<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

(Mark One)

    X     Annual Report Pursuant to Section 13 or 15(d) of the Securities
--------- Exchange Act of 1934 (Fee Required)

          For the fiscal year ended September 30, 1999

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

         For the transition period from __________ to __________

Commission File number 0-15318

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

         MINNESOTA                                       41-1372079
(State or other jurisdiction of                         (IRS Employer ID Number)
incorporation or organization)

300 AIRPORT ROAD, SOUTH ST. PAUL, MINNESOTA              55075-3541
(Address of Principal Executive Offices)                 (Zip Code)

Issuer's telephone number including area code: (651) 457-7491

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to Section 12(g) of the Act:  COMMON STOCK, $.01
                                                                 PAR VALUE
                                                             (Title of Class)

Check whether the Issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days: X Yes    No
                                                                  ---    ---

Check if there is no disclosure of delinquent filers in response to Item 405 of
Registration S-B contained in this form, and no disclosure will be contained, to
the best of the Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
                              ---

State Issuer's revenues for the most recent fiscal year:  $1,798,300.

Based upon the average bid and asked prices of the Issuer's Common Stock, the
aggregate market value of the Common Stock held by Non-affiliates of the Issuer
as of December 8, 1999 was approximately $4,126,000.

Number of shares outstanding as of December 8, 1999: 5,859,449.


   Index for exhibits is located on page 31. This document contains 33 pages.


                                       1

<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Definitive Proxy Statement to be used in connection
with the election of directors at the 2000 annual shareholders meeting (the
"Proxy Statement") are incorporated by reference into Part III, Items 9-12 as
follows:

PART OF FROM 10-K                             PORTION OF PROXY STATEMENT

1.       Part III, Item 9.                    1.      Proposal 1: Election
         Directors and Executive                      of Directors.
         Officers of the Registrant.

2.       Part III, Item 10.                   2.      Proposal 1: Executive
         Executive Compensation.                      Compensation.

3.       Part III, Item 11.                   3.      Common Stock Ownership of
         Security Ownership of                        Principal Shareholders and
         Certain Beneficial                           Management.
         Owners and Management.

4.       Part III, Item 12.                   4.      Certain Relationships and
         Certain Relationships and                    Related Transactions.
         Related Transactions.


                                       2
<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

Ballistic Recovery Systems, Inc. (the "Company") was incorporated in 1980 under
the laws of the State of Minnesota.

(a)      BUSINESS DEVELOPMENT

         The Company designs, manufactures and markets emergency parachute
         recovery systems for use with recreational and general aviation
         aircraft. The Company believes it is the only US manufacturer of whole
         aircraft recovery systems. In addition, the Company has designed
         systems for use with various military and civilian unmanned aircraft
         markets.

         Since its inception, the Company has delivered nearly 15,000 systems
         that have been installed on recreational and general aviation aircraft.
         To date, the Company has documented 129 lives spared through the use of
         its systems in actual in-air emergencies.

         Although the recreational aviation market presently accounts for the
         majority of the Company's revenues, the Company has been expanding its
         efforts in the general aviation market. During fiscal year 1999, the
         Company began delivery of systems for a newly certified aircraft known
         as the Cirrus Design SR20 (SR20). The Company believes that this and
         other general aviation aircraft can offer a significant revenue growth
         potential for the Company.

         The SR20 aircraft received Federal Aviation Administration (FAA)
         certification in October 1998 and includes the Company's parachute
         system as a standard equipment feature. The SR20 system was the second
         such system certified by the FAA for installation in general aviation
         aircraft. In early 1993, the Company received FAA approval for the
         GARD-150 product for installation on FAA-certified Cessna 150/152
         aircraft. At the end of fiscal year 1999, the Company began marketing
         efforts to receive funding for the development of a system for the
         Cessna 172 aircraft. The Company intends for the marketing efforts to
         provide the market research for the acceptance of such a system as well
         as to provide a source of funding for development of such a system. To
         date, the Company has received signed contracts with deposits from
         three owners of Cessna 172 aircraft as well as contract requests from
         50 additional prospects. The Company plans to continue its marketing
         efforts during fiscal year 2000 and make a determination during that
         year as to the viability of such development.

         The development of the system for the SR20 was a joint effort between
         the Company and Cirrus Design under an agreement that began in 1994 and
         culminated with FAA certification in late 1998. Under terms of the
         agreement, the Company retained all rights to the developed technology.
         Over the past several years, the Company has established various
         funding sources for its research and development. Outside funding for
         research and development activities is an ongoing objective for the
         Company, however, no assurances can be made that the Company will be
         successful in this regard.

         During fiscal year 1999, work was completed under the Company's Small
         Business Innovation Research grant (SBIR) through NASA. The purpose of
         the grant was to perform research on low-cost, lightweight aircraft
         emergency recovery systems. The grant, which began in March 1996, was
         for a maximum of $582,000 over the 36 month contract period.

         Also during fiscal year 1999, the Company completed a development
         contract for a recovery system for a prototype-unmanned aircraft being
         developed by a government contractor. The contract, with a maximum
         amount of $150,000, began in 1996 and called for the development and
         delivery of a series of recovery devices both for use in testing, and
         possibly in future production models.


                                       3

<PAGE>

(b)      NARRATIVE DESCRIPTION OF BUSINESS

         PRINCIPAL PRODUCTS:

         The Company's principal product line is whole aircraft emergency
         parachute recovery systems. The systems, in an in-air emergency
         situation, may be activated by the pilot releasing a parachute that is
         designed to open quickly, slow the decent of the aircraft, and lower it
         safely to the ground to prevent or reduce human injury and damage to
         the aircraft.

         RECREATIONAL AVIATION PRODUCTS:

         Recreational aviation products include products designed and
         manufactured for use on unregistered aircraft such as ultralights and
         aircraft registered with the FAA as experimental. The Company
         manufactures these products and sells them directly to individuals and
         through dealers and distributors who also market and sell the aircraft
         and related products.

         GENERAL AVIATION PRODUCTS:

         The Company's attempt to enter the general aviation market began in the
         mid 1980's when it began development of an emergency parachute recovery
         system for the Cessna 150/152 series of aircraft. In 1993, this system,
         known as the GARD-150, received a Supplemental Type Certificate (STC)
         from the FAA that allows owners of Cessna 150/152 model aircraft to
         install the system. Media attention for this new product resulted in
         domestic and international television and radio broadcasts as well as
         coverage in domestic and international aviation and non-aviation
         magazines. The Company believes that the successful completion of the
         product for the Cessna 150/152, which generated media attention for
         both the product and the Company, created interest in the Company's
         product by outside companies.

