Ballistic Recovery Systems 10QSB 2003 Q1 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)
ý	Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required)

	For the quarterly period ended December 31, 2002

	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required)

	For the transition period from to

	Commission file number 0-15318

BALLISTIC RECOVERY SYSTEMS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)

Minnesota		41-1372079
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer ID Number)

300 Airport Road, South St. Paul, Minnesota, 55075-3541
(Address of Principal Executive Offices)

(651) 457-7491
(Issuer’s Telephone Number Including Area Code)

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Check whether the issuer: (1) filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act during the past 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 ý No o

Number of shares outstanding as of February 6, 2003: 6,209,736

INDEX

BALLISTIC RECOVERY SYSTEMS, INC.

Part I Financial Information – Item 1. Financial Statements

BALLISTIC RECOVERY SYSTEMS, INC.

BALANCE SHEETS

(UNAUDITED)

	December 31, 2002			September 30, 2002
ASSETS
Current assets:
Cash	$	838,709		$	997,629
Accounts receivable - net of allowance for doubtful accounts of $10,000 and $10,000, respectively	137,073			78,945
Inventories	922,433			827,898
Deferred tax asset - current portion	419,000			419,000
Prepaid expenses	49,113			48,371
Total current assets	2,366,328			2,371,843

Furniture, fixtures and leasehold improvements	393,607			367,405
Less accumulated depreciation	(186,866		)	(170,387		)
Furniture, fixtures and leasehold improvements - net	206,741			197,018

Other assets:
Patents less accumulated amortization of $8,852 and $8,681, respectively	2,812			2,984
Long-term prepaid expenses	97,096			103,211
Other intangible assets less accumulated amortization of $48,828 and $46,258, respectively	2,570			5,140
Covenant not to compete less accumulated amortization of $271,930 and $262,444, respectively	107,508			116,994
Total other assets	209,986			228,329

Total assets	$	2,783,055		$	2,797,190

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	126,631		$	51,582
Customer deposits	142,587			192,754
Accrued payroll	29,880			75,172
Other accrued liabilities	282,877			342,402
Current portion of covenant not to compete	37,363			36,354
Current liabilities	619,338			698,264

Long-term bank note and/or covenant , less current portions	75,961			89,816

Shareholders’ equity:
Common stock ($.01 par value; 10,000,000 shares authorized; 6,209,736 and 6,209,736 shares, respectively, issued and outstanding)	62,098			62,098
Additional paid-in capital	2,764,197			2,764,197
Accumulated deficit	(738,539		)	(817,185		)
Total shareholders’ equity	2,087,756			2,009,110

Total liabilities and shareholders’ equity	$	2,783,055		$	2,797,190

See notes to financial statements.

BALLISTIC RECOVERY SYSTEMS, INC.

STATEMENTS OF OPERATIONS

For the Three Months Ended December 31, 2002 and 2001

(UNAUDITED)

	2002			2001
Sales	$	1,519,229		$	785,244
Cost of sales	951,811			506,231

Gross profit	567,418			279,013

Selling, general and administrative	278,446			154,857
Research and development	125,559			41,976

Income from operations	163,413			82,180

Other income (expense):
Interest expense	(3,300		)	(4,425		)
Intangible amortization	(12,056		)	(12,056		)
Other income (expense)	—			(7,866		)
Pre-tax net income	148,057			57,833

Income tax expense	69,411			—
Net income	$	78,646		$	57,833

Basic earnings per share	$	0.01		$	0.01

Weighted average number of shares outstanding	6,209,736			6,119,701

Diluted earnings per share	$	0.01		$	0.01

Weighted average number of shares outstanding	6,285,722			6,225,295

See notes to financial statements.

BALLISTIC RECOVERY SYSTEMS, INC.

