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, 1998
Commission file number 018958
GROEN BROTHERS AVIATION, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Utah 87-0376766
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State of other jurisdiction of I.R.S. Employer
Incorporation or organization Identification No.
2640 W. California Ave., Suite A
Salt Lake City, Utah 84104-4100
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Address of principal executive offices Zip Code
Registrant's telephone number, including area code (801) 973-0177
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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, 1998
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Common Stock, $.005 par value 46,868,275
Page 1 of 10 consecutively numbered pages.
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TABLE OF CONTENTS
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Part I - Financial Information Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheet,
September 30, 1998 (unaudited) and June 30, 1998.......................................3
Condensed Consolidated Statement of Operations for the three
months ended September 30, 1998 and 1997 (unaudited)...................................4
Condensed Consolidated Statement of Cash Flows for the three
months ended September 30, 1998 and 1997 (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
</TABLE>
2
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GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Balance Sheet
September 30, 1998 and June 30, 1998
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<TABLE>
<CAPTION>
September 30,
1998 June 30,
Assets (Unaudited) 1998
-----------------------------------
Current assets:
<S> <C> <C>
Cash $ 337,839 $ 240,150
Note receivables 32,576 811
Prepaid expense 109,948 109,948
-----------------------------------
Current assets 480,363 350,909
Investment art held for sale 321,000 -
Machinery and equipment less accumulated
depreciation of $400,439 and $364,615 630,692 459,469
-----------------------------------
$ 1,432,055 $ 810,378
-----------------------------------
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Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 180,815 $ 140,516
Accrued liabilities 1,035,341 1,030,527
Note payable 100,000 150,000
Current portion of related party note payable 198,448 198,137
Current portion of long-term debt 411,954 411,351
-----------------------------------
Total current liabilities 1,926,558 1,930,531
-----------------------------------
Long-term debt - 45,851
Long-term portion of related party note payable 9,463 9,463
-----------------------------------
Total liabilities 1,936,021 1,985,845
-----------------------------------
Stockholders' deficit:
Common stock, par value $.005 per share; authorized
100,000,000 shares, issued and outstanding
46,868,275 shares and 43,561,249 shares, respectively 237,209 217,807
Additional paid-in capital 9,438,961 7,657,141
Retained deficit (10,180,136) (9,050,415)
-----------------------------------
Total stockholders' deficit (503,966) (1,175,467)
-----------------------------------
Total liabilities and stockholders' deficit $ 1,432,055 $ 810,378
-----------------------------------
</TABLE>
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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>
<CAPTION>
Cumulative
Amounts
Three Months Ended Since
September 30, Development
-----------------------------------
1998 1997 Stage
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Revenue -
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interest and other $ 575 $ 62 $ 36,076
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Total revenue 575 62 36,076
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Expenses:
Research and development expenses 174,300 164,941 3,386,125
General and administrative expenses 947,040 382,807 4,506,066
Interest expense 8,956 4,724 456,466
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Total expenses 1,130,296 552,472 8,348,657
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Net (loss) $ (1,129,721) $ (552,410)$ (8,312,581)
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(Loss) per share $ (.02) $ (.01)$ (.23)
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Weighted average shares outstanding 45,662,000 42,161,000 36,210,000
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</TABLE>
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4
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GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows (Unaudited)
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<TABLE>
<CAPTION>
Cumulative
Amounts
Three Months Ended Since
September 30, Development
------------------------------
1998 1997 Stage
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Cash flows from operating activities:
<S> <C> <C> <C>
Net (loss) $ (1,129,721) $ (552,410) $ (8,312,581)
Adjustments to reconcile net (loss) to net
cash used in operating activities:
Depreciation expense 35,824 31,088 343,082
Stock issued for services 194,240 73,229 897,116
Stock options issued below market - - 10,000
Loss on disposal of assets - - 25,713
(Increase) decrease in:
Accounts receivable - 1,937 (812)
Prepaid expense - - (109,948)
Increase (decrease) in:
Accounts payable 40,299 83,854 123,290
Accrued payroll - 8,053 521,928
Accrued interest - (2,034) 213,791
Accrued liabilities 4,814 3,474 111,939
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Net cash used in
operating activities (854,544) (352,809) (6,176,482)
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Cash flows from investing activities:
Purchase of property and equipment (207,047) (87,441) (441,963)
Sale of property and equipment - - 2,200,030
Increase in note receivable (31,765) - (38,015)
Collections on notes receivable and advances - - 6,250
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Net cash used in
investing activities (238,812) (87,441) 1,726,302
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Cash flows from financing activities:
Change in line of credit (50,000) 25,000 (50,000)
Proceeds from long-term debt - - 282,000
Proceeds from related party debt - - 488,894
Reduction of capitalized lease obligation (45,248) (50,700) (316,887)
Reduction of debt 311 - (70,417)
Reduction of related party debt - (2,309) (116,690)
Proceeds from issuance of common stock 1,285,982 267,814 4,565,156
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Net cash provided by
financing activities 1,191,045 239,805 4,782,056
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Net increase (decrease) in cash 97,689 (200,445) 331,876
Cash, beginning of period 240,150 211,818 5,963
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Cash, end of period $ 337,839 $ 11,373 $ 337,839
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</TABLE>
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5
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GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
Continued
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<TABLE>
<CAPTION>
Supplemental schedule of cash flow information:
Cumulative
Amounts
Three Months Ended Since
September 30, Development
-----------------------------------
1998 1997 Stage
-----------------------------------------------------
Cash paid during the period for:
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Interest $ 8,956 $ 4,724 $ 111,081
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Taxes $ 100 $ 100 $ 600
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</TABLE>
Schedule of non-cash activities:
During the three months ended September 30, 1998:
o The Company issued 713,333 shares of its restricted common stock
to purchase investment art valued at $321,000.
