UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
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þ
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Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 2007
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o
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Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
to
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Commission File Number 0-15318
BALLISTIC RECOVERY SYSTEMS, INC.
(Exact name of issuer as specified in its charter)
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Minnesota
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41-1372079
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(State or other jurisdiction of incorporation or
organization)
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(IRS Employer Identification No.)
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300 Airport Road, South St. Paul, Minnesota
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55075-3541
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(Address of Principal Executive Offices)
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(Zip Code)
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(651) 457-7491
(Issuers telephone number)
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the
issuer was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
þ
No
o
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
þ
As of
February 29, 2008, there were 11,304,767 outstanding shares of common stock, par value $0.01
per share.
Transitional Small Business Disclosure Format (check one) Yes
o
No
þ
EXPLANATORY NOTE
This Amendment No. 1 to Form 10-QSB for the three months ended June 30, 2007 of Ballistic Recovery
Systems, Inc. (the Company) is being filed solely to restate the consolidated financial
statements for the affected period to correct errors in the valuation of inventories and allocation
of production overhead (these restatements are referred to herein as the Restatements). The
Restatements amends the Form 10-QSB for the related period originally filed by the Company with the
Securities and Exchange Commission on August 10, 2007. These Restatements had a negative impact on
our financial position, financial results, and operations.
With the Restatement, inventory decreased by $397,026, which in turn decreased total current assets
and total assets and increased the loss from operations, loss before income taxes and net loss.
The decrease in inventory also increased the accumulated deficit by the same amount. The
adjustment of $397,026 is further added to an adjustment of $416,408 for the second quarter of
fiscal year 2007 for a total adjustment of $813,434.
Further, with the Restatement to decrease inventory, the deferred tax benefit increased by $69,138.
The total other assets and total assets were also increased by that same amount. As a result, the
accumulated deficit decreased and net shareholder equity on the balance sheet
increased. On the income statement, the increase in deferred tax benefit decreased the net
operating loss by $69,138. The adjustment of $69,138 is further added to a $47,845 adjustment
relating to the second quarter of fiscal year 2007 for a total adjustment of $116,983.
The reader should note that this Amendment No. 1 includes all of the information contained in the
Companys original report on Form 10-QSB filed on August 10, 2007, and no attempt has been made in
this Amendment No. 1 to modify or update the disclosures presented in this original report on Form
10-QSB, except as required to reflect the amendments reflected above
in Items 1 and 2 as
applicable, of the report. As such, the information contained in the original 10-QSB, except as
amended in this Amendment No. 1, remain unchanged and reflect the disclosures made as of the
original filing. Accordingly, this Amendment No. 1 should be read in conjunction with the
Companys filings made with the SEC subsequent to the filing of the original 10-QSB, and this
Amendment No. 1 shall not be deemed to be an admission that the original filing, when made,
included any untrue statement of material fact or omitted to state a material fact necessary to
make a statement not misleading.
Part I Financial Information Item 1. Consolidated Financial Statements
BALLISTIC RECOVERY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
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June 30, 2007
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September 30,
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(Unaudited)
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2006
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Restated
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(Audited)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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1,657,802
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$
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53,722
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Accounts receivable net of allowance for doubtful
accounts of $22,924 and $22,924, respectively
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1,161,445
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541,642
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Inventories
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1,824,727
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2,458,003
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Deferred tax asset current portion
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160,700
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160,700
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Prepaid expenses
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380,187
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144,509
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Total current assets
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5,998,295
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3,358,576
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Furniture, fixtures and leasehold improvements
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1,250,456
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1,092,085
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Less: accumulated depreciation and amortization
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(619,905
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)
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(506,831
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)
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Furniture, fixtures and leasehold improvements net
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630,551
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585,254
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Other assets:
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Patents, net of accumulated amortization of $11,717
and $11,425, respectively
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697
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989
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Goodwill
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103,774
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103,774
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Deferred tax asset net of current portion
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1,292,899
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1,221,516
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Long-term prepaid expenses
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33,842
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109,925
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Covenant not to compete, net of accumulated
amortization of $585,828 and $569,789, respectively
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19,183
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35,222
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Total other assets
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1,450,395
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1,471,426
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Total assets
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$
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7,265,807
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$
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5,415,256
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See notes to consolidated financial statements.
F-1
BALLISTIC RECOVERY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
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June 30, 2007
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September 30,
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(Unaudited)
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2006
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Restated
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(Audited)
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Liabilities And Shareholders Equity
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Current liabilities:
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Line of credit bank
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$
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$
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302,265
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Current portion of covenant not to compete, shareholders
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7,069
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Accounts payable
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456,678
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692,550
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Customer deposits
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158,559
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42,916
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Accrued payroll
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73,039
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73,613
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Other accrued liabilities
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200,460
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244,930
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Total current liabilities
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888,736
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1,363,343
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Long-term debt, less current portion
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320,000
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Long-term debt refinanced through equity offering in
October and November 2006
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729,091
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Total Liabilities
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888,736
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2,412,434
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Shareholders equity:
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Common stock ($.01 par value; 50,000,000 shares
authorized; 11,304,767 and 8,089,619 shares,
respectively, issued and outstanding)
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113,048
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80,896
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Additional paid-in capital
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10,264,980
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6,306,007
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Accumulated deficit
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(4,000,957
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)
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(3,384,081
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)
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Total shareholders equity
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6,377,071
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3,002,822
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Total liabilities and shareholders equity
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$
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7,265,807
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$
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5,415,256
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See notes to consolidated financial statements.
F-2
BALLISTIC RECOVERY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months ended June 30, 2007 and 2006
(UNAUDITED)
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Three Months Ended
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Nine Months Ended
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June 30,
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June 30,
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2007
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2006
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2007
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2006
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Restated
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Restated
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Sales
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$
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2,606,081
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$
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2,468,209
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$
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6,900,215
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$
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6,691,717
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Cost of sales
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2,024,638
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1,642,989
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5,186,625
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4,253,492
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Gross profit
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581,443
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825,220
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1,713,590
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2,438,225
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Selling, general and administrative
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729,840
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578,574
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1,965,981
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1,912,046
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Research and development
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170,455
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118,916
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402,470
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366,560
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Intangible amortization
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2,213
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30,410
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16,039
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91,230
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Income (loss) from operations
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(321,065
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)
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97,320
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(670,900
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)
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68,389
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Other income (expense):
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Interest expense
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(5,847
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)
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(33,823
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)
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(35,440
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)
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(101,823
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)
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Other income
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11,710
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107
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18,081
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209
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Income (loss) before income taxes
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(315,202
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)
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63,604
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(688,259
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)
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(33,225
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)
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Income tax expense (benefit)
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(39,338
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)
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23,482
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(71,383
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)
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(12,000
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)
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Net income (loss)
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$
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(275,864
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)
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$
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40,122
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$
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(616,876
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)
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$
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(21,225
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)
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Basic earnings (loss) per share
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$
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(0.03
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)
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$
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0.01
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$
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(0.06
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)
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$
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(0.00
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)
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Weighted average number of shares
outstanding basic
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10,247,262
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7,744,400
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9,848,535
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7,717,117
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Diluted earnings (loss) per share
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$
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(0.03
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)
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$
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0.01
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$
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(0.06
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)
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|
$
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(0.00
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)
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Weighted average number of shares
outstanding diluted
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10,265,987
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7,770,077
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9,864,141
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7,717,117
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Dividends per share
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$
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0.00
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$
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0.00
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$
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0.00
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|
$
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0.00
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|
|
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See notes to consolidated financial statements.