STATEMENTS OF CASH FLOW

Increase (Decrease) in Cash

For the Three Months Ended December 31, 2002 and 2001

(UNAUDITED)

	2002			2001
Cash flow from operating activity:
Net income	$	78,646		$	57,833
Adjustments to reconcile net income to net cash from operating activity:
Depreciation and amortization	28,707			19,892
Inventory valuation reserve	6,000			6,000
(Increase) decrease in:
Accounts receivable	(58,128		)	1,279
Inventories	(100,535		)	(132,243		)
Prepaid expenses	(742		)	—
Long-term prepaid expenses	6,115			—
Increase (decrease) in:
Accounts payable	75,049			15,147
Customer deposits	(50,167		)	9,236
Accrued expenses	(104,817		)	(163,659		)

Net cash from operating activities	(119,872		)	(186,515		)

Cash flow from investing activities:
Capital expenditures	(26,202		)	(111,243		)

Net cash from investing activities	(26,202		)	(111,243		)

Cash flow from financing activities:
Principal payments on covenant not to compete	(12,846		)	(7,684		)

Net cash from financing activities	(12,846		)	(7,684		)

Increase (decrease) in cash	(158,920		)	(305,442		)
Cash - beginning of year	997,629			667,608

Cash - end of period	$	838,709		$	362,166

See notes to financial statements.

BALLISTIC RECOVERY SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2002

(UNAUDITED)

A. Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended December 31, 2002 are not necessarily indicative of the results that may be expected for the year ended September 30, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s summary quarterly report for the year ended September 30, 2002.

B. Inventories

The components of inventory consist of the following:

	12/31/02		09/30/02
Raw materials	$	781,301	$	701,230
Work in process	118,994		106,799
Finished goods	22,138		19,869
Total inventories	$	922,433	$	827,898

C. Cash Concentrations

Bank balances exceeded federally insured levels during the first quarter of fiscal year 2003 and 2002, and exceeded federally insured levels as of December 31, 2002.

D. Accounts Receivable

The Company sells its products to domestic and foreign companies. The Company grants uncollateralized credit to some customers as well as sales that are prepaid or shipped cash on delivery (COD). In addition, the Company’s research and development projects are billed to its customers on an uncollateralized credit basis with terms of between net 15 and net 30 days. The estimated loss that management believes is probable is included in the allowance for doubtful accounts. Due to uncertainties in the collection process, however, it is at least reasonably possible that management’s estimate will change during the next year. That amount cannot be estimated.

E. Customer Concentration

One major customer, Cirrus Design Corporation, represented 73.6%and 71.4% of the Company’s total sales in the first quarter of fiscal year 2003 and 2002, respectively. The Company supplies parachute systems to Cirrus from the Company’s general aviation product line.

In its recreational aviation product line, the Company primarily distributes its products through dealers and distributors who in turn sell the products to the end consumer. The Company believes that in the event that any individual dealers or distributors cease to represent the Company’s products, that alterative dealers or distributors can be established.

F. Customer Deposits

The Company requires order deposits from most of its domestic and international customers. These deposits represent either partial or complete down payments for orders. These down payments are recorded as customer deposits. The deposits are recognized as revenue when the product is shipped.

G. New Product Development, Research and Development Funding and Income Recognition

Upon satisfaction of contingencies on November 2, 2000, an agreement between the Company and Charles F. Parsons (d.b.a. Millennium Aerospace) dated October 26, 2000 became effective. The purpose of the agreement was to provide specific funding for a parachute recovery system for the Cessna 172 model aircraft to be developed and certified by the Company. The Agreement called for an investment by Parsons of $200,000. The investment took the form of an equity infusion valued at $110,000 for 200,000 restricted shares of the Company’s Common Stock and $90,000 for research and development. On July 11, 2002, the Federal Aviation Administration (FAA) notified the Company that it had granted the supplemental type certificate to the Company for the BRS-172, which allows the product to be installed on certified Cessna 172 series aircraft. Since certified, the Company has begun production of the product and Parsons is marketing and developing plans for distribution of the product.

For the past several years, the Company’s primary general aviation products have been for the Cirrus Design SR20 and SR22 Aircraft (SR20 and SR22). The SR20 aircraft received Federal Aviation Administration (FAA) certification in October 1998 and includes the Company’s parachute system as a standard equipment feature. The development of the system for the SR20 was a joint effort between the Company and Cirrus Design under an agreement that began in 1994 and culminated with FAA certification of the SR20 in late 1998. Under terms of the agreement, the Company has retained the developed technology for the parachute systems in general and the outside company has retained the developed technology that is specific to their individual aircraft. The Company shared in the costs to develop and certify the parachute system for this aircraft. The SR22 received FAA certification in November 2000 and has the Company’s product installed as standard equipment as well. The SR22 is heavier and faster than the predecessor SR20. The Company also shared in the costs to develop the parachute system for the SR22.

