Ballistic Recovery Systems 10QSB/A 2004 Q3 Quarterly report (small business) (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB/A

Amendment No. 1

(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 June 30, 2004

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		(IRS Employer ID Number)
Incorporation or Organization)

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 August 5, 2005: 7,634,284

EXPLANATORY NOTE

This Amendment No. 1 to the Company’s Form 10-QSB/A for the three months ended June 30, 2004, which amends the Company’s Form 10-QSB originally filed on August 13, 2004, is being filed in response to comments received from the Securities and Exchange Commission in connection with its review of the Company’s filing with the Securities and Exchange Commission.

The Company has restated its valuation of certain warrants issued to Cirrus Design Corporation that became exercisable during the quarter ended June 30, 2004. The restatement was to decrease sales, gross profit, income from operations and income before income taxes by $123,277, decrease the income tax expense by $48,900 and decrease net income by $74,377 for the three months ended June 30, 2004. The restatement was to decrease sales, gross profit, income from operations and income before income taxes by $369,831, decrease the income tax expense by $146,700 and decrease net income by $223,131 for the nine months ended June 30, 2004. The restatement increased total assets, deferred tax asset - current and shareholders’ equity by $146,700 as of June 30, 2004. In addition, the basic earnings per common share and diluted earnings per common share decreased by $.01 and $.01 for the three months ended June 30, 2004, respectively. The basic earnings per common share and diluted earnings per common share decreased by $.03 and $.03 for the nine months ended June 30, 2004, respectively.

The above referenced amendments are accurately reflected in Items 1, 2 and 3 herein. Except for such changes, this Amendment No. 1 does not update any other disclosures contained in the original form 10-QSB filed on August 13, 2004 to reflect developments since the original date of such original filing.

INDEX

BALLISTIC RECOVERY SYSTEMS, INC.

Part I Financial Information – Item 1. Financial Statements

BALLISTIC RECOVERY SYSTEMS, INC.
BALANCE SHEETS

	June 30,			September 30,
	2004			2003
	(Unaudited)			(Audited)
	(Restated)
ASSETS
Current assets:
Cash and cash equivalents	$	1,014,524		$	862,495
Accounts receivable - net of allowance for doubtful accounts of $10,000 and $10,000 respectively	427,661			326,321
Inventories, net	1,090,472			1,118,190
Deferred tax asset – current portion	252,700			114,000
Prepaid expenses	53,483			60,695
Total current assets	2,838,840			2,481,701

Fixed assets	567,619			467,578
Less accumulated depreciation	(266,004		)	(207,038		)
Fixed assets – net	301,615			260,540

Other assets:
Patents less accumulated amortization of $9,881 and $9,367, respectively	1,783			2,297
Long-term prepaid asset	59,333			77,972
Covenant not to compete less accumulated amortization of $328,846 and $300,388, respectively	50,592			79,050
Total other assets	111,708			159,319

Total assets	$	3,252,163		$	2,901,560

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	144,153		$	122,714
Customer deposits	100,041			116,827
Accrued payroll	119,536			103,229
Other accrued liabilities	270,912			198,415
Current portion of covenant not to compete	44,033			40,561
Current liabilities	678,675			581,746

Covenant not to compete, less current portion	15,782			49,254

Shareholders’ equity:
Common stock ($.01 par value; 10,000,000 shares authorized; 6,794,284 and 6,245,928 shares, respectively, issued and outstanding)	67,943			62,459
Additional paid-in capital	3,826,132			2,784,635
Accumulated deficit	(1,336,369		)	(576,534		)
Total shareholders’ equity	2,557,706			2,270,560

Total liabilities and shareholders’ equity	$	3,252,163		$	2,901,560

See notes to financial statements.

BALLISTIC RECOVERY SYSTEMS, INC.

STATEMENTS OF OPERATIONS

For the Three Months and Nine Months ended June 30, 2004 and 2003

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
	(Restated)						(Restated)

Sales	$	1,755,944		$	1,836,535		$	4,482,833		$	5,119,676
Cost of sales	1,166,340			1,164,693			3,048,170			3,210,575

Gross profit	589,604			671,842			1,434,663			1,909,101

Selling, general and administrative	412,197			297,551			1,131,745			830,900
Research and development	81,523			97,635			175,401			318,893
Intangible amortization	9,486			9,487			28,458			33,598

Income from operations	86,398			267,169			99,059			725,710

Other income (expense):
Interest expense	(1,834		)	(3,300		)	(6,327		)	(9,900		)
Other income	969			5,737			1,886			3,999

Pre-tax net income	85,533			269,606			94,618			719,809

Income tax expense	28,702			109,190			34,435			300,970

Net income	$	56,831		$	160,416		$	60,183		$	418,839

Basic earnings per share	$	0.01		$	0.03		$	0.01		$	0.07

Weighted average number of shares
Outstanding – Basic	6,789,888			6,209,736			6,486,273			6,209,736

Diluted earnings per share	$	0.01		$	0.03		$	0.01		$	0.07

Weighted average number of shares
Outstanding – Diluted	7,324,850			6,339,493			6,791,828			6,334,886

Dividends per share	$	0.00		$	0.00		$	0.1255		$	0.05

See notes to financial statements.

