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, 1999
( ) 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.
2640 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, 1999
- ------------------------- -----------------
Common Stock, $.005 par value 51,879,651
Page 1 of 11 consecutively numbered pages.
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TABLE OF CONTENTS
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Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheet,
March 31, 1999 (unaudited) and June 30, 1998...........................................4
Condensed Consolidated statement of operations for
the three months and nine months ended March 31, 1999
and 1998 and
cumulative amounts since development stage (unaudited).................................5
Condensed Consolidated statement of cash flows for
the for the three months and nine months ended March
31, 1999 and
1998 (unaudited).......................................................................6
Notes to condensed 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..............................................................................10
Item 2. Changes in the securities of the Company.......................................................10
Item 3. Defaults upon senior securities................................................................10
Item 4. Matters submitted to a vote of security holders................................................10
Item 5. Other information..............................................................................10
Item 6. Exhibits and Reports on Form 8K................................................................10
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GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Balance Sheet
March 31, 1999 and June 30, 1998
- ----------------------------------------------------------------------------------------------------------
March 31, June 30,
1999 1998
-----------------------------------
(Unaudited)
Assets
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Current assets:
Cash $ 6,825 $ 240,150
Note receivables 24,545 812
Prepaid expense 159,948 109,947
-----------------------------------
Current assets 191,318 350,909
Investment art held for sale 994,150 -
Machinery and equipment less accumulated
depreciation of $472,087 and $436,263 1,581,672 459,469
-----------------------------------
$ 2,767,140 $ 810,378
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders'
Current liabilities:
Accounts payable $ 1,168,033 $ 140,516
Accrued liabilities 1,134,058 1,030,527
Note payable 100,000 150,000
Current portion of related party note payable 209,926 198,137
Current portion of long-term debt 638,509 411,351
-----------------------------------
Total current liabilities 3,250,526 1,930,531
-----------------------------------
Long-term debt 488,359 45,851
Long-term portion of related party note payable 24,178 9,463
-----------------------------------
Total liabilities 3,763,063 1,985,845
-----------------------------------
Stockholders' equity (deficit):
Common stock, par value $.005 per share;
authorized 100,000,000 shares, issued and
outstanding 51,879,651 shares and 43,561,249
shares, respectively 267,028 217,807
Additional paid-in capital 12,096,503 7,657,141
Retained deficit (13,359,454) (9,050,415)
-----------------------------------
Total stockholders' equity (deficit) (995,923) (1,175,467)
-----------------------------------
Total liabilities and stockholders' equity $ 2,767,140 $ 810,378
-----------------------------------
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GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Operations (Unaudited)
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Cumulative
Amounts
Three Months Ended Nine Months Ended Since
March 31, March 31, Develop-
------------------------------------------------------------ ment
1999 1998 1999 1998 Stage
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Revenue -
Interest and other $ 153 $ 5,362 $ 3,589 $ 10,824 $ 39,090
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Total revenue 153 5,362 3,589 10,824 39,090
----------------------------------------------------------------------------
Expenses:
Research and
development expense 1,679,825 424,567 3,117,453 998,818 6,329,278
General and
administrative expenses 324,054 309,772 1,140,681 849,334 4,699,707
Interest expense 22,214 4,593 54,494 15,554 502,004
----------------------------------------------------------------------------
Total expenses 2,026,093 738,932 4,312,628 1,863,706 11,530,989
----------------------------------------------------------------------------
Net loss $ (2,025,940) $ (733,570) $ (4,309,039) $ (1,852,882) $ (11,491,899)
----------------------------------------------------------------------------
Loss per share,
basic and fully diluted $ (.04) $ (.02) $ (.09) $ (.04) $ (.30)
----------------------------------------------------------------------------
Weighted average shares
outstanding 52,514,000 42,655,000 48,952,000 42,391,000 37,909,000
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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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Cumulative
Nine Months Ended Amounts
March 31, Since
----------------------------------- Development
1999 1998 Stage
----------------------------------------------------
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Cash flows from operating activities:
Net loss $ (4,309,039) $ (1,852,882) $ (11,491,899)
Adjustments to reconcile net (loss) to
net cash used in operating activities:
Depreciation and amortization 107,471 122,236 414,729
Stock issued for services 457,887 101,118 1,160,763
Stock options issued below market - 3,875 1,000
Loss on disposal of assets - - 25,713
(Increase) decrease in:
Accounts receivable - 3,387 (812)
Prepaid expense - - (109,948)
Increase (decrease) in:
Accounts payable 1,027,517 232,531 1,110,508
Accrued liabilities 103,531 69,418 946,375
----------------------------------------------------
Net cash used in
operating activities (2,612,633) (1,320,317) (7,934,571)
----------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (581,673) (476,169) (816,589)
Sale of property and equipment - 2,200,030
Increase in note receivable (23,733) - (29,983)
Collections on notes receivable and
advances - 1,100,000 6,250
Proceeds from art sale 1,850 - 1,850
----------------------------------------------------
Net cash provided by (used in)
investing activities (603,556) 623,831 1,361,558
----------------------------------------------------
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GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows (Unaudited)
Continued
- ----------------------------------------------------------------------------------------------------------
Cumulative
Nine Months Ended Amounts
March 31, Since
----------------------------------- Development
1999 1998 Stage
----------------------------------------------------
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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 226,504 - 508,504
Proceeds from related party debt - 165,500 488,894
Reduction of capitalized lease obligation (170,586) (149,376) (442,225)
Reduction of long-term debt - - (70,728)
Reduction of related party debt - (3,228) (116,690)
Proceeds from issuance of common stock 2,976,946 497,160 6,256,120
----------------------------------------------------
Net cash provided by
financing activities 2,982,864 535,056 6,573,875
----------------------------------------------------
Net increase (decrease) in cash (233,325) (161,430) 862
Cash, beginning of period 240,150 211,818 5,963
----------------------------------------------------
Cash, end of period $ 6,825 $ 50,388 $ 6,825
----------------------------------------------------
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ 14,545 $ 17,588 $ 116,670
----------------------------------------------------
Taxes $ 200 $ 100 $ 700
----------------------------------------------------
Schedule of non-cash activities: During the nine months ended March 31, 1999:
o The Company issued 2,525,833 shares of its restricted common
stock to purchase investment art valued at $1,046,000.
