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, 1997
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.
2320 W. California Ave., Suite A
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, 1997
Common Stock, $.005 par value 42,398,847
Page 1 of 10 consecutively numbered pages
<PAGE>
TABLE OF CONTENTS
Item 1. Financial Statements
Condensed Consolidated Balance Sheet,
September 30, 1997 (unaudited) and June 30, 1997 3
Condensed Consolidated statement of operations for the three
months ended September 30, 1997 and 1996 and cumulative
amounts since development stage (unaudited) 4
Condensed Consolidated statement of cash flows for the three
months ended September 30, 1997 and 1996 and cumulative
amounts since development stage (unaudited) 5
Notes to consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II - Other Information
Item 1 Legal Proceedings 9
Item 2 Changes in the Securities 9
Item 3 Defaults Upon Senior Securities 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Item 5 Other Information 9
Item 6 Exhibits and Reports on Form 8K 9
2
<PAGE>
GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Balance Sheet
September 30, 1997 and June 30, 1997
- -----------------------------------------------------------------------------
September 30,
1997 June 30,
(Unaudited) 1997
-------------------------
Assets
Current assets:
Cash $ 11,373 $ 211,818
Receivables 1,938 3,875
Equipment held for sale 2,200,000 2,200,000
-------------------------
Current assets 2,213,311 2,415,693
Machinery and equipment less accumulated
depreciation of $243,081 and $211,992 479,773 423,420
-------------------------
$ 2,693,084 $ 2,839,113
=========================
Liabilities and Stockholders' (Deficit)
Current liabilities:
Accounts payable 104,268 20,414
Accrued liabilities 165,444 161,970
Accrued payroll 526,458 518,405
Accrued interest 206,518 208,552
Line of credit 175,000 150,000
Current portion of long-term debt 410,877 405,803
Related party debt - current 193,349 195,658
-------------------------
Total current liabilities 1,781,914 1,660,802
-------------------------
Long-term debt 156,598 212,372
-------------------------
1,938,512 1,873,174
-------------------------
Stockholders' (deficit):
Common stock, par value $.005 per share;
authorized 100,000,000 shares, issued and
outstanding 42,398,847 shares and 41,758,711
shares, respectively 211,989 208,794
Additional paid-in capital 7,089,114 6,751,266
Retained (deficit) (6,546,531) (5,994,121)
-------------------------
Total stockholders' equity 754,572 965,939
-------------------------
$ 2,693,084 $ 2,839,113
=========================
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3
<PAGE>
GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Operations
(Unaudited)
- -----------------------------------------------------------------------------
Cumulative
Amounts
Three Months Ended Since
September 30, Development
1997 1996 Stage
------------------------------------
Revenue -
interest and other $ 62 $ 113 $ 21,089
------------------------------------
Total revenue 62 113 21,089
------------------------------------
Expenses:
Research and development expenses 164,941 216,556 1,706,947
General and administrative expenses 382,807 209,812 2,763,660
Interest expense 4,724 3,326 300,053
------------------------------------
Total expenses 552,472 429,694 4,770,660
------------------------------------
Net (loss) $ (552,410)$ (429,581)$(4,749,571)
====================================
(Loss) per share $ (.01)$ (.01)$ (.13)
====================================
Weighted average shares outstanding 42,161,000 37,119,000 35,199,000
====================================
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4
<PAGE>
GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
(Unaudited)
- -----------------------------------------------------------------------------
Cumulative
Amounts
Three Months Ended Since
September 30, Development
1997 1996 Stage
------------------------------------
Cash flows from operating activities:
Net (loss) $ (552,410)$ (429,582)$(4,678,976)
Adjustments to reconcile net (loss)
to net cash used in operating
activities:
Depreciation and amortization 31,088 7,436 181,435
Stock issued for services 73,229 78,247 664,753
Stock options issued below market - - 10,000
(Increase) decrease in:
Accounts receivable 1,937 (1,000) (1,938)
Increase (decrease) in:
Accounts payable 83,854 - 46,743
Accrued payroll 8,053 (13,639) 441,542
Accrued interest (2,034) (5,399) 162,233
Accrued liabilities 3,474 (42) 106,962
------------------------------------
Net cash used in
operating activities (352,809) (363,979) (3,067,246)
------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (87,441) (23,154) (103,685)
Sale of property and equipment - - 30
Increase in note receivable - - (6,250)
Collections on notes receivable and
advances - - 6,250
------------------------------------
Net cash used in
investing activities (87,441) (23,154) (103,655)
------------------------------------
Cash flows from financing activities:
Change in line of credit 25,000 150,000 175,000
Proceeds from long-term debt - - 132,000
Proceeds from related party debt - - 488,894
Reduction of capitalized lease
obligation (50,700) (19,226) (176,536)
Reduction of debt - - (67,500)