BALLISTIC RECOVERY SYSTEMS, INC.

STATEMENT OF CASH FLOW

For the Nine Months Ended June 30, 2004 and 2003

(UNAUDITED)

	June 30,			June 30,
	2004			2003
	(Restated)
Cash flows from operating activity:
Net income	$	60,183		$	418,839
Adjustments to reconcile net income to net cash from operating activity:
Deferred income tax	(138,700		)	264,000
Depreciation and amortization	59,480			55,091
Amortization of covenant not to compete	28,458			28,458
Expense from stock based transaction	474,481			—
Inventory valuation reserve	—			18,000
(Increase) decrease in:
Accounts receivable	(101,340		)	(208,079		)
Inventories	27,718			(88,334		)
Prepaid expenses	25,851			10,100
Increase (decrease) in:
Accounts payable	21,439			119,745
Customer deposits	(16,786		)	(132,776		)
Accrued expenses	88,804			(222,194		)

Net cash from operating activities	529,588			262,850

Cash flows from investing activities:
Capital expenditures	(100,041		)	(82,081		)

Net cash from investing activities	(100,041		)	(82,081		)

Cash flows from financing activities:
Proceeds from exercise of common stock warrants	562,500			—
Proceeds from exercise of common stock options	10,000			—
Principal payments on covenant not to compete	(30,000		)	(26,428		)
Dividends paid	(820,018		)	(308,916		)

Net cash from financing activities	(277,518		)	(335,344		)

Increase (decrease) in cash and cash equivalents	152,029			(154,575		)
Cash and cash equivalents - beginning of year	862,495			997,629

Cash and cash equivalents - end of period	$	1,014,524		$	843,054

Cash paid for taxes	$	68,470		$	104,916
Cash paid for interest	$	6,327		$	9,900

See notes to financial statements.

BALLISTIC RECOVERY SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS

June 30, 2004 and 2003

(UNAUDITED)

A. Summary of Significant Accounting Policies:

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

Operating results for the three and nine months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2004. These financial statements should be read in conjunction with the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended September 30, 2003, previously filed with the Securities and Exchange Commission.

In the opinion of management, such statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. Preparation of the Company’s financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from those estimates. The financial statements are presented on the accrual basis.

Cash Concentrations

Bank balances exceeded federally insured levels during fiscal year 2004 and 2003, and exceeded federally insured levels as of June 30, 2004.

Accounts Receivable, credit risk and allowance for doubtful accounts

The Company sells its products to domestic and foreign companies. The Company reviews customers’ credit history before extending unsecured credit and established an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers and other information. The Company does not accrue interest on past due accounts receivable. Unless specific arrangements have been made, accounts receivable over 30 days are considered past due. The Company writes off accounts receivable when they are deemed uncollectible. Accounts receivable are shown net of an allowance for doubtful accounts of $10,000 at both June 30, 2004 and September 30, 2003. In addition to self-funded research and development projects, the Company conducts research and development that is funded by outside sources. The Company’s research and development projects that funded by outside sources are billed to its customers on an uncollateralized credit basis. 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, which cannot be estimated.

Revenue Recognition

In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), “Revenue Recognition in Financial Statements” (later revised as SAB No. 104) which the Company has adopted. The Company recognizes revenue from the sale of its products when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable and collection of the resulting accounts receivable is reasonably assured.

Customer Concentration

The Company had sales to one major customer, Cirrus Design Corporation (Cirrus), which represented 71.6% and 66.3% of the Company’s total sales for the third quarter ended June 30, 2004 and 2003, respectively, and 73.7% and 72.8% for the nine months ended June 30, 2004 and 2003, respectively. This

customer also accounted for 81% or $346,353 and 44% or $142,000 of accounts receivable at June 30, 2004 and September 30, 2003, 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 recreational aviation products, alternative dealers or distributors can be established.

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.

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 Statement of Financial Accounting Standards (SFAS) 109. Temporary differences relate primarily to: allowances for doubtful accounts; inventory valuation allowances; valuation of warrants issued to a customer; and accrued expenses not currently deductible.

Segment Reporting

A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. The Company’s segments have similar economic characteristics and are similar in the nature of the products sold, type of customers, methods used to distribute the Company’s products and regulatory environment. Management believes that the Company meets the criteria for aggregating its operating segments into a single reporting segment.

