UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X 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, 2000
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
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BALLISTIC RECOVERY SYSTEMS, INC.
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(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
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(Address of Principal Executive Offices)
(651) 457-7491
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Issuer's Telephone Number Including Area Code)
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(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 X No
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Number of shares outstanding as of August 9, 2000: 5,902,464
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INDEX
BALLISTIC RECOVERY SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
PAGE
Balance sheets as of June 30, 2000 and September
30, 1999. 3
Statements of operations for the three months and nine
months ended June 30, 2000 and 1999. 4
Statements of cash flow for the nine months ended
June 30, 2000 and 1999. 5
Notes to financial statements at June 30, 2000. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
PART I FINANCIAL INFORMATION - Item I. Financial Statements
BALLISTIC RECOVERY SYSTEMS, INC.
BALANCE SHEETS
(UNAUDITED)
June 30, September 30,
ASSETS 2000 1999
---- ----
Current assets:
Cash $250 $181,902
Accounts receivable - net of allowance for doubtful
accounts of $2,500 and $2,500, respectively 60,749 59,074
Inventories 639,894 340,355
Deferred tax asset - current portion 25,000 25,000
Prepaid expenses 5,923 6,398
------------- --------------
Total current assets 731,816 612,729
------------- --------------
Furniture, fixtures and leasehold improvements 179,033 165,550
Less accumulated depreciation (120,032) (104,158)
------------- --------------
Furniture, fixtures and leasehold improvements - net 59,001 61,392
------------- --------------
Other assets:
Patents less accumulated amortization of
$9,125 and $8,611, respectively 2,539 3,054
Deferred tax asset - long-term portion 275,000 275,000
Other intangible assets less accumulated amortization
of $23,129 and $15,419, respectively 28,269 35,978
Covenant not to compete less accumulated
amortization of $177,071 and $148,613, respectively 202,367 230,825
------------- --------------
Total other assets 508,175 544,857
------------- --------------
Total assets $1,298,992 $1,218,978
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $135,998 $58,580
Customer deposits 56,476 94,257
Accrued payroll 38,221 35,958
Other accrued liabilities 61,558 67,450
Line-of-credit borrowings 79,500 ---
Current portion of bank note 16,469 15,312
Current portion of covenant not to compete 28,415 26,175
------------- --------------
Current liabilities 416,637 297,732
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Long-term bank note and covenant , less current portions 172,451 207,275
------------- --------------
Shareholders' equity:
Common stock ($.01 par value; 10,000,000 shares authorized;
5,902,464 and 5,859,449 shares, respectively, issued
and outstanding) 58,845 58,595
Additional paid-in capital 2,642,449 2,631,762
Accumulated deficit (1,991,390) (1,976,386)
------------- --------------
Total shareholders' equity 709,904 713,971
------------- --------------
Total liabilities and shareholders' equity $1,298,992 $1,218,978
============= ==============
See Notes to Financial Statements.
3
BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended June 30, 2000 and 1999
(UNAUDITED)
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Sales $755,091 $548,490 $1,746,293 $1,254,403
Cost of sales 481,997 334,548 1,137,333 807,242
-------- -------- ---------- --------
Gross profit 273,094 213,942 608,960 447,161
Selling, general and administrative 127,863 104,900 380,975 350,638
Research and development 79,059 40,258 158,987 79,668
------- -------- ---------- ----------
Income from operations 66,172 68,784 68,998 16,855
Other income (expense):
Interest expense (8,770) (14,066) (24,815) (42,361)
Covenant amortization (9,486) (9,486) (28,458) (28,458)
Other income (expense) (9,132) (5,874) (30,729) (9,790)
----------- ----------- ---------- -----------
Net income (loss) $38,784 $39,358 ($15,004) ($63,754)
========= ========= ========= =========
Primary earnings per share $0.01 $0.01 ($0.00) ($0.01)
============ ============ ============ ============
Weighted average number of shares
outstanding 5,902,464 4,657,469 5,902,464 4,657,469
========= ========= ========= =========
Fully diluted earnings per share $0.01 $0.01 ($0.00) ($0.01)
============ ============ ============ ============
Weighted average number of shares
outstanding 6,229,066 4,841,400 6,229,066 4,841,400
========= ========= ========= =========
See Notes to Financial Statements.
