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, 1998
( ) 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.
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 March 31, 1998
- ------------------------- ----------------
Common Stock, $.005 par value 42,870,797
Page 1 of 11 consecutively numbered pages.
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TABLE OF CONTENTS
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheet,
March 31, 1998 (unaudited) and June 30, 1997 . . . . . . . . . . . . . 3
Condensed Consolidated statement of operations for the nine
months ended March 31, 1998 and 1997 (unaudited) . . . . . . . . . . . 4
Condensed Consolidated statement of cash flows for the nine
months ended March 31, 1998 and 1997 (unaudited) . . . . . . . . . . . 5
Notes to condensed consolidated financial statements . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 8
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GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Balance Sheet
March 31, 1998 and June 30, 1997
- ----------------------------------------------------------------------------------------------------------
March 31, June 30,
1998 1997
-----------------------------------
(Unaudited)
Assets
Current assets:
Cash $ 50,388 $ 211,818
Other receivables 488 3,875
Notes receivable - 2,200,000
-----------------------------------
Current assets 50,876 2,415,693
Note receivable 1,100,000 -
Machinery and equipment less accumulated
depreciation of $334,228 and $211,992 777,353 423,420
-----------------------------------
$ 1,928,229 $ 2,839,113
===================================
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' (Deficit) Current liabilities:
Accounts payable $ 252,945 $ 20,414
Accrued liabilities 169,233 161,970
Accrued payroll 582,594 518,405
Accrued interest 206,518 208,552
Line of credit 175,000 150,000
Current portion of long-term debt 421,135 405,803
Related party debt - current 351,096 195,658
-----------------------------------
Total current liabilities 2,158,521 1,660,802
-----------------------------------
Long-term debt 54,498 212,372
-----------------------------------
2,213,019 1,873,174
-----------------------------------
Stockholders' equity (deficit):
Common stock, par value $.005 per share;
authorized 100,000,000 shares, issued and
outstanding 42,870,797 shares and 41,758,711
shares, respectively 214,344 208,794
Additional paid-in capital 7,347,869 6,751,266
Retained (deficit) (7,847,003) (5,994,121)
-----------------------------------
Total stockholders' equity (deficit) (284,790) 965,939
-----------------------------------
$ 1,928,229 $ 2,839,113
===================================
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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 Nine Months Ended Develop-
March 31, March 31, ment
------------------------------------------------------------
1998 1997 1998 1997 Stage
---------------------------------------------------------------------------
Revenue -
Interest and other $ 5,362 $ 2,904 $ 10,824 $ 3,102 $ 31,913
---------------------------------------------------------------------------
Total revenue 5,362 2,904 10,824 3,102 31,913
---------------------------------------------------------------------------
Expenses:
Research and
development expense 424,567 183,131 998,818 642,409 2,540,824
General and
administrative expenses 309,772 322,914 849,334 678,942 3,132,888
Interest expense 4,593 3,843 15,554 8,472 337,649
---------------------------------------------------------------------------
Total expenses 738,932 509,888 1,863,706 1,329,823 6,011,361
---------------------------------------------------------------------------
Net (loss) $ (733,570)$ (506,984)$ (1,852,882)$ (1,326,721)$ (5,979,448)
---------------------------------------------------------------------------
(Loss) per share (.02) (.013) (.04) (.035) (.17)
---------------------------------------------------------------------------
Weighted average shares
outstanding 42,655,000 37,917,000 42,391,000 37,513,000 35,359,000
===========================================================================
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GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows (Unaudited)
- ----------------------------------------------------------------------------------------------------------
Cumulative
Amounts
Nine Months Ended Since
March 31, Development
-----------------------------------
1998 1997 Stage
----------------------------------------------------
Cash flows from operating activities:
Net (loss) $(1,852,882)$ (1,326,721)$ (5,979,448)
Adjustments to reconcile net (loss) to
net cash used in operating activities:
Depreciation and amortization 122,236 22,308 272,583
Stock issued for services 101,118 246,458 692,642
Stock options issued below market 3,875 - 10,000
(Increase) decrease in:
Receivables 3,387 (1,000) 3,387
Increase (decrease) in:
Accounts payable 232,531 6,180 195,420
Accrued payroll 64,189 (35,543) 497,678
Accrued interest (2,034) (12,599) 162,233
Accrued liabilities 7,263 (7) 110,781
----------------------------------------------------
Net cash used in
operating activities (1,320,317) (1,100,924) (4,034,724)
----------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (476,169) (24,890) (492,413)
Collections on notes receivable and
advances 1,100,000 - 1,100,000
----------------------------------------------------
Net cash provided by (used in)
investing activities 623,831 (24,890) 607,587
----------------------------------------------------
Cash flows from financing activities:
Change in line of credit 25,000 150,000 175,000
Proceeds from long-term debt - 450,596 132,000
Proceeds from related party debt 165,500 - 654,394
Reduction of capitalized lease obligation (149,376) (89,944) (275,212)
Reduction of debt - - (67,500)
Reduction of related party debt (3,228) - (119,918)
Proceeds from issuance of common stock 497,160 661,522 2,972,798
----------------------------------------------------
Net cash provided by
financing activities 535,056 1,172,174 3,471,562
----------------------------------------------------
Net increase (decrease) in cash (161,430) 46,360 44,425
Cash, beginning of period 211,818 125,624 5,963
----------------------------------------------------
Cash, end of period $ 50,388 $ 171,984 $ 50,388
====================================================
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GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows (Unaudited)
Continued
- -------------------------------------------------------------------------------------------------------------------
Cumulative
Amounts
Nine Months Ended Since
March 31, Development
-----------------------------------
1998 1997 Stage
----------------------------------------------------
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ 17,588 $ 4,629 $ 119,713
====================================================
Taxes $ 100 $ 100 $ 500
====================================================
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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, 1998 and the results of operations
for the nine months and three months ended March 31, 1998 and 1997 and
cash flows for the nine months ended March 31, 1998 and 1997. The
results of operations and cash flows for the nine months and three
months ended March 31, 1998 and 1997 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, 1998 and 1997, respectively.