Stock-Based Compensation

In accordance with Accounting Principles Board (APB) Opinion No. 25 and related interpretations, the Company uses the intrinsic value-based method for measuring stock-based compensation cost, which measures compensation cost as the excess, if any, of quoted market price of the Company’s common stock at the grant date over the amount the employee must pay for the stock. The Company’s general policy is to grant stock options at fair value at the date of grant. Options and warrants issued to employees and non-employees are recorded at fair value, as required by Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation”, using the Black Scholes pricing method. The Company has adopted the disclosure only provision of SFAS No. 148.

Had compensation cost been recognized based on the fair values of options at the grant dates, consistent with the provisions of SFAS No. 123, the Company’s net income and basic and diluted net income per common share would have been changed to the following pro forma amounts:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2004		2003		2004		2003
	Restated				Restated
Net income:
As reported	$	56,831	$	160,416	$	60,183	$	418,839
Pro forma	56,831		160,416		60,183		41,257

Basic net income per common share:
As reported	$	0.01	$	0.03	$	0.01	$	0.07
Pro forma	$	0.01	$	0.03	$	0.01	$	0.01

Diluted net income per common share:
As reported	$	0.01	$	0.03	$	0.01	$	0.07
Pro forma	$	0.01	$	0.03	$	0.01	$	0.01

Stock based compensation:
As reported	$	0	$	0	$	0	$	0
Pro forma	$	0	$	0	$	0	$	377,582

No options were granted or vested during fiscal year 2004. The fair value of other shares outstanding has been fully recognized under SFAS No. 123. SFAS No. 123 was not applicable for the three and nine months ended June 30, 2004 or the three months ended June 30, 2003. In determining the compensation cost of options vesting during fiscal year 2003, as specified by SFAS No. 123, the fair value of each option grant has been estimated on the date of vesting using the Black-Scholes option pricing model and the weighted average assumptions used in these calculations are summarized as follows:

	Three Months Ended June 30,		Nine Months Ended June 30,
	2004	2003	2004	2003
	Restated		Restated
Risk-free interest rate	—	—	—	2.63	%
Expected life of options granted	—	—	—	5 years
Expected volatility	—	—	—	129.13	%
Expected Dividend Yield	—	—	—	0.00	%

Net Earnings per Common Share

Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding plus all additional common stock that would have been outstanding if potentially dilutive common stock related to stock options and warrants had been issued. Weighted average shares outstanding-diluted includes 534,962 and 129,757 shares of dilutive securities for the three months ended June 30, 2004 and 2003, respectively. Weighted average shares outstanding-diluted includes 305,555 and 125,150 shares of dilutive securities for the nine months ended June 30, 2004 and 2003.

Following is a reconciliation of basic and diluted earnings per common share for the three and nine months ended June 30, 2004 and 2003, respectively:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2004		2003		2004		2003
	Restated				Restated

Net income	$	56,831	$	160,416	$	60,183	$	418,839

Weighted average shares outstanding	6,789,888		6,209,736		6,486,273		6,209,736

Net income per common share — basic	$	0.01	$	0.03	$	0.01	$	0.07

Net income per common share — diluted:

Net income	$	56,831	$	160,416	$	60,183	$	418,839

Weighted average shares outstanding	6,789,888		6,209,736		6,486,273		6,209,736

Common stock equivalents	534,962		129,757		305,555		125,150

Weighted average shares and potential diluted shares outstanding	7,324,850		6,339,493		6,791,828		6,334,886

Net income per common share — Diluted	$	0.01	$	0.03	$	0.01	$	0.07

The Company uses the treasury method for calculating the dilutive effect of the stock options and warrants, using the average market price.

Options to purchase 161,667 shares of common stock with a weighted average exercise price of $1.29 were outstanding at June 30, 2003, but were excluded from the computation of common share equivalents for the three and nine months ended June 30, 2003, because their exercise prices were greater than the average market price of the common shares. No options were excluded from the computation for the three and nine months ended June 30, 2004.

Restatement

The following table reconciles the previously reported amounts to the restated amounts as of and for the three months ended June 30, 2004. The Company has restated its valuation of the warrants issued to Cirrus Design Corporation that became exercisable during the quarter ended June 30, 2004. The restatement was to decrease sales, gross profit, income from operations and income before income taxes by $369,831, decrease the income tax expense by $146,700 and decrease net income by $223,131 for the nine months ended June 30, 2004. The restatement increased total assets, deferred tax asset - current and shareholders’ equity by $146,700 as of June 30, 2004. In addition, the basic earnings per common share and diluted earnings per common share decreased by $.03 and $.03 for the nine months ended June 30, 2004, respectively.

