed contracts with deposits from three owners of 172
aircraft as well as contract requests from 50 additional prospects. The Company
will review the effectiveness of its marketing efforts by the end of the current
fiscal year and make a determination to continue with its current efforts or to
modify its approach.
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 and received preliminary approval as of
the end of March 2000. Final patent grant is expected before the end of the
current fiscal year. 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.
RESULTS OF OPERATIONS:
SALES
Sales for the current fiscal year quarter were ahead of the prior year quarter
by approximately 35%. All of the increase is a result of deliveries for the
Cirrus Design SR20. The recreational aircraft market is flat with that of the
prior year. In an effort to strengthen recreation market sales, the Company has
expanded its efforts to improve international business for those products.
However, there can be no assurances that these efforts will produce increased
sales for the Company.
Sales in the recreational aircraft market for fiscal year 2000 are expected to
be even with 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 SR20
aircraft. The Company has delivered 35 units through the end of the current
fiscal quarter. The Company is currently producing parachute systems under an
open purchase order that exceeds 100 units. The Company expected to deliver the
remainder of the first 100 units under the purchase order by the end of the
current fiscal year. The customer anticipated production of aircraft to reach a
level of one aircraft per business day by October or November 2000. Actual
volume projections and timing of those volumes is subject to change as the
customer expands its production capabilities. 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.
GROSS MARGIN
The gross margin for the current fiscal year is holding steady with that of the
previous fiscal year for both the quarter and fiscal year to date. The Company
has made a concerted effort to hold and improve the gross margin despite
material cost increases. No assurances can be made that this effort will result
in steady or improving gross margins into the future or if gross margins will
decrease in the future.
OPERATING EXPENSES:
Selling, general and administrative costs have been reduced as a percentage of
sales by almost 4% for the current quarter compared the prior fiscal year
quarter. Year to date levels were down as a percentage of sales by over 9%.
Expenditures in actual dollars in this category are expected to increase as the
Company accelerates its efforts to expand the general aviation market while
strengthening the sport and recreational market sales. In addition, the Company
will be adding additional administrative support as sales volumes increase.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OPERATING EXPENSES (CONTINUED):
Net research and development expenditures were up for both the current quarter
and on a year to date basis from that of the prior year. The increase is a
result of outside funding for research and development not being available for
the current fiscal year. The prior fiscal year had offsets to expenditures
totaling approximately $97,000 while there were no offsets in the current fiscal
year. No offsets are expected to be available for the remainder of the fiscal
year as the Company continues the transition into production of the Cirrus
product line. In addition, the Company will be contributing its own operating
capital toward the testing and development of new parachute systems for the
expanding Cirrus product line.
NET LOSS
The net loss for the current fiscal year quarter was higher than that of the
prior fiscal year quarter as a result of no offsetting outside funding for
research and development expenditures. The prior fiscal year had the benefit of
the SBIR research grant that offset expenses. On a year to date basis, the
outside funding for research and development was approximately $97,000 that was
reflected as a reduction in expenses.
On a year to date basis, the net loss was reduced by 48% from 15% of sales in
the prior year to 5% of sales in the current year. This improvement was a result
of the combination of expanded sales, maintenance of gross margins and cost
containment of operating expenses. Income for the remainder of the fiscal year
is expected to increase as a result of increased sales in the certified aircraft
market. As the Company expands into different aircraft markets and expands its
product applications, market conditions will determine ultimate sales levels and
profitability.
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. 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. 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 SR20
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 a total of 35 units delivered through the end of the
Company's second current year quarter. The Company is currently building
parachute systems under an expanded purchase order that exceeds 100 units. The
Company anticipated delivering the remainder of the first 100 units on order by
the end of the current fiscal year. The customer anticipates production of their
aircraft to reach one aircraft per business day by October or November 2000.
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.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
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 Company received preliminary
approval of its patent application in February 2000 for technology developed
under the contract. Final patent grant is expected by the end of the Company's
current fiscal year.
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 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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. Although there can be no assurances, the
Company believes that the counter claim is valid and 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 March 31, 2000.
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 May 10, 2000
14
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