Cirrus Design announced in April 2001 that it would introduce a diesel version of its aircraft called the SR21TDi (SR21). The SR21 will be first introduced in the European market and is expected to be on the market sometime in the next several years. This model, which is similar to the SR20 and SR22 aircraft, is expected to utilize the Company’s parachute system as standard equipment as well.

On November 2, 2001, the Company entered into a contact with NASA through its Small Business Innovation Research (SBIR) program. The contract, which is a Phase I feasibility study, covers a six month period and is a firm-fixed grant for $68,571. The Phase I award is entitled “Advanced Aircraft Parachute Recovery System” and was granted to allow the Company to investigate the feasibility of developing parachute systems for larger and faster aircraft than those currently supported by the Company. The Company completed the Phase I contract in May 2002 and applied for a Phase II grant. Effective September 16, 2002, the Company began work under a Phase II grant to continue the research that was begun during Phase I. The contract award was for $598,694 and covers a 24-month period.

H. Purchase and Supply Agreement

On September 17, 1999, the Company entered into a Purchase and Supply Agreement with Cirrus Design Corporation (Cirrus), the manufacturer of the SR20 and SR22 aircraft that utilize the Company’s parachute system as standard equipment. Under the Agreement, Cirrus has been issued four warrants to acquire an aggregate of up to 1.4 million shares of restricted Company stock. In order to execute the warrants, Cirrus must meet certain purchase levels of the Company’s emergency parachute systems for the SR20, SR22 and derivative aircraft over the subsequent five years. The purchase levels that must be achieved along with the corresponding number of shares under each warrant and warrant strike price are as follows:

Warr #	Exercise Period	Warrant Shares	Exercise Price per Warrant Share		Purchase Commitment
1	01-2002 to 02-2003	250,000	$	1.00	250 units in calendar 2002
2	01-2003 to 02-2004	250,000	$	1.00	400 units in calendar 2003
3	01-2003 to 02-2004	250,000	$	1.25	400 units in calendar 2003
4	01-2004 to 02-2005	650,000	$	1.25	500 units in calendar 2004

If the minimum purchase levels are met, then Cirrus has the right to exercise the warrant during the exercise period for the stated exercise price. In the event that Cirrus does not meet the minimum purchase levels, Cirrus will forfeit the right to exercise the corresponding warrant.

Cirrus has met their minimum purchase commitment for the first warrant period and has a right to exercise up to 250,000 shares at an exercise price of $1.00 per share. This warrant will expire in February 2003 if it is not exercised.

If Cirrus fulfills their purchase commitments and exercises their warrants, the impact on equity may be as follows (Assumes equity contributions based on the exercise of all warrants near the end of the exercise period):

Fiscal Year	Equity Contribution
2003	$	250,000
2004	562,500
2005	812,500
Total	$	1,625,000

I. Covenant Not to Compete

On October 26, 1995 the Company entered into an agreement with the president and majority shareholder of Second Chantz Aerial Survival Equipment, Inc. (SCI), whereby SCI ceased all business activities, and SCI’s president and majority shareholder entered into a ten-year covenant not to compete with the Company. The payments required under this agreement contained a non-interest-bearing portion and a portion that bears interest at a rate below the Company’s incremental borrowing rate. Under generally accepted accounting principles the future payments were discounted at the Company’s incremental borrowing rate.

The 4% ten year note calls for monthly payments of $4,036 through October 2005. Payments under this agreement are unsecured.

The present value of the Company’s obligation under this agreement was recorded as an intangible asset and is being amortized over ten years as shown in the accompanying financial statements.

Future payments under this agreement are as follows:

	Future Dollars		Present Dollars
2003	32,292		23,506
2004	48,436		40,561
2005	48,436		45,255
2006	4,036		4,002
	$	133,200	$	113,324

The Company also granted SCI’s president an option to purchase 50,000 shares of the Company’s common stock at an exercise price of $.25. This option expires October 2005.

