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, 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
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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 December 31, 1997
- --------------------- -----------------
Common Stock, $.005 par value 42,549,400
Page 1 of 10 consecutively numbered pages.
<PAGE>
TABLE OF CONTENTS
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet,
December 31, 1997 (unaudited) and June 30, 1997 . . . . . . 3
Condensed Consolidated statement of operations for the
three months and six months ended December 31, 1997
and 1996 (unaudited) . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated statement of cash flows for the
six months ended December 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
December 31, 1997 and June 30, 1997
- ------------------------------------------------------------------------------
December 31, June 30,
1997 1997
(Unaudited)
-----------------------
Assets
Current assets:
Cash $ 396,516 $ 211,818
Other receivables - 3,875
Notes receivable - 2,200,000
-----------------------
Current assets 396,516 2,415,693
Note receivable 1,100,000 -
Machinery and equipment less accumulated
depreciation of $203,139 and $211,992 504,912 423,420
-----------------------
$ 2,001,428 $ 2,839,113
=======================
Liabilities and Stockholders' (Deficit)
Current liabilities:
Accounts payable $ 40,284 $ 20,414
Accrued liabilities 167,383 161,970
Accrued payroll 545,844 518,405
Accrued interest 206,518 208,552
Line of credit 175,000 150,000
Current portion of long-term debt 414,655 405,803
Related party debt - current 185,485 195,658
-----------------------
Total current liabilities 1,735,169 1,660,802
-----------------------
Long-term debt 110,886 212,372
-----------------------
1,846,055 1,873,174
-----------------------
Stockholders' (deficit):
Common stock, par value $.005 per share;
authorized 100,000,000 shares, issued and
outstanding 42,549,400 shares and 41,758,711
shares, respectively 212,738 208,794
Additional paid-in capital 7,218,714 6,751,266
Retained (deficit) (7,276,079) (5,994,121)
-----------------------
Total stockholders' (deficit) 155,373 965,939
-----------------------
$ 2,001,428 $ 2,839,113
=======================
3
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GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Operations (Unaudited)
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<TABLE>
<S> <C> <C> <C> <C> <C>
Cumulative
Amounts
Since
Three Months Ended Six Months Ended Develop-
December 31, December 31, ment
1997 1996 1997 1996 Stage
---------------------------------------------------------
Revenue -
Interest and other $ 5,401 $ 85 $ 5,462 $ 198 $ 26,490
---------------------------------------------------------
Total revenue 5,401 85 5,462 198 26,490
Expenses:
Research and
development expense 409,310 204,632 574,251 421,188 1,769,277
General and
administrative expenses 319,402 184,208 702,208 394,117 3,430,042
Interest expense 6,236 1,303 10,961 4,629 306,289
---------------------------------------------------------
Total expenses 734,948 390,143 1,287,420 819,934 5,505,608
---------------------------------------------------------
Net (loss) $(729,547) $(390,058) $(1,281,958) $(819,736) $(5,479,118)
=========================================================
(Loss) per share (.02) (.010) (.03) (.022) (.16)
=========================================================
Weighted average shares
outstanding 42,449,000 37,505,000 42,263,000 37,312,000 34,959,000
=========================================================
</TABLE>
4
<PAGE>
GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows (Unaudited)
- ------------------------------------------------------------------------------
Cumulative
Amounts
Six Months Ended Since
December 31, Development
1997 1996 Stage
----------------------------------
Cash flows from operating activities:
Net (loss) $(1,281,957)$ (819,736)$(5,408,523)
Adjustments to reconcile net (loss) to
net cash used in operating activities:
Depreciation and amortization 91,147 14,872 241,494
Stock issued for services 91,828 113,017 683,352
Stock options issued below market 3,875 - 10,000
(Increase) decrease in:
Accounts receivable - (1,000) -
Increase (decrease) in:
Accounts payable 19,870 - (17,241)
Accrued payroll 27,439 (15,559) 460,928
Accrued interest (2,034) (8,999) 162,233
Accrued liabilities 5,411 (7) 108,929
----------------------------------
Net cash used in
operating activities (1,044,421) (717,412) (3,758,828)
----------------------------------
Cash flows from investing activities:
Purchase of property and equipment (172,638) (27,961) (188,882)
Collections on notes receivable and
advances 1,100,000 - 1,100,000
----------------------------------
Net cash provided by (used in)
investing activities 927,362 (27,961) 911,118
----------------------------------
Cash flows from financing activities:
Change in line of credit 25,000 150,000 175,000
Proceeds from long-term debt - 100,596 132,000
Proceeds from related party debt - - 488,894
