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 September 30, 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 September 30, 1996
- --------------- --------------------
Common Stock, $.005 par value 37,365,891
Page 1 of 10 consecutively numbered pages.
<PAGE>
TABLE OF CONTENTS
Item 1. Financial Statements
Condensed Consolidated Balance Sheet,
September 30, 1996 (unaudited) and June 30, 1996. . . . . . . . 3
Condensed Consolidated statement of operations for the three
months ended September 30, 1996 and 1995 (unaudited). . . . . . 4
Condensed Consolidated statement of cash flows for the three
months ended September 30, 1996 and 1995 (unaudited). . . . . . 5
Notes to 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
September 30, 1996 and June 30, 1996
September 30, June 30,
1996 1996
(Unaudited)
----------- ---------
ASSETS
Current assets:
Cash $ 97,634 125,624
Other receivables 2,000 1,000
Notes receivable 1,875 1,875
----------- ---------
Current assets 101,509 128,499
Machinery and equipment less accumulated
depreciation of $108,666 and $101,230 250,048 234,330
----------- ---------
$ 351,557 362,829
=========== =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable $ 34,014 34,014
Accrued liabilities 161,935 161,977
Accrued payroll 536,935 550,574
Accrued interest 177,601 183,000
Line of credit 150,000 -
Current portion of long-term debt 300,435 309,489
Related party debt - current 281,598 281,598
----------- ---------
Total current liabilities 1,642,518 1,520,652
Related party long-term debt 48,630 48,630
Long-term debt 101,748 111,920
----------- ---------
150,378 160,550
Stockholders' (deficit):
Common stock, par value $.005 per
share; authorized 50,000,000
shares, issued and outstanding
37,365,891 shares and 36,729,857
shares, respectively 186,830 183,650
Additional paid-in capital 2,905,932 2,602,496
Retained (deficit) (4,534,101) (4,104,519)
----------- ---------
Total stockholders' (deficit) (1,441,339) (1,318,373)
----------- ---------
$ 351,557 362,829
=========== =========
3
<PAGE>
GROEN BROTHERS AVIATION, INC.
AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Operations
(Unaudited)
Cumulative
Amounts
Since
Three Months Ended Develop-
September 30, ment
1996 1995 Stage
----------- ---------- ----------
Revenue -
interest and other $ 113 4,072 19,446
----------- ---------- ----------
Total revenue 113 4,072 19,446
Expenses:
Research and development
expense 216,556 6,174 990,138
General and administrative
expenses 209,812 124,814 1,467,006
Interest expense 3,326 5,785 228,848
----------- ---------- ----------
Total expenses 429,694 136,773 2,685,992
----------- ---------- ----------
Net (loss) $(429,581) (132,701) (2,666,546)
=========== ========== ==========
(Loss) per share $(.011) (.004) (.079)
=========== ========== ==========
Weighted average shares
outstanding 37,118,779 34,296,137 33,858,452
=========== ========== ==========
4
<PAGE>
GROEN BROTHERS AVIATION, INC.
AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Cumulative
Amounts
Since
Three Months Ended Develop-
September 30, ment
1996 1995 Stage
----------- ---------- ----------
Cash flows from operating activities:
Net (loss) $(429,582) (132,700) (2,666,546)
Adjustments to reconcile net (loss)
to net cash used in operating
activities:
Depreciation and amortization 7,436 2,715 47,021
Stock issued for services 78,247 8,787 389,228
Stock options issued below market - - 10,000
Increase (decrease) in:
Accounts receivable (1,000) - (3,875)
Accounts payable - - (23,511)
Accrued payroll (13,639) 31,909 452,019
Accrued interest (5,399) - 124,816
Accrued liabilities (42) 12,268 103,453
---------- --------- ----------
Net cash used in
operating activities (363,979) (77,021) (1,567,395)
---------- --------- ----------
Cash flows from investing activities:
Purchase of property and equipment (23,154) (1,650) (39,398)
Increase in note receivable - - (6,250)
Collections on notes receivable and advances - - 6,250
---------- --------- ----------
Net cash used in
investing activities (23,154) (1,650) (39,398)
---------- --------- ----------
Cash flows from financing activities:
Change in line of credit 150,000 - 150,000
Proceeds from long-term debt - - 132,000
Proceeds from related party debt - 18,312 138,894
Reduction of capitalized lease obligation (19,226) - (26,776)
Reduction of debt - - (67,500)
Reduction of related party debt - (14,500) (116,690)
Proceeds from issuance of common stock 228,369 62,500 1,488,536
---------- --------- ----------
Net cash provided by
financing activities 359,143 66,312 1,698,464
---------- --------- ----------
Net increase (decrease) in cash (27,990) (12,359) 91,671
Cash, beginning of period 125,624 20,383 5,963
---------- --------- ----------
Cash, end of period $ 97,634 8,024 97,634
========== ========= ==========
5
<PAGE>
GROEN BROTHERS AVIATION, INC.
AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows - Continued
Supplemental schedule of cash flow information:
Cumulative
Amounts
Since
Three Months Ended Develop-
September 30, ment
1996 1995 Stage
----------- ---------- ----------
Cash paid during the period for:
Interest $ 3,326 5,785 61,194
========== ======== ========
Taxes $ 100 100 400
========== ======== ========
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 September 30, 1996 and the results of operations for
the three months ended September 30, 1996 and 1995 and cash flows for
the three months ended September 30, 1996 and 1995. The results of
operations and cash flows for the three months ended September 30,
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 September 30, 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 Portugese 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 first quarter the Company continued to develop the H2X (two
seat) gyroplane, which, after its test flight phase and design freeze, will be
renamed the Hawk III. The first market for the Hawk III will likely be the
"public use" market in the US, which consists of civil government
applications. In recent months, the Company has received significant interest
from airborne law enforcement entities. In addition, the Hawk III will
eventually be assembled in China, exclusively for the China market, from
US-built subassemblies. The Company has recently signed a contract with a
private Chinese company, the Shanghai Energy and Chemical Corporation (SECC),
for the sale of 200 Hawk III gyroplanes. Deliveries are contingent upon the
Hawk III certification by Chinese civil aviation authorities (CAAC). The
Company will be working concurrently with both the FAA and the CAAC to achieve
type-certification in both the US and China.
The Company has entered into a lease agreement and will move into a
larger facility than it now occupies, to be able to build demonstrator
gyroplanes, the Hawk III and Hawk V, and to be able to begin production. The
new building has a total area of 24,000 square feet and is located in Salt
Lake City. This is considered an interim move by the Company, until it can
build its own factory.
Results of Operations
Revenues decreased during the three month period ended September 30,
1996 to $113, compared to $4,072 for the same period in 1995. The Company
stopped selling its information packets and video tapes, the main source of
revenue in the past. During the three months ended September 30, 1996,
research and development expenses amounted to $216,812, an increase from
$6,174 for the same period in 1995. General and administrative expenses
increased to $209,812 from $124,814 for the similar period ended 1995. The
resulting losses increased to ($429,581) from ($132,701) for the quarters
under comparison. The change reflects an increase in personnel hiring and
accelerated development of the H2X (Hawk III) gyroplane.
8
<PAGE>
Liquidity and Capital Resources
The Company's long-term needs for capital will be met with equity
financing and/or debt financing based upon the sale of stock and taking of
factory orders with down payment deposits for the Hawk gyroplane. The
Company is now flight testing the H2X (Hawk III), in anticipation of
eventually taking down payments for future deliveries. An additional source
of funds could be government grants from foreign countries. The Company
estimates that it will need $25 million over the next three years to
accomplish the following:
- Manufacture Demonstrator and Public Use Aircraft,
- Complete FAA Certification,
- Build a gyroplane factory,
- Enter into Production of type-certified gyroplanes.
Interim financing is being obtained through the sale of Company stock to
accredited investors, and through debt financing. From June 30 to September
30, the Company received $228,369 from the private sale of stock. Management
believes the funding received to date combined with the funds to be received
will adequately support operations through March 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: January 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 INFORMATION 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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 97,634
<SECURITIES> 0
<RECEIVABLES> 3,875
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 101,509
<PP&E> 358,714
<DEPRECIATION> 108,666
<TOTAL-ASSETS> 351,557
<CURRENT-LIABILITIES> 1,642,518
<BONDS> 0
0
0
<COMMON> 186,830
<OTHER-SE> (1,628,169)
<TOTAL-LIABILITY-AND-EQUITY> 351,557
<SALES> 0
<TOTAL-REVENUES> 113
<CGS> 0
<TOTAL-COSTS> 426,368
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,326
<INCOME-PRETAX> (429,581)
<INCOME-TAX> 0
<INCOME-CONTINUING> (429,581)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (429,581)
<EPS-PRIMARY> (.011)
<EPS-DILUTED> (.011)
</TABLE>
