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, 1999
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 84104-4100
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 September 30, 1999
Common Stock, $.005 par value 69,527,614
Page 1 of 12 consecutively numbered pages.
1
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TABLE OF CONTENTS
Part I - Financial Information Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheet,
September 30, 1999 (unaudited) and.......................3
Condensed Consolidated Statement of
Operations for the three
months ended September 30, 1999
and 1998 (unaudited).....................................4
Condensed Consolidated Statement of
Cash Flows for the three
months ended September 30, 1999
and 1998 (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
2
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<TABLE>
<CAPTION>
GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Balance Sheet
- -------------------------------------------------------------------------------------------------------------------
September 30,
1999
Assets (Unaudited)
------------------
<S> <C>
Current assets:
Cash $ 3,101,000
Receivables 91,000
Prepaid expenses 264,000
------------------
Current assets 3,456,000
Investment art held for sale 1,140,000
Machinery and equipment, net 678,000
------------------
$ 5,274,000
------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 290,000
Accrued liabilities 1,266,000
Deposits 1,017,000
Related party notes payable 717,000
Current portion of long-term debt 416,000
------------------
Total current liabilities 3,706,000
------------------
Long-term debt 585,000
------------------
Commitments and contingencies -
Stockholders' equity:
Preferred stock, par value $.001, authorized
50,000,000 shares, no shares outstanding -
Common stock, par value $.005, authorized
100,000,000 shares, issued and outstanding
69,527,614 shares 348,000
Additional paid-in capital 21,292,000
Accumulated deficit (20,657,000)
------------------
Total stockholders' equity 983,000
------------------
Total liabilities and stockholders' equity $ 5,274,000
------------------
</TABLE>
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3
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Operations (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
Cumulative
Three Months Ended Amounts
September 30, Since
----------------------------------- Development
1999 1998 Stage
-----------------------------------------------------
<S> <C> <C> <C>
Revenue -
interest and other $ 32,000 $ 1,000 $ 72,000
-----------------------------------------------------
Total revenue 32,000 1,000 72,000
-----------------------------------------------------
Expenses:
Research and development expenses 1,302,000 174,000 10,654,000
General and administrative expenses 1,941,000 947,000 7,578,000
Interest expense 57,000 9,000 629,000
-----------------------------------------------------
Total expenses 3,300,000 1,130,000 18,861,000
-----------------------------------------------------
Net loss $ (3,268,000) $ (1,129,000) $ (18,789,000)
-----------------------------------------------------
Loss per share - basic and diluted $ (.05) $ (.02) $ (.47)
-----------------------------------------------------
Weighted average shares outstanding -
basic and diluted 65,865,000 45,662,000 39,813,000
-----------------------------------------------------
</TABLE>
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4
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
Cumulative
Three Months Ended Amounts
September 30, Since
------------------------------ Development
1999 1998 Stage
-----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,268,000) $ (1,130,000) $ (18,789,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization expense 59,000 36,000 557,000
Common stock issued for services 1,471,000 194,000 2,901,000
Stock options issued for services - - 14,000
Loss on disposal of assets - - 26,000
(Increase) decrease in prepaid expense 52,000 - (214,000)
Increase (decrease) in:
Accounts payable (1,199,000) 40,000 397,000
Accrued liabilities 8,000 5,000 1,079,000
Deposits 504,000 - 504,000
-----------------------------------------------
Net cash used in
operating activities (2,373,000) (855,000) (13,525,000)
-----------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (88,000) (207,000) (662,000)
Sale of property and equipment - - 2,200,000
Increase in note receivable (66,000) (32,000) (96,000)
Collections on notes receivable and advances - - 6,000
Proceeds from art sale 9,000 - 11,000
-----------------------------------------------
Net cash (used in) provided by
investing activities (145,000) (239,000) 1,459,000
-----------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt - - 1,362,000
Reduction of long-term debt (130,000) (50,000) (251,000)
Increase in capitalized lease obligation - - 887,000
Reduction of capitalized lease obligation (172,000) (45,000) (578,000)
Proceeds from related party debt - - 489,000
Reduction of related party debt - - (117,000)
Proceeds from issuance of common stock 5,433,000 1,286,000 13,319,000
Proceeds from issuance of options - - 50,000
-----------------------------------------------
Net cash provided by
financing activities 5,131,000 1,191,000 15,161,000
-----------------------------------------------
</TABLE>
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5
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
GROEN BROTHERS AVIATION, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
Continued
- -------------------------------------------------------------------------------------------------------------------
Cumulative
Three Months Ended Amounts
September 30, Since
------------------------------ Development
1999 1998 Stage
-----------------------------------------------
<S> <C> <C> <C>
Net increase in cash 2,613,000 97,000 3,095,000
Cash, beginning of period 488,000 240,000 6,000
-----------------------------------------------
Cash, end of period $ 3,101,000 $ 337,000 $ 3,101,000
-----------------------------------------------
</TABLE>
Supplemental schedule of cash flow information:
<TABLE>
<CAPTION>
Cumulative
Three Months Ended Amounts
September 30, Since
---------------------------------- Development
1999 1998 Stage
-----------------------------------------------------
Cash paid during the period for:
<S> <C> <C> <C>
Interest $ 20,000 $ 9,000 $ 131,000
-----------------------------------------------------
Income taxes $ 200 $ 100 $ 800
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</TABLE>
Schedule of non-cash activities:
During the three months ended September 30, 1999:
o The Company issued 18,300 shares of its restricted common stock in
exchange for equipment of $18,000.