F-3
BALLISTIC RECOVERY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Nine Months Ended June 30, 2007 and 2006
(UNAUDITED)
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Nine Months Ended June 30
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2007
|
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2006
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Restated
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Cash flows from operating activity:
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|
|
|
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Net income (loss)
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$
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(616,876
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)
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$
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(21,225
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)
|
Adjustments to reconcile net income (loss) to net cash from
operating activity:
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Deferred income tax
|
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(71,383
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)
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|
44,884
|
|
Depreciation and amortization
|
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|
113,366
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|
|
|
110,628
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|
Amortization of covenant not to compete
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16,039
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|
|
|
91,230
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Common stock issued for services
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|
13,875
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|
|
|
9,060
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|
(Increase) decrease in:
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Accounts receivable
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|
|
(619,803
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)
|
|
|
(108,691
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)
|
Inventories
|
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|
633,276
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|
|
|
(641,123
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)
|
Prepaid income taxes
|
|
|
|
|
|
|
230,544
|
|
Prepaid expenses
|
|
|
(194,053
|
)
|
|
|
(93,592
|
)
|
Long-term prepaid expenses
|
|
|
76,083
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|
|
|
18,639
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|
Increase (decrease) in:
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Accounts payable
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|
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(235,872
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)
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|
137,691
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Customer deposits
|
|
|
115,643
|
|
|
|
(39,531
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)
|
Accrued expenses
|
|
|
10,256
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|
|
|
(9,280
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)
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|
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|
|
|
|
|
|
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|
|
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|
|
Net cash from operating activities
|
|
|
(759,449
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)
|
|
|
(270,766
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)
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|
|
|
|
|
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|
|
Cash flows from investing activities:
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|
|
|
|
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|
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Capital expenditures
|
|
|
(158,371
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)
|
|
|
(105,146
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)
|
Payment for patent
|
|
|
|
|
|
|
(750
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)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
(158,371
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)
|
|
|
(105,896
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
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|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock and common stock
warrants
|
|
|
3,865,835
|
|
|
|
414,220
|
|
Net proceeds from borrowings under line of credit bank
|
|
|
(302,265
|
)
|
|
|
98,370
|
|
Principal payments on long-term debt
|
|
|
(1,049,091
|
)
|
|
|
(112,816
|
)
|
Proceeds from exercise of common stock options
|
|
|
14,490
|
|
|
|
42,939
|
|
Principal payments on covenant not to compete
|
|
|
(7,069
|
)
|
|
|
(62,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
2,521,900
|
|
|
|
380,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
1,604,080
|
|
|
|
3,533
|
|
Cash and cash equivalents beginning of period
|
|
|
53,722
|
|
|
|
103,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
1,657,802
|
|
|
$
|
106,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for (received from) taxes
|
|
$
|
|
|
|
$
|
(258,268
|
)
|
Cash paid for interest
|
|
$
|
40,938
|
|
|
$
|
97,522
|
|
Summary of non-cash activity:
|
|
|
|
|
|
|
|
|
Issuance of common stock for board of director fees for future
periods included in prepaid expenses
|
|
$
|
41,625
|
|
|
$
|
36,240
|
|
Conversion of bonus accured into common stock
|
|
$
|
55,300
|
|
|
$
|
|
|
Issuance of common stock in exchange for stock subscription
receivable related party
|
|
$
|
|
|
|
$
|
25,000
|
|
See notes to consolidated financial statements.
F-4
BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007 and 2006
(UNAUDITED)
A.
|
|
Summary of Significant Accounting Policies
|
|
|
|
Principles of Consolidation
|
|
|
|
In September 2005, the Company formed its wholly-owned subsidiary, BRS de Mexico S.A. de
C.V. The consolidated financial statements include the wholly-owned subsidiary. All
significant intercompany transactions and balances have been eliminated in consolidation.
|
|
|
|
Basis of Presentation
|
|
|
|
The accompanying unaudited consolidated 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, 2007 are not necessarily
indicative of the results that may be expected for the fiscal year ending September 30,
2007. These consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the Companys Annual
Report on Form 10-KSB for the year ended September 30, 2006, 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.
|
|
|
|
Foreign Currency Translations and Transactions
|
|
|
|
The Company accounts for its foreign asset and liability transactions in U.S. dollars.
Therefore, there is not any material accumulated other comprehensive income or loss.
Results of operations are translated using the average exchange rates throughout the year.
Transaction gains or losses are recorded as incurred.
|
|
|
|
Use of Estimates
|
|
|
|
The preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results could differ
from those estimates.
|
|
|
|
Cash Concentrations
|
|
|
|
Bank balances exceeded federally insured levels during the third quarter of fiscal year 2007
and 2006. Generally, these balances may be redeemed upon demand and therefore bear minimal
risk.
|
F-5
Cash and Cash Equivalents
Short-term investments with an original maturity of three months or less are considered to
be cash equivalents and are stated at their fair value.
Accounts Receivable, Credit Risk and Allowance for Doubtful Accounts
The Company sells its products to domestic and foreign customers. 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.
There were no accounts written off during the three- and nine months ended June 30, 2007 and
2006. Accounts receivable are shown net of an allowance for doubtful accounts of $22,924
both at June 30, 2007 and September 30, 2006. 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 managements estimate
will change during the next year, which cannot be estimated.
Customer Concentration
The Company had sales to one major customer, Cirrus Design Corporation (Cirrus), which
represented 71.2% and 75.1% of the Companys total sales for the three- and nine months
ended June 30, 2007, as compared to 66.8% and 70.0% for the same prior year periods. This
customer also accounted for 64% (or $748,176) and 63% (or $339,000) of accounts receivable
at June 30, 2007 and September 30, 2006, respectively. The Company supplies parachute
systems to Cirrus from the Companys general aviation product line. The Companys
dependence on Cirrus typically is highest during the first two quarters of the fiscal year
due to the seasonality of the Companys recreational 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 Companys products, alternative dealers or distributors can be established.
Valuation of Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method. We maintain a standard costing system for our inventories and
adjust our inventories to a FIFO valuation.
Provisions to reduce inventories to the lower of cost or market are made based on a review
of excess and obsolete inventories through an examination of historical component
consumption, current market demands and shifting production methods. Significant
assumptions with respect to market trends and customer product acceptance are utilized to
formulate our provision methods. Sudden or continuing downward changes in the Companys
product markets may cause us to record additional inventory revaluation charges in future
periods. No write-off provision was made to our inventories for the three- and nine months
ended June 30, 2007 or 2006.
F-6
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 refundable and are recorded as customer deposits. The deposits are recognized
as revenue when the product is shipped. The Companys major customer, Cirrus, does not make
order deposits.
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 No. (SFAS) 109.
Temporary differences relate primarily to: stock based compensation; allowances for doubtful
accounts; inventory valuation allowances; depreciation; valuation of warrants issued to a
customer; net operating loss; and accrued expenses not currently deductible.
Furniture, Fixtures and Leasehold Improvements
Furniture, fixtures and leasehold improvements are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the related assets,
ranging from three to seven years for equipment and ten years for the airplane. When assets
are retired or otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and the resulting gain or loss is recognized in income for the
period. The cost of maintenance and repairs is expensed as incurred; significant renewals
and betterments are capitalized. Deduction is made for retirements resulting from renewals
or betterments. Leasehold improvements are amortized using the straight-line method over
the shorter of the lease term, or the estimated useful life of the assets.
Goodwill
The Company applies SFAS No. 142, Goodwill and Other Intangible Assets related to the
carrying amount of goodwill and other intangible assets. Goodwill will be tested for
impairment annually in the fourth quarter or more frequently if changes in circumstances or
the occurrence of events suggest an impairment exists. The Company has concluded that no
impairment of goodwill or other intangible assets exists as of June 30, 2007 and 2006.
Intangibles
Patents are recorded at cost and are being amortized on a straight-line method over 17
years. The covenants not to compete are recorded at cost and are being amortized using the
straight-line method over the terms of the agreement which range from two to fifteen years.
The weighted average life of the covenants not to compete is 2.17 years at June 30, 2007.
F-7
Components of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
September 30, 2006
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
Intangible assets
subject to
amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
12,414
|
|
|
$
|
11,717
|
|
|
$
|
12,414
|
|
|
$
|
11,425
|
|
Covenants not to compete
|
|
$
|
605,011
|
|
|
$
|
585,828
|
|
|
$
|
605,011
|
|
|
$
|
569,789
|
|
Amortization expense of intangible assets was $2,213 and $16,039 for the three- and nine
months ended June 30, 2007, compared to $30,410 and $91,230 for the three- and nine months
ended June 30, 2006. Amortization expense is estimated to approximate $19,241, $8,854,
$8,116 and $0 for the years ending September 30, 2007, 2008, 2009, and 2010, respectively.
Revenue Recognition
The Company recognizes revenue in accordance with Securities and Exchange Commission, Staff
Accounting Bulletin No. 104, Revenue Recognition. The Company recognizes revenue on
product sales upon shipment to customers.