         Another product developed for the general aviation market is for a
         privately held company that has developed and certified a four-place
         all composite general aviation aircraft. The aircraft, known as the
         Cirrus Design SR20, was successfully certified on October 23, 1998.
         This is the first FAA certified aircraft to offer one of the Company's
         recovery systems as standard equipment. The Company began delivering
         systems for the SR20 during fiscal year 1999. Production of systems is
         scheduled to increase throughout the next several fiscal years as the
         customer accelerates its production of the aircraft. See Note 2 of
         Notes to Financial Statements for further information.

         At the end of fiscal year 1999, the Company began efforts to generate
         interest in a recovery system for the certified Cessna 172 aircraft.
         The Company began a marketing and media campaign designed to solicit
         purchase commitments from owners of Cessna 172 aircraft which would in
         turn provide partial or complete funding for the development and
         certification of the system. To date, the Company has received three
         signed purchase commitments and requests for contracts from 50
         additional prospects. The Company plans to continue its efforts during
         fiscal year 2000 and assess the viability of such development during
         that year.

         CONTRACT RESEARCH AND DEVELOPMENT:

         Contract research and development has allowed the Company to expand its
         product line and expertise in whole aircraft recovery systems. It has
         been and will continue to be a goal of the Company to receive outside
         funding for its research and development activities.


                                       4

<PAGE>

ITEM 1.  DESCRIPTION OF BUSINESS (CONTINUED)

(b)      NARRATIVE DESCRIPTION OF BUSINESS (CONTINUED)

         The Company completed a project through the Small Business Innovation
         Research grant (SBIR) program administered by NASA. The purpose of the
         grant was to perform research on low-cost, lightweight aircraft
         emergency recovery systems. The Company received initial funding during
         its fiscal year 1995 through a Phase I grant, and received subsequent
         funding through a Phase II grant beginning in fiscal year 1996. The
         Phase II grant, which began in March 1996, was for a maximum of
         $582,000 and was completed during the Company's fiscal year 1999. The
         purpose of the grant was not only to provide research in areas of
         interest to NASA, but also to develop products that can be
         commercialized by the small business entity. The Company hopes that the
         research will lead to products that have both military and civilian
         applications complimenting or enhancing the Company's current product
         line. See Note 3 of Notes to Financial Statements for further
         information.

         Also during fiscal year 1999, the Company completed work under a
         development contract for a recovery system for a prototype-unmanned
         aircraft being developed by a government contractor. The contract that
         began in 1996 was for a maximum amount of $150,000, and called for the
         development and delivery of a series of recovery devices both for use
         in testing, and possibly in future production models. See Note 4 of
         Notes to Financial Statements for further information.

         MANUFACTURING OPERATIONS AND SUPPLIERS:

         The Company's personnel in a South St. Paul, Minnesota facility, using
         components manufactured to its specifications perform assembly of the
         Company's product line. The parachutes utilized by the Company are
         purchased from a certain key supplier. The Company manufactures its own
         ballistic devices. Other components are purchased from a variety of
         suppliers or internally produced. The Company routinely searches for
         new vendors and feels alternate sources can be found should any of
         these vendors be unable to meet the Company's needs. In addition, the
         Company possesses or can acquire the expertise necessary for internal
         production of all key components.

         PATENTS:

         On August 26, 1986, United States Patent No. 4,607,814 was issued to
         the founder of the Company, for an explosively deployed parachute
         system for ultralight aircraft. The patent, which with the payment of
         continuing maintenance fees, is effective until 2003 and has been
         assigned to the Company. This patent does not cover the solid fuel
         extraction device aspect of the systems currently being sold by the
         Company.

         On September 5, 1989, United States Patent No. 4,863,119 was issued to
         the Company on behalf of two of the Company's employees for a
         "Parachute Reefing Device" as part of a parachute recovery system. The
         two employees assigned the patent to the Company, which with the
         payment of continuing maintenance fees is effective until 2006. This
         patented feature is utilized in the Company's sport aviation line as
         well as in its general aviation product. Current development projects
         also utilize the reefing device as an integral design component.

         When the Company completes development of additional ballistic
         parachute recovery systems, it intends to apply for patents for such
         systems if possible. There can be no assurance, however, that any
         patents will be granted or, if granted that they will be of material
         benefit to the Company.


                                       5

<PAGE>

ITEM 1.  DESCRIPTION OF BUSINESS (CONTINUED)

(b)      NARRATIVE DESCRIPTION OF BUSINESS (CONTINUED)

         SEASONALITY:

         Typically, the Company experiences seasonality in its sports aviation
         line. The second and third quarters have the highest sales as this
         product line is marketed to recreational pilots who tend to fly their
         aircraft during the warmer months and equip their aircraft with a
         recovery system near the beginning of the flying season. The Company's
         expansion in the general aviation market through the production of
         systems for the Cirrus Design SR20 will begin to lessen the impact of
         seasonality on the Company during fiscal year 2000.

         DEPENDENCE ON A SINGLE CUSTOMER:

         During the fiscal years ended September 30, 1999 and 1998, the Company
         was not dependent on any single customer that accounted for more that
         10% of its sales. The Company primarily distributes its products
         through dealers and distributors who in turn sell to the end consumer.
         The Company believes that in the event that any individual dealers or
         distributors cease to represent the Company's products, that
         alternative dealers or distributors can be established.

         BACKLOG OF ORDERS:

         As of September 30, 1999 and 1998, the Company had a backlog of orders
         totaling approximately $241,000 and $172,000, respectively. The 1999
         backlog is expected to be filled during fiscal year 2000.

         RESEARCH AND DEVELOPMENT:

         A summary of research and development is as follows:
<TABLE>
<CAPTION>
                                                      1999           1998
                                                   ---------      ---------
<S>                                                <C>            <C>
         Total research and development
           expenditures                            $218,500       $636,958

         Revenues recognized under contract
          research and development
          relationships                             (97,138)      (646,019)
                                                   ---------      ---------

         Research and development, net             $121,362      ($  9,061)
                                                   =========     ==========
</TABLE>


         The sources of the 1999 outside funding included the SBIR grant, and
         the unmanned aircraft recovery system as discussed in Note 2 of the
         Notes to Financial Statements.

         COMPETITION:

         The Company sells its ballistically deployed parachute recovery systems
         in the United States and internationally. The Company entered into a
         covenant not to compete agreement on October 26, 1995 with Second
         Chantz ("SCI"), whom the Company believes was the only domestic
         competitor for ballistically deployed parachute systems for the
         domestic sport aviation market. Several foreign companies have or are
         attempting to introduce new competitive products into the international
         sport aviation market. Competition is strong in the German market based
         on price, but the Company believes that it continues to make relatively
         strong sales in that market. At present, none of the foreign companies
         have successfully entered the domestic market. The Company believes its
         current systems were the first in the market and that its products and
         service are superior to its competitors.


