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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 DECEMBER 31, 1996
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)
(612) 457-7491
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(Issuer's Telephone Number Including Area Code)
1845 Henry Avenue, South St. Paul, MN 55075-3541
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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
--- ---
Number of shares outstanding as of February 13,1997: 4,454,474
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INDEX
BALLISTIC RECOVERY SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited). Page
Balance sheets as of December 31, 1996 and September
30, 1996. 3
Statements of operations for the three months ended
December 31, 1996 and 1995. 4
Statements of cash flow for the three months ended
December 31, 1996 and 1995. 5
Notes to financial statements at December 31, 1996. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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PART I FINANCIAL INFORMATION - Item I. Financial Statements
BALLISTIC RECOVERY SYSTEMS, INC.
BALANCE SHEETS
(UNAUDITED)
December 30, September 30,
ASSETS 1996 1996
------------ -------------
Current assets:
Cash $ 27,412 $117,343
Accounts receivable - net of allowance of $12,500 129,796 73,793
Inventories 302,269 307,213
Prepaid expenses 12,817 4,197
-------- --------
Total current assets 472,294 502,546
-------- --------
Furniture and fixtures 145,978 75,747
Less accumulated depreciation (63,604) (59,901)
-------- --------
Furniture and equipment - net 82,374 15,846
-------- --------
Other assets:
Patents less accumulated amortization of
$6,724 and $6,552, respectively 4,941 5,112
Covenant not to compete less accumulated
amortization of $44,268 and $34,782, respectively 335,170 344,656
-------- --------
Total other assets 340,111 349,768
-------- --------
Total assets $894,779 $868,160
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 84,552 $ 60,923
Customer deposits 114,731 126,017
Accrued payroll 30,735 26,314
Other accrued liabilities 95,409 117,747
Line-of-credit borrowings --- 25,000
Current portion of bank note 8,391 ---
Current portion of covenant not to compete 31,618 31,334
--------- ---------
Current liabilities 365,436 387,335
--------- ---------
Long-term bank note and covenant not to compete,
less current portion 366,728 314,325
--------- ---------
Shareholders' equity:
Common stock ($.01 par value; 10,000,000 shares author-
ized; shares issued and outstanding of 4,454,474) 44,545 44,545
Additional paid-in capital 2,620,282 2,620,282
Accumulated deficit (2,502,212) (2,498,327)
Total shareholders' equity 162,615 166,500
--------- ---------
Total liabilities and shareholders' equity $ 894,779 $ 868,160
========= =========
See Notes to Financial Statements.
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See Notes to Financial Statements.
BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF OPERATIONS
For the Three Months Ended December 30, 1996 and 1995
(UNAUDITED)
1996 1995
---- ----
Sales $ 373,901 $ 285,932
Cost of sales 242,459 186,026
--------- ---------
Gross profit 131,442 99,906
Selling, general and administrative 97,759 81,465
Research and development 3,809 18,032
--------- ---------
Income from operations 29,874 409
Other income (expense):
Interest expense (10,697) (4,757)
Other expense (13,576) ---
Covenant not to compete amortization (9,486) (6,324)
--------- ---------
Net income (loss) ($3,885) ($10,672)
========= =========
Primary earnings (loss) per share ($0.00) ($0.00)
========= =========
Weighted average number of shares outstanding 6,379,492 4,454,474
========= =========
Fully diluted earnings (loss) per share ($0.00) ($0.00)
========= =========
Weighted average number of shares outstanding 6,379,492 6,294,752
========= =========
See Notes to Financial Statements.
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BALLISTIC RECOVERY SYSTEMS, INC.