4
BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF CASH FLOW
Increase (Decrease) in Cash
For the Nine Months Ended June 30, 2000 and 1999
(UNAUDITED)
2000 1999
---- ----
Cash flow from operating activity:
Net income (loss) ($ 15,004) ($ 63,754)
Adjustments to reconcile net income to net cash
from operating activity:
Depreciation and amortization 24,098 16,749
Amortization of covenant not to compete 28,458 28,458
Inventory valuation reserve 14,000 9,000
(Increase) decrease in:
Accounts receivable (1,675) 298,361
Inventories (313,539) (83,878)
Prepaid expenses 475 (1,003)
Increase (decrease) in:
Accounts payable 77,418 (104,291)
Accrued expenses (41,410) 69,515
--------- ---------
Net cash from operating activities (227,179) 169,157
--------- ---------
Cash flow from investing activities:
Investment in other intangible assets -- (6,330)
Capital expenditures (13,483) (4,786)
--------- ---------
Net cash from investing activities (13,483) (11,116)
--------- ---------
Cash flow from financing activities:
Net borrowings under line-of-credit agreement 79,500 2,952
Principal payments on bank note (12,067) (7,118)
Exercise of stock options 10,937 --
Principal payments on covenant not to compete (19,360) (12,302)
--------- ---------
Net cash from financing activities 59,010 (16,468)
--------- ---------
Increase (decrease) in cash (181,652) 141,573
Cash - beginning of year 181,902 20,100
--------- ---------
Cash - end of period $ 250 $ 161,673
========= =========
See Notes to Financial Statements.
5
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles 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 generally accepted accounting
principles 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 nine month period ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year
ended September 30, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's summary annual report for the year ended September 30, 1999.
B. INVENTORIES
The components of inventory consist of the following:
06/30/00 09/30/99
-------- --------
Raw materials $433,273 $230,455
Work in process 167,021 88,837
Finished goods 39,600 21,063
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Total inventories $639,894 $340,355
======== ========
C. ACCOUNTS RECEIVABLE
The Company sells to domestic and foreign companies. The Company grants
uncollateralized credit to some customers, but the majority of sales
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.
D. 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.
E. NEW PRODUCT DEVELOPMENT, R&D FUNDING AND INCOME RECOGNITION
During fiscal year 1999, the Company began delivery of systems for a
newly certified aircraft known as the Cirrus Design SR20 (SR20). 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 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 has
delivered 63 parachute systems for the SR20, 49 of which have been
delivered during the current fiscal year.
6
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(UNAUDITED)
E. NEW PRODUCT DEVELOPMENT, R&D FUNDING AND INCOME RECOGNITION (CONTINUED)
In April 2000, the Company began testing for a recovery system for
Cirrus Design's next generation of aircraft called the SR22. The SR22,
which is currently undergoing FAA certification testing, is expected to
have the Company's parachute system on board as standard equipment.
Certification testing of both the parachute system and the aircraft is
expected to be completed by the end of calendar year 2000. If
successfully completed and certified, the SR22 would begin serial
production during the first part of calendar year 2001, which would
include the Company's parachute systems.
In March 1999, the Company completed a project through the Small
Business Innovation Research grant (SBIR) program administered by NASA.
The purpose of the grant was to perform research on low-cost,
lightweight aircraft emergency recovery systems. The Phase II grant,
which began in March 1996, was for a maximum of $582,000 and was
completed during the Company's fiscal year 1999. The purpose of the
grant was not only to provide research in areas of interest to NASA,
but also to develop products that can be commercialized by the small
business entity. The Company hopes that the research will lead to
products that have both military and civilian applications
complimenting or enhancing the Company's current product line. The
Company received a final patent grant in April 2000 for technology
developed under the contract.
Also during fiscal year 1999, the Company completed work under a
development contract for a recovery system for a prototype-unmanned
aircraft being developed by a government contractor. The contract that
began in 1996 was for a maximum amount of $150,000, and called for the
development and delivery of a series of recovery devices both for use
in testing, and possibly in future production models.
At the end of fiscal year 1999, the Company began efforts to generate
interest in a recovery system for the certified Cessna 172 aircraft.
The Company began a marketing and media campaign designed to solicit
purchase commitments from owners of Cessna 172 aircraft which would in
turn provide partial or complete funding for the development and
certification of the system. To date, the Company has received three
signed purchase commitments and requests for contracts from 87
additional prospects. The Company plans to continue its efforts during
fiscal year 2000 and assess the viability of such development during
that year.
F. PURCHASE AND SUPPLY AGREEMENT
On September 17, 1999, the Company entered into a Purchase and Supply
Agreement with Cirrus Design Corporation (Cirrus), the manufactured of
the SR20 aircraft that utilizes 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 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:
EXERCISE PRICE PER
WARR # EXERCISE PERIOD WARRANT SHARES 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
7
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(UNAUDITED)
F. PURCHASE AND SUPPLY AGREEMENT (CONTINUED)
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.