The following table reconciles the previously reported balance sheet at June 30, 2004 to the restated amounts:

	Deferred tax asset - current portion		Total current assets		Total assets		Additional paid-in capital		Accumulated deficit			Total shareholders’ equity
Previously reported amounts	$	106,000	$	2,692,140	$	3,105,463	$	3,456,301	$	(1.113,238	)	$	2,411,006
Income tax impact of adjustment	146,700		146,700		146,700		—		146,700			146,700
Increase valuation of warrants which became exercisable during the nine months ended June 30, 2004	—		—		—		369,831		(369,831		)	—
Restated amounts	$	252,700	$	2,838,840	$	3,252,163	$	3,826,132	$	(1,336,369	)	$	2,557,706

The following table reconciles the previously reported statement of operations to the restated amounts for the three months ended June 30, 2004.

	Sales			Gross profit			Income from operations			Income before income taxes			Income tax expenses			Net income
Previously reported amounts	$	1,879,221		$	712,881		$	209,675		$	208,810		$	77,602		$	131,208
Income tax impact of adjustment	—			—			—			—			(48,900		)	48,900
Increase valuation of warrants which became exercisable during the quarter ended June 30, 2004	(123,277		)	(123,277		)	(123,277		)	(123,277		)	—			(123,277		)
Restated Amounts	$	1,755,944		$	589,604		$	86,398		$	85,533		$	28,702		$	56,831

The following table reconciles the previously reported statement of operations to the restated amounts for the nine months ended June 30, 2004.

	Sales			Gross profit			Income from operations			Income before income taxes			Income tax expenses			Net income
Previously reported amounts	$	4,852,664		$	1,804,494		$	468,890		$	464,449		$	181,135		$	283,314
Income tax impact of adjustment	—			—			—			—			(146,700		)	146,700
Increase valuation of warrants which became exercisable during the quarter ended June 30, 2004	(369,831		)	(369,831		)	(369,831		)	(369,831		)	—			(369,831		)
Restated Amounts	$	4,482,833		$	1,434,663		$	99,059		$	94,618		$	34,435		$	60,183

The following tables reconcile the previously reported earnings per common share amounts to the restated amounts for:

	Three months ended June 30, 2004
	Basic			Diluted
Basic and diluted earnings per common share:
Previously reported amounts	$	.02		$	0.02
Restated amounts	(.01		)	(0.01		)
Restated earnings per common share	$	.01		$	.01

	Nine months ended June 30, 2004
	Basic			Diluted
Basic and diluted earnings per common share:
Previously reported amounts	$	.04		$	0.04
Restated amounts	(.03		)	(0.03		)
Restated earnings per common share	$	.01		$	.01

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

The Company began delivering products to Cirrus Design Corporation (Cirrus) in 1999 following the certification of the Cirrus SR20 aircraft. 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 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 Cirrus 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.

On November 2, 2000, the Company entered into an agreement with Charles F. Parsons 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 investment 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 Company received the supplemental type certificate (STC) from the FAA, which allows the product to be installed on certified Cessna 172 series aircraft. Since certified, 12 systems have been installed in aircraft.

The Company has developed a parachute recovery system for the Cessna 182 model of aircraft, which is called the BRS-182. The system utilizes many of the same components used in the recovery systems for the Cirrus aircraft models and the Cessna 172. The Company received the STC from the FAA on June 25, 2004. This STC allows the product to be installed on certified Cessna 182 series aircraft. The Company has begun a direct marketing campaign and has received deposits on 4 BRS-182 systems. The first customer installation is expected to be completed in July 2004. No assurances can be made as to the success of sales efforts or if the product will sell in sufficient volumes to impact the Company’s financial performance.

On September 16, 2002, the Company entered into a contract with NASA through its Small Business Innovation Research (SBIR) program. The contract, which is a follow on to a Phase I feasibility study, 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 Phase II contract award was for $598,694 and covers a 24-month period. During the current quarter of fiscal year 2004, the Company recorded an offset to research and development expenditures in the amount of $112,742, compared to $66,740 in the prior fiscal year quarter. On a year to date basis the offset recorded was $305,219, compared to $114,740 in the prior fiscal year. A receivable in the amount of $74,031 and $189,410 was outstanding from NASA at June 30, 2004 and September 30, 2003, respectively. NASA and the U.S. Federal Government will have a royalty free right to any developed

technology, but only as a customer for product that incorporates the developed technology that is purchased from the Company.

C. Purchase and Supply Agreement

On September 17, 1999, the Company entered into a Purchase and Supply Agreement with Cirrus, the manufacturer of the SR20 and SR22 aircraft that utilize the Company’s parachute system as standard equipment. Under the Agreement, Cirrus was issued four warrants to acquire an aggregate of up to 1.4 million shares of unregistered Company common 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. Cirrus met their minimum purchase commitment for the first warrant period, but such warrant for 250,000 shares expired unexercised on February 28, 2003. Cirrus met their minimum purchase commitment for warrants number two and three, and exercised these warrants for 500,000 shares, on February 29, 2004, for an aggregate exercise price of $562,500. Cirrus has met their minimum purchase commitment for warrant number four. The corresponding number of shares under this remaining warrant and the warrant strike price, are as follows:

Warr #	Exercise Period	Warrant Shares	Exercise Price per Warrant Share		Purchase Commitment

4	01-2004 to 02-2005	650,000	$	1.25	500 Units in 2004

At June 30, 2004, Cirrus met the minimum purchase levels for warrant number four. Cirrus has the right to exercise the warrant during the exercise period for the stated exercise price. Cirrus has not indicated to the Company its intentions with regards to the exercise of this warrant.