o The Company issued 314,037 shares of its restricted common stock
in exchange for a reduction of accounts payable in the amount of
$155,000.
o The Company exchanged $513,000 of related party debt in exchange
for deposits.
- --------------------------------------------------------------------------------
6
See notes to condensed consolidated financial statements.
<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 September 30, 1999 and the results of operations for the
three months ended September 30, 1999 and 1998 and cash flows for the
three months ended September 30, 1999 and 1998. The results of
operations and cash flows for the three months ended September 30, 1999
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, 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
7
See notes to condensed consolidated financial statements.
<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 first quarter of the current fiscal year, the Company began
flight testing of the Hawk 4 (four seat) gyroplane at its Buckeye facility in
Arizona. To date more than 80 sorties have been made in the Hawk 4, which will
be the Company's first FAA certified gyroplane. Certification of the Hawk 4,
currently being performed and managed at the Company's Salt Lake City facility,
began in March of 1998, and is expected to be completed in 2001.
A second Hawk 4 is being fitted out with a turbine engine, and will be
designated the Hawk 4T. The advantage of the Hawk 4T over the Hawk 4 will be a
higher useful load, more horsepower, and the worldwide availability of jet fuel.
The advantage of the Hawk 4, which employs a piston engine, is that it is priced
lower than the turbine version, because the turbine engine is three times as
expensive. The Hawk 4 will operate mostly in western countries because it
requires 100 octane low lead gasoline, which is mostly not available in other
parts of the world.
The market for the Hawk is large and varied. The world has become
dependent upon helicopters where runways are not available or if slow flight is
required. The Company believes the Hawk is a low cost alternative, which can
perform competitively with helicopters and airplanes in many roles including the
following:
1. Law enforcement (police, sheriff, border patrol, customs, and drug
interdiction),
2. Public service organizations (fire patrol, medical transport, wildlife
and land management),
3. Military (courier, armed surveillance, VIP transport, forward artillery
control, ground attack, unmanned aerial vehicle,
4. Commercial (oil, gas, and power line patrol and inspection, land survey,
aerial photography, crop spraying, herd management, air taxi service,
corporate transport, and flight training).
5. Private (commuting, sport flying, training).
Groen Brothers Aviation is presently establishing Authorized Dealers in
major cities across the United States. GBA Dealers will be responsible for
sales, service,
8
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maintenance, and flight training. To become a dealer, aircraft deposits are
given to GBA based on a quota for each metropolitan statistical area. At
present, the Company has received more than 120 down payment deposits from its
dealers and private individuals. The dealers in turn take deposits from
customers as orders are received. Dealers will handle all sales, including
government agencies and fleet sales, except military sales, which will be made
directly by GBA.
During the past ten years of developing the Hawk gyroplane, GBA has
received sales inquiries from thousands of potential customers, domestic and
foreign. In addition to establishing a USA dealer network, the Company is now in
discussion with several overseas companies about foreign dealerships. In support
of all this, the Company has established its own internet site with two
addresses, www.groenbros.com and www.GBAGyros.com. Each GBA Dealer will be
linked to the main GBA web site as well as having their own internet site.