                                       6

<PAGE>

ITEM 1.  DESCRIPTION OF BUSINESS (CONTINUED)

(b)      NARRATIVE DESCRIPTION OF BUSINESS (CONTINUED)

         COMPETITION (Continued):

         The FAA as part of the Cirrus Design SR20 has certified the Company's
         product, which is standard equipment on that aircraft. This is the
         first whole aircraft recovery system ever certified by the FAA as
         standard equipment. At present, there are no other manufacturers with
         the FAA Supplemental Type Certificate or FAA certification under a
         manufacturer's Type Certificate necessary to install a recovery system
         for the general aviation market. The Company is unaware of any other
         manufacturer performing contract or self-funded research and
         development activities in an effort to obtain Supplemental Type
         Certificates or Type Certificates for any other FAA certified aircraft.

         Many companies with resources and capabilities greater than those of
         the Company could develop, manufacture and market a parachute recovery
         system competitive with that of the Company, although the Company
         believes that such development and approval could take several years to
         complete.

         ENVIRONMENTAL COMPLIANCE:

         The Company believes that it is in compliance with all current federal
         and state environmental laws.

         EMPLOYEES:

         As of September 30, 1999, the Company had 13 full-time employees at its
         South St. Paul facility.

         YEAR 2000 COMPLIANCE ISSUE:

         During fiscal year 1998, the Company completed a review of: 1) its
         products; 2) the Company's manufacturing process for its products; and
         3) its internal computer systems and software packages to identify
         those that could be affected by the Year 2000 issue. First, none of the
         Company's products contain software or embedded microprocessors that
         are time sensitive. Second, the Company's manufacturing process is not
         automated to the extent that any part of the process is computerized or
         relies upon time-sensitive software. The process of manufacturing the
         Company's products is largely a mechanical process. Finally, none of
         the Company's computer systems or software packages will be affected by
         the Year 2000 issue based on our review. During fiscal year 1999, the
         Company contacted its suppliers, customers and banks to assess the
         possible impact, if any, of the Year 2000 compliance issue. It is not
         expected that there will be any material impact on the Company as a
         result of the Year 2000 issue, but no assurances can be made at this
         time. The Company believes that its actions to date and actions by its
         suppliers, customers and banks will minimize any risks to the Company.

         The Company has not yet seen the need to develop any widespread
         contingency plan for the Year 2000 issue, but as the Year 2000
         approaches, the Company will continue to monitor the situation if any
         further information presents itself based on the compliance programs of
         its vendors and customers. Given that some risks are beyond the control
         of the Company, the Company does not believe that it can develop a
         contingency plan that will totally shield the Company from an economic
         ripple effect throughout the entire economy should others fail to
         resolve their own Year 2000 issues.


                                       7

<PAGE>

ITEM 1.  DESCRIPTION OF BUSINESS (CONTINUED)

(b)      NARRATIVE DESCRIPTION OF BUSINESS (CONTINUED)

         YEAR 2000 COMPLIANCE ISSUE (CONTINUED):

         Based upon the Company's current assessment, the costs of addressing
         potential Year 2000 problems are not expected to be material or have a
         material adverse impact on the Company's financial position. While the
         Company fully anticipates achieving Year 2000 compliance well in
         advance of January 1, 2000, there are certain risks that do exist.
         Those risks run from slight delays in processing data to the most
         reasonably likely worst case scenario of the inability to communicate
         with customers and suppliers.

ITEM 2.  DESCRIPTION OF PROPERTY

         The Company leases a stand-alone 13,000 square foot office and
         production facility located at Fleming Field Airport in South St. Paul,
         Minnesota. The building is a World War II training hangar, which the
         Company renovated. (See Note 10 of Notes to Financial Statements).

ITEM 3.  LEGAL PROCEEDINGS

         The Company was named in a lawsuit based on the crash of an ultralight
         aircraft. The Company was released from the lawsuit during the first
         quarter of the current fiscal year. The Company believes that there is
         no potential for further liability in this matter.

         The Company was named in a lawsuit based on a claim from a former
         supplier of the Company. The Company has made a counter claim against
         the vendor for damages sustained by the Company. The Company believes
         that its counter claim is valid and that the potential for future
         liability in this matter is not material to the Company's financial
         position.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders through a
         solicitation of proxies or otherwise during the fourth quarter.


                                       8

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

(a)      MARKET INFORMATION

         The Company was formerly listed on the NASDAQ stock exchange after
         going public in 1986. However, NASDAQ delisted the Company in 1992
         following a change in the listing requirements. The stock is listed on
         the pink sheets and the electronic bulletin board on the over the
         counter market under the trading symbol of BRSI. Several Internet stock
         tracking services show the Company's trading volumes with bid and ask
         prices as far back as August 1995. Based on information provided by
         these Internet stock-tracking services, the Company believes that the
         asking price would be $2.25 and the bid price would be $2.1875 as of
         September 30, 1999.

         The following table sets forth the estimated high and low bid prices
         for the periods indicated. The estimated bid prices shown are based on
         information from several Internet stock-tracking services. These
         figures are estimates or averages and do not necessarily represent
         actual transactions.

<TABLE>
<CAPTION>
                                        First      Second      Third     Fourth
                                        Quarter    Quarter    Quarter    Quarter
                                        -------    -------    -------    -------

                  Common Stock:
                  -------------
                  <S>                  <C>        <C>        <C>        <C>
                  1999      High       $   1.19   $   0.94   $   0.75   $   3.00
                            Low        $   0.56   $   0.44   $   0.44   $   0.50

                  1998      High       $   0.56   $   1.06   $   1.06   $   1.50
                            Low        $   0.31   $   0.25   $   0.75   $   0.56
</TABLE>



(b)      HOLDERS

         As of December 8, 1999, the Company estimates there were approximately
         1,100 beneficial owners of the Company's common stock.

(c)      DIVIDENDS

         No dividends have been paid on the Company's securities and it is not
         anticipated that any dividends will be paid in the near future.


                                       9

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

BUSINESS OVERVIEW:

During the current fiscal year, the Company turned the page of a new chapter in
its long history of providing whole aircraft parachute recovery systems. This
year marks the first time that a parachute system was delivered to a customer
that will install it as standard equipment on a certified general aviation
aircraft. The Cirrus Design SR20 (SR20) is the first in a series of aircraft to
be manufactured by Cirrus Design Corporation (Cirrus) that has chosen to offer
the Company's product as a standard feature. As of the beginning of December
1999, the customer has firm orders for approximately 430 aircraft that will all
include the Company's parachute systems. The customer expects to be able to fill
this backlog of orders during the next 24 to 30 months. Future production
volumes for the aircraft, and therefore, the Company's parachute systems, will
be dictated by ultimate market demands. The Company is currently discussing
offering its product to the customer for future models of aircraft that the
customer plans to manufacture. The Company believes that this will help to
propel it forward into offering its systems to other manufactures and customers
in the certified general aviation market.