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
============
G. 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.
In exchange for the above the Company agreed to make payments on the
covenant not to compete. The agreement did not involve a stock or asset
purchase. In addition, the Company did not agree to assume any
liabilities of SCI or its president. The payments required under this
agreement contain 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 have been discounted at the Company's incremental borrowing
rate of 11.0% resulting in a present dollar valuation of $379,438 on
the $584,362 future dollar valuation. The carrying amount of this debt
approximates fair value because the interest rate approximates the
Company's incremental borrowing rate.
The non interest bearing note called for monthly payments of $1,500 for
forty-six months (February 1996 to November 1999). However, the Company
negotiated a discount on this note and accelerated payments that were
completed in December 1997. The 4% ten year note calls for monthly
payments of $4,036 (November 1995 to 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.
8
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(UNAUDITED)
G. COVENANT NOT TO COMPETE (CONTINUED)
Future fiscal year payments under this agreement are as follows:
FUTURE PRESENT
DOLLARS DOLLARS
------- -------
2000 12,109 6,815
2001 48,436 29,204
2002 48,436 32,583
2003 48,436 36,354
2004 48,436 40,561
Thereafter 4,036 49,255
--------- --------
$209,889 $194,772
========= ========
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 has a ten-year life and vests 20% per year over five years.
H. LONG-TERM DEBT
On November 5, 1996, the Company signed a note payable with the bank in
the amount of $70,030. The purpose of the loan was to pay for
renovations to the current production facility that the company took
possession of on October 1, 1996. The note calls for interest at a rate
2% over the bank's index rate, which was 8.25% at the time of signing.
The index rate was 8.75% as of June 30, 2000, which computes to a total
interest rate of 10.75%. The note has scheduled payments over a
sixty-month period of $1,501 per month. The scheduled maturity date of
the note is November 5, 2001. However, the note has a demand provision,
which can be exercised by the bank at any time, but no demand for
payment in full is expected during the term of the note. The carrying
amount of this debt approximates fair value because the interest rate
changes with market rates. This loan is secured by all of the Company's
assets.
I. LINE OF CREDIT BORROWINGS
Beginning February 28, 2000, the Company has been operating under a
$250,000 line-of-credit for use in operations. The line-of-credit is
established on an annual renewal basis and is secured by all of the
Company's assets. The line calls for a variable interest rate of 2%
over the bank's index rate. At June 30, 2000, there was an outstanding
balance under the line of $79,500, which carried an interest rate of
10.75%. The Company expects to renew the line each year following the
review of its financial results and projections with the bank.
J. 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.
During 1998 the Company reduced the 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
NOL carryforwards and reversal of certain timing differences.
9
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(UNAUDITED)
J. INCOME TAXES (CONTINUED)
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 $300,000 of deferred
tax assets will be utilized. The remaining valuation allowance of
$680,000 at June 30, 2000 is maintained on deferred tax assets which
the Company has not determined to be more likely than not realized at
this time.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS OVERVIEW:
The Company's prior fiscal year marked the first time that a parachute system
was delivered to a customer that will install it as standard equipment on a
certified general aviation aircraft. The Cirrus Design SR20 (SR20) is the first
in a series of aircraft to be manufactured by Cirrus Design Corporation (Cirrus)
that has chosen to offer the Company's product as a standard feature. As of the
beginning of August 2000, the customer has firm orders for approximately 630
aircraft that will all include the Company's parachute systems. The customer
expects to be able to fill this backlog of orders during the next 24 months.
Future production volumes for the aircraft, and therefore, the Company's
parachute systems, will be dictated by ultimate market demands. The Company
expects to offer its product to the customer for future models of aircraft that
the customer plans to manufacture.
In April 2000, the Company began testing a parachute system for the next
aircraft model for the customer, the SR22. The next model of aircraft is
expected to be certified during the Company's fiscal year 2001. The customer has
taken 57 refundable deposits on orders for the SR22 as of the beginning of
August 2000. The Company believes that this will help to propel it forward into
offering its systems to other manufactures and customers in the certified
general aviation market.