Comprehensive Income
SFAS No. 130 establishes standards for the reporting and disclosure of comprehensive income
and its components, which will be presented in association with a companys consolidated
financial statements. Comprehensive income is defined as the change in a business
enterprises equity during a period arising from transactions, events or circumstances
relating to non-owner sources, such as foreign currency translation adjustments and
unrealized gains or losses on available-for-sale securities. It includes all changes in
equity during a period except those resulting from investments by or distributions to
owners. For the three- and nine months ended June 30, 2007 and 2006, net income (loss) and
comprehensive income (loss) were equivalent.
Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments requires disclosure of
the estimated fair value of financial instruments as follows:
Short-term Assets and Liabilities:
The fair values of cash and cash equivalents, accounts receivable, accounts payable,
accrued liabilities, and short-term debt approximate their carrying values due to
the short-term nature of these financial instruments.
Long-term Debt and Covenants Not to Compete:
The fair value of long-term debt and covenants not to compete approximate their
carrying value because the terms are equivalent to borrowing rates currently
available to the Company for debt with similar terms and maturities.
F-8
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 Companys segments have similar economic characteristics and are similar in
the nature of the products sold, type of customers, methods used to distribute the Companys
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
The Company has various types of stock-based compensation plans. These plans are
administered by the compensation committee of the Board of Directors, which selects persons
to receive awards and determines the number of options subject to each award and the terms,
conditions, performance measures and other provisions of the award. The Companys general
policy is to grant stock options with an exercise price at fair value at the date of grant.
Effective October 1, 2006, the Company adopted SFAS No. 123R, Share-Based Payment (SFAS
123R), which requires companies to measure and recognize compensation expense for all
stock-based payments at fair value. SFAS 123R is being applied on the modified prospective
basis.
Under the modified prospective approach, SFAS 123R applies to new awards and to awards that
were outstanding on October 1, 2006 that are subsequently modified, repurchased, cancelled
or vest. Under the modified prospective approach, compensation cost recognized includes
compensation cost for all share-based payments granted prior to, but not yet vested on
October 1, 2006, based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123R, and compensation cost for all shared-based payments granted
subsequent to October 1, 2006, based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123R. Prior periods were not restated to reflect the impact of
adopting the new standard.
There was no impact of adopting SFAS 123R for the three- and nine months ended June 30, 2007
as all options outstanding at September 30, 2006 were fully vested and no options were
issued during the three and nine months ended June 30, 2007. Options and warrants issued to
non-employees are recorded at fair value, as required by Emerging Issues Task Force (EITF)
96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services, using the Black-Scholes
pricing model. For the three and nine months ended June 30, 2007 and 2006, the Company did
not issue any stock-based awards to non-employees.
Had compensation costs been determined in accordance with the fair value method prescribed
by SFAS No. 123 for all options issued to employees and amortized over the vesting period,
the Companys net income (loss) applicable to common shares and net income (loss) per common
share (basic and diluted) for plan options would not have changed as indicated below.
F-9
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
Nine
|
|
|
|
Months
|
|
|
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
40,122
|
|
|
$
|
(21,225
|
)
|
Pro forma
|
|
|
40,122
|
|
|
|
(21,225
|
)
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
0.01
|
|
|
$
|
(0.00
|
)
|
Pro forma
|
|
$
|
0.01
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
0.01
|
|
|
$
|
(0.00
|
)
|
Pro forma
|
|
$
|
0.01
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Stock based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
0
|
|
|
$
|
0
|
|
Pro forma
|
|
$
|
0
|
|
|
$
|
0
|
|
No employee options were granted or vested during the nine months ended June 30, 2007 and
2006. Had options been granted, the fair value of each option granted would have been
estimated on the date of the grant using the Black-Scholes option pricing model.
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share are computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted earnings
(loss) per common share is computed by dividing net income (loss) 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 45,000 shares of dilutive
securities for the nine months ended June 30, 2007.
Following is a reconciliation of basic and diluted earnings per common share for the three-
and nine months ended June 30, 2007 and 2006, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Earnings (loss) per common share
basic:
|
|
Restated
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(275,864
|
)
|
|
$
|
40,122
|
|
|
$
|
(616,876
|
)
|
|
$
|
(21,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
10,247,262
|
|
|
|
7,744,400
|
|
|
|
9,848,535
|
|
|
|
7,717,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
basic
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share
diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(275,864
|
)
|
|
$
|
40,122
|
|
|
$
|
(616,876
|
)
|
|
$
|
(21,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
10,247,262
|
|
|
|
7,744,400
|
|
|
|
9,848,535
|
|
|
|
7,717,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents
|
|
|
0
|
|
|
|
25,677
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and
potential diluted shares
outstanding
|
|
|
10,747,262
|
|
|
|
7,770,077
|
|
|
|
9,848,535
|
|
|
|
7,717,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
diluted
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.00
|
)
|
F-10
The Company uses the treasury method for calculating the dilutive effect of the stock
options and warrants using the average market price during the fiscal year.
All
outstanding options (45,000 shares) were excluded in the computation of common share
equivalents for the three and nine months ended June 30, 2007
since there was a loss for the period.
All outstanding options (90,000 shares) were included in the computation of common share
equivalents for the three months ended June 30, 2006 because their respective exercise
prices were less than the average market price of the common stock. The 16,401 warrants
were excluded from the three month computation. All outstanding options (90,000 shares) and
warrants (16,401 shares) were excluded in the computation of common share equivalents for
the nine months ended June 30, 2006 since there was a loss for the period.
Restatement
The following table reconciles the previously reported amounts as of and for the three
months ended June 30, 2007 and for the nine months ended June 30, 2007. The impact of the
adjustments was to reduce Inventory by $397,026 for the quarter ended June 30, 2007 in
addition to a $416,408 adjustment at March 31, 2007, resulting in a total adjustment of $813,434 for
the two quarters combined. The adjustment to the deferred tax benefit resulting from these
adjustments was $47,845 for the quarter ended March 31, 2007 and $69,138 for the quarter
ended June 30, 2007 resulting in a $116,983 benefit for the two quarters combined. In
addition, the basic earnings per common share decreased by $(.03) for the three months ended
June 30, 2007 and by a total of $(.06) for the six months ended June 30, 2007.
The following table reconciles previously reported balance sheet items at March 31, 2007 to
the restated amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Deferred
|
|
|
Total
|
|
|
|
Inventory
|
|
|
Cur. Assets
|
|
|
Tax Asset
|
|
|
Other Assets
|
|
Previously Reported
Amounts
|
|
$
|
2,638,161
|
|
|
$
|
6,811,729
|
|
|
$
|
1,175,916
|
|
|
$
|
1,333,412
|
|
Impact of Adjustments
|
|
|
(813,434
|
)
|
|
|
(813,434
|
)
|
|
|
116,983
|
|
|
|
116,983
|
|
Restated Amounts
|
|
$
|
1,824,727
|
|
|
$
|
5,998,295
|
|
|
$
|
1,292,899
|
|
|
$
|
1,450,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Accumulated
|
|
|
Total
|
|
|
Total Liab.