On March 30, 1999, the Company made its first two scheduled deliveries under the
open purchase order with Cirrus. The open purchase order is for the first 100
units to be delivered. The Company delivered an additional twelve units by the
end of the fiscal year for a total of 14 units delivered. These sales accounted
for approximately 8% of the Company's total revenues for the current fiscal
year. The Company believes that the customer will gradually accelerate its
production schedule as indicated in current purchase orders. Although there can
be no assurances that the Cirrus aircraft will be successful in its continued
market acceptance, the Company expects to make an increasing number of sales to
Cirrus as they continue to increase production and fill their increasing backlog
of customer orders.

During the current fiscal year the Company has moved into a period of transition
from research and development to production and market development. This has
resulted in the Company's shift from its position of being able to sell its
research and development capabilities to a need to expend capital and resources
to get the developed products and technologies on the market and to look for new
applications for those products and technologies. The Company believes that this
shift, which has resulted in temporary reduction in operating profits, will
result in revenue growth and improved profitability.

In addition, the Company anticipated being able to expand its product line to
include other certified and uncertified aircraft as the recovery system gains
further market acceptance. The Company has been in discussions with the US
military and several foreign companies that have expressed interest in utilizing
the Company's newly developed technology. No assurance can be made as to the
future benefits that will be derived from these discussions.

At the end of July 1999, the Company announced a program that is intended to
lead to the introduction of a parachute recovery system for the Cessna 172
aircraft. The Cessna 172 is one of the most popular general aviation aircraft
with approximately 36,000 planes manufactured. Twenty-eight thousand Cessna
172's are estimated to be in active service in the United States at this time.
Under the program, the Company is asking 172 owners to make deposits towards the
purchase of a recovery system. Once a certain number of owners have made their
deposits, the Company will begin the certification process with the FAA. Once
certified, the Company will begin manufacturing and delivery of units to the
owners that have placed deposits. The Company expects to be successful in its
solicitation efforts, but no assurances can be made of its success or the
long-term financial benefits to the Company. As of the beginning of December
1999, the Company has received signed contracts with deposits from three owners
of 172 aircraft as well as contract requests from 50 additional prospects.


                                       10

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

Another long-standing outside research and development project was for a
research grant under the SBIR program administered by NASA. Under the project,
the Company explored the possibilities of developing a new fabric for parachute
manufacturing that would reduce the weight and volume of currently existing
parachute recovery systems. Final testing was completed in February 1999 and
final reports and test articles were submitted to NASA on March 8, 1999. As a
result of the project, the Company applied for a patent for the new
manufacturing method that was developed. The Company expects to be able to
utilize the developed technology for a wide range of applications. This
expectation is based on the Company's belief in its ability to further develop
the technology either on its own or through cooperative efforts with outside
companies or agencies. The future applications will depend on a complete review
of market conditions, product acceptance and available funding. The Company has
begun discussions with a foreign company that has expressed interest in the
developed technology for currently existing commercial and military
applications. No assurance can be made as to the future benefits that will be
derived from these discussions.

RESULTS OF OPERATIONS:

SALES

Sales for the current fiscal year were ahead of the prior year by approximately
11%. The majority of the increase is a result of first deliveries for the Cirrus
Design SR20. Domestic sales have been strong, but throughout the prior fiscal
year and continuing on into the current fiscal year, the international markets
for the Company's products have been affected by a number of factors. These
factors include the economic unrest in Asia, a strong US currency that raises
the cost of the Company's exports, increased competition in Europe, and
increasing government regulations that make it more challenging to transport the
Company's product abroad. This has resulted in weaker sales internationally than
in previous years. In addition, certain markets may be reaching a saturation
point for the Company's product. The Company has expanded its efforts to improve
international business, but there can be no assurances that these efforts will
produce increased sales for the Company.

Sales in the recreational aircraft market for fiscal year 2000 are expected to
be even or slightly higher than the current fiscal year as a result of the
Company's efforts to improve international business and the improvement in
domestic aircraft sales. In addition to recreational market sales, it is
expected that the Company will continue delivery of systems for the newly
certified Cirrus Design SR20 aircraft. The Company made its first two scheduled
deliveries on March 30, 1999 with a total of 14 units delivered during fiscal
year 1999. These deliveries were under an open purchase order for the first 100
units. The remainder of these first 100 units is expected to be delivered within
the next 12 months. However, volume projections and timing of those volumes is
uncertain at this time. Although certified, there can be no assurances that this
aircraft will actually be produced in volumes that will have a material effect
on the Company.

GROSS MARGIN

The gross margin for the current fiscal year was better than that of the
previous fiscal year by a little more than 3%. The Company has made a concerted
effort to hold and improve the gross margin despite material cost increases. No
assurances can be made that this effort will result in steady or improving gross
margins into the future or if gross margins will decrease in the future.

OPERATING EXPENSES:

Selling, general and administrative costs have been held fairly constant in
actual dollars with that of the prior fiscal year and decreased as a percent of
sales by 2.5%. Expenditures in this category are expected to increase as the
Company accelerates its efforts to expand the general aviation market while
strengthening the sport and recreational market sales.


                                       11

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

Outside funding has offset a portion of research and development costs for both
fiscal years. Net research and development costs were higher in the current
fiscal year as the Company made contributions towards the expenses necessary to
complete development and testing of certain projects. In addition, personnel
added to complete certain outside research and development projects increased
the Company's expenses while funding for those projects was being reduced or had
come to an end. The Company believes that these added expenses were necessary to
complete its obligations under those projects. All of the outside research and
development projects underway at the end of fiscal year 1998 have been completed
during the Company's fiscal year 1999. The Company will continue to look for
sources for further outside funding of research and development, but there can
be no assurances that the Company will be successful in those efforts.

INCOME BEFORE INCOME TAXES

Income before income taxes was lower in the current year as a result of
expenditures made to support the completion of outside research and development
projects without the benefit of offsetting revenues. Income in future fiscal
years is expected to increase as a result of increased sales and potential
offset of a portion of the Company's research and development expenditures. As
the Company expands into different aircraft markets and expands its product
applications, market conditions will determine ultimate sales levels and
profitability.