J. Line-of-Credit Borrowings

The Company has operated under a $250,000 line-of-credit for use in operations. The current line-of-credit expired December 31, 2002. The Company is renegotiating the line and expects to renew the line during the second fiscal quarter of 2003. At December 31, 2002 and 2001 there were no outstanding balances under the line of credit. The Company expects to renew the line each year following the review of its financial results and projections with the bank. The line-of-credit was established on an annual renewal basis and is secured by all of the Company’s assets.

K. Income Taxes

Differences between accounting rules and tax laws cause differences between the bases of certain assets and liabilities for financial reporting purposes and tax purposes. The tax effects of these differences, to the extent they are temporary, are recorded as deferred tax assets and liabilities under SFAS 109.

In fiscal year 2002 the Company eliminated the remaining valuation allowance relating to the deferred tax assets to reflect current and projected utilization. The recognized deferred tax asset is based upon expected utilization of the net operating loss carryforwards and reversal of certain timing differences.

The Company has assessed its past earnings history and trends, sales backlog, budgeted sales, and expiration dates of carryforwards and has determined that it is more likely than not that $419,000 of deferred tax assets will be utilized. There are no further valuation allowances.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations:

Sales

Sales for the first quarter of 2003 were up 93.5% to $1,519,229 compared to $785,244 for the prior fiscal year quarter. Although the mix of products continues to be more concentrated in the general aviation market, 74% in general aviation vs. 26% in sport aviation, the Company’s sport aviation business grew significantly from the prior fiscal year comparative quarter.

In the current fiscal year quarter, revenues derived from the Company’s general aviation products accounted for approximately 74% of revenues compared to 71% in the prior fiscal year. The Company’s primary customer, Cirrus Design Corporation (Cirrus), is expected to maintain manufacturing volumes for its aircraft throughout the fiscal year for both its SR20 and SR22 models. As a result, the Company is projecting further growth in 2003 as compared to 2002 in its general aviation revenues. However, volume projections and timing of those volumes are uncertain at this time. Overall, sales to Cirrus accounted for 74% of the Company’s revenues for the quarter ended December 31, 2002.

The Company’s sport aviation business, which largely consists of products for ultralight aircraft, increased 79% in the current fiscal year compared to the prior fiscal year. Notwithstanding this growth, the sport aviation business continues to be impacted by several factors. The events of September 11 and general economic conditions dramatically affected the United States sport aviation business. The sport aviation industry is showing some signs of recovery, but the final implications on the industry are still unknown. Also within the United States, there are new regulations being proposed that will affect future sport aviation aircraft designs and sales. The new regulations are expected to increase sales of a new category of aircraft called Light Sport Aircraft, which management believes will in turn increase demand for the Company’s sport aviation products. In addition, the international markets for the Company’s products have been affected by a number of factors. These factors include weakening global economic conditions and fluctuating currencies that affect the cost of the Company’s exports, increased competition in Europe, and increasing government regulations that make it more challenging to transport the Company’s product abroad. The Company has expanded its efforts to improve international business for its sport aviation products, but there can be no assurances that these efforts will produce increased sales for the Company.

Gross Margin

For the first quarter of fiscal year 2003, gross margin as a percentage of revenues was 37.4% compared to 35.5% for the same prior year quarter. Despite increases in raw materials and labor costs, the improved gross margin is the result of leveraging the Company’s operations personnel and manufacturing overhead over a larger revenue base. The Company’s gross margin percentage has varied each year, and each quarter, in both a positive and negative fashion due to a variety of factors including customer and specific product mix, inventory provisions, and volume related efficiencies. Such variations will probably continue to impact gross margin percentages in future reporting periods.

Selling, General and Administrative

Selling, general and administrative costs as a percentage of revenues have decreased to 18.3% for the quarter ended December 31, 2002 as compared to 19.7% for the prior fiscal year quarter. In actual dollars, these cost have gone up as a result of increases in support function expenses, advertising, personnel acquisitions and pay rate adjustments. Expenditures in this category are expected to increase as the Company accelerates its efforts to expand the general aviation market while strengthening the sport and recreational market sales.