|
|
|
|
Assets
|
|
|
Deficit
|
|
|
Equity
|
|
|
And Equity
|
|
Previously Reported
Amounts
|
|
$
|
7,962,258
|
|
|
$
|
(3,304,506
|
)
|
|
$
|
7,073,522
|
|
|
$
|
7,962,258
|
|
Impact of Adjustments
|
|
|
(696,451
|
)
|
|
|
(696,451
|
)
|
|
|
(696,451
|
)
|
|
|
(696,451
|
)
|
Restated Amounts
|
|
$
|
7,265,807
|
|
|
$
|
(4,000,957
|
)
|
|
$
|
6,377,071
|
|
|
$
|
7,265,807
|
|
F-11
The follow table reconciles previously reported items on the Statement of Operations for the
three months ended June 30, 2007 and for the nine months ended June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Cost of
|
|
|
Gross
|
|
|
Loss From
|
|
|
Loss Before
|
|
Ended June 30, 2007
|
|
Sales
|
|
|
Profit
|
|
|
Operations
|
|
|
Taxes
|
|
Previously Reported
Amounts
|
|
$
|
1,627,612
|
|
|
$
|
978,469
|
|
|
$
|
75,961
|
|
|
$
|
81,824
|
|
Impact of Adjustments
|
|
|
397,026
|
|
|
|
(397,026
|
)
|
|
|
(397,026
|
)
|
|
|
(397,026
|
)
|
Restated Amounts
|
|
$
|
2,024,638
|
|
|
$
|
581,443
|
|
|
$
|
(321,065
|
)
|
|
$
|
(315,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Income Tax
|
|
|
Net
|
|
|
Loss
|
|
Ended June 30, 2007
|
|
Benefit
|
|
|
Loss
|
|
|
Per Share
|
|
Previously Reported Amounts
|
|
$
|
29,800
|
|
|
$
|
52,024
|
|
|
$
|
0.00
|
|
Impact of Adjustments
|
|
$
|
(69,138
|
)
|
|
|
(327,888
|
)
|
|
|
(0.03
|
)
|
Restated Amounts
|
|
$
|
(39,338
|
)
|
|
$
|
(275,864
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
Cost of
|
|
|
Gross
|
|
|
Loss From
|
|
|
Loss Before
|
|
Ended June 30, 2007
|
|
Sales
|
|
|
Profit
|
|
|
Operations
|
|
|
Taxes
|
|
Previously Reported
Amounts
|
|
$
|
4,373,191
|
|
|
$
|
2,527,024
|
|
|
$
|
142,534
|
|
|
$
|
125,175
|
|
Impact of Adjustments
|
|
|
813,434
|
|
|
|
(813,434
|
)
|
|
|
(813,434
|
)
|
|
|
(813,434
|
)
|
Restated Amounts
|
|
$
|
5,186,625
|
|
|
$
|
1,713,590
|
|
|
$
|
(670,900
|
)
|
|
$
|
(688,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Income Tax
|
|
|
Net
|
|
|
Loss
|
|
Ended June 30, 2007
|
|
Benefit
|
|
|
Loss
|
|
|
Per Share
|
|
Previously Reported Amounts
|
|
$
|
45,600
|
|
|
$
|
79,575
|
|
|
$
|
0.00
|
|
Impact of Adjustments
|
|
|
116,983
|
|
|
|
(696,451
|
)
|
|
|
(0.06
|
)
|
Restated Amounts
|
|
|
71,383
|
|
|
$
|
(616,876
|
)
|
|
$
|
(0.06
|
)
|
The following table reconciles previously reported items on the Statement of Cash Flows for
the nine months ended June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
Deferred
|
|
|
|
|
|
|
(Loss)
|
|
|
Taxes
|
|
|
Inventory
|
|
Previously Reported Amounts
|
|
$
|
79,575
|
|
|
$
|
45,600
|
|
|
$
|
(180,158
|
)
|
Impact of Adjustments
|
|
|
(696,451
|
)
|
|
|
(116,983
|
)
|
|
|
(813,434
|
)
|
Restated Amounts
|
|
$
|
(616,876
|
)
|
|
$
|
(71,383
|
)
|
|
$
|
633,276
|
|
Recently Issued Accounting Pronouncements
In June 2006, the FASB has published FASB Interpretation (FIN) No. 48 (FIN No. 48),
Accounting for Uncertainty in Income Taxes, to address the noncomparability in reporting tax
assets and liabilities resulting from a lack of specific guidance in FASB SFAS No. 109,
Accounting for Income Taxes, on the uncertainty in income taxes recognized in an
enterprises financial statements. Specifically, FIN No. 48 prescribes (a) a consistent
recognition threshold and (b) a measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return,
and provides related guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The provisions of FIN No. 48 are
effective for fiscal years beginning after December 15, 2006. The Company is currently
evaluating the impact the adoption of FIN No. 48 will have (based on continuing guidance
published by the FASB) on its consolidated financial statements.
In September 2006, the FASB has published FASB SFAS No. 157, Fair Value Measurements, to
eliminate the diversity in practice that exists due to the different definitions of fair
value and the limited guidance for applying those definitions in GAAP that are dispersed
among the many accounting pronouncements that require fair value measurements. The
provisions of SFAS No. 157 are effective for fiscals years beginning after November 15, 2007. The Company believes
the impact of SFAS No. 157 will not have a material effect on its consolidated financial
statements.
F-12
In September 2006, the FASB has published FASB SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, to require an employer to fully
recognize the obligations associated with single-employer defined benefit pension, retiree
healthcare, and other postretirement plans in their financial statements. SFAS No. 158
also requires an employer to disclose in the notes to financial statements additional
information on how delayed recognition of certain changes in the funded status of a defined
benefit postretirement plan affects net periodic benefit cost for the next fiscal year. The
Company believes the impact of SFAS No. 158 will not have a material effect on its
consolidated financial statements.
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin 108, Considering the Effects on Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements, (SAB 108). SAB 108 is effective for
fiscal periods ending after November 15, 2006. The Company does not anticipate that SAB 108
will have a material effect on its consolidated financial statements.
In February 2007, the FASB issued FASB SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, to expand the use of fair value measurement by permitting
entities to choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. SFAS 159 is effective
beginning the first fiscal year that begins after November 15, 2007. The Company is
currently evaluating the impact of adopting SFAS 159 on its consolidated financial
statements.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Advertising Expenses
Non-direct response advertising expenses are recognized in the period incurred. Non-direct
response advertising expenses totaled $8,896 and $14,210 for the three- and nine months
ended June 30, 2007 and $5,326 and $10,343 for the three- and nine months ended June 30,
2006, respectively.
Legal Costs
The Company expenses its legal costs as incurred except settlements which are expensed when
a claim is probable and estimatable.
Shipping and Handling Costs
The Company records amounts being charged to customers for shipping and handling as sales
and costs incurred in cost of sales.
F-13
B.
|
|
Covenants 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 SCIs president and majority shareholder entered into a ten-year
covenant not to compete with the Company This note has been paid in full.
|
|
|
|
On August 16, 2004, the Company extended the non-compete period by five additional years in
exchange for the exercise of stock options held by SCIs president under a stock
subscription agreement backed by a promissory note. The note has a principal sum of $12,500
together with aggregate interest on the unpaid principal balance of $2,500. Payments under
the note began July 1, 2005 and continued monthly with a final maturity date of October 1,
2005. The present value of the Companys obligation under this agreement was recorded as an
intangible asset and is being amortized over a total of fifteen years as shown in the
accompanying financial statements.
|
|
|
|
On October 14, 2004, the Company and Mr. Mark Thomas entered into a Resignation, Consulting,
Non-Competition and General Release Agreement (the Resignation Agreement) in connection
with Mr. Thomas resignation as Chief Executive Officer, Chief Financial Officer, President,
and as a director of the Company. Pursuant to the terms of the Resignation Agreement, Mr.
Thomas resigned such offices effective October 14, 2004.
|
|
|
|
The present value of the Companys obligation under the non-compete agreement was recorded
as an intangible asset and was amortized over two years as shown in the accompanying
financial statements. This obligation was paid in full in October 2006.
|
|
C.
|
|
Other Financial Information
|
|
|
|
Inventories
|
|
|
|
The components of inventory consist of the following at June 30, 2007 and September 30,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
06/30/2007
|
|
|
09/30/2006
|
|
Raw materials
|
|
$
|
1,245,787
|
|
|
$
|
2,100,501
|
|
Work in process
|
|
|
518,711
|
|
|
|
340,434
|
|
Finished goods
|
|
|
60,229
|
|
|
|
17,068
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
1,824,727
|
|
|
$
|
2,458,003
|
|
|
|
|
|
|
|
|
Furniture, Fixtures and Leasehold Improvements
Furniture, fixtures and leasehold improvements consisted of the following categories at June
30, 2007 and September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
06/30/2007
|
|
|
09/30/2006
|
|
Office furniture and equipment
|
|
$
|
398,627
|
|
|
$
|
345,535
|
|
Manufacturing equipment
|
|
|
568,646
|
|
|
|
463,367
|
|
Airplane
|
|
|
283,183
|
|
|
|
283,183
|
|
|
|
|
|
|
|
|
Total furniture, fixtures and
leasehold improvements
|
|
$
|
1,250,456
|
|
|
$
|
1,092,085
|
|
|
|
|
|
|
|
|
F-14
Depreciation Expense
Depreciation expense totaled $39,365 and $113,074 for the three- and nine months ended June
30, 2007, and $37,284 and $110,115 for the three- and nine months ended June 30, 2006,
respectively.