The Company introduced the Hawk 4 gyroplane at the world's largest air
show, AirVenture '99 in Oshkosh, Wisconsin the last week of July 1999. The
Company's booth and outside display were busy with visitors from across the U.S.
and around the world. GBA dealers were also at the show.
GBA has been approached by companies in more than a dozen foreign
countries on five continents requesting to be dealers. The Company is having
detailed discussions with several different foreign companies and governments at
present, but has signed an agreement with only one country, China. China was the
first foreign country to express an interest in the Hawk gyroplane. The Company
has signed a conditional agreement with Shanghai Energy and Chemicals
Corporation (SECC) for the purchase of 200 Hawk gyroplanes, with options on an
additional 300 gyroplanes. The condition is that the Company first type certify
the Hawk 4 with the FAA. Following certification, the gyroplane purchase
contract calls for deliveries of the aircraft over a three year period, with
first payments contingent upon GBA qualifying its Hawk gyroplanes for flight in
China.
Results of Operations
As a result of increased bank interest, revenues increased during the
three month period ended September 30, 1999 to $32,000 compared to $1,000 for
the same period in 1998. During the three months ended September 30, 1999,
research and development expenses amounted to $1,302,000 an increase from
$174,000 for the same period in 1998. General and administrative expenses
increased to $1,941,000 during the three months ended September 30, 1999 from
$947,000 for the similar period ended 1998. The resulting losses increased to
($3,268,000) from ($1,129,000) for the quarters under comparison. The
significant change in research and development expenses and in general and
administrative costs reflects an increase in the number of employees,
accelerating FAA certification costs, and preparation for production of the Hawk
4.
9
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Liquidity and Capital Resources
Until the Company is revenue positive, its need 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. From
June 30 to September 30, 1999 the Company received net cash of $5,433,000 from
the private sale of stock.
The Company estimates that it will need $20 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.
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.
Forward Outlook and Risks
The Company, from time to time, may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological development, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ
10
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materially from the anticipated results or other expectations expressed in any
of the Company's forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of the Company's
business include, but are not limited to, the following: (a) the failure to
obtain additional borrowed and/or equity capital on favorable terms for
acquisitions and expansion; (b) adverse changes in federal and state laws, or
other matters affecting the Company's business; (c) the demand for the Company's
products and services; and (d) other risks detailed in the Company's Securities
and Exchange Commission filings.
This Form 10-QSB contains and incorporates by reference certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act with respect to results of operations
and businesses of the Company. All statements, other than statements of
historical facts, included in this Form 10-QSB, including those regarding market
trends, the Company's financial position, business strategy, projected costs,
and plans and objectives of management for future operations, are
forward-looking statements. In general, such statements are identified by the
use of forward-looking words or phrases including, but not limited to,
"intended, will, should, may, expect, anticipate, estimates, projects" or the
negative thereof or variations thereon or similar terminology.
Forward-looking statements are based on the Company's current
expectations. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, there can be no assurance that
such expectations will prove to be correct. Because forward-looking statements
involve risk and uncertainty, the Company's actual results could differ
materially. Important factors that could cause actual results to differ
materially from the Company's expectations are disclosed hereunder and elsewhere
in this Form 10-QSB. These forward-looking statements represent the Company's
judgement as of the date of this Form 10-QSB. All subsequent written and oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by the Cautionary Statements. The Company disclaims, however,
any intent or obligation to update its forward-looking statements.
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
11
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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 14, 1999 GROEN BROTHERS AVIATION, INC.
By: /s/ David L. Groen
-------------------------
David L. Groen, President
12
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GROEN BROTHERS AVIATION, INC. 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-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 3,101,000
<SECURITIES> 0
<RECEIVABLES> 91,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,456,000
<PP&E> 1,293,000
<DEPRECIATION> 615,000
<TOTAL-ASSETS> 5,274,000
<CURRENT-LIABILITIES> 3,706,000
<BONDS> 585,000
0
0
<COMMON> 348,000
<OTHER-SE> 21,292,000
<TOTAL-LIABILITY-AND-EQUITY> 5,274,000
<SALES> 0
<TOTAL-REVENUES> 32,000
<CGS> 0
<TOTAL-COSTS> 3,300,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,000
<INCOME-PRETAX> (3,268,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,268,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,268,000)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