Pursuant to Emerging Issues Task Force 96-18 (EITF 96-18), “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” the Company has and will record a reduction in sales related to the warrants earned by Cirrus for fiscal year 2004 and 2003. Sales have been reduced by $157,927 for the three months ended June 30, 2004 and by $474,481 for the nine months ended June 30, 2004. No adjustments to sales were reflected for the three months and nine months ended June 30, 2003. Based on EITF 96-18, the warrants are not considered earned until the products are sold.

Assuming Cirrus exercises all of warrant number four, the impact on equity may be as follows (assumes equity contributions based on the exercise of warrants near the end of the exercise period):

Fiscal Year	Equity Contribution
2004 or 2005	$	812,500

D. 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
2004	$	12,109	$	10,561
2005	48,436		45,255
2006	4,036		4,000
	$	64,581	$	59,816

E. Other Financial Information

Inventories

Inventories are recorded at the lower of cost (first-in, first-out) or market. The components of inventory as of June 30, 2004 and September 30, 2003, consist of the following:

	06/30/04		09/30/03

Raw materials	$	733,446	$	811,538
Work in process	293,213		93,701
Finished goods	63,813		212,951
Total inventories	$	1,090,472	$	1,118,190

Fixed Assets

Fixed Assets consist of the following categories as of June 30, 2004 and September 30, 2003:

	06/30/04		09/30/03

Office Furniture and Equipment	$	217,276	$	172,454
Manufacturing Equipment	256,470		201,251
Airplane	93,873		93,873
Total fixed Assets	$	567,619	$	467,578

Other Accrued Liabilities

Other accrued liabilities consisted of the following categories at June 30, 2004 and September 30, 2003:

	06/30/2004		09/30/2003
Bonus and Profit Sharing Plan Accrual	$	105,732	$	139,875
Income Tax Accrual	143,738		39,071
Other Miscellaneous Accruals	21,442		19,469
	$	270,912	$	198,415

Product Warranties

The Company offers its customers up to a one-year warranty on its products. The warranty covers only manufacturing defects, which will be replaced or repaired by the Company at no charge to the customer. To date, the Company has not had any material claims against its products. The Company has not recorded an accrual for possible warranty claims and believes that the product warranties as offered will not have a material effect on the Company’s financial position, results of operations or cash flows.

F. Line of Credit Borrowings

The Company has a $500,000 secured line-of-credit for use in operations. The line-of-credit was established on an annual renewal basis and is secured by all of the Company’s assets. The current line-of-credit was renewed on March 6, 2004 and expires March 6, 2005. The line calls for a variable interest rate of 4.6% at June 30, 2004. At June 30, 2004 and September 30, 2003 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.

G. Stock Warrants

In connection with the Purchase and Supply Agreement with Cirrus Design Corporation, 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 a five-year period (See Note C).

Cirrus met their minimum purchase commitment for the first warrant period, but such warrant for 250,000 shares expired unexercised on February 28, 2003. Cirrus met their minimum purchase commitment for warrants number two and three, and exercised these warrants for 500,000 shares for an aggregate exercise price of $562,500 on February 29, 2004. Cirrus has met the minimum purchase requirements for Warrant number four as of June 30, 2004. Cirrus has not indicated to the Company its intentions with regards to the exercise of this warrant.

H. Commitments and Contingencies

Legal Proceedings

In August 2003, the Company was served in two related actions, Kathleen F. Fischer, Individually and as personal representative of the Estate of Joseph C. Fischer v. Cirrus Design Corp., Ballistic Recovery Systems, Inc., and Wings Aloft, Inc., U.S. District Court for the Northern District of New York, File No. 03-CV-0782 (HGM/DEP), and Susan Sedgwick, Individually, on her own behalf as surviving spouse of Thomas P. Sedgwick, as Executrix of the Estate of Thomas P. Sedgwick, deceased, and on behalf of all interested beneficiaries, including Jamie Lynn Sedgwick and Jacqueline Ann Sedgwick v. Cirrus Design Corp., Ballistic Recovery Systems, Inc. and Wings Aloft, Inc., U.S. District Court for the Northern District of New York, File No. 03-CV-0592 (HGM/DEP).

These actions arise from the crash of a Cirrus Design Corp. SR22 airplane in April 2002 near Parish, New York. Plaintiffs have brought claims for strict products liability, negligence and breach of warranty against Cirrus, the airplane’s manufacturer, the Company, which manufactures the CAPS (Cirrus Airframe Parachute System), a parachute system which is a required component of the plane, and Wings Aloft, Inc., which provided training on the SR22 to the decedents.