Research and Development

Research and development expenses as a percentage of revenues were 8.3% for the fist fiscal year quarter,

compared to 5.4% for the prior fiscal year quarter. Research and development is an integral part of the growth strategy for the Company, and management believes that it will continue to play an important role in the Company’s success. Therefore, increases in research and development expenditures over previous year levels are planned for the future in the areas of new product development and in the exploitation of currently developed products for additional applications. In addition, further offsets to expenses will be made during fiscal year 2003 as a result of funding received under the Company’s SBIR funding. The Company will continue to look for sources for further outside funding of research and development, but there can be no assurances that the Company will be successful in those efforts.

Net Income and Earnings per Share

Pre-tax net income for the current fiscal quarter was up 156% over the prior fiscal year quarter and was also up as a percentage of revenues. A net income tax expense was recorded for the current fiscal year quarter as the Company’s net income before taxes, adjusted for all remaining NOL benefits, has resulted in taxable income for both Federal and State tax purposes. No income tax expense was recorded in the prior fiscal year quarter as a result of the utilization of NOL benefits. Net income after taxes generated earnings per share of $0.01, on both a basic and diluted basis, which is consistent with that of the prior fiscal year.

Liquidity and Capital Resources:

Management intends to fund its operations out of its current revenues with the exception of its contract research and development projects. As of December 31, 2002, the Company had cash and cash equivalents of $838,709. Based upon the Company’s current projections, the Company believes that it has sufficient cash from reserves and cash flow to finance operations through the next twelve-month period. The Company is also renegotiating its line-of-credit for use in operations as required. Most recently the Company had a line of credit reserve of $250,000, although the Company did not draw on that line during the prior annual period. There is no balance currently outstanding under the line-of-credit. Management believes that the current business operation, along with a renegotiated line-of-credit of the same amount, is adequate to support the ongoing operations of the Company during the next twelve-month period and will maintain and adjust expenses as necessary to improve profitability. The Company will continue to look for non-equity sources to fund contract research and development projects, but there can be no assurances that the Company will be successful in its efforts.

The Company anticipates being able to expand its product line to include other certified and non-certified aircraft as the recovery system gains further market acceptance. The Company is in ongoing discussions with domestic and foreign companies that have expressed interest in utilizing certain of the Company’s products. These companies produce both certified and non-certified aircraft. No assurance can be made as to the future benefits that will be derived from these discussions.

The Company’s general aviation product is standard equipment on the Cirrus Design SR20 and SR22 model aircraft. The Company delivered 154 units in the first quarter of fiscal year 20032 as compared to 70 units for the prior fiscal year quarter. As of the beginning of February 2003, Cirrus Design has firm orders for 268 SR20 and SR22 models, which will include the Company’s parachute systems. Cirrus Design has delivered 698 aircraft to date as of the same time period. Cirrus Design expects to be able to fill the backlog of firm orders during the next 12 to 24 months. The backlog of orders is a reduction from the same prior year period as a result of Cirrus Design’s efforts to reduce lead times and increase production volumes to better serve its customers. Future production volumes for the Cirrus Design aircraft, and therefore, the Company’s parachute systems, will be dictated by ultimate market demands for Cirrus Design’s products. Accordingly, the Company is, and will likely be, dependent on Cirrus Design for a material portion of its revenues for fiscal year 2003. Any negative impact on Cirrus Design’s sales would negatively impact the Company’s projected revenues.

In November 2000, the Company entered into an agreement with Charles F. Parsons, which provided $200,000 of the funding necessary to develop and certify a parachute recovery system for the Cessna 172 aircraft. The agreement provided funding that was utilized to offset a portion of the expenditures necessary

for that project. On July 11, 2002, the FAA notified the Company that it had granted the supplemental type certificate to the Company for the BRS-172. The first customer installation was completed in September 2002 and a second was completed in October 2002. The Company is in the process of a full transition of the BRS-172 system into production and training installation facilities to perform customer installations. Although any licensed Airframe and Power plant Mechanic can install the system, the Company is recommending the use of a trained installation facility to reduce costs to the customer. The BRS-172 is being marketed and distributed under an exclusive marketing arrangement with Aerospace Marketing in conjunction with factory support. Although certified, there can be no assurances that the system will sell in volumes that will have a material impact on the Company.