Other Accrued Liabilities
Other accrued liabilities consisted of the following categories at June 30, 2007 and
September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
06/30/2007
|
|
|
09/30/2006
|
|
Bonus and profit sharing plan accrual
|
|
$
|
131,114
|
|
|
$
|
215,971
|
|
Other miscellaneous accruals
|
|
|
69,346
|
|
|
|
28,959
|
|
|
|
|
|
|
|
|
Total other accrued liabilities
|
|
$
|
200,460
|
|
|
$
|
244,930
|
|
|
|
|
|
|
|
|
|
|
Related Parties Consulting Agreements with Directors
|
|
|
|
Effective as of November 19, 2004, the Company entered into a Consulting Agreement with Mr.
Boris Popov, a director of the Company, pursuant to which Mr. Popov would provide certain
consulting services relating to the Companys new product development. Pursuant to this
agreement, the initial term of which was six months, Mr. Popov is required to provide a
minimum of 64 hours of service per month for $3,200 per month and shall be paid an
additional $50 per hour for each hour over the 64 hour minimum. On March 16, 2006 the
Company extended this agreement for 24 additional months, through May 2008. Consulting
expenses for Mr. Popov were an aggregate of $27,333 for the first three quarters of fiscal
year 2007 and $25,573 for the year ended September 30, 2006.
|
|
|
|
Pursuant to the Securities Purchase Agreement dated June 22, 2007 with CIMSA Ingenieria de
Sistema, S.A., a Spanish company (CIMSA), the Company agreed to enter into a one-year
consulting agreement with Fernando Caralt, a director of the Company, whereby Mr. Caralt
would provide certain consulting services to the Company for $50,000. As of the date of
this report, the Company and Mr. Caralt have not entered into that agreement.
|
|
|
|
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. 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 Companys financial position, results of operations, or cash flows. Prior historical
product warranties have been immaterial.
|
|
D.
|
|
Geographical Information
|
|
|
|
The Company has operations in South St. Paul, Minnesota and Tijuana, Mexico. Information
about the Companys operations by geographical location are as follows for the quarter ended
June 30, 2007 and the year ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minnesota
|
|
|
Mexico
|
|
|
Consolidated
|
|
As of June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
7,294,504
|
|
|
$
|
667,754
|
|
|
$
|
7,962,258
|
|
Long-lived assets
|
|
$
|
958,298
|
|
|
$
|
292,158
|
|
|
$
|
1,250,456
|
|
Inventories
|
|
$
|
1,532,281
|
|
|
$
|
292,446
|
|
|
$
|
1,824,727
|
|
F-15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minnesota
|
|
|
Mexico
|
|
|
Consolidated
|
|
As of September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
4,687,830
|
|
|
$
|
727,426
|
|
|
$
|
5,415,256
|
|
Long-lived assets
|
|
$
|
890,705
|
|
|
$
|
201,380
|
|
|
$
|
1,092,085
|
|
Inventories
|
|
$
|
1,931,957
|
|
|
$
|
526,046
|
|
|
$
|
2,458,003
|
|
E.
|
|
Line-of-Credit Borrowings
|
|
|
|
The Company had a $400,000 line-of-credit with a bank which expired on February 6, 2007.
The line called for a variable interest rate of 9.75% at December 31, 2006 and September 30,
2006. At September 30, 2006, there was an outstanding balance of $302,265 under the line of
credit.
|
|
F.
|
|
Long-Term Debt
|
|
|
|
The components of long-term debt consist of the following at June 30, 2007 and September 30,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
06/30/2007
|
|
|
09/30/2006
|
|
Note payable Parsons, paid in full
with proceeds received from common
stock offerings in October and
November 2006. (Paid November 15,
2006).
|
|
$
|
|
|
|
$
|
729,091
|
|
Note payable Parsons, paid in full
on June 17, 2007
|
|
|
|
|
|
|
320,000
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
|
1,049,091
|
|
Less: debt refinanced through equity
offering
|
|
|
|
|
|
|
729,091
|
|
Less: current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
$
|
|
|
|
$
|
320,000
|
|
|
|
|
|
|
|
|
G.
|
|
Shareholders Equity
|
|
|
|
Common Stock and Stock Warrants
|
|
|
|
On June 22, 2006 and June 23, 2006, the Company accepted subscriptions from certain
directors and executive officers of the Company relating to the issuance of an aggregate of
322,956 shares of common stock and warrants to acquire 16,401 shares of common stock for an
aggregate purchase price of $439,220. The warrants have a three-year term and an exercise
price of $2.00 per share and have piggy-back registration rights. The Company paid no
underwriting discounts or commissions in connection with these sales. The price per share
was the same as the offering price as in the equity offering that closed on October and
November 2006. The common shares issued were restricted and unregistered shares. The price
per common share was $1.36 per share and the market price was approximately $1.50 per share.
The discount to market was due to the significant amount of shares issued and the fact the
shares were restricted and unregistered. The discount was not in exchange for board
services or any other services rendered or to be rendered.
|
F-16
On October 25, 2006, the Company, as part of its private placement offering of $3 million of
equity securities, accepted subscription agreements from 23 accredited investors for the
sale of 975,736 shares of the Companys Common Stock, par value $.01 per share ( Common
Stock), and warrants (the Warrants) to purchase 243,934 shares of Common Stock. The
Warrants have a three-year term and an exercise price of $2.00 per share. The Company
received gross proceeds from the sale of Common Stock and Warrants of $1,327,001, less
commissions in the aggregate amount of $92,890 and less a retainer and expenses of in the
aggregate amount of $20,000 paid to a placement agent assisting in the placement.
Additionally, the Company issued a three-year warrant to purchase 85,377 shares of Common
Stock at an exercise price of $2.00 per share to the placement agent (Agents Warrants). The Company has agreed to register the resale of
Common Stock and Common Stock issuable upon exercise of the Warrants and Agents Warrants.
On November 22, 2006, the Company accepted subscription agreements from 26 accredited
investors for the sale of 864,704 shares of Common Stock, and Warrants to purchase 216,176
shares of Common Stock. The Warrants have a three-year term and an exercise price of $2.00
per share. The Company received gross proceeds from the sale of Common Stock and Warrants
of $1,175,997, less commissions in the aggregate amount of $82,320 to a placement agent
assisting in the placement. Additionally, the Company issued a three-year Agents Warrant s
to purchase 75,661 shares of Common Stock at an exercise price of $2.00 per share to the
placement agent. The Company has agreed to register the resale of Common Stock and Common
Stock issuable upon exercise of the Warrants and Agents Warrants.
On January 10, 2007, the Company accepted subscriptions agreements from 11 accredited
investors for the sale of 194,400 shares of Common Stock and Warrants to purchase 48,600
shares of Common Stock. The Warrants have a three-year term and an exercise price of $2.00
per share. The Company received gross proceeds from the sale of common stock and warrants
of $264,384, less commissions in the aggregate amount of $18,507 paid to a placement agent
assisting in the placement. Additionally, the Company issued a three-year Agents Warrant
to purchase 17,010 shares of Common Stock at an exercise price of $2.00 per share to the
placement agent. The Company has agreed to register the resale of the Common Stock and the
Common Stock issuable upon exercise of the Warrants and Agents Warrants.
As noted above, the Company registered for resale Common Stock and Common Stock issuable
upon exercise of the Warrants and Agents Warrants. The private placement offering required
the Company to file a registration statement after the closing of the private placement
offering within 45 days. The final closing of the private placement offering was on January
10, 2007 and the registration statement was initially filed with the Securities and Exchange
Commission on February 22, 2007. The Company filed an amendment to the registration
statement on March 21, 2007 and it was declared effective by the Securities and Exchange
Commission on March 23, 2007.
On March 15, 2007, the Company agreed to issue 6,000 shares of common stock to each of its
five independent Board Members for a total of 30,000 shares, as partial compensation for
services at the next five board meetings through the Companys 2008 Annual Meeting of
Stockholders. The shares were valued at $1.85 per share (fair value at the date of award)
and are expensed as services are provided. These shares were issued on May 16, 2007.