o The Company prepaid $50,000 in advertising expenses in exchange for art work.
o The Company issued 17,222 shares of its restricted common stock in exchange
for machinery and equpment.
o The Company financed $640,252 of machinery and equipment in exchange for
a capital lease.
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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, 1999 and the results
of operations for the nine months and three months ended March 31,
1999 and 1998 and cash flows for the nine months ended March 31,
1999 and 1998. The results of operations and cash flows for the
nine months and three months ended March 31, 1999 and 1998 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, 1999 and 1998, respectively.
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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 on the Hawk 4 (4 seats) has been in process for
more than one year. The achievement of type certification is projected to take
no more than two more years. Type certification is the process that conforms
engineering and flight specifications to stringent FAA requirements. The FAA
requires submission of a three year plan, which the Company submitted last year,
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 4s to markets which do not require FAA Certification, such as
government and military use, and some developing countries. The Company is
presently building several Hawk 4s to be used for demonstration and
certification purposes. The production tooling at the Company's facility is
anticipated to be capable of producing five Hawk 4 gyroplanes per week.
Preliminary plans are now being made to include production of the Hawk 6 (6
seat), most of which can be made on the same tooling as the Hawk 4. The Hawk 6
is a "stretch" version of the 4.
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 4 gyroplanes. These deliveries are contingent upon the Hawk 4
type certification by Chinese civil aviation authorities (CAAC). The Company
will be working concurrently with the FAA and the CAAC to achieve
type-certification in both the US and China.
8
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The Company is presently formulating its policy of awarding U.S. dealerships,
which will be based upon orders with down payments that the prospective dealers
are required to give to the Company. The required volume will depend upon the
size of the dealer's market.
Results of Operations
Revenues remained at an insignificant level during the three month
period ended March 31, 1999 compared to the same period in 1998. During the
three months ended March 31, 1999, general and administrative expenses increased
slightly to $324,054 from $309,772 for the similar period ended 1998. Research
and development expenses for the three months under comparison, increased to
$1,679,825 in 1999 from $424,567 in 1998. The large increase was due to the
increased hiring of engineers and draftsmen and further establishment of
contracts with outside suppliers for tooling and parts, all part of the process
of producing an FAA certified gyroplane. The resulting losses, which include
interest expense, increased to ($2,025,940) from ($733,570) for the period under
comparison.
Revenues were insignificant during the nine month period ended March
31, 1999. For the nine months ended March 31, 1999, general and administrative
expenses amounted to $1,140,681 which is an increase from $849,334 for the
similar period ended 1998. The increase is due to growth in payroll and the
increased activity to support a growing organization. Research and development
costs increased to $3,117,453 for the nine months ended March 31, 1999 from
$998,818 for the same period in 1998. The resulting losses, which include
interest expense, increased to ($4,309,039) from ($1,852,882) for the nine month
periods under comparison.
Liquidity and Capital Resources
The Company's management expects 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 private
placement sales 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, 1999 the Company had received
$2,976,946 from the private sale of stock to accredited investors, and $226,504
as proceeds from long-term debt. 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 9 years through
the sale of common stock. While management hopes and believes such financial
support will continue, there can be no guarantee that the successful sale of
stock experienced previously will continue in the future.
9
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Inflation
Inflation is not currently a material factor in the Company's financial
conditions or operations.
Year 2000
The Company's computer system and software are warranted by the vendor
to be Y2K compliant. There does not appear to be any material internal issues at
this time.
The Company has communicated with its primary vendors and has
determined that all are either Y2K compliant, or are making significant progress
toward Y2K compliance. In those cases where a vendor does not claim that they
are Y2K compliant, the Company is seeking sufficient alternatives to obtain
necessary products and services.
The financial institutions with which the Company has its material
relationships have represented to the Company that they are Y2K compliant.
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 11, 1999 GROEN BROTHERS AVIATION, INC.
By: /s/David L. Groen, President
---------------------------
11
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GROEN
BROTHERS AVIATION, INC. MARCH 31, 1999 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-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,825
<SECURITIES> 0
<RECEIVABLES> 24,545
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 191,318
<PP&E> 2,053,759
<DEPRECIATION> 472,087
<TOTAL-ASSETS> 2,767,140
<CURRENT-LIABILITIES> 3,250,526
<BONDS> 512,537
0
0
<COMMON> 267,028
<OTHER-SE> (1,262,951)
<TOTAL-LIABILITY-AND-EQUITY> 2,767,140
<SALES> 0
<TOTAL-REVENUES> 3,589
<CGS> 0
<TOTAL-COSTS> 4,367,122
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,494
<INCOME-PRETAX> (4,309,039)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,309,039)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,309,039)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