At the beginning of November 2001, the Company entered into a contract with NASA through it’s Small Business Innovation Research (SBIR) grant program. The Phase I grant was a six-month feasibility study to explore the possibility of the Company’s ability to develop recovery systems for use of faster and larger aircraft, such as the new generation of light jets that are currently being developed by a number of different companies. The contract was a firm-fixed contract for $68,571. In May 2002, the Company completed its work under the Phase I grant and submitted its reports and a proposal for a Phase II grant. The Company received the Phase II contract, which was effective September 16, 2002. The Phase II grant is for a firm-fixed grant of $598,694 over a two-year period. The Phase II grant will allow the Company to continue its research and development that it began during the Phase I award. No assurances can be made that if the Phase II is successful, that it will result in future products and revenues for the Company.

The Company anticipates a need to make capital improvements to its current production facility as well as expenditures to increase inventory levels during the fiscal year and beyond as a result of the production of general aviation recovery systems and further market penetration. It is currently the intention of the Company to fund the expenditures through current operations as well as revenues generated by those units.

The Private Securities Litigation Reform Act of 1995 provides “safe harbor” for forward-looking statements. Certain information included in this Form 10-KSB and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contain statements that are forward-looking, such as statements relating to plans for research projects, anticipated Cirrus delivery orders and schedules, development, anticipated delivery orders and schedules for the Cessna 172 system and the Cessna 150/152 system, success of contracts for NASA SBIR research projects, other business development activities as well as other capital spending, financial sources, and the effects of competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, dependence on Cirrus Design, the elimination of funding for new research and development projects, the decline in registered and unregistered aircraft sales, potential product liability claims, dependence on discretionary consumer spending, dependence on existing management, general economic conditions, changes in federal or state laws or regulations.

Item 3. Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer/principal financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures within 90 days of the filing date of this quarterly report, and, based on their evaluation, our principal executive officer/ principal financial officer have concluded that these controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation,

controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not currently involved in any legal proceedings.

Item 2. Dividends

No dividends were declared during the three months ended December 31, 2002.

Item 3. Regulatory Changes

The Company operates under the jurisdiction of the Bureau of Alcohol, Tobacco and Firearms (BATF) as its parachute extraction devices utilize a solid fuel propellant, which is a regulated product. In December 2002 the BATF informed the Company that Congress passed the Safe Explosives Act, which will be administered by the BATF. The new Act will require additional licensing for all entities and individuals that purchase, sell or store any regulated explosive material, which will become effective at the end of May 2003. The Company is currently licensed and meets the requirements for the new Act. However, the Company will be seeking a variance for its customers from the requirements of the Act. The Company has variances from current regulations for its customers, and will seek similar variances from the current Act.

However, if a variance cannot be secured, then the Company’s customers will be required to secure Federally issued licenses prior to being able to receive the Company’s products. No estimate can be made as to the financial impact that such a requirement would have on the Company.

Item 6. Exhibits and Reports on Form 8-K

There are no exhibits and the Company did not file any reports on Form 8-K for the three months ended December 31, 2002.

CEO/CFO Certification of Financial Statements

Pursuant to 18 U.S.C. Statute 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies in his capacity as an officer of Ballistic Recovery Systems, Inc. (the “Company”) that (a) the Quarterly Report of the Company on Form 10-QSB for the period ended December 31, 2002 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and (b) the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.

By		/s/ Mark B. Thomas
		Mark B. Thomas Chief Executive Officer and Chief Financial Officer

Dated February 6, 2003

CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT

I, Mark B. Thomas, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Ballistic Recovery Systems, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 6, 2003	/s/ Mark B. Thomas
	By Mark B. Thomas Chief Executive Office and Chief Financial Officer

Ballistic Recovery Systems (BRSI) Inactive 10QSB2003 Q1 Quarterly report (small business)