In March 1999, the Company made its first two scheduled deliveries under an open
purchase order with Cirrus. The remaining balance of the open purchase order,
which exceeds 140 units, has deliveries scheduled through February 2001. Through
the end of the third fiscal quarter, the Company has delivered 63 units, 49 of
which are for the current fiscal year. These sales accounted for approximately
39% of the Company's total revenues for the current fiscal year quarter and 30%
of the year to date revenues. The Company believes that the customer will
gradually accelerate its production schedule as indicated in current purchase
orders. Although there can be no assurances that the Cirrus aircraft will be
successful in its continued market acceptance, the Company expects to make an
increasing number of sales to Cirrus as they continue to increase production and
fill their increasing backlog of customer orders.
During the prior fiscal year the Company has moved into a period of transition
from research and development to production and market development. This has
resulted in the Company's shift from its position of being able to sell its
research and development capabilities to a need to expend capital and resources
to get the developed products and technologies on the market and to look for new
applications for those products and technologies. The Company believes that this
shift, which has resulted in temporary reduction in operating profits, will
result in revenue growth and improved profitability.
In addition, the Company anticipated being able to expand its product line to
include other certified and uncertified aircraft as the recovery system gains
further market acceptance. The Company has been in discussions with the US
military and several foreign companies that have expressed interest in utilizing
the Company's newly developed technology. No assurance can be made as to the
future benefits that will be derived from these discussions.
At the end of July 1999, the Company announced a program that is intended to
lead to the introduction of a parachute recovery system for the Cessna 172
aircraft. The Cessna 172 is one of the most popular general aviation aircraft
with approximately 36,000 planes manufactured. Twenty-eight thousand Cessna
172's are estimated to be in active service in the United States at this time.
Under the program, the Company is asking 172 owners to make deposits towards the
purchase of a recovery system. Once a certain number of owners have made their
deposits, the Company will begin the certification process with the FAA. Once
certified, the Company will begin manufacturing and delivery of units to the
owners that have placed deposits. The Company expects to be successful in its
solicitation efforts, but no assurances can be made of its success or the
long-term financial benefits to the Company. As of the beginning of August 2000,
the Company has received signed contracts with deposits from three owners of 172
aircraft as well as contract requests from 87 additional prospects. The Company
will review the effectiveness of its marketing efforts by the end of the current
fiscal year and make a determination to continue with its current efforts or to
modify its approach.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Another long-standing outside research and development project was for a
research grant under the SBIR program administered by NASA. Under the project,
the Company explored the possibilities of developing a new fabric for parachute
manufacturing that would reduce the weight and volume of currently existing
parachute recovery systems. Final testing was completed in February 1999 and
final reports and test articles were submitted to NASA on March 8, 1999. As a
result of the project, the Company applied for a patent for the new
manufacturing method that was developed and received approval in April 2000. The
Company expects to be able to utilize the developed technology for a wide range
of applications. This expectation is based on the Company's belief in its
ability to further develop the technology either on its own or through
cooperative efforts with outside companies or agencies. The future applications
will depend on a complete review of market conditions, product acceptance and
available funding. The Company has begun discussions with a foreign company that
has expressed interest in the developed technology for currently existing
commercial and military applications. No assurance can be made as to the future
benefits that will be derived from these discussions.
RESULTS OF OPERATIONS:
SALES
Sales for the current fiscal year quarter were ahead of the prior year quarter
by approximately 38%. All of the increase is a result of deliveries for the
Cirrus Design SR20. The recreational aircraft market is flat with that of the
prior year. In an effort to strengthen recreation market sales, the Company has
expanded its efforts to improve international business for those products.
However, there can be no assurances that these efforts will produce increased
sales for the Company.
Sales in the recreational aircraft market for fiscal year 2000 are expected to
be even or slightly below that of the prior fiscal year as a result of the
Company's efforts to improve international business and the improvement in
domestic aircraft sales. In addition to recreational market sales, it is
expected that the Company will continue delivery of systems for the newly
certified Cirrus Design SR20 aircraft. The Company has delivered 63 units
through the end of the current fiscal quarter, 49 of which were in the current
fiscal year. The Company is currently producing parachute systems under an open
purchase order that exceeds 140 units. The customer anticipated production of
aircraft to reach a level of one aircraft per business day by November or
December 2000. Actual volume projections and timing of those volumes is subject
to change as the customer expands its production capabilities. Although
certified, there can be no assurances that this aircraft will actually be
produced in volumes that will have a material effect on the Company.
GROSS MARGIN
The gross margin for the current fiscal year is lagging slightly from that of
the previous fiscal year for both the quarter and fiscal year to date. This lag
is a result of increased sales for the SR20 parachute systems, which have a
lower gross margin than the sport business. This lower gross margin was agreed
to in our contract with the customer. The Company has made a concerted effort to
hold and improve the gross margin despite material cost increases. No assurances
can be made that this effort will result in steady or improving gross margins
into the future or if gross margins will decrease further in the future.