STATEMENTS OF CASH FLOW
Increase (Decrease) in Cash
For the Three Months Ended December 30, 1996 and 1995
(UNAUDITED)
1996 1995
---- ----
Cash flow from operating activity:
Net income ($3,885) ($10,672)
Adjustments to reconcile net income to net cash
from operating activity:
Depreciation and amortization 3,874 1,851
Amortization of covenant not to compete 9,486 6,324
Inventory valuation reserve 3,000 6,000
(Increase) decrease in:
Accounts receivable (56,003) 501
Inventories 1,944 2,129
Prepaid expenses (8,620) (8,430)
Increase (decrease) in:
Accounts payable 23,629 3,466
Accrued expenses (29,212) 23,394
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Net cash from operating activities (55,787) 24,563
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Cash flow from investing activities:
Capital expenditures (70,231) --
------- ------
Net cash from investing activities (70,231) --
-------- ------
Cash flow from financing activities:
Net borrowing under line-of-credit agreement (25,000) --
Proceeds from bank note 70,000 --
Principal payments on bank note (451) --
Principal payments on covenant not to compete (8,462) (10,39)
-------- -------
Net cash from financing activities 36,087 (10,399)
-------- --------
Increase (decrease) in cash (89,931) 14,164
Cash - beginning of year 117,343 16,977
-------- --------
Cash - end of period $ 27,412 $ 31,141
======== ========
See Notes to Financial Statements.
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BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(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 three month period ended December 31, 1996 are
not necessarily indicative of the results that may be expected for the
year ended September 30, 1997. 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, 1996.
B. INVENTORIES
The components of inventory consist of the following:
12/31/96 09/30/96
---------- ----------
Raw materials $ 228,269 $ 195,291
Work in process 52,000 50,146
Finished goods 50,000 86,776
Less valuation reserve (28,000) (25,000)
---------- ----------
Total inventories $ 302,269 $ 307,213
========== ==========
C. CUSTOMER DEPOSITS
The Company periodically receives 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.
D. RESEARCH AND DEVELOPMENT FUNDING AND INCOME RECOGNITION
In 1994, the Company received initial funding and signed letters of intent
for two research and development contracts for larger emergency parachute
systems. One of the projects is ongoing for a companies is developing a
four place composite, certified aircraft. If successfully certified, this
aircraft will be the first FAA certified aircraft to offer one of the
Company's recovery systems as standard equipment. The other project was
for a company is developing three experimental category aircraft. This
second project was suspended during fiscal year 1995. Both of the
companies are privately held.
Under the ongoing contract, $30,571 and $7,789 was reflected as an offset
to research and development expenses for the quarters ended December 31,
1996 and 1995, respectively and is netted in the expense. At the end of
December 31, 1996, the Company had a receivable due under this contract
of $30,571. There was no balance due or deferred at the end of the prior
year quarter.
Additional funding, although not guaranteed, is expected to be received on
a monthly basis over the next 12 months as the research and development
progresses. Although exact time lines and production volumes are
uncertain, it is expected that manufacturing of production units will
commence at the end of the funding time line.
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BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(UNAUDITED)
D. RESEARCH AND DEVELOPMENT FUNDING AND INCOME RECOGNITION (CONTINUED)
The Company will retain the developed technology for the parachute systems
in general and the outside companies will retain the developed technology
that is specific to their individual aircraft. In order to retain the
developed technology, the Company will offer the company with the ongoing
project, a discount on future purchases of completed systems which will
total 110% of the advanced amount.
The other company's project has been suspended and future work with this
company is not certain. The Company did not establish a liability for the
$82,086 taken as an offset to expense to date under these projects due to
the uncertainty of the future of the project and the future viability of
the products to be developed. In addition, the Company feels that the
establishment of a reserve for a potential future obligation would be
misleading to the financial statements as presented. Any future purchase
discounts that will be earned upon completion of the project will be
offset against any future sales made to that company.
The Company expects to be able to utilize the developed technology for
applications on a wide range of aircraft. The future applications will
depend on a complete review of market conditions, product acceptance and
available funding.
E. SMALL BUSINESS INNOVATION RESEARCH GRANT (SBIR)
In December 1994, the Company was awarded a Phase I, Small Business
Innovation Research grant (SBIR) through NASA for use in the research of
low-cost, lightweight aircraft emergency recovery systems. The $69,736
grant over a six month period was used by the Company to expand its
research in the area of lightweight fabrics and components for use in
recovery systems. The Phase I was completed in June 1995 and a proposal
for Phase II funding was submitted at that time. The $69,736 grant was
recognized as an offset to research and development expenses during fiscal
year 1995.
