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 March 31, 1997
( ) 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
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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 March 31, 1997
- ----------------------------- --------------
Common Stock, $.005 par value 38,070,481
Page 1 of 10 consecutively numbered pages.
<PAGE>
TABLE OF CONTENTS
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheet,
March 31, 1997 (unaudited) and June 30, 1996 . . . . . . 3
Condensed Consolidated statement of operations for the
nine months ended March 31, 1997 and 1996 (unaudited) . . 4
Condensed Consolidated statement of cash flows for the
nine months ended March 31, 1997 and 1996 (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
March 31, 1997 and June 30, 1996
March 31, June 30,
1997 1996
(Unaudited)
---------------------------------
Assets
Current assets:
Cash $ 171,984 $ 125,624
Other receivables 2,000 1,000
Notes receivable 1,875 1,875
---------------------------------
Current assets $ 175,859 $ 128,499
Machinery and equipment less accumulated
depreciation of $123,538 and $101,230 245,490 234,330
---------------------------------
$ 421,349 $ 362,829
=================================
Liabilities and Stockholders' (Deficit)
Current liabilities:
Accounts payable $ 40,194 $ 34,014
Accrued liabilities 161,970 161,977
Accrued payroll 515,031 550,574
Accrued interest 170,401 183,000
Line of credit 150,000 -
Note payable 350,000 -
Current portion of long-term debt 310,520 309,489
Related party debt - current 275,387 281,598
---------------------------------
Total current liabilities 1,973,503 1,520,652
---------------------------------
Related party long-term debt 20,441 48,630
Long-term debt 121,541 111,920
---------------------------------
Stockholders' (deficit):
Common stock, par value $.005 per share;
authorized 100,000,000 shares, issued
and outstanding 38,070,481 shares and
36,729,857 shares, respectively 190,352 183,650
Additional paid-in capital 3,546,752 2,602,496
Retained (deficit) (5,431,240) (4,104,519)
---------------------------------
Total stockholders' (deficit) (1,694,136) (1,318,373)
---------------------------------
$ 421,349 $ 362,829
=================================
3
<PAGE>
GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Operations (Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Cumulative
Amounts
Since
Three Months Ended Nine Months Ended Develop-
March 31, March 31, ment
1997 1996 1997 1996 Stage
------------------------------------------------------------------
Revenue -
Interest and other $ 2,904 $ 192 $ 3,102 $ 4,481 $ 22,435
------------------------------------------------------------------
Total revenue 2,904 192 3,102 4,481 22,435
------------------------------------------------------------------
Expenses:
Research and
development expense 183,131 19,790 642,409 31,804 1,415,991
General and
administrative expenses 322,914 160,396 678,942 510,374 1,936,136
Interest expense 3,843 559 8,472 14,094 233,994
------------------------------------------------------------------
Total expenses 509,888 180,745 1,329,823 556,272 3,586,121
------------------------------------------------------------------
Net (loss) $ (506,984) $ (180,553) $(1,326,721) $ (551,791) $(3,563,686)
==================================================================
(Loss) per share (0.013) (0.005) (0.035) (0.016) (0.104)
==================================================================
Weighted average shares
outstanding 37,916,632 35,913,803 37,513,348 35,070,097 34,372,076
==================================================================
</TABLE>
4
<PAGE>
GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<S> <C> <C> <C>
Cumulative
Amounts
Nine Months Ended Since
March 31, Development
1997 1996 Stage
---------------------------------------------
Cash flows from operating activities:
Net (loss) $ (1,326,721) $ (551,791) $ (3,563,685)
Adjustments to reconcile net (loss) to
net cash used in operating activities:
Depreciation and amortization 22,308 18,457 61,893
Stock issued for services 246,458 163,352 557,439
Stock options issued below market - - 10,000
Increase (decrease)in:
Accounts receivable (1,000) - (3,875)
Accounts payable 6,180 - (17,331)
Accrued payroll (35,543) 93,188 430,115
Accrued interest (12,599) (12,000) 117,616
Accrued liabilities (7) (2,329) 103,488
---------------------------------------------
Net cash used in
operating activities (1,100,924) (291,123) (2,304,340)
---------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (24,890) (26,814) (41,134)
Increase in note receivable - - (6,250)
Collections on notes receivable and
advances - (27,288) 6,250
---------------------------------------------
Net cash used in
investing activities (24,890) (54,102) (41,134)
---------------------------------------------
Cash flows from financing activities:
Change in line of credit 150,000 - 150,000
Proceeds from note payable 350,000 - 350,000
Proceeds from long-term debt 100,596 - 232,596
Proceeds from related party debt - 12,000 138,894
Reduction of capitalized lease obligation (89,944) - (97,494)
Reduction of debt - - (67,500)
Reduction of related party debt - (37,000) (116,690)
Proceeds from issuance of common stock 661,522 363,901 1,921,689
---------------------------------------------
Net cash provided by
financing activities 1,172,174 338,901 2,511,495
---------------------------------------------
</TABLE>
5
<PAGE>
GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows (Unaudited)
Continued
<TABLE>
<S> <C> <C> <C>
Cumulative
Amounts
Nine Months Ended Since
March 31, Development
1997 1996 Stage
---------------------------------------------
Net increase (decrease) in cash 46,360 (6,324) 166,021
Cash, beginning of period 125,624 20,383 5,963
---------------------------------------------
Cash, end of period $ 171,984 $ 14,059 $ 171,984
=============================================
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ 8,472 $ 26,094 $ 66,340
=============================================
Taxes $ 100 $ 100 $ 400
=============================================
</TABLE>
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 March
31, 1997 and the results of operations for the nine months and
three months ended March 31, 1997 and 1996 and cash flows for
the nine months ended March 31, 1997 and 1996. The results of
operations and cash flows for the nine months and three months
ended March 31, 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 March 31, 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 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 third quarter the Company continued to develop the H2X (two
seat) gyroplane, an expanded version of which, the Hawk III, will initially be
assembled in China from components and sold in the China market. The H2X was
flown successfully for the first time in February. Test flights are being
made weekly, and the development program is progressing as planned.