In preliminary reports submitted to the court, the plaintiff in Fischer has estimated the damages to be sought at trial as sixty million dollars, and the plaintiff in Sedgwick has submitted an estimate of seven million five hundred thousand dollars.

The matters have been consolidated for purposes of discovery, which began in November 2003 and is scheduled to be completed by March 31, 2005, with the trials currently scheduled to commence later in 2005. At this time, the Company cannot state with any degree of certainty what the outcome of these

matters will be or the amount or range of potential loss, if any. The Company will vigorously defend these matters.

In April 2004, the Company notified Charles F. Parsons of its intent to terminate the sales and marketing contract between the Company and Mr. Parsons relating to the BRS-172 and BRS-150 products for lack of performance. Subsequent to the notification being sent to Mr. Parsons, both Mr. Parsons and the Company filed suit against each other. Mr. Parsons filed suit to block the termination of the contract and the Company filed suit to formalize the termination of the contract. At this time, the Company cannot state with any degree of certainty what the outcome of this matter will be or if there will be any financial impact on the Company. The Company intends to vigorously defend this matter.

Item 2. Management’s Discussion and Analysis or Plan of Operation

Restatement:

Operations:

Sales

Sales for the third quarter of fiscal year 2004 were $1,755,944, compared to $1,836,535 for the fiscal year 2003 third quarter. On a year to date basis, sales were $4,482,833, for the first nine months of fiscal year 2004, compared to $5,119,676 for the first nine months of the prior fiscal year. The reduction in sales can be attributed to three factors. First, the Company recorded a reduction in sales of $474,481 for the first nine months period of fiscal year 2004, which was attributed to an adjustment for stock based compensation relating to the Cirrus Design Corporation(Cirrus) stock purchase warrants. These warrants were granted as part of the purchase and supply agreement between the Company and Cirrus. No further reductions to sales are expected for stock based compensation relating to the Cirrus stock purchase warrants. Second, the Company granted pricing reductions to Cirrus in compliance with the terms of the purchase and supply agreement between the two companies. Finally, the additional decline in sales on a year-to-date basis is a result of reduced sales in the Company’s recreational aviation product line. The Company believes that this decline in overall revenues is temporary in nature.

In the current fiscal year quarter, revenues derived from the Company’s general aviation products, which consisted primarily of sales to Cirrus, accounted for approximately 74% of revenues compared to 72% in the prior fiscal year third quarter. The Company’s general aviation product is standard equipment on the Cirrus SRV, SR20 and SR22 model aircraft. The Company delivered 136 and 118 units to Cirrus for the current and prior year third quarters, respectively. The Company delivered 373 and 353 units to Cirrus in the first nine months of fiscal year 2004 and 2003, respectively. The Company believes that Cirrus has a backlog of aircraft orders, all of which are required to include the Company’s parachute systems. The Company understands that Cirrus expects to be able to fill the backlog of firm aircraft orders during the next 12 months. The Company also understands that Cirrus is expected to exceed fiscal year 2003 manufacturing volumes for its aircraft throughout fiscal year 2004. As a result, the Company is forecasting further growth in 2004 in its general aviation revenues. However, with respect to Cirrus, sales and manufacturing projections and timing is uncertain at this time. Accordingly, no assurance can be given that general aviation revenues will increase as anticipated. Future production volumes for the Cirrus aircraft, and therefore, the Company’s parachute systems, will be dictated by ultimate market demands for Cirrus’ products. Accordingly, the Company is, and will likely be, dependent on Cirrus for a material portion of its revenues for fiscal year 2004. Any negative impact on Cirrus’ sales would negatively impact the Company’s revenues.

The Company has developed a parachute recovery system for the Cessna 182 model of aircraft, which is called the BRS-182. The system utilizes many of the same components used in other Company products. The FAA supplemental type certificate was received on June 25, 2004. The first BRS-182 system is currently being installed in a customer aircraft and the Company currently has deposits for a total of four systems. The Company has begun a direct marketing campaign on a factory direct basis for the BRS-182.

No assurances can be made as the success of sales efforts or if the product will sell in sufficient volumes to impact the Company’s financial performance.

The Company also has in production the BRS-172 product for the Cessna 172 model aircraft. Since certified in July 2002, twelve systems have been sold. The Company is reanalyzing its strategies for marketing the BRS-172 in an effort to expand market penetration. Although certified, there can be no assurances that the BRS-172 product will sell in volumes that will have a material impact on the Company.