INCOME TAXES EXPENSE (BENEFIT)

The benefit recorded in the prior fiscal year was a result of the valuation of
the Company's net operating loss carryforwards. The benefit was recorded based
on the Company's ability to demonstrate that there was a reasonable likelihood
of being able to utilize the carryforwards to offset State and Federal taxes on
future taxable income. No provision was recorded in the current fiscal year due
to the level of profitability attained in conjunction with past provisions
already recorded. If the Company continues to demonstrate its ability to utilize
even more of the carryforwards, consideration will be given to the recording of
additional benefits.

LIQUIDITY AND CAPITAL RESOURCES:

Management intends to fund all of its continuing operation out of its current
revenues with the exception of its contract research and development projects.
The Company has also established a line-of-credit for use in operations as
required. Management believes that the current business operation is adequate to
support the ongoing operations of the Company during the next twelve-month
period and will maintain and adjust expenses as necessary to improve
profitability. Current contract research and development projects have been
completed during the Company's fiscal year 1999. The Company will continue to
look for sources for contract research and development projects, but there can
be no assurances that the Company will be successful in its efforts.

The Company anticipates a need to make capital improvements to its current
production facility as well as expenditures to increase inventory levels as a
result of the production of general aviation units for the recovery system that
was recently certified. It is currently the intention of the Company to fund the
expenditures through current operations as well as revenues generated by those
units.

With the receipt of certification on October 23, 1998, the Cirrus Design SR20
aircraft became the first FAA certified aircraft to offer one of the Company's
parachute systems as standard equipment. Production of the aircraft is currently
underway and the first two end-customer aircraft were delivered in July 1999.
The Company made its first two scheduled deliveries of parachute systems on
March 30, 1999 with a total of 14 units delivered during the current fiscal
year. The Company is currently building parachute systems under an open 100-unit
purchase order, which is expected to be filled within the next 12 months.
Although certified, there can be no assurances that this aircraft will actually
be produced in volumes that will have a material effect on the Company.


                                       12

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

The Company completed work on its Small Business Innovation Research grant
(SBIR) through NASA on March 8, 1999. The purpose of the grant was to perform
research of low-cost, lightweight aircraft emergency recovery systems. The Phase
II grant, which began in March 1996, was for a maximum of $582,000. The Company
is currently looking for applications of the developed technology and is in
discussions with a foreign company that is interested in the technology for
their current military and commercial products.

The Private Securities Litigation Reform Act of 1995 provides "safe harbor" for
forward-looking statements. Certain information included in this Form 10-KSB and
other materials filed or to be filed by the Company with the Securities and
Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by the Company) contain statements that
are forward-looking, such as statements relating to plans for research projects,
anticipated Cirrus delivery schedules, other business development activities as
well as other capital spending, financial sources, the effects of competition
and resolution of any Year 2000 issues. Such forward-looking information
involves important risks and uncertainties that could significantly affect
anticipated results in the future and, accordingly, such results may differ from
those expressed in any forward-looking statements made by or on behalf of the
Company. These risks and uncertainties include, but are not limited to, the
elimination of funding for new research and development projects, the decline in
unregistered aircraft sales, potential product liability claims, dependence on
discretionary consumer spending, dependence on existing management, general
economic conditions, changes in federal or state laws or regulations.


                                       13

<PAGE>

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
                                                                                   Pg.
<S>                                                                                <C>
(1)      Financial Statements for the years ended September 30, 1999 and 1998:

         Independent Auditors' Report                                              15

         Balance Sheets as of September 30, 1999 and 1998                          16

         Statements of Operations for the years ended September 30, 1999
         and 1998                                                                  17

         Statements of Shareholders' Equity for the years ended
         September 30, 1999 and 1998                                               18

         Statements of Cash Flows for the years ended September 30,
         1999 and 1998                                                             19

         Notes to Financial Statements                                             20
</TABLE>

(2)      Financial Statement Schedules of Supplemental Information are no longer
         required under Regulation S-B.


                                       14

<PAGE>

                      CALLAHAN, JOHNSTON & ASSOCIATES, LLC
                  CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
                          7850 Metro Parkway, Suite 207
                              Minneapolis, MN 55425
                        (612) 858-7207 Fax (612) 858-7202






                          INDEPENDENT AUDITORS' REPORT

Shareholders and Board of Directors
Ballistic Recovery Systems, Inc.
South St. Paul, Minnesota

We have audited the accompanying balance sheets of Ballistic Recovery Systems,
Inc. as of September 30, 1999 and 1998 and the related statements of operations,
shareholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
an assessment of the accounting principles used and significant estimates made
by management, as well as an evaluation of the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ballistic Recovery Systems,
Inc. as of September 30, 1999 and 1998, and the results of operations, cash
flows and changes in shareholders' equity for the years then ended, in
conformity with generally accepted accounting principles.

/s/ Callahan, Johnston & Associates, LLC

Callahan, Johnston & Associates, LLC
Minneapolis, Minnesota
November 12, 1999


                                       15

<PAGE>

                     PART II - Item 7. Financial Statements

                        BALLISTIC RECOVERY SYSTEMS, INC.
                                 BALANCE SHEETS
                           September 30, 1999 and 1998

<TABLE>
<CAPTION>
                            ASSETS                                           1999             1998
                                                                          ----------      -----------
<S>                                                                         <C>              <C>
Current assets:
     Cash                                                                   $181,902          $20,100
     Accounts receivable - net of allowance for doubtful
         accounts of $2,500 and $2,500, respectively                          59,074          401,822
     Inventories                                                             340,355          252,713
     Deferred tax asset - current portion                                     25,000           25,000
     Prepaid expenses                                                          6,398            3,198
                                                                          ----------      -----------
         Total current assets                                                612,729          702,833
                                                                          ----------      -----------

Furniture, fixtures and leasehold improvements                               165,550          160,139
     Less accumulated depreciation                                          (104,158)         (81,611)
                                                                          ----------      -----------
         Furniture, fixtures and leasehold improvements - net                 61,392           78,528
                                                                          ----------      -----------

Other assets:
     Patents less accumulated amortization of
         $8,611 and $7,924, respectively                                       3,054            3,740
     Deferred tax asset - long-term portion                                  275,000          275,000
     Other intangible assets less accumulated amortization of
         $15,419 and $5,140, respectively                                     35,978           46,258
     Covenant not to compete less accumulated
         amortization of $148,613 and $110,669, respectively                 230,825          268,769
                                                                          ----------      -----------
         Total other assets                                                  544,857          593,767
                                                                          ----------      -----------

Total assets                                                              $1,218,978       $1,375,128
                                                                          ==========      ===========

             LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                        $58,580         $166,159
     Customer deposits                                                        94,257           73,180
     Accrued payroll                                                          35,958           48,792
     Other accrued liabilities                                                67,450           65,075
     Line-of-credit borrowings---                                                 --           35,884
     Current portion of bank note                                             15,312           13,566
     Current portion of covenant not to compete                               26,175           23,460
                                                                          ----------      -----------
         Current liabilities                                                 297,732          426,116
                                                                          ----------      -----------

Long-term bank note and covenant, less current portions                      207,275          250,770
                                                                          ----------      -----------

Shareholders' equity:
     Common stock ($.01 par value; 10,000,000 shares authorized;
      5,859,449 and 5,696,927 shares, respectively, issued
      and outstanding)                                                        58,595           56,969
     Additional paid-in capital                                            2,631,762        2,622,888
     Accumulated deficit                                                  (1,976,386)      (1,981,615)
                                                                          ----------      -----------
         Total shareholders' equity                                          713,971          698,242
                                                                          ----------      -----------
Total liabilities and shareholders' equity                                $1,218,978       $1,375,128
                                                                          ==========      ===========
</TABLE>


   The Accompanying Notes are an Integral Part of these Financial Statements.


                                       16

<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                            STATEMENTS OF OPERATIONS
                     Years Ended September 30, 1999 and 1998

<TABLE>
<CAPTION>
                                                                1999            1998
                                                            -----------      -----------
<S>                                                          <C>              <C>
Sales                                                        $1,798,300       $1,622,544
Cost of sales                                                 1,104,914        1,046,934
                                                            -----------      -----------

Gross profit                                                    693,386          575,610

Selling, general and administrative                             460,750          456,733
Research and development, net (Note 2)                          121,362           (9,061)
                                                            -----------      -----------
Income from operations                                          111,274          127,938

Other income (expense):
     Interest expense                                           (42,158)         (40,439)
     Intangible amortization                                    (48,223)         (43,084)
     Other - net                                                (15,664)             ---
                                                            -----------      -----------

Income before income taxes                                        5,229           44,415

Income taxes expense (benefit) (Notes 1 and 8)                      ---         (100,000)
                                                            -----------      -----------

Net income                                                       $5,229         $144,415
                                                            ===========      ===========


Basic earnings per share                                          $0.00            $0.03
                                                            -----------      -----------

     Weighted average number of shares outstanding            5,731,131        4,657,469
                                                            ===========      ===========

Diluted earnings per share                                        $0.00            $0.03
                                                            -----------      -----------

     Weighted average number of shares outstanding            6,057,733        4,841,400
                                                            ===========      ===========
</TABLE>


   The Accompanying Notes are an Integral Part of these Financial Statements.


                                       17

<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                       STATEMENTS OF SHAREHOLDERS' EQUITY
                     Years Ended September 30, 1999 and 1998

<TABLE>
<CAPTION>
                              Common Stock
                              ------------              Additional                            Share-
                          Number of                      Paid-in       Accumulated           Holders'
                           Shares         Amount         Capital      Equity(deficit)         Equity
                           ------         ------         -------      ---------------         ------

<S>                        <C>            <C>           <C>           <C>                    <C>
Balance 9/30/97            4,468,772      $44,688       $2,625,639      ($2,126,030)         $544,297

Issuance of stock in
lieu of director fees          7,438           74            4,926              ---             5,000

Stock options
exercised                     10,000          100            4,430              ---             4,530

Net stock issued
under cashless
transaction                1,210,717       12,107          (12,107)             ---               ---

Net income                       ---          ---              ---          144,415           144,415
                          ----------   ----------       ----------       ----------        ----------

Balance 9/30/98            5,696,927      $56,969       $2,622,888      ($1,981,615)         $698,242

Issuance of stock in
lieu of director fees          4,844           49            3,951              ---             4,000

Stock options
exercised                     14,616          146            6,354              ---             6,500

Net stock issued
under cashless
transaction                  143,062        1,431           (1,431)             ---               ---

Net income                       ---          ---              ---             5,229            5,229
                          ----------   ----------       ----------       ----------        ----------

Balance 9/30/99            5,859,449      $58,595       $2,631,762      ($1,976,386)         $713,971
                          ==========   ==========       ==========       ==========        ==========
</TABLE>


The Accompanying Notes are an Integral Part of these Financial Statements.


                                       18

<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                             STATEMENTS OF CASH FLOW
                     Years Ended September 30, 1999 and 1998

<TABLE>
<CAPTION>
                                                                 1999             1998
                                                                 ----             ----
Cash flows from operating activity:
<S>                                                              <C>            <C>
     Net income                                                  $5,229         $144,415
     Adjustments to reconcile net income to net cash
     from operating activity:
         Depreciation and amortization                           33,513           27,253
         Provision for deferred tax benefit                         ---         (100,000)
         Amortization of covenant not to compete                 37,944           37,943
         Inventory valuation reserve                             12,000          (10,000)
         Stock issued in lieu of board fees                       4,000            5,000
         Provision for bad debts                                    ---          (10,000)
         (Increase) decrease in:
          Accounts receivable                                   342,748         (181,816)
          Inventories                                           (99,642)          23,771
          Prepaid expenses                                       (3,200)            (214)
         Increase (decrease) in:
          Accounts payable                                     (107,579)         114,198
          Customer deposits                                      21,077          (22,221)
          Accrued expenses                                      (10,460)         (58,908)
                                                              ---------         --------
     Net cash flows from operating activities                   235,630          (30,579)
                                                              ---------         --------

Cash flows from investing activities:
     Investment in other intangible assets                          ---          (51,398)
     Capital expenditures                                        (5,411)         (12,666)
                                                              ---------         --------

     Net cash flows from investing activities                    (5,411)         (64,064)
                                                              ---------         --------

Cash flows from financing activities:
     Net borrowing under line-of-credit agreement               (35,884)          35,884
     Exercise of stock options6,500                               4,530
     Principal payments on debt                                 (13,853)         (12,219)
     Principal payments on covenant not to compete              (25,180)         (32,649)
                                                              ---------         --------

     Net cash flows from financing activities                   (68,417)          (4,454)
                                                              ---------         --------

Increase (decrease) in cash                                     161,802          (99,097)
Cash  - beginning of year                                        20,100          119,197
                                                              ---------         --------

Cash - end of period                                           $181,902          $20,100
                                                              =========         ========
</TABLE>

   The Accompanying Notes are an Integral Part of these Financial Statements.