The Company signed a Phase II contract with NASA on March 8, 1996 and work
on that project commenced at that time. The total contract award was for
a firm fixed price grant of $581,875 for a period not to exceed 24 months.
For the quarter ended December 31, 1996, the Company recognized $5,784 as
an offset to research and development expenditures for work performed on
the Phase II project. To date, the Company has recognized $88,105 as an
offset to expenditures under this grant. As of December 31, 1996, the
Company had established a receivable for $5,784 for this contract.
F. ADDITIONAL CONTRACT RESEARCH AND DEVELOPMENT
In June 1996, the Company received a purchase order from a defense
subcontractor for the development of a parachute recovery system for an
unmanned aircraft that is being developed for possible military use. The
purchase order, with revisions, is for a total of $117,814 and covers an
18 month period. The purchase order calls for development funding for
the recovery system as well as the delivery of completed recovery systems.
$48,697 has been recognized as an expense offset under this purchase order
to date, of which $34,574 was recognized in the quarter ended December 31,
1996 and this amount is reflected as a receivable as of that date. No
assurances can be made as to the success of the development project or if
its completion will lead to future revenues. Also, no assurances can be
made that the project will proceed as intended in the purchase order.
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BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(UNAUDITED)
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), the Company's sole US competitor, whereby:
1. SCI ceased all business activities, and
2. 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 contains 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% as
follows:
Future Present
Dollars Dollars
-------- --------
Cash at signing $ 5,000 $ 5,000
Parachute systems 15,000 15,000
Non-interest bearing four year note 80,000 63,732
4% ten year note: principal 400,000 295,706
interest 84,362 ---
-------- --------
$584,362 $379,438
======== ========
The non interest bearing note calls for monthly payments of $1,500 for
forty six months (February 1996 to November 1999). 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.
Future payments under this agreement are as follows:
Future Present
Dollars Dollars
-------- --------
1997 $ 77,184 $ 43,747
1998 66,436 34,960
1999 66,436 39,005
2000 62,436 39,935
2001 48,436 29,204
Thereafter 197,781 158,808
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$496,961 $345,659
======== ========
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.
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BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(UNAUDITED)
H. LONG TERM DEBT
In November 1996, the Company received a loan for use in renovating and
improving a new production facility. The new facility was obtained under
a long term lease which was signed on October 1, 1996. The loan in the
amount of $70,000 is for a period of 5 years with payments commencing
December 1996 at an interest rate of 2% over the banks index rate. The
current rate is 10.25%. The note is collateralized by the assets of the
Company.
I. LINE OF CREDIT
In December 1996, the Company re-negotiated a $35,000 line-of-credit for
use in operations. The line-of-credit is established on a annual renewal
basis which expires in mid-December 1997. The line calls for a variable
interest rate of 2% over prime. There was no outstanding balance at
December 31, 1996.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
Sales for the first quarter of the current fiscal year were up by 31% over
the same prior year period. The increase in sales is attributable to
continuing improvement in ultralight aircraft sales for both currently
existing aircraft designs as well as those of new manufacturers. In
addition, the Company believes that the departure of the Company's only
domestic competitor has stimulated an increase in the Company's sales.
The sales plans that were implemented in previous fiscal years have also
contributed by expanding the Company's dealer base and expanding sales to
the existing dealers. By the end of the current quarter, the flow of new
orders had begun to stabilize at levels consistent with that of the
previous year.
Gross margins improved slightly over the prior year despite the increase
in operating expenses for the new production facility. This is mainly
attributed to maintaining labor efficiency with the higher sales volume.
Selling, general and administrative expenses went down as a percentage of
sales. The actual dollar increase in expenses was a result of several
factors including the increase in sales and administrative staff salaries,
increased support costs due to the increased sales volumes, and increased
travel expenses. In addition, the new production facility has increased
the operating costs of the company in the form of increased rent,
utilities and depreciation.