On June 25, 2007, the Company issued 1,102,941 shares of Common Stock and a warrant to
purchase an additional 275,735 shares of Common Stock to CIMSA. The warrant has a
three-year term and an exercise price of $2.00 per share. The Company received gross
proceeds from the sale of Common Stock and Warrant of $1,500,000. The Company has agreed to
register the resale of the Common Stock and the Common Stock issuable upon exercise of the
warrant. There was no placement agent involved with this transaction. In addition, on June
25, 2007, the Board of Directors of the Company, pursuant to the CIMSA Securities Purchase
Agreement, increased the Board size from six directors to seven and appointed Fernando
Caralt to serve on the Board of Directors. Mr. Caralt is currently President of CIMSA,
which has utilized the Companys manufacturing services during fiscal 2007. No
determination has been made by the Board of Directors with respect to any Board Committee
appointments for Mr. Caralt.
F-17
Stock Options
In March 2004, Company shareholders at their annual meeting approved the 2004 Stock Option
Plan (the 2004 Plan), which provides for the granting of up to 600,000 options to
officers, directors, employees and consultants for the purchase of stock. Under the 2004
Plan, stock options must be granted at an exercise price not less than the fair market value
of the Companys common stock on the grant date. Vesting requirements of all awards under
this plan are time based and vary by individual grant. The options expire on the date
determined by the Board of Directors but may not extend more than ten years from the grant
date. Unexercised options are canceled 90 days after termination, and unvested awards are
canceled on the date of termination of employment and become available under the Stock
Option Plan for future grants.
The weighted average remaining contractual term of options exercisable at June 30, 2007, was
0.75 year.
The following table summarizes information about stock options outstanding at June 30, 2007:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
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Range of
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|
|
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|
|
Average
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|
|
Option
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|
|
|
|
|
|
|
Exercise
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|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Price
|
|
Options Outstanding September 30, 2004
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|
|
310,000
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|
|
|
1.09
|
|
|
$
|
0.44 - $1.38
|
|
Granted
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|
|
|
|
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
160,000
|
|
|
|
1.07
|
|
|
$
|
0.44 - $1.38
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding September 30, 2005
|
|
|
150,000
|
|
|
$
|
1.11
|
|
|
$
|
0.91 - $1.38
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|
Granted
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|
|
|
|
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
60,000
|
|
|
$
|
0.945
|
|
|
$
|
0.91 - $1.38
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding September 30, 2006
|
|
|
90,000
|
|
|
$
|
1.22
|
|
|
$
|
1.05 - $1.38
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
34,500
|
|
|
$
|
1.38
|
|
|
$
|
1.38
|
|
Exercised
|
|
|
10,500
|
|
|
$
|
1.38
|
|
|
$
|
1.38
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding June 30, 2007
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|
|
45,000
|
|
|
|
|
|
|
$
|
1.05
|
|
Options Exercisable June 30, 2007
|
|
|
45,000
|
|
|
|
|
|
|
$
|
1.05
|
|
The aggregate intrinsic value of options outstanding and exercisable is $31,500 and $43,650
at June 30, 2007 and 2006, respectively.
As of June 30, 2007, there was $0 of total unrecognized compensation costs related to the
outstanding stock options.
F-18
H.
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|
Commitments and Contingencies
|
Legal Proceedings
a) In August 2003, the Company was served in two related actions, Kathleen F. Fischer and
Susan Sedgwick in U.S. District Court for the Northern District of New York. These actions
arose from the crash of a Cirrus Design Corp. SR22 airplane in April 2002 near Parish, New
York. The Plaintiffs have brought claims for strict products liability, negligence and
breach of warranty against Cirrus Design, the airplanes 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 June and August 2006, the Company settled with such plaintiffs without any
liability to the Company.
(b) On April 17, 2004, an action was commenced against the Company by Aerospace Marketing,
Inc. and Charles Parsons v. Ballistic Recovery Systems, Inc., U.S. District Court, Middle
District of Florida, File No. 04-CV-242. The action resulted from the Companys
notification to Charles F. Parson in April 2004 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.
In 2005, a jury awarded damages to Parsons and Aerospace Marketing in the combined amount of
approximately $3.4 million for breach of contract. BRS settled this matter directly with
Parsons and Aerospace on September 19, 2005 by agreeing to pay $1.9 million pursuant to
terms described in the settlement agreement. An initial payment of $700,000 plus interest
was made on September 19, 2005. The remainder of the settlement amount was to be paid by
BRS over a term of 8 years, although BRS had the right to pre-pay remaining amounts due at
any time. On November 16, 2006, the Company prepaid $721,219 of such sum. The remaining
balance of $315,000 was paid in full on June 17, 2007.
(c) In April 2005, an action was commenced against the Company by Sue Jean McGrath,
individually and as successor in interest to Charles W. McGrath, deceased, Charles W.
McGrath III, Tanya Sue McGrath, Janny Sue McGrath, individually v. Cirrus Design
Corporation, Ballistic Recovery Systems, Inc., and Aerospace Systems and Technologies, Inc.,
U.S. District Court, Northern District of California, File No. C05-1542. The plaintiffs
have alleged vicarious liability, strict product liability, negligence and breach of
warranty against the defendants arising from the crash of a Cirrus Design Corp. SR22
airplane near Sugar Bowl, California. The case is currently in discovery. At this time the
Company cannot state with any degree of certainty what the outcome of the matter or the
amount or range of potential damages will be, although Cirrus has agreed to indemnify the
Company for damages related to this claim.
(d) On September 16, 2005, an action was commenced against the Company by Robert Treat
Rayner, in the Circuit Court of the 5th Judicial Circuit in and from Lake County Florida,
File No. 04 CA 1749. The Complaint alleges that plaintiff was injured when his ultralight
aircraft crashed while being towed by another ultralight. Plaintiff alleges that he
deployed his BRS system, but that it failed to deploy properly. The case is currently in
discovery. At this time, the Company cannot state with any degree of certainty what the
outcome of this matter will be or the amount or range of potential loss, if any. BRS
believes that it has strong defenses to the suit and will vigorously defend against the
claims.
F-19
The Board of Directors examines the liquidity and capital requirements of the Company at
each board meeting. The Board of Directors has the authority to declare a special dividend.
No dividend was declared or paid in the three and nine months ended June 30 2007.
Stock warrant activity is as follows for the nine months ended June 30, 2007:
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|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercise Price
|
|
Outstanding at September 30, 2006
|
|
|
16,401
|
|
|
$
|
2.00
|
|
Granted
|
|
|
962,493
|
|
|
|
2.00
|
|
Exercised or forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007
|
|
|
978,894
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
Warrants outstanding and exercisable as of June 30, 2007, are as follows:
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|
|
|
|
|
|
Weighted-Average
|
|
|
Remaining
|
|
|
|
|
contractual
|
|
Exercise
|
Warrants
|
|
life
|
|
prices
|
978,894
|
|
2.32
|
|
$2.00
|
Stock warrants issued during the nine months ended June 30, 2007 were awarded for:
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|
|
|
|
|
|
2007
|
|
Common stock
|
|
|
962,493
|
|
F-20
|
|
|
ITEM 2.
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|
Results of Operations:
Sales
Total sales increased $137,872, or 5.6%, from $2,468,209 for the three months ended June 30, 2006
to $2,606,081 for the three months ended June 30, 2007. On a year to date basis, sales increased
$208,498, or 3.1%, from $6,691,717 for the nine months ended June 30, 2006 to $6,900,215 for the
nine months ended June 30, 2007. Sales from the Companys general aviation products, which consist
primarily of sales to Cirrus, increased $178,315, or 9.9% for the third quarter and increased
$435,963, or 8.8% year to date. Sales from the Companys general aviation products accounted for
76.2% and 78.1% of total revenue for the three and nine months ended June 30, 2007, respectively,
compared to 73.3% and 74.1% for the three and nine months ended June 30, 2006, respectively. Sales
from the Companys recreational and LSA products decreased $72,366 from $658,669 to $586,303, or
11.0% for the third quarter and decreased $264,779 from $1,732,953 to $1,468,174, or 15.2% year to
date.
