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, 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
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, 1999
- ------------------------- -------------------
Common Stock, $.005 par value 70,882,234
Page 1 of 12 consecutively numbered pages.
1
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TABLE OF CONTENTS
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet,
December 31, 1999 (unaudited) and June 30, 1999 . . . . . . . . . . 3
Condensed Consolidated statement of operations for the six
months ended December 31, 1999 and 1998 (unaudited) . . . . . . . . 4
Condensed Consolidated statement of cash flows for the six
months ended December 31, 1999 and 1998 (unaudited) . . . . . . . . 5
Notes to condensed consolidated financial statements. . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . 9
2
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<CAPTION>
GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Balance Sheet
- ----------------------------------------------------------------------------------------------------------
December 31,
1999
(Unaudited)
------------------
Assets
Current assets:
<S> <C>
Cash $ 1,777,000
Note receivables 151,000
Prepaid expense 200,000
------------------
Current assets 2,128,000
Investment art held for sale 1,070,000
Machinery and equipment less accumulated
depreciation of $687,000 857,000
------------------
Total Assets $ 4,055,000
------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit Current liabilities:
Accounts payable $ 248,000
Accrued liabilities 1,199,000
Deposits 1,494,000
Current portion of related party note payable 180,000
Current portion of long-term debt 278,000
------------------
Total current liabilities 3,399,000
------------------
Long-term debt 801,000
Total liabilities 4,200,000
------------------
Stockholders' deficit:
Common stock, par value $.005 per share;
authorized 100,000,000 shares, issued and
outstanding 70,882,234 shares, respectively 354,000
Additional paid-in capital 21,893,000
Retained deficit (22,392,000)
------------------
Total stockholders' deficit (145,000)
------------------
Total liabilities and stockholders' deficit $ 4,055,000
------------------
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<CAPTION>
GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Operations (Unaudited)
- ------------------------------------------------------------------------------------------------------------
Cumulative
Amounts
Three Months Ended Six Months Ended Since
December 31, December 31, Development
------------------------------------------------------------
1999 1998 1999 1998 Stage
-----------------------------------------------------------------------------
Revenue -
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Interest and other $ 88,000 $ 3,000 $ 120,000 $ 3,000 $ 160,000
-----------------------------------------------------------------------------
Total revenue 88,000 3,000 120,000 3,000 160,000
-----------------------------------------------------------------------------
Expenses:
Research and
development expense 1,009,000 763,000 2,311,000 1,438,000 11,663,000
General and
administrative expenses 786,000 370,000 2,727,000 816,000 8,364,000
Interest expense 28,000 23,000 85,000 32,000 657,000
-----------------------------------------------------------------------------
Total expenses 1,823,000 1,156,000 5,123,000 2,286,000 20,684,000
-----------------------------------------------------------------------------
Net loss $ (1,735,000)$ (1,153,000)$ (5,003,000)$ (2,283,000)$ (20,524,000)
-----------------------------------------------------------------------------
Loss per share,
basic and fully diluted $ (.02)$ (.02)$ (.07)$ (.05)$ (.50)
-----------------------------------------------------------------------------
Weighted average shares
outstanding 70,682,000 49,411,000 68,772,000 47,335,000 40,990,000
-----------------------------------------------------------------------------
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4
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<CAPTION>
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
-----------------------------------
1999 1998 Stage
----------------------------------------------------
Cash flows from operating activities:
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Net loss $ (5,003,000)$ (2,283,000)$ (20,524,000)
Adjustments to reconcile net (loss) to
net cash used in operating activities:
Depreciation and amortization 131,000 71,000 629,000
Stock issued for services 1,420,000 428,000 2,850,000
Stock options issued below market - - 14,000
Loss on disposal of assets 21,000 - 47,000
(Increase) decrease in:
Accounts receivable - -
Prepaid expense 116,000 (150,000)
Increase (decrease) in:
Accounts payable (379,000) (91,000) 1,217,000
Accrued liabilities 426,000 67,000 1,497,000
----------------------------------------------------
Net cash used in
operating activities (3,268,000) (1,808,000) (14,420,000)
----------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (92,000) (506,000) (666,000)
Sale of property and equipment - - 2,200,000
Increase in note receivable (126,000) (24,000) (156,000)
Collections on notes receivable and
advances - - 6,000
Proceeds from art sale 28,000 2,000 30,000
----------------------------------------------------
Net cash provided by (used in)
investing activities (190,000) (528,000) 1,414,000
----------------------------------------------------
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5
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<CAPTION>
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
-----------------------------------
1999 1998 Stage
----------------------------------------------------
Cash flows from financing activities:
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Proceeds from long-term debt - - 1,362,000
Proceeds from related party debt - - 489,000
Increase in capitalized lease obligations - - 887,000
Reduction of capitalized lease obligation (236,000) (90,000) (642,000)
Reduction of long-term debt (498,000) (50,000) (619,000)
Reduction of related party debt - - (117,000)
Proceeds from issuance of common stock 5,481,000 2,520,000 13,367,000
Proceeds from issuance of options - - 50,000
----------------------------------------------------
Net cash provided by
financing activities 4,747,000 2,380,000 14,777,000
----------------------------------------------------
Net increase in cash 1,289,000 44,000 1,771,000
Cash, beginning of period 488,000 240,000 6,000
----------------------------------------------------
Cash, end of period $ 1,777,000 $ 284,000 $ 1,777,000
----------------------------------------------------
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ 10,000 $ 9,000 $ 131,000
----------------------------------------------------
Taxes $ 200 $ 200 $ 900
----------------------------------------------------
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6
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GROEN BROTHERS AVIATION, INC., AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows (Unaudited)
Continued
- --------------------------------------------------------------------------------
Schedule of non-cash activities:
During the six months ended December 31, 1999:
o The Company issued 50,000 shares of its common stock in
exchange for artwork valued at $50,000
o The Company issued 36,000 shares of its common stock and
exchanged artwork valued at $80,000 for machinery and
equipment valued at $96,000
o The Company acquired $152,000 of machinery and equipment in
exchange for a note payable
o The Company issued 10,154 shares of its common stock to
satisfy an interest payment
o The Company issued 18,300 shares of its common stock in
exchange for a vehicle valued at $18,000
o The Company issued 1,394,000 shares of its common stock to
retire notes payable
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7
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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 December 31, 1999 and the results of operations for the
six months and three months ended December 31, 1998 and 1998 and cash
flows for the six months ended December 31, 1999 and 1998. The results
of operations and cash flows for the six months and three months ended
December 31, 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 December 31, 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
8
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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.