                                       19

<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                     YEARS ENDED SEPTEMBER 30, 1999 AND 1998

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     NATURE OF BUSINESS

     Ballistic Recovery Systems, Inc. (the "Company") designs, manufactures and
     distributes ballistically deployed emergency parachute systems used on
     recreational aircraft and certain models of general aviation aircraft. The
     Company has also been successful in its efforts to receive outside funding
     to expand its research and development activities through research grants
     and contract R&D services. The Company has completed development of an
     emergency recovery system for a four-place general aviation aircraft. This
     aircraft was certified by the Federal Aviation Administration (FAA) in
     October 1998 and features the Company's parachute as standard equipment.
     Production of the aircraft is underway and the Company began delivering the
     first parachute systems to the customer during fiscal year 1999. Other
     research and development contracts that were completed during fiscal year
     1999 as well as newly proposed development projects also have the potential
     to produce future business for the Company. The Company's products are sold
     both domestically and internationally.

     USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and reported amounts of revenues and expenses during
     the reporting period. Actual results could differ from those estimates.

     CASH CONCENTRATIONS

     Bank balances periodically exceeded federally insured levels during 1999
     and 1998.

     ACCOUNTS RECEIVABLE

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

     Two customers account for 80% of accounts receivable at September 30, 1999.

     INVENTORIES

     Inventories are recorded at the lower of cost (determined on a first-in
     basis) or market. The estimated loss that management believes is probable
     is included in the inventory valuation allowance. Due to uncertainties,
     however, it is at least reasonably possible that management's estimate will
     change during the next year. That amount cannot be estimated.


                                       20

<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                     YEARS ENDED SEPTEMBER 30, 1999 AND 1998

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     CUSTOMER DEPOSITS

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

     FIXED ASSETS

     Fixed assets 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. 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.

     INTANGIBLES

     Patents are recorded at cost and are being amortized on a straight-line
     method over 17 years. The covenant not to compete is recorded at cost and
     is being amortized using the straight-line method over the ten-year term of
     the agreement. Other intangible assets are recorded at cost and are being
     amortized on a straight-line method over five years.

     EARNINGS PER SHARE

     The company has implemented SFAS 128: Earnings Per Share. Basic EPS
     excludes dilution and is computed by dividing net income by the
     weighted-average number of common shares outstanding for the year. Diluted
     EPS reflects the potential dilution from stock options and is computed
     using the treasury stock method. Under the treasury stock method stock
     options are assumed to have been exercised at the beginning of the period
     if the exercise price exceeds the average market price during the period.

<TABLE>
<CAPTION>
                                       Shares            Days                     Weighted
         Dates Outstanding          Outstanding       Outstanding               Average Shares
         -----------------          -----------       -----------               --------------

<S>                                  <C>                 <C>                     <C>
         10/1/98 to 9/30/99           5,696,927           365                     5,696,927
         1/2/99 to 9/30/99                4,616           210                         2,656
         6/1/99 to 9/30/99               10,000           121                         3,315
         7/20/99 to 9/30/99             143,062            72                        28,220
         9/30/99                          4,844             1                            13
                                                                                -----------

         Weighted-Average Shares for basic EPS                                    5,731,131

         Incremental shares from assumed exercise of options                        326,602
                                                                                -----------

         Adjusted Weighted-Average Shares for diluted EPS                         6,057,733
                                                                                ===========

         Income available to common shareholders                                     $5,229
                                                                                ===========
</TABLE>


                                       21

<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                     YEARS ENDED SEPTEMBER 30, 1999 AND 1998

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     INCOME TAXES

     Timing differences relate primarily to: allowances for doubtful accounts;
     inventory valuation allowances; and accrued expenses not currently
     deductible. Beginning in fiscal year 1997 and continuing to the present, a
     deferred tax asset, net of a valuation reserve, is reflected for future
     benefit of the Company's net operating loss carry forwards and net timing
     differences.

     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 $30,642 in 1999
     and $29,796 in 1998.

     At the end of fiscal year 1999 the Company commenced a direct response
     advertising effort to receive funding for the development of a parachute
     system for the Cessna 172 aircraft. Costs of this direct response
     advertising of $4,523 were capitalized in fiscal year 1999. These
     capitalized costs will be matched with the expected revenue stream in
     fiscal year 2000 over a period currently estimated at six to twelve months.

2.   NEW PRODUCT DEVELOPMENT, RESEARCH AND DEVELOPMENT FUNDING AND INCOME
     RECOGNITION

     During fiscal year 1999, the Company began delivery of systems for a newly
     certified aircraft known as the Cirrus Design SR20 (SR20). The SR20
     aircraft received Federal Aviation Administration (FAA) certification in
     October 1998 and includes the Company's parachute system as a standard
     equipment feature. The development of the system for the SR20 was a joint
     effort between the Company and Cirrus Design under an agreement that began
     in 1994 and culminated with FAA certification in late 1998. Under terms of
     the agreement, the Company has retained the developed technology for the
     parachute systems in general and the outside company has retained the
     developed technology that is specific to their individual aircraft.

     Under terms of the original agreement, $352,181 was reflected as an offset
     to research and development expenses and is netted in the expense for 1998.
     No offset was recorded during fiscal year 1999. All amounts due to the
     Company had been paid by the end of fiscal year 1999.

     The Company completed a project through the Small Business Innovation
     Research grant (SBIR) program administered by NASA. The purpose of the
     grant was to perform research on low-cost, lightweight aircraft emergency
     recovery systems. The Company received initial funding during its fiscal
     year 1995 through a Phase I grant, and received subsequent funding through
     a Phase II grant beginning in fiscal year 1996. The Phase II grant, which
     began in March 1996, was for a maximum of $582,000 and was completed during
     the Company's fiscal year 1999. The purpose of the grant was not only to
     provide research in areas of interest to NASA, but also to develop products
     that can be commercialized by the small business entity. The Company hopes
     that the research will lead to products that have both military and
     civilian applications complimenting or enhancing the Company's current
     product line.

     For the years ended September 30, 1999 and 1998, the Company recognized
     $84,997 and $254,032, respectively, as an offset to research and
     development expenditures for work performed on the Phase II project. All
     amounts due under this contract were paid by the end of fiscal year 1999.


                                       22

<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                     YEARS ENDED SEPTEMBER 30, 1999 AND 1998

2.   NEW PRODUCT DEVELOPMENT, RESEARCH AND DEVELOPMENT FUNDING AND INCOME
     RECOGNITION (CONTINUED)

     Also during fiscal year 1999, the Company completed work under a
     development contract for a recovery system for a prototype-unmanned
     aircraft being developed by a government contractor. The contract that
     began in 1996 was for a maximum amount of $150,000, and called for the
     development and delivery of a series of recovery devices both for use in
     testing, and possibly in future production models. $4,704 and $39,807,
     respectively, has been recognized as an expense offset under this purchase
     order as of September 30, 1999 and 1998.