Results of Operations
Revenues increased to $2,904 during the three month period ended March
31, 1997 compared to $192 for the same period in 1996. The increase was
mainly interest income. During the same period under comparison, research and
development expenses increased to $183,131 from $19,790 and general and
administrative expenses increased to $322,914 from $160,396. The increase was
due to the hire of additional personnel necessary to further the development
of the H2X gyroplane. The resulting losses during the three month period
ended March 31, 1997 increased to ($506,984) from ($180,553) for the same
period in 1996.
Revenues decreased to $3,102 during the nine month period ended March
31, 1997 compared to $4,481 for the same period in 1996. The decrease was due
to less interest income. For the nine months ended March 31, 1997, research
and development and general and administrative expenses amounted to $642,409
and $678,942 respectively, which is an increase from $31,804 and $510,374 for
the similar period ended 1996. The increase is due to the hiring of more
personnel and increased activity developing the H2X gyroplane. The resulting
losses increased to ($1,326,721) from ($551,791) for the nine month periods
under comparison
8
<PAGE>
Liquidity and Capital Resources
Interim financing is being obtained through the sale of the Company's
restricted stock, and through debt financing. During the nine months ended
March 31, the Company had received $661,522 from the private sale of stock to
accredited investors. Management believes the funding received to date,
combined with the funds to be received from sale of stock to accredited
investors, will adequately support operations through June 1997.
The Company is moving into a larger facility in May, where it will
eventually begin production of its gyroplanes. The Company has signed an
agreement with an existing shareholder for an equity investment of $3.35
million to come into the Company during May, thus insuring a smooth transition
to the new facility. The investment will be reflected in the fourth quarter's
statement.
Long-term financing is being pursued through private investors and
foreign governments. As a partial alternative to long-term financing,
management believes that, with enough firm orders, the Company can obtain debt
financing for the planned factory backed by a building contractor and
equipment leasing company. The Company has begun taking orders for
gyroplanes, however, no down payments will be required until the Company can
give delivery dates.
Plan of Operations
The Company is engaged in the business of developing, manufacturing and
marketing aircraft commonly known as "gyroplanes." The Company has designed a
gyroplane (or autogyro), trade named "the Hawk," by applying modern aerospace
design and materials. The Company will eventually offer four FAA type-
certified models, the three seat Hawk III, five seat Hawk V, eight seat Hawk
VIII, and tandem two seat Nighthawk. These aircraft have broad application in
almost all areas of general aviation.
The Company is moving in May to an interim location, where limited
manufacture of its products can take place. Until full production is
commenced, the Company will implement an interim production plan to produce
the Hawk III, the forerunner of the Hawk series. Not all markets for the Hawk
require that they be FAA type-certified. Demand for an uncertified gyroplane
(U.S. federal, state and local government public use and foreign public use
markets) and the use of outside suppliers will enable the Company to begin
producing much earlier than otherwise possible.
The Company is currently exploring opportunities for full manufacturing
in Portugal, China, and Canada. The Company has already established
subsidiary corporations in Portugal and China. Some of the aircraft
manufactured in the U.S. and/or Portugal will be sent to China for final
assembly and delivery within China. Funding for manufacturing facilities in
9
<PAGE>
both Portugal and South Africa is currently pending and is the subject of
ongoing negotiations.
10
<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: May 12, 1997 GROEN BROTHERS AVIATION, INC.
By: /s/ David Groen
----------------------------------
David Groen, President
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GROEN
BROTHERS AVIATION, INC. MARCH 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 171,984
<SECURITIES> 0
<RECEIVABLES> 3,875
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 175,859
<PP&E> 369,028
<DEPRECIATION> 123,538
<TOTAL-ASSETS> 421,349
<CURRENT-LIABILITIES> 1,973,503
<BONDS> 141,982
0
0
<COMMON> 190,352
<OTHER-SE> (1,884,488)
<TOTAL-LIABILITY-AND-EQUITY> 421,349
<SALES> 0
<TOTAL-REVENUES> 3,102
<CGS> 0
<TOTAL-COSTS> 1,321,351
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,472
<INCOME-PRETAX> (1,326,721)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,326,721)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,326,721)
<EPS-PRIMARY> (0.035)
<EPS-DILUTED> (0.035)
</TABLE>