OPERATING EXPENSES:
Selling, general and administrative costs have been reduced as a percentage of
sales by over 2% for the current quarter compared the prior fiscal year quarter.
Year to date levels were down as a percentage of sales by over 6%. Expenditures
in actual dollars 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. In addition, the Company
will be adding additional administrative support as sales volumes increase.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OPERATING EXPENSES (CONTINUED):
Net research and development expenditures were up for both the current quarter
and on a year to date basis from that of the prior year. The increase is a
result of outside funding for research and development not being available for
the current fiscal year. The prior fiscal year had offsets to expenditures
totaling approximately $97,000 while there were no offsets in the current fiscal
year. No offsets are expected to be available for the remainder of the fiscal
year as the Company continues the transition into production of the Cirrus
product line. In addition, the Company will be contributing its own operating
capital toward the testing and development of new parachute systems for the
expanding Cirrus product line.
NET INCOME (LOSS)
On a year to date basis, the net loss was reduced from 5% of sales in the prior
year to less than 1% of sales in the current year. This improvement was a result
of the combination of expanded sales, maintenance of gross margins and cost
containment of operating expenses. Income for the remainder of the fiscal year
is expected to increase as a result of increased sales in the certified aircraft
market. As the Company expands into different aircraft markets and expands its
product applications, market conditions will determine ultimate sales levels and
profitability.
LIQUIDITY AND CAPITAL RESOURCES:
Management intends to fund its continuing operation out of its current revenues
with the exception of its contract research and development projects. The
Company has also established a line-of-credit and has used the line to manage
operations cash flow. Management believes that the current business operation,
in conjunction with managed use of the line-of-credit, 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 sources for contract research and development
projects, but there can be no assurances that the Company will be successful in
its efforts.
The Company has made and anticipates additional capital improvements to its
current production facility as well as expenditures to increase inventory levels
as a result of the production of general aviation units for the recovery system
that was recently certified. It is currently the intention of the Company to
fund the expenditures through current operations as well as revenues generated
by those units.
With the receipt of certification on October 23, 1998, the Cirrus Design SR20
aircraft became the first FAA certified aircraft to offer one of the Company's
parachute systems as standard equipment. Production of the aircraft is currently
underway with over 40 aircraft off the production line as of the beginning of
August 2000. The Company has made 63 deliveries of parachute systems through the
end of the Company's third current year quarter. The Company is currently
building parachute systems under a purchase order with remaining orders that
exceeds 140 units. The customer anticipates production of their aircraft to
reach one aircraft per business day by November or December 2000. Although
certified, there can be no assurances that this aircraft will actually be
produced in volumes that will have a material effect on the Company.
In April 2000, the Company began testing for a parachute system for the next
generation of Cirrus Design aircraft called the SR22. Testing and certification
of the parachute system along with the aircraft it self is expected to be
completed by the end of calendar year 2000. If successfully completed and
certified, production of the aircraft and accompanying parachute systems would
begin during the first part of calendar year 2001. Even if certified, there can
be no assurances that this aircraft will actually be produced in volumes that
will have a material effect on the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
The Company completed work on its Small Business Innovation Research grant
(SBIR) through NASA on March 8, 1999. The purpose of the grant was to perform
research of low-cost, lightweight aircraft emergency recovery systems. The Phase
II grant, which began in March 1996, was for a maximum of $582,000. The Company
is currently looking for applications of the developed technology and is in
discussions with a foreign company that is interested in the technology for
their current military and commercial products. The Company received approval of
its patent application in April 2000 for technology developed under the
contract.
The Private Securities Litigation Reform Act of 1995 provides "safe harbor" for
forward-looking statements. Certain information included in this Form 10-QSB 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 schedules, 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, the elimination of funding for
new research and development projects, the decline in 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company was named in a lawsuit based on a claim from a former
supplier of the Company. The Company has made a counter claim against
the vendor for damages sustained by the Company. Although there can be
no assurances, the Company believes that the counter claim is valid and
the potential for future liability in this matter is not material to
the Company's financial position.
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 June 30, 2000.
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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.
BALLISTIC RECOVERY SYSTEMS, INC.
By /s/ MARK B. THOMAS
------------------
Mark B. Thomas
Chief Executive Officer and
Chief Financial Officer
Dated August 9, 2000
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