FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 018958
GROEN BROTHERS AVIATION, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Utah 87-0376766
- ------------------------------ ---------------
State of other jurisdiction of I.R.S. Employer
Incorporation or organization Identification No.
1784 West 500 South
Salt Lake City, Utah 84104
- ------------------------------ -----------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code (801) 973-0177
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding at
Class December 31, 1996
- --------------- --------------------
Common Stock, $.005 par value 37,621,217
Page 1 of 10 consecutively numbered pages.
<PAGE>
TABLE OF CONTENTS
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet,
December 31, 1996 (unaudited) and June 30, 1996 . . . . . . 3
Condensed Consolidated statement of operations for the six
months ended December 31, 1996 and 1995 (unaudited) . . . . 4
Condensed Consolidated statement of cash flows for the six
months ended December 31, 1996 and 1995 (unaudited) . . . . 5
Notes to condensed consolidated financial statements. . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . 8
2
<PAGE>
GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Balance Sheet
December 31, 1996 and June 30, 1996
December 31, June 30,
1996 1996
------------ -----------
Assets
Current assets:
Cash $ 63,165 $ 125,624
Other receivables 2,000 1,000
Notes receivable 1,875 1,875
------------ -----------
Current assets 67,040 128,499
Machinery and equipment less accumulated
depreciation of $116,102 and $101,230 247,419 234,330
------------ -----------
$ 314,459 $ 362,829
============ ===========
Liabilities and Stockholders' (Deficit)
Current liabilities:
Accounts payable $ 34,014 $ 34,014
Accrued liabilities 161,970 161,977
Accrued payroll 535,015 550,574
Accrued interest 174,001 183,000
Line of credit 150,000 -
Current portion of long-term debt 303,898 309,489
Related party debt - current 281,598 281,598
------------ -----------
Total current liabilities 1,640,496 1,520,652
------------ -----------
Related party long-term debt 48,630 48,630
Long-term debt 179,579 111,920
------------ -----------
Stockholders' (deficit):
Common stock, par value $.005 per share;
authorized 50,000,000 shares, issued and
outstanding 37,621,217 shares and 36,729,857
shares, respectively 188,106 183,650
Additional paid-in capital 3,181,903 2,602,496
Retained (deficit) (4,924,255) (4,104,519)
------------ -----------
Total stockholders' (deficit) (1,554,246) (1,318,373)
------------ -----------
$ 314,459 $ 362,829
============ ===========
Condensed Consolidated Statement of Operations (Unaudited)
3
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GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Operations (Unaudited)
Cumulative
Amounts
Since
Three Months Ended Six Months Ended Develop-
December 31, December 31, ment
1996 1995 1996 1995 Stage
-------------------------------------------------------
Revenue -
Interest and other $ 85 $ 217 $ 198 $ 4,289 $ 19,531
-------------------------------------------------------
Total revenue 85 217 198 4,289 19,531
-------------------------------------------------------
Expenses:
Research and
development expense 204,632 5,840 421,188 12,014 1,194,770
General and
administrative
expenses 184,208 225,166 394,117 349,978 1,651,214
Interest expense 1,303 7,750 4,629 13,535 230,151
-------------------------------------------------------
Total expenses 390,143 238,756 819,934 375,527 3,076,135
-------------------------------------------------------
Net (loss) $(390,058) $(238,539) $(819,736) $(371,238) $(3,056,700)
=======================================================
(Loss) per share (.010) (.007) (.022) (.011) (.089)
=======================================================
Weighted average
shares outstanding 37,504,634 3,500,350 37,311,707 37,311,707 34,118,893
========================================================
4
<PAGE>
GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows (Unaudited)
Cumulative
Amounts
Since
Six Months Ended Develop-
December 31, ment
1996 1995 Stage
-------------------------------------
Cash flows from operating activities:
Net (loss) $(819,736) $(371,238) $(3,056,700)
Adjustments to reconcile net (loss)
to net cash used in operating
activities:
Depreciation and amortization 14,872 5,429 54,457
Stock issued for services 113,017 125,394 423,998
Stock options issued below market - - 10,000
Increase (decrease in:
Accounts receivable (1,000) - (3,875)
Accounts payable - - (23,511)
Accrued payroll (15,559) 67,981 450,099
Accrued interest (8,999) - 121,216
Accrued liabilities (7) (431) 103,488
-------------------------------------
Net cash used in
operating activities (717,412) (172,865) (1,920,828)
-------------------------------------
Cash flows from investing activities:
Purchase of property and equipmen (27,961) (1,875) (44,205)
Increase in note receivable - (12,088) (6,250)
Collections on notes receivable and
advances - - 6,250
-------------------------------------
Net cash used in
investing activities (27,961) (13,963) (44,205)
-------------------------------------
Cash flows from financing activities:
Change in line of credit 150,000 - 150,000
Proceeds from long-term debt 100,596 - 232,596
Proceeds from related party debt - 10,500 138,894
Reduction of capitalized lease ob (38,528) - (46,078)
Reduction of debt - - (67,500)
Reduction of related party debt - (20,000) (116,690)
Proceeds from issuance of common 470,846 178,901 1,731,013
-------------------------------------
Net cash provided by
financing activities 682,914 169,401 2,022,235
-------------------------------------
5
<PAGE>
GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows (Unaudited)
Continued
Cumulative
Amounts
Since
Six Months Ended Develop-
December 31, ment
1996 1995 Stage
-------------------------------------
Net increase (decrease)
in cash (62,459) (17,427) 57,202
Cash, beginning of period 125,624 20,383 5,963
-------------------------------------
Cash, end of period $ 63,165 $ 2,956 $ 63,165
=====================================
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ 4,629 $ 13,535 $ 65,823
=====================================
Taxes $ 100 $ 100 $ 500
=====================================
During October 1995, the Company issued 8,824 shares of common stock in
exchange for the satisfaction of a debt obligation of $3,000.