Sales of the Companys general aviation products consist largely of sales to Cirrus where the
Companys products are standard equipment on the Cirrus SRV, SR20 and SR22 model aircraft. The
Company delivered 504 and 519 units to Cirrus in first three quarters of fiscal years 2007 and
2006, respectively. The Company believes that Cirrus has a backlog of aircraft orders, all of
which are required to include the Companys 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 maintain fiscal year 2006 manufacturing volumes
for its aircraft throughout fiscal year 2007. As a result, the Company is forecasting flat growth
in fiscal year 2007 in its general aviation revenues. No assurance can be given that general
aviation revenues will remain as anticipated. Until the Company becomes diversed in general
aviation, future production volumes for the Companys 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 2007. Any negative
impact on Cirrus sales of Cirrus aircraft would have a significant negative impact on the
Companys revenues.
The Companys recreational and LSA aircraft product line sales decreased by 15.2% during the first
three quarters of fiscal year 2007 compared to the first three quarters of the prior fiscal year.
LSA and recreational sales accounted for 21.3% of the Companys revenues for first three quarters
of fiscal year 2007 versus 25.9% of the Companys revenues for the first three quarters of the
prior fiscal year. The LSA and recreational aircraft products business relies on acceptance of the
aircraft by the aviation public, customer acceptance of the Companys parachute concept and the
existence of installation designs for light sport and recreational aircraft.
The Company anticipates being able to expand its general aviation and recreational product lines to
include other certified and non-certified aircraft as the Companys recovery systems gain further
market acceptance. The Company is in ongoing discussions with domestic and foreign general
aviation and recreational aircraft companies that have expressed interest in utilizing certain of
the Companys 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. The Company did recently announce a relationship with Diamond Aircraft, a
manufacturer of a full line of general aviation aircraft, to develop a parachute system for the 5
seat DA50 Super Star as well as the previously announced Diamond DJet. No assurance can be given
that the Company will enter into a formal supply agreement with Diamond Aircraft or, if entered
into, that such relationship would be commercially successful. Furthermore, the Company would not
expect to see any revenues from any such agreement until fiscal year 2009 at the earliest.
1
The Company has commenced the establishment of a repack center which will have the capacity to
repack the parachute systems primarily for Cirrus-related units. Cirrus will be notifying its
owners on a systematic basis of the need to have the parachute system repacked. The Company
anticipates that it will be the exclusive provider of repacking services on Cirrus aircraft.
Gross Operating Margin
Gross operating margin as a percentage of revenues was 22.3% for the third quarter of fiscal year
2007 compared to 33.4% for the comparative quarter of fiscal year 2006. On a year to date basis,
the gross operating margin was 24.8% and 36.4% for fiscal years 2007 and 2006, respectively. The
factors contributing to the gross margin reduction was the costing of inventory and related
monitoring of inventory control related to the operations in Mexico. The Companys objective is to
maintain or improve overall gross margins in the future.
Selling, General and Administrative
Selling, general and administrative costs as a percentage of sales were 28.0% ($729,840) for the
third quarter of fiscal year 2007 as compared to 23.4% ($578,574) for the third quarter of fiscal
year 2006. On a year to date basis, these costs were 28.5% ($1,965,981) and 28.6% ($1,912,046) for
fiscal years 2007 and 2006, respectively. This net increase for the first three quarters of
$53,935 in selling, general and administrative costs consisted of a decrease in general and
administrative start-up costs for our Mexico production facility of $266,251, off-set by an
increase in insurance costs associated with the indemnification agreement with Cirrus totaling
$166,286, an increase in Board of Directors fees totaling $53,995, and an increase in new personnel
totaling $102,206. Prior to February 3, 2006, there were no product liability costs as the Company
did not maintain product liability insurance on any of its products. The prior year costs
associated with the Mexico operation included relocating operations to a new building, setting up
and production of test products and the testing of those products.
Research and Development
Research and development costs were 6.5% ($170,455) and 4.8% ($118,916) of sales for the third
quarter of fiscal years 2007 and 2006, respectively. On a year to date basis, these costs were
5.8% ($402,470) and 5.5% ($366,560) of sales for fiscal years 2007 and 2006, respectively. This
increase is due primarily to increased product development in connection with new product lines.
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.
The Company has undertaken research and development on potential new products and services
including enhancements to current products. Such efforts may result in future offerings and model
upgrades to existing products. The development efforts are funded through current operations and
it is unclear what impact, if any, these will have on future sales or financial performance of the
Company.
Acquisitions
As part of the overall growth strategy of the Company, it is managements intent to seek out,
evaluate and execute strategic acquisitions to grow the product base and integrate operations with
the primary focus on cost savings and product diversification. Management cannot state at this
point with any degree of certainty what the results of any future acquisitions may be or the
financial impact on Company operations.
2
Intangible Amortization
The Company records amortization expense related to the covenant not to compete agreements entered
into with SCI and Mr. Thomas over the remaining life of the agreements. Intangible amortization
expense decreased by $28,197 for the third quarter of fiscal year 2007 and decreased $75,191 year
to date over the same periods in the prior year due to the completion of the amortization on the
covenant not to compete agreement entered into with Mr. Thomas. This covenant not to compete
became fully amortized in October 2006.
Net Income (Loss) and Earnings (Loss) per Share
Income (loss) before income taxes as a percentage of revenues was 3.1% and 2.6% for the third
quarter of fiscal year 2007 and 2006, respectively.
Earnings per share were relatively consistent in the fiscal periods. On a diluted earnings per
share basis, net income of $52,024 for the third quarter of fiscal year 2007 was 2.0% of sales or
$0.01 per share, as compared to net income of $40,122, which was 1.6% of sales or $0.01 per share
for the prior fiscal year quarter.
Liquidity and Capital Resources:
As of June 30, 2007, the Company had cash and cash equivalents of $1,657,802. The Company believes
that existing cash and cash equivalents and cash generated from operations will provide sufficient
cash flow to meet working capital, capital expenditure and operating requirements during the next
12 months.
In closings completed on October 25, 2006, November 22, 2006 and January 10, 2007, the Company
completed a private placement offering to accredited investors of an aggregate of 508,710 units at
a price per unit of $5.44, each unit consisting of four shares of our common stock and a three-year
warrant to purchase an additional share of common stock at an exercise price of $2.00 per share.
Accordingly, the Company issued an aggregate of 2,034,840 shares of common stock and warrants to
purchase an aggregate of 508,710 shares of common stock in the offering, in consideration of total
gross proceeds of $2,767,382, less commissions of approximately $193,717 paid to The Oak Ridge
Financial Services Group, Inc., which served as a placement agent in the offering. The Company
further issued to Oak Ridge and its designated subagents three-year warrants to purchase an
aggregate of 178,048 shares of common stock at an exercise price of $2.00 per share. The Company
registered the resale of the common stock and the common stock issuable upon exercise of the
warrants and placement agents warrants pursuant to a registration statement on Form SB-2 which
became effective on March 23, 2007.
On November 15, 2006, the Company paid the unpaid principal and interest outstanding of $721,143 on
the first note payable to Parsons and Aerospace Marketing and paid $5,000 towards unpaid principal
on the second note payable to Parsons and Aerospace Marketing, leaving a principal balance payable
of $315,000. On June 17, 2007, the Company paid the remaining $315,000 balance.
On June 25, 2007, the Company issued 1,102,941 shares of Common Stock and a warrant to purchase an
additional 275,735 shares of Common Stock to CIMSA Ingenieria de Sistema, S.A., a Spanish company
(CIMSA). The warrant has a three-year term and an exercise price of $2.00 per share. The
Company received gross proceeds from the sale of Common Stock and the warrant of $1,500,000. The
Company has agreed to register the resale of the Common Stock and the Common Stock issuable upon
exercise of the Warrant. There was no placement agent involved with this transaction.
3
The Company anticipates a need to make continuing capital improvements of approximately $138,000
during the fiscal year ending September 30, 2007 to its current production facilities in both the
US and Mexico and continued equipment and tooling upgrades.
The Company does not presently have product liability insurance on any products other than the
Cirrus products and must fund the expenses of its pending lawsuits. Furthermore, a significant
judgment against the Company in its existing litigation could have a material impact on the
Company. The Company has incurred approximately $163,400 in legal fees for the first nine months
of fiscal year 2007 and $220,000 in legal fees for fiscal year 2006 attributable to all legal
support matters and the defense of its pending lawsuits.