- --------------------------------------------------------------------------------
7
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-looking information is subject to risk and uncertainty. Certain
statements in the financial discussion and analysis by management contain
"forward-looking" information that involves risk and uncertainty, including
projections for deliveries, sales, research and development expense, and other
trend projections. Actual future results and trends may differ materially
depending on a variety of factors, including the Company's successful execution
of internal performance plans; product performance risks associated with
regulatory certifications of the Company's commercial aircraft by the U.S. and
foreign governments; other regulatory uncertainties; collective bargaining labor
disputes; performance issues with key suppliers and subcontractors; governmental
export and import policies; and the ability to adequately finance operations to
the date of FAA certification.
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.
FAA Type Certification has begun on the Hawk III (3 seats), which will
take a minimum of two years. On March 3, the FAA accepted GBA's formal
application for type certification of the Hawk III. Type certification is the
process that conforms engineering and flight specifications to stringent FAA
requirements. The FAA requires submission of a three year plan, during which
there can be no FAA rule changes affecting certification.
Prior to achieving FAA Type Certification, the Company may be able to
ship its Hawk IIIs to markets which do not require FAA Certification, such as
government and military use, and developing countries. The Company plans
initially to build demonstrator gyroplanes, and then transition into production
of the Hawk III, followed by the Hawk V (5 seat). The first sales of the Hawk
III will likely be for "public use" in the US, which will consist of civil
government applications. The Company continues to receive significant interest
from state and local airborne law enforcement organizations.
Early export sales are expected to be in the form of subassemblies,
with final assembly in the country of export. The Company plans to set up
"turnkey" assembly operations in those countries which order a minimum number of
gyroplanes, yet to be determined. The Company has signed a contract with a
private company in China, the Shanghai Energy and Chemical Corporation, for the
sale of 200 Hawk III gyroplanes. These deliveries are contingent upon the Hawk
III type 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.
8
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Results of Operations
Revenues remained at an insignificant level during the three month
period ended March 31, 1998 compared to the same period in 1997. During the
three months ended March 31, 1998, general and administrative expenses decreased
slightly to $309,772 from $322,914 for the similar period ended 1997. Research
and development expenses for the three months under comparison, increased to
$424,567 in 1998 from $183,131 in 1997. The increase was mainly due to the
increased hiring of engineers and draftsmen, as well as the establishment of
contracts with outside suppliers, all necessary for producing an FAA certified
gyroplane. The resulting losses, which include interest expense, increased to
($733,570) from ($506,984) for the period under comparison.
Revenues were insignificant during the nine month period ended March
31, 1998. For the nine months ended March 31, 1998, general and administrative
expenses amounted to $849,334 which is an increase from $678,942 for the similar
period ended 1997. The increase is due to growth in payroll and the increased
activity to support a larger organization. Research and development costs
increased to $998,818 for the nine months ended March 31, 1998 from $642,409 for
the same period in 1997. The resulting losses, which include interest expense,
increased to ($1,863,706) from ($1,329,823) for the nine 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, and eventually the sale of its product.
Management intends to meet short-term financing needs through continued to come
from the sale of restricted stock to accredited investors.
The Company is presently negotiating with private investors for equity
financing to meet its business plan needs. Current working capital requirements
are being obtained through the sale of the Company's restricted stock and from
loans. During the nine months ended March 31, 1998 the Company had received
$497,160 from the private sale of stock to accredited investors, $165,500 as
proceeds from related party debt, and $25,000 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 for the
short-term. There is no assurance that the Company will be able to obtain any
operating capital to continue operations after current cash reserves are
exhausted. The Company has developed its products for the past 12 years through
the sale of equity. While management hopes and believes such financial support
will continue, the amount of capital required to operate on a monthly basis is
now approximately $300,000. There can be no guarantee that the successful sale
of stock experienced previously will continue in the future.
9
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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
10
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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 13, 1998 GROEN BROTHERS AVIATION, INC.
By: /s/ David L. Groen
--------------------------------
David L. Groen, President
11
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GROEN
BROTHERS AVIATION, INC. MARCH 31, 1998 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-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 50,388
<SECURITIES> 0
<RECEIVABLES> 1,100,488
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,876
<PP&E> 1,111,581
<DEPRECIATION> 334,228
<TOTAL-ASSETS> 1,928,229
<CURRENT-LIABILITIES> 2,158,521
<BONDS> 54,498
0
0
<COMMON> 214,344
<OTHER-SE> (499,134)
<TOTAL-LIABILITY-AND-EQUITY> 1,928,229
<SALES> 0
<TOTAL-REVENUES> 10,824
<CGS> 0
<TOTAL-COSTS> 1,848,152
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,554
<INCOME-PRETAX> (1,852,882)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,852,882)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,852,882)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