Net research and development costs were lower for the current fiscal year
quarter compared to the prior year as a result of the outside research and
development projects with which the Company is involved. This trend is
consistent with the Company's desire to establish outside funding for the
majority of its research and development efforts.
The other income and expense category increased as a result of the
covenant not to compete agreement entered into by the Company in October
of the prior fiscal year. In addition, the Company incurred one-time
expenses in moving to and renovating its new production facility. The
expense of $13,576 represents costs that are not classified as leasehold
improvements and are therefore expensed when incurred.
LIQUIDITY AND CAPITAL RESOURCES:
Management intends to continue to improve the Company's operations and
cash flows in 1997 by continuing to monitor and enhance cost saving plans
adopted in the prior years and implementation of new ones. The following
outlines management's plans:
The Company's focus on research and development has shifted over the past
several years. Following the completion of the GARD-150 project, it
became the intention of the Company to find outside sources for research
and development funding in order to continue its efforts towards long-term
product development and expansion. In 1994, the Company received initial
funding and signed letters of intent for two research and development
contracts for larger emergency parachute systems. One of the projects is
ongoing and that company is developing a four place composite, certified
aircraft. The other project was for a company developing three
experimental category aircraft consisting of two place, five place and
seven place composite aircraft. This second project was suspended in
1995. The successful completion of either of these projects cannot be
assured. With the signing of these two agreements, the Company believes
that it has begun the process of possibly expanding its research and
development efforts into a profit center for the Company through outside
funding. In addition, the receipt of outside funding has increased the
Company's opportunities to develop products for expanded applications
throughout the general aviation and experimental aircraft markets. It
will always be the intention of the Company to retain the rights to any
developed technology and the rights to manufacture any related products.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES: (CONTINUED)
In December 1994, the Company was awarded a Phase I, Small Business
Innovation Research grant (SBIR) through NASA for use in the research of
low-cost, lightweight aircraft emergency recovery systems. The $70,000
grant was used to provide a feasibility study to determine whether or not
future funding through NASA in the form of a Phase II grant is warranted.
The Phase I research was completed in June 1995 and the Phase II grant was
applied for as part of the final report.
The Company signed a Phase II contract with NASA on March 8, 1996 and work
on that project commenced at that time. The total contract award was for
a firm fixed price grant of $581,875 for a period not to exceed 24 months.
No assurances can be made as to the future success of this project, or
whether or not all of the contract amount will be allocated and received
over the life of the contract.
The Company anticipates applying for additional grants over the coming
fiscal years through the SBIR program and other programs sponsored by
NASA. No assurances can be made as to the future success of the current
grant nor the likelihood of the receipt or success of any future grants.
In October 1995, the Company entered into a non-compete agreement with its
only domestic competitor, SCI. As a result of other sales efforts that
were underway, the exact benefit of the SCI transaction in terms of sales
volumes cannot be specifically determined. Although the agreement calls
for debt service over a ten year period, the Company believes that the
agreement will have a positive impact on both profitability and cash flow.
This agreement, in addition to other sales programs that have been
implemented by the Company over the past several years, should continue to
strengthen the Company's revenues and profitability into the future.
In July 1996, the Company received a purchase order from a defense
subcontractor for the development of a parachute recovery system for an
unmanned aircraft that is being developed for possible military use. The
purchase order was for a total of $117,814 and covers an 18 month period.
The purchase order calls for development funding of the recovery system as
well as the delivery of completed recovery systems. No assurances can
be made as to the success of the development project or if its completion
will lead to future revenues. Also, no assurances can be made that the
project will proceed as intended in the purchase order.
Management intends to fund all of its continuing operation out of its
current revenues with the exception of expanded research and development.
Management believes that the current business operation is adequate to
support the ongoing operations of the Company during the next twelve month
period and will maintain expenses at the necessary levels until further
funding opportunities materialize.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently involved in any legal proceedings.
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, 1996.
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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
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Mark B. Thomas
Chief Executive Officer and Chief Financial Officer
Dated February 13, 1997
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