In addition, requirements under the Sarbanes-Oxley Act will require increased expenditures as the
Company implements expanded compliance infrastructure and oversight.
The Private Securities Litigation Reform Act of 1995 provides a 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 anticipated Cirrus Design
delivery orders and schedules, the repack business, 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, development of Diamond and light jet products, market acceptance of the
LSA products, potential product liability claims and payment if such claims are successful, federal
transportation rules and regulation which may negatively impact the Companys 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, and changes in
federal or state laws or regulations.
Off-Balance Sheet Arrangements
During the first three quarters ended June 30, 2007, the Company did not engage in any off-balance
sheet arrangements as defined in Item 303(c) of Regulation S-B.
Critical Accounting Policies and Estimates
Our discussion and analysis or results of operation is based upon our consolidated 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 affect 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 our allowance for doubtful accounts,
inventory valuations, the lives and continued usefulness of furniture, fixtures and leasehold
improvements, deferred tax assets and contingencies. Due to uncertainties, however, it is at least
reasonably possible that managements estimates will change during
the next year, which cannot be estimated. Realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax liabilities and projected
future taxable income in making this assessment. Actual future operating results, as well as
changes in future performance, could have a material adverse impact on the valuation reserves. 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.
4
Recently Issued Accounting Pronouncements
In June 2006, the FASB has published FASB Interpretation (FIN) No. 48 (FIN No. 48), Accounting for
Uncertainty in Income Taxes, to address the noncomparability in reporting tax assets and
liabilities resulting from a lack of specific guidance in FASB SFAS No. 109, Accounting for Income
Taxes, on the uncertainty in income taxes recognized in an enterprises financial statements.
Specifically, FIN No. 48 prescribes (a) a consistent recognition threshold and (b) a measurement
attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return, and provides related guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
The provisions of FIN No. 48 are effective for fiscal years beginning after December 15, 2006. The
Company is currently evaluating the impact the adoption of FIN No. 48 will have (based on
continuing guidance published by the FASB) on its consolidated financial statements.
In September 2006, the FASB has published FASB SFAS No. 157, Fair Value Measurements, to eliminate
the diversity in practice that exists due to the different definitions of fair value and the
limited guidance for applying those definitions in GAAP that are dispersed among the many
accounting pronouncements that require fair value measurements. The provisions of SFAS No. 157 are
effective for fiscals years beginning after November 15, 2007. The Company believes the impact of
SFAS No. 157 will not have a material effect on its consolidated financial statements.
In September 2006, the FASB has published FASB SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans, to require an employer to fully recognize the
obligations associated with single-employer defined benefit pension, retiree healthcare, and other
postretirement plans in their financial statements. SFAS No. 158 also requires an employer to
disclose in the notes to financial statements additional information on how delayed recognition of
certain changes in the funded status of a defined benefit postretirement plan affects net periodic
benefit cost for the next fiscal year. The Company believes the impact of SFAS No. 158 will not
have a material effect on its consolidated financial statements.
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
108, Considering the Effects on Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements, (SAB 108). SAB 108 is effective for fiscal periods ending after
November 15, 2006. The Company does not anticipate that SAB 108 will have a material effect on its
consolidated financial statements.
In February 2007, the FASB issued FASB SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, to expand the use of fair value measurement by permitting entities to choose
to measure many financial instruments and certain other items at fair value that are not currently
required to be measured at fair value. SFAS 159 is effective beginning the first fiscal year that
begins after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS
159 on its consolidated financial statements.
5
|
|
|
ITEM 3.
|
|
CONTROLS AND PROCEDURES
|
As of June 30, 2007, the Company carried out an evaluation, with the participation of our Principal
Executive Officer and Principal 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 Principal Executive
Officer and Principal Financial Officer at the time concluded that our disclosure controls and
procedures are effective in alerting them on a timely basis to material information required to be
disclosed in our periodic reports to the Securities and Exchange Commission. During the quarter
ended June 30, 2007, 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.
6
Part II. OTHER INFORMATION
|
|
|
ITEM 1.
|
|
LEGAL PROCEEDINGS
|
Aerospace Marketing, Inc./Parsons
On April 17, 2004, an action was commenced against the Company by Aerospace Marketing, Inc.
and Charles Parsons v. Ballistic Recovery Systems, Inc., U.S. District Court, Middle
District of Florida, File No. 04-CV-242. The action resulted from the Companys
notification to Charles F. Parson in April 2004 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.
In 2005, a jury awarded damages to Parsons and Aerospace Marketing in the combined amount of
approximately $3.4 million for breach of contract. BRS settled this matter directly with
Parsons and Aerospace on September 19, 2005 by agreeing to pay $1.9 million pursuant to
terms described in the settlement agreement. An initial payment of $700,000 plus interest
was made on September 19, 2005. The remainder of the settlement amount was to be paid by
BRS over a term of 8 years, although BRS had the right to pre-pay remaining amounts due at
any time. On November 16, 2006, the Company prepaid $721,219 of such sum. The remaining
balance of $315,000 was paid in full on June 17, 2007.
McGrath
In April 2005, an action was commenced against the Company by Sue Jean McGrath, individually
and as successor in interest to Charles W. McGrath, deceased, Charles W. McGrath III, Tanya
Sue McGrath, Janny Sue McGrath, individually v. Cirrus Design Corporation, Ballistic
Recovery Systems, Inc., and Aerospace Systems and Technologies, Inc., U.S. District Court,
Northern District of California, File No. C05-1542. The plaintiffs have alleged vicarious
liability, strict product liability, negligence and breach of warranty against the
defendants arising from the crash of a Cirrus Design Corp. SR22 airplane near Sugar Bowl,
California. The case is currently in discovery. At this time the Company cannot state with
any degree of certainty what the outcome of the matter or the amount or range of potential
damages will be, although Cirrus has agreed to indemnify the Company for damages related to
this claim.
Rayner
On September 16, 2005, an action was commenced against the Company by Robert Treat Rayner,
in the Circuit Court of the 5th Judicial Circuit in and from Lake County Florida, File No.
04 CA 1749. The Complaint alleges that plaintiff was injured when his ultralight aircraft
crashed while being towed by another ultralight. Plaintiff alleges that he deployed his BRS
system, but that it failed to deploy properly. The case is currently in discovery. At this
time, the Company cannot state with any degree of certainty what the outcome of this matter
will be or the amount or range of potential loss, if any. BRS believes that it has strong
defenses to the suit and will vigorously defend against the claims.
7
Exhibits
The following documents are included or referenced in this report.
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Exhibit Number
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Description
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3.1
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Amended and Restated Articles of Incorporation as of March 15, 2007
(incorporated by reference to Exhibit 3.1 to the Companys Amended
Registration Statement on Form SB-2/A filed on March 21, 2007).
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3.2
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Amended and Restated Bylaws as of March 15, 2007 (incorporated by
reference to Exhibit 3.2 to the Companys Amended Registration
Statement on Form SB-2/A filed on March 21, 2007).
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4.1
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Form of Warrant issued to CIMSA Ingenieria de Sistema, S.A. dated
June 22, 2007 (incorporated by reference to Exhibit 4.1 of the
Companys Current Report on Form 8-K filed on June 26, 2007).
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10.1
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Securities Purchase Agreement between the Company and CIMSA
Ingenieria de Sistema, S.A. dated June 22, 2007 (incorporated by
reference to Exhibit 10.1 of the Companys Current Report on Form 8-K
filed on June 26, 2007).
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31.1
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Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
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31.2
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Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting
Officer.
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32.1
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Section 1350 Certification of Principal Executive Officer.
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32.2
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Section 1350 Certification of Principal Accounting Officer.
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8
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.
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Date: March 7, 2008
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/s/ Larry E. Williams
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By Larry E. Williams
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Principal Executive Officer
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/s/ Carl D. Langr
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By Carl D. Langr
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Principal Accounting Officer
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9
Exhibit Index
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Exhibit Number
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Description
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31.1
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Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
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31.2
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Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting
Officer.
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32.1
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Section 1350 Certification of Principal Executive Officer.
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32.2
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Section 1350 Certification of Principal Accounting Officer.
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10
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