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6
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GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
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(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, 1998 and the results of operations for the three months
ended September 30, 1998 and 1997 and cash flows for the three months ended
September 30, 1998 and 1997. The results of operations and cash flows for
the three months ended September 30, 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 September 30, 1998 and 1997, respectively.
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7
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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 had put on hold plans for the development of a Portuguese
subsidiary, the formation of which was 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 1998 calender year, however, the
government slowed the process of application. During the present quarter, the
Portuguese government has made a new offer to GBA, through its representative
Tallantyre Consultants, in Evora Portugal. The offer consists of a grant and low
interest loan, but the amount is not what the Company requires to locate an
assembly facility in Portugal. The Company is presently evaluating what it can
do in Portugal, for example, establish a training/sales/repair facility, for
such a budget. The Company is currently negotiating possible funding for plant
construction in other foreign countries.
During the first quarter of the current fiscal year, the Company began
construction of four production models of the Hawk 4 (four seat) gyroplane. The
Hawk 4 replaces the proposed Hawk III. The first market for the Hawk 4 will
likely be the "public use" market in the US, which consists of civil government
applications. The Company continues to receive significant interest from
airborne law enforcement entities. In addition, the Company anticipates that the
Hawk 4 will eventually be assembled in China, exclusively for the China market,
from 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 4 gyroplanes, with an option for 300 additional units. Deliveries are
contingent upon Hawk 4 certification by Chinese civil aviation authorities
(CAAC). The Company is now working with the FAA to achieve type-certification in
the US. When FAA certification is awarded, the CAAC certification will follow
through a procedure of formal application. Based upon the work done by the FAA,
the CAAC will award a Verified Type Certificate, thus enabling the Hawk 4 to fly
and be sold in China.
The Company's new building is being prepared as a production facility, with
new production tools being verified for quality control purposes. The first four
Hawk 4 gyroplanes will be used for certification flight testing and as
demonstrators. The
8
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present facility is a "final" assembly facility, which receives parts from a
large network of FAA certified suppliers. The suppliers have all been qualified
by the Company through an FAA established procedure.
Results of Operations
Revenues remained insignificant during the three month period ended
September 30, 1998 at $575, compared to $62 for the same period in 1997. During
the three months ended September 30, 1998, research and development expenses
amounted to $174,300, an increase from $164,941 for the same period in 1997.
General and administrative expenses increased to $947,040 during the three
months ended September 30, 1998 from $382,807 for the similar period ended 1997.
The resulting losses increased to ($1,129,721) from ($552,410) for the quarters
under comparison. The significant change in general and administrative costs
reflects a doubling in the number of employees, formal beginning of FAA
certification, and preparation for production of the Hawk 4.
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 building
production models of the Hawk 4, 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 two years to accomplish the following:
- Manufacture Demonstrator and Public Use Aircraft,
- Complete FAA Certification,
- 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 $1,285,982 from the private sale of stock.
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
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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: November 12, 1998 GROEN BROTHERS AVIATION, INC.
By: s/ David L. Groen
--------------------------
David L. Groen, President
10
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GROEN
BROTHERS AVIATION, INC. SEPTEMBER 30, 1998 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-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 337,839
<SECURITIES> 0
<RECEIVABLES> 32,576
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 480,363
<PP&E> 1,031,131
<DEPRECIATION> 400,439
<TOTAL-ASSETS> 1,432,055
<CURRENT-LIABILITIES> 1,926,558
<BONDS> 9,463
0
0
<COMMON> 237,209
<OTHER-SE> (742,175)
<TOTAL-LIABILITY-AND-EQUITY> 1,432,055
<SALES> 0
<TOTAL-REVENUES> 575
<CGS> 0
<TOTAL-COSTS> 1,121,340
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,956
<INCOME-PRETAX> (1,129,721)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,129,721)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,129,721)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