During the second quarter of the current fiscal year, the Company
continued its flight testing of the Hawk 4 (four seat) gyroplane at its Buckeye
facility in Arizona. To date more than 200 sorties have been made in the
Company's first Hawk 4 gyroplane. The Hawk 4 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 undergoing the installation of a Rolls-Royce turbine
engine at Soloy Conversions in Olympia, Washington, 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 kerosene fuels, such as
Jet A, etc. The advantage of the Hawk 4, which employs a piston engine, is that
it is priced lower than the turbine version. The turbine engine costs four times
more than a piston engine. The Hawk 4 will likely operate mostly in western
countries because it requires 100 octane low lead gasoline, which is not readily
available in most of the developing 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).
9
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Groen Brothers Aviation is presently establishing a nationwide dealer
network in major U.S. cities. GBA Authorized Dealers will be responsible for
sales, service, 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. 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. The Company
has also signed up its first international dealer, GBA Gyroplanes of Costa Rica.
The Company has attended many conventions to introduce its Hawk
Gyroplane. These include the National Agricultural Aircraft Association (NAAA),
the Aircraft Owners and Pilots Association (AOPA), the National Business
Aircraft Association (NBAA), the Experimental Aircraft Association (EAA). Manned
by Company employees and GBA Authorized Dealers, the booth and displays were
busy with visitors from across the U.S. and around the world.
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 to $88,000
from $3,000 during the three month period ended December 31, 1999 compared to
the same period in 1998. During the three months ended December 31, 1999,
general and administrative expenses increased to $786,000 from $370,000 for the
similar period ended 1998. The increase was commensurate with an increase in R&D
expenses, which increased to $1,009,000 from $763,000 for the three months under
comparison. The Company continued to hire additional engineers, draftsmen, and
outside consultants to accelerate the Hawk 4 program. The resulting losses
increased to ($1,735,000) from ($1,153,000) for the quarters under comparison.
As a result of increased bank interest, revenues increased to $120,000
from $3,000 during the six month period ended December 31, 1999 compared to the
same period in 1998. During the six months ended December 31, 1999, general and
administrative expenses amounted to $2,727,000 an increase from $817,000,
10
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while R&D costs increased to $2,311,000 from $1,438,000 for the similar period
ended 1998. The increase mostly reflects increased personnel costs and
engineering costs associated with the accelerated Hawk 4 program. The resulting
losses increased to ($5,003,000) from ($2,283,000) 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 pre-sale of gyroplanes (taking
of non-refundable down payments); the sale of equity; debt instruments and grant
money. Short term financing will continue to come from the pre-sale of
gyroplanes and 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, 1999 the Company
had received $5,481,000 from the private sale of stock to accredited investors.
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 Y2K compliant.
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.
11
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Item 6 Exhibits and Reports on Form 8K. None
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 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.
12
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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: February 13, 2000 GROEN BROTHERS AVIATION, INC.
S/David L. Groen
By: _________________________
David L. Groen, President
13
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<ARTICLE> 5
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GROEN
BROTHERS AVIATION, INC. AND SUBSIDIARIES DECEMBER 31, 1999 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 1,777,000
<SECURITIES> 0
<RECEIVABLES> 151,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,128,000
<PP&E> 1,544,000
<DEPRECIATION> 687,000
<TOTAL-ASSETS> 4,055,000
<CURRENT-LIABILITIES> 3,399,000
<BONDS> 801,000
0
0
<COMMON> 354,000
<OTHER-SE> (499,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,055,000
<SALES> 0
<TOTAL-REVENUES> 120,000
<CGS> 0
<TOTAL-COSTS> 5,038,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85,000
<INCOME-PRETAX> (5,003,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,003,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,003,000)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