The Company’s recreational aircraft product line sales, which largely consist of products for ultralight aircraft, decreased during the third quarter of the current fiscal year 2004 compared to the prior fiscal year and accounted for 27% of the Company’s revenues for the third quarter of the current fiscal year 2004 versus 28% of the Company’s revenues for the prior fiscal year quarter of 2003. For the nine months ended June 30, 2004 recreational aircraft products accounted for 26% of Company’s revenues versus 27% of the Company’s revenues for the prior year nine month period ended June 30, 2003. The recreational aircraft products business continues to be impacted by several factors including general economic conditions, which have dramatically affected the United States recreational aircraft business, and delayed federal regulations that will change the rules under which recreational aircraft are operated. Although the recreational aircraft industry showed signs of recovery in 2003, the long-term implications of the economic downturn on the sport aviation industry are still unknown.

There are new federal proposed regulations that were enacted in July 2004, that management believes will positively affect the Company’s future recreational aircraft product sales. The new regulations are expected to increase sales of a new category of aircraft called Light Sport Aircraft or LSA, which management believes may in turn increase demand for the Company’s recreational aircraft products. No assurances can be given if these new regulations will have a positive impact on sales of the Company’s recreational aircraft products. The Company has implemented plans to expand market penetration for the domestic market for recreational aircraft products with the restructuring of its distribution network and pricing schedules. No assurances can be made that such plans as implemented will have a material impact on the Company’s recreational aircraft product sales.

The international markets for the Company’s recreational aircraft products have been affected by a number of factors. These factors include increased competition in Europe and increasing U.S. and foreign government regulations that make it more challenging to transport the Company’s products abroad. The Company has expanded its efforts to improve international business for its recreational aircraft products, but there can be no assurances that these efforts will produce increased sales for the Company.

The Company anticipates being able to expand its general aviation and recreational product lines to include other certified and non-certified aircraft as the Company’s recovery systems gain further market acceptance. The Company is in ongoing discussions with other domestic and foreign, general aviation and recreational aircraft 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, if any, that the Company will derive from these discussions.

Gross Profit

Gross profit as a percentage of revenues was 33.6% for the third quarter of fiscal year 2004 and 36.6% for the third quarter of the prior year 2003. On a year-to-date basis, the gross margin was 32.0% and 37.3% for fiscal year 2004 and 2003, respectively. The consistent gross profit is the result of leveraging the Company’s operations personnel and manufacturing overhead over the revenue base. The Company’s gross profit 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 may continue to impact gross profit percentages in future reporting periods.

Selling, General and Administrative

Selling, general and administrative costs as a percentage of sales were 23.5% for third quarter of fiscal year 2004 as compared to 16.2% for the third quarter of fiscal year 2003. On a year-to-date basis, these costs were 25.2% and 16.2% for fiscal year 2004 and 2003, respectively. These costs have increased as a result of increases in the corporate office staff, marketing outsourcing, increased compensation, business development expenses and legal fees. 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. Furthermore, the Company does not have product liability insurance and must fund the expenses of its current product liability litigation.

Research and Development, net

Third party funding has offset a portion of the Company’s research and development costs for the current and prior fiscal years. Third party offsets to the research and development costs were $112,742 and $66,740 for the third quarters of the fiscal year 2004 and 2003, respectively. Offsets of $305,218 and $114,740 were reflected in the financial statements for the nine months ended June 30, 2004 and 2003, respectively. These offsets reduced the costs reflected in the financial statements. Gross research and development costs for the third quarter were 11.1% and 9.0% of sales for the three months ended June 30, 2004 and 2003, respectively and 4.6% and 5.3% of sales on a net basis for the three months ended June 30, 2004 and 2003, respectively. On a year to date basis, these gross costs were 10.7% and 8.5% of sales for the nine months ended June 30, 2004 and 2003, respectively and were 3.9% and 6.2% of sales on a net basis for the nine months ended June 30, 2004 and 2003, respectively. Management believes that research and development is an integral part of the growth strategy for the Company, and will continue to play an important role in the Company’s success. Therefore, increases in research and development expenditures are planned for the future in the areas of new product development and in the expansion of currently developed products for additional applications.

On September 16, 2002, the Company entered into a contract with NASA through its Small Business Innovation Research (SBIR) program. The contract, which is a follow on to a Phase I feasibility study, 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 Phase II contract award was for $598,694 and covers a 24-month period. The Phase II grant will allow the Company to continue its research and development that it began during the Phase I award. Further offsets to expenses will be made during fiscal year 2004 as a result of funding to be received from this award. The Phase II contract is scheduled for completion by September 16, 2004. No assurances can be made that if the Phase II is successful, that it will result in future products and revenues for the Company.

Net Income and Earnings per Share

Pre-tax income as a percentage of revenues was 4.9% and 14.7% for the third quarters of fiscal year 2004 and 2003, respectively. On a fully diluted basis, after-tax net income of $56,831 for the third quarter of fiscal year 2004 was 3.2% of sales or $0.01 per share, as compared to net income of $160,416, which was 8.7% of sales or $0.03 per share for the prior fiscal year quarter. On a year-to-date basis, pre-tax income as a percentage of revenues was 2.1% and 14.1% for fiscal year 2004 and 2003, respectively. On a fully diluted basis, year to date after-tax net income of $60,183 for fiscal year 2004 was 1.3% of sales or $0.01 per share, as compared to net income of $418,839, which was 8.2% of sales or $0.07 per share for fiscal year 2003.