Reduction of related party debt (2,309) - (118,999)
Proceeds from issuance of common stock 267,814 228,369 (2,743,452)
------------------------------------
Net cash provided by
financing activities 239,805 359,143 3,176,311
------------------------------------
Net increase (decrease) in
cash (200,445) (27,990) 5,410
Cash, beginning of period 211,818 125,624 5,963
------------------------------------
Cash, end of period $ 11,373 $ 97,634 $ 11,373
====================================
- -----------------------------------------------------------------------------
5
<PAGE>
GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Operations
(Unaudited)
- -----------------------------------------------------------------------------
Supplemental schedule of cash flow information:
Cumulative
Amounts
Three Months Ended Since
September 30, Development
1997 1996 Stage
------------------------------------
Cash paid during the period for:
Interest $ 4,724 $ 3,326 $ 106,849
====================================
Taxes $ 100 $ 100 $ 500
====================================
- -----------------------------------------------------------------------------
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, 1997 and the
results of operations for the three months ended September 30,
1997 and 1996 and cash flows for the three months ended September
30, 1997 and 1996. The results of operations and cash flows for
the three months ended September 30, 1997 and 1996 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, 1997 and 1996, 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 period reported in the accompanying
condensed consolidated financial statements. The "Company" refers to
the Registrant, and its wholly-owned subsidiary, Sego Tool, Inc.
(Sego). Unless otherwise stated, the financial activities described
herein are those of Sego, which was the sole operating entity during the
reporting period.
The Company has put on hold plans for the development of a Portuguese
subsidiary, the initiation of which was required to comply with
government regulations regarding application for funds through a
Portuguese government development program. The Company had planned to
finalize a contract with the Portuguese government during the first
quarter of the 1997 calender year, however, the government has slowed
the process of application, and a final result cannot now be predicted.
There is still a small window of opportunity for the Portuguese to
provide manufacturing funding, but as the Company continues to expand,
the window will close.
During the first quarter of the current fiscal year, the Company
finished flight testing the H2X (two seat) gyroplane. Full scale
development of the Hawk III, the Company's first production gyroplane,
is now in progress. 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 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 moved into its new building, which is being prepared as
a production facility. The Company plans initially to build
demonstrator gyroplanes, and then transition into production of the Hawk
III, followed by the Hawk V. 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 remained insignificant during the three month period ended
September 30, 1997 at $62, compared to $113 for the same period in
1996. During the three months ended September 30, 1997, research and
development expenses amounted to $164,941, a decrease from $216,556 for
the same period in 1996. General and administrative expenses increased
to $382,807 during the three months ended September 30, 1997 from
$209,812 for the similar period ended 1996. The resulting losses
increased to ($552,410) from ($429,581) for the quarters under
comparison. The change reflects a tapering off of expenses related to
the H2X program, and an increase in personnel hiring in preparation for
the manufacture of the Hawk III.
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 in full scale development of the 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 $24 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 $267,814 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 1998.
Part II - Other Information
Item 1 Legal Proceedings. None.
Item 2 Changes in the securities of the Company. None.
Item 3 Defaults upon senior securities. None.
Item 4 Matters submitted to a vote of security holders. None
Item 5 Other information. None.
Item 6 Exhibits and Reports on Form 8K. None
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: November 13, 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. SEPTEMBER 30, 1997 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-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 11,373
<SECURITIES> 0
<RECEIVABLES> 1,938
<ALLOWANCES> 0
<INVENTORY> 2,200,000
<CURRENT-ASSETS> 2,213,311
<PP&E> 722,854
<DEPRECIATION> 243,081
<TOTAL-ASSETS> 2,693,084
<CURRENT-LIABILITIES> 1,781,914
<BONDS> 156,598
0
0
<COMMON> 211,989
<OTHER-SE> 542,583
<TOTAL-LIABILITY-AND-EQUITY> 2,693,084
<SALES> 0
<TOTAL-REVENUES> 62
<CGS> 0
<TOTAL-COSTS> 547,748
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,724
<INCOME-PRETAX> (552,410)
<INCOME-TAX> 0
<INCOME-CONTINUING> (552,410)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (552,410)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