6
<PAGE>
GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(1) The unaudited condensed consolidated financial statements
include the accounts of Groen Brothers Aviation, Inc. and
subsidiary and include all adjustments (consisting of normal
recurring items) which are, in the opinion of management,
necessary to present fairly the financial position as of
December 31, 1996 and the results of operations for the six
months and three months ended December 31, 1996 and 1995 and
cash flows for the six months ended December 31, 1996 and 1995.
The results of operations and cash flows for the six months and
three months ended December 31, 1996 and 1995 are not
necessarily indicative of the results to be expected for the
entire year.
(2) (Loss) per share is based on the weighted average number of
shares outstanding at December 31, 1996 and 1995, respectively.
7
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying condensed
consolidated financial statements. The "Company" refers to the Registrant,
its wholly-owned subsidiary, Sego Tool, Inc., and its Portuguese subsidiary,
Groen Brothers Aviation Portuguesa Aeronaves S.A. Unless otherwise stated,
the financial activities described herein are those of Sego, which was the
sole operating entity during the reporting period.
There was no activity in the Company's Portuguese subsidiary, which the
Company established to comply with government regulations regarding
application for funds through a Portuguese government development program.
During the second quarter the Company continued to develop the H2X
gyroplane, The production designation for the H2X will be the Hawk III (three
seat) gyroplane. Initial sales of the Hawk III will be to government agencies
flying under Public Use rules. In September, 1996, the Company signed a
contract in China with the Shanghai Energy and Chemical Company for the
purchase of 200 Hawk III, to be paid for and delivered when the Hawk III is
certified for China. These Hawk IIIs will be assembled in China from
components manufactured in the US or Portugal.
The Company has finalized an application, by invitation from the
Portuguese Government, for grants and loans totaling up to $17 million for the
establishment of a manufacturing plant in Evora Portugal. The Company expects
to have a definitive response to its application by June.
On February 3, 1997, on Test Series #020, the H2X flew for the first
time, behaving in flight precisely as expected. The company test pilot, James
Mayfield, is one of only a handful of gyroplane pilot examiners for the FAA,
with more than 12,800 hours of flight time, 3,300 hours of which is in
gyroplanes.
Results of Operations
Revenues remained insignificant during the three month period ended
December 31, 1996 compared to the same period in 1995. During the three
months ended December 31, 1996, general and administrative expenses decreased
to $184,208 from $225,166 for the similar period ended 1995. The decrease was
more than offset by a large increase in R&D expenses which increased to
$204,632 from $5,840 for the three months under comparison. The Company had
hired two additional engineers and two additional aircraft mechanics to
accelerate the H2X program. The resulting losses increased to ($390,058) from
8
<PAGE>
($238,539) for the quarters under comparison.
Revenue decreased during the six month period ended December 31, 1996 to
$198 from $4,289 compared to the same period in 1995. The Company stopped
selling its information packets and video tapes, the main source of revenue in
the past. Beginning in the third quarter 1995, the Company began referring
interested parties, and the public in general, to its Internet Web Sight on
the World Wide Web, thus significantly reducing the sale of information
packets. During the six months ended December 31, 1996, general and
administrative expenses amounted to $394,117 an increase from $349,978, while
R&D costs increased to $421,188 from $12,014 for the similar period ended
1995. The increase mostly reflects increased personnel costs and engineering
costs associated with the accelerated H2X program. The resulting losses
increased to ($819,736) from ($371,238) for the six month periods under
comparison.
Liquidity and Capital Resources
The Company's management expect that the long-term needs for capital
will be met with equity/debt financing based upon sale of equity, debt
instruments, and grant money. Short term financing will continue to come from
the sale of restricted stock to accredited investors.
The Company is presently applying for grants and loans from government
entities, domestic and foreign, and is negotiating with private investors for
equity financing to meet its business plan need of approximately $20 million
over the next three years to: build a gyroplane factory; manufacture
demonstrator aircraft; achieve FAA certification; establish distributorships,
and enter into production.
Current working capital requirements are being obtained through the sale
of the Company's restricted stock and from loans. During the six months ended
December 31, 1996 the Company had received $470,846 from the private sale of
stock to accredited investors, and $250,596 in loans. Management believes the
funding received to date combined with the funds to be received from its
planned financing operations described above will adequately support
operations through June 1997.
9
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Date: February 10, 1997 GROEN BROTHERS AVIATION, INC.
By: /s/ David L. Groen
---------------------------
David L. Groen, President
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM GROEN BROTHERS
AVIATION, INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 63,165
<SECURITIES> 0
<RECEIVABLES> 3,875
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 67,040
<PP&E> 363,521
<DEPRECIATION> 116,102
<TOTAL-ASSETS> 314,459
<CURRENT-LIABILITIES> 1,640,496
<BONDS> 0
0
0
<COMMON> 188,106
<OTHER-SE> (1,742,352)
<TOTAL-LIABILITY-AND-EQUITY> 314,459
<SALES> 0
<TOTAL-REVENUES> 198
<CGS> 0
<TOTAL-COSTS> 815,305
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,629
<INCOME-PRETAX> (819,736)
<INCOME-TAX> 0
<INCOME-CONTINUING> (819,736)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (819,736)
<EPS-PRIMARY> (.022)
<EPS-DILUTED> (.022)
</TABLE>