Reduction of capitalized lease obligation (99,578) (38,528) (225,414)
Reduction of debt - - (67,500)
Reduction of related party debt (3,228) - (119,918)
Proceeds from issuance of common stock 379,563 470,846 2,855,201
----------------------------------
Net cash provided by
financing activities 301,757 682,914 3,238,263
----------------------------------
Net increase (decrease) in cash 184,698 (62,459) 390,553
Cash, beginning of period 211,818 125,624 5,963
----------------------------------
Cash, end of period $ 396,516 $ 63,165 $ 396,516
==================================
5
<PAGE>
GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows (Unaudited)
Continued
- ------------------------------------------------------------------------------
Cumulative
Amounts
Six Months Ended Since
December 31, Development
1997 1996 Stage
----------------------------------
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ 10,960 $ 4,629 $ 113,085
==================================
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
December 31, 1997 and the results of operations for the six
months and three months ended December 31, 1997 and 1996 and
cash flows for the six months ended December 31, 1997 and 1996.
The results of operations and cash flows for the six months and
three months ended December 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 December 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 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.
During the current fiscal year, the Company finished flight testing its
H2X (two seat) prototype gyroplane. The Company continues to prepare its new
building as an assembly facility. This is considered an interim move by the
Company, until it can build a fully integrated factory. According to the
Company's production plan, extensive use will be made of aviation suppliers to
fulfill its parts production requirements. FAA Type Certification has begun
on the Hawk III (3 seats), the Company's first production gyroplane, and the
process will take a minimum of two years.
Prior to achieving FAA Type Certification, the Company plans to be
shipping its Hawk IIIs to markets which do not require FAA Certification,
because of the status of the purchaser/user which will include civil
government, military, 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. In recent months, the Company has received
significant interest from state and local airborne law enforcement
organizations.
Early export sales are expected to be in the form of subassemblies,
which will receive final assembly in the country or market 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.
Results of Operations
Revenues remained insignificant during the three month period ended
December 31, 1997 compared to the same period in 1996. During the three
months ended December 31, 1997, general and administrative expenses increased
to $319,402 from $184,208 for the similar period ended 1996. The increase
paralleled a large increase in R&D expenses which increased to $409,310 from
$204,632 for the three months under comparison. The Company had hired
8
<PAGE>
additional engineers, draftsmen, and outside consultants to accelerate the
Hawk III program. The resulting losses increased to ($729,547) from
($390,058) for the quarters under comparison.
Revenues remained insignificant during the six month period ended
December 31, 1997 compared to the same period in 1996. During the six months
ended December 31, 1997, general and administrative expenses amounted to
$702,208 an increase from $394,117, while R&D costs increased to $574,251 from
$421,188 for the similar period ended 1996. The increase mostly reflects
increased personnel costs and engineering costs associated with the
accelerated Hawk III program. The resulting losses increased to ($1,281,958)
from ($819,736) 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 needs. 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, 1997 the
Company had received $379,563 from the private sale of stock to accredited
investors, 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 through June
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: February 13, 1998 GROEN BROTHERS AVIATION, INC.
By: s/ David L. Groen
-------------------------
David L. Groen, President
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GROEN
BROTHERS AVIATION, INC. AND SUBSIDIARY DECEMBER 31, 1997 FINANCIAL STATMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 396,516
<SECURITIES> 0
<RECEIVABLES> 1,100,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 396,516
<PP&E> 708,051
<DEPRECIATION> 203,139
<TOTAL-ASSETS> 2,001,428
<CURRENT-LIABILITIES> 1,735,169
<BONDS> 110,886
0
0
<COMMON> 212,738
<OTHER-SE> (57,365)
<TOTAL-LIABILITY-AND-EQUITY> 155,373
<SALES> 0
<TOTAL-REVENUES> 5,462
<CGS> 0
<TOTAL-COSTS> 1,276,459
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,961
<INCOME-PRETAX> (1,281,958)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,281,958)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,281,958)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