Liquidity and Capital Resources:

Management intends to continue to fund its operations out of its current sales with the exception of its contract research and development projects. 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 funds its non-contract research and development out of operations. In February 2004, Cirrus exercised warrants to acquire 500,000 shares of Common Stock at an average exercise price of $1.13 per share for an aggregate cash consideration of $562,500. As of June 30, 2004, the Company had a cash balance of $1,014,524. On April 5, 2004, the Company paid a dividend of $.0655 per share for an aggregate of $444,371. The Company has a secured line-of-credit for $500,000, which was increased in October 2003 from its previous level of $250,000. The Company has not drawn on that line during the current fiscal year as a result of positive cash flow from operations. There is no balance currently outstanding under the line-of-credit. Management believes that cash from current business operations, along with the line-of-credit, is adequate to support the ongoing operations of the Company during the next twelve-month period.

The Company anticipates a need to make continuing 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. Furthermore, the Company does not presently have product liability insurance and must fund the expenses of its pending lawsuits. The Company has incurred approximately $53,000 in legal fees for the first nine months of fiscal year 2004 attributable to the defense of its pending lawsuits.

The Private Securities Litigation Reform Act of 1995 provides “safe harbor” for forward-looking statements. Certain information included in this Form 10-QSB/A 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 anticipated Cirrus delivery orders and schedules, plans for research projects, development, anticipated delivery orders and schedules for the Cessna 182 system, the Cessna 172 system, success of contracts for NASA SBIR research projects, the timing and impact of regulations on Light Sport Aircraft sales, 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, potential product liability claims, federal transportation rules and regulation which may negatively impact the Company’s ability to ship its products in a cost efficient manner, the elimination of funding for new research and development projects, the decline in registered and unregistered aircraft sales, dependence on discretionary consumer spending, dependence on existing management, general economic conditions, changes in federal or state laws or regulations.

Critical Accounting Policies and Estimates:

Our discussion and analysis or plan of operation is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that effect the reported amounts of assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reporting period, and related disclosures of contingent assets and liabilities for the periods indicated. The notes to the financial statements contained herein describe our significant accounting policies used in the preparation of the financial statements. On an on-going basis, we evaluate our estimates, including, but not limited to, those related to allowance for doubtful accounts, inventory valuation allowance and contingencies. Due to uncertainties, however, it is at least reasonably possible that management’s estimates will change during the next year, which cannot be estimated. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions.

ITEM 3. CONTROLS AND PROCEDURES

As of June 30, 2004, the Company carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in alerting him on a timely basis to material information required to be disclosed in our periodic reports to the Securities and Exchange Commission. During the third quarter of fiscal year 2004, there were no changes in our internal control over financial reporting that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On February 29, 2004, the Company issued securities in a transaction that was not registered under the Securities Act of 1933, as amended, to Cirrus Design Corporation. Cirrus exercised warrants to purchase 500,000 shares of the Company’s common stock for an aggregate exercise price of $562,500. The transaction was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended.

Item 5. Other Information

The Company operates under the jurisdiction of the Bureau of Alcohol, Tobacco and Firearms (BATF) as its parachute extraction devices utilize a solid propellant, which is a regulated product. The Company applied for and has received an exemption from the BATF for its products. Therefore, the Company’s customers can receive the Company’s products without additional licensing from the BATF.

Item 6. Exhibits, Lists and Reports on Form 8-K

(a) Exhibits

Exhibit No.		Description

31.1		Rule 13a-14(a)/15d-14(a) Certifications.

31.2		Rule 13a-14(a)/15d-14(a) Certifications.

32.1		Section 1350 Certifications.

32.2		Section 1350 Certifications.

(b) The Company filed no reports on Form 8-K during the three months ended June 30, 2004.

Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 12, 2005	/s/ Larry E. Williams
	By Larry E. Williams
	Principal Executive Officer


	/s/ Don R. Hedquist
	By Don R. Hedquist
	Principal Accounting Officer

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited).

	Balance sheets as of June 30, 2004 and September 30, 2003.

	Statements of operations for the three months and nine months ended June 30, 2004 and 2003.

	Statements of cash flow for the nine months ended June 30, 2004 and 2003.

	Notes to financial statements at June 30, 2004 and 2003.

Item 2.	Management’s Discussion and Analysis or Plan of Operation.

Item 3.	Controls and Procedures.

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K

CERTIFICATIONS

Ballistic Recovery Systems (BRSI) Inactive 10QSB/A2004 Q3 Quarterly report (small business) (amended)