     At the end of fiscal year 1999, the Company began efforts to generate
     interest in a recovery system for the certified Cessna 172 aircraft. The
     Company began a marketing and media campaign designed to solicit purchase
     commitments from owners of Cessna 172 aircraft which would in turn provide
     partial or complete funding for the development and certification of the
     system. To date, the Company has received three signed purchase commitments
     and requests for contracts from 50 additional prospects. The Company plans
     to continue its efforts during fiscal year 2000 and assess the viability of
     such development during that year.

3.   PURCHASE AND SUPPLY AGREEMENT

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

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

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

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

<TABLE>
<CAPTION>
           Fiscal Year                 Equity Contribution
           -----------                 -------------------
           <S>                         <C>
               2003                      $250,000
               2004                       562,500
               2005                       812,500
                                       ----------
               Total                   $1,625,000
                                       ==========
</TABLE>


                                       23

<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                     YEARS ENDED SEPTEMBER 30, 1999 AND 1998

4.   COVENANT NOT TO COMPETE

     On October 26, 1995 the Company entered into an agreement with the
     president and majority shareholder of Second
     Chantz Aerial Survival Equipment, Inc. (SCI), whereby SCI ceased all
     business activities, andSCI's president and majority shareholder entered
     into a ten year covenant not to compete with the Company.

     In exchange for the above the Company agreed to make payments on the
     covenant not to compete. The agreement did not involve a stock or asset
     purchase. In addition, the Company did not agree to assume any liabilities
     of SCI or its president. The payments required under this agreement contain
     a non-interest-bearing portion and a portion that bears interest at a rate
     below the Company's incremental borrowing rate. Under generally accepted
     accounting principles the future payments have been discounted at the
     Company's incremental borrowing rate of 11.0% resulting in a resulting in a
     present dollar valuation of $379,438 on the $584,362 future dollar
     valuation. The carrying amount of this debt approximates fair value because
     the interest rate approximates the Company's incremental borrowing rate.

     The non interest bearing note called for monthly payments of $1,500 for
     forty-six months (February 1996 to November 1999). However, the Company
     negotiated a discount on this note and accelerated payments that were
     completed in December 1997. The 4% ten year note calls for monthly payments
     of $4,036 (November 1995 to October 2005). Payments under this agreement
     are unsecured.

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

     Future payments under this agreement are as follows:

<TABLE>
<CAPTION>
                                           Future      Present
                                          Dollars      Dollars
                                          -------      -------
         <S>                             <C>          <C>
         2000                              48,436       26,176
         2001                              48,436       29,204
         2002                              48,436       32,583
         2003                              48,436       36,354
         2004                              48,436       40,561
         Thereafter                         7,722       49,255
                                         --------     --------
                                         $249,902     $214,133
                                         --------     --------
                                         --------     --------

</TABLE>

     The Company also granted SCI's president an option to purchase 50,000
     shares of the Company's common stock at an exercise price of $.25. This
     option has a ten-year life and vests 20% per year over five years.

5.   LONG-TERM DEBT

     On November 5, 1996, the Company signed a note payable with the bank in the
     amount of $70,030. The purpose of the loan was to pay for renovations to
     the current production facility that the company took possession of on
     October 1, 1996. The note calls for interest at a rate 2% over the bank's
     index rate, which was 8.25% at the time of signing. The index rate was
     7.75% as of September 30, 1999, which computes to a total interest rate of
     9.75%. The note has scheduled payments over a sixty-month period of $1,501
     per month. The scheduled maturity date of the note is November 5, 2001.
     However, the note has a demand provision, which can be exercised by the
     bank at any time, but no demand for payment in full is expected during the
     term of the note. The balance on the loan at September 30, 1999 was
     $34,630. The carrying amount of this debt approximates fair value because
     the interest rate changes with market rates. This loan is secured by all of
     the Company's assets.


                                       24

<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                     YEARS ENDED SEPTEMBER 30, 1999 AND 1998

5.   LONG-TERM DEBT (CONTINUED)

     Future maturities on long-term debt at September 30, 1999 are as follows:

<TABLE>
     <S>       <C>
     2000      $15,312
     2001       16,873
     2002        2,445
               -------

               $34,630
               =======
</TABLE>

6.   OTHER FINANCIAL INFORMATION

     INVENTORIES

     Inventories consisted of the following at September 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                           1999         1998
                                           ----         ----
<S>                                      <C>          <C>
     Raw materials                       $230,455     $181,997
     Work in process                       88,837       43,851
     Finished goods                        21,063       26,865
                                         --------       ------
         Total Inventories               $340,355     $252,713
                                         ========     ========
</TABLE>


     DEPRECIATION EXPENSE

     Depreciation expense totaled $22,547 in 1999 and $21,427 in 1998.

     LONG-LIVED ASSETS

     In accordance with SFAS 121, Accounting For The Impairment Of Long-Lived
     Assets And For Long-Lived Assets To Be Disposed Of, the Company reviews its
     long-lived assets and intangibles related to those assets periodically to
     determine potential impairment by comparing the carrying value of the
     long-lived assets outstanding with estimated future cash flows expected to
     result from the use of the assets, including cash flows from disposition.
     Should the sum of the expected future cash flows be less than the carrying
     value, the Company would recognize an impairment loss. An impairment loss
     would be measured by comparing the amount by which the carrying value
     exceeds the fair value of the long-lived assets and intangibles. To date,
     management has determined that no impairment of long-lived assets exists.

     MAJOR CUSTOMERS

     During the fiscal years ended September 30, 1999 and 1998, the Company was
     not dependent on any single customer that accounted for more that 10% of
     its sales. The Company primarily distributes its products through dealers
     and distributors who in turn sell to the end consumer. The Company believes
     that in the event that any individual dealers or distributors cease to
     represent the Company's products, that alternative dealers or distributors
     can be established.


                                       25

<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                     YEARS ENDED SEPTEMBER 30, 1999 AND 1998

6.   OTHER FINANCIAL INFORMATION (CONTINUED)

     EXPORT SALES

     The Company's international sales are made through independent
     representatives in various foreign countries. International sales as a
     percentage of total sales were 24% in 1999 and 32% in 1998.

     MAJOR SUPPLIERS

     During the fiscal years ended September 30, 1999 and 1998, the Company
     purchased its parachutes from a certain key vendor. During fiscal year
     1998, the Company designed, tested and began manufacturing its own
     ballistic devices. The Company routinely searches for new suppliers and
     feels alternate sources can be found should any of these suppliers be
     unable to meet the Company's needs.

     RELATED PARTY

     The Company contracts with an officer/shareholder of the Company to
     coordinate its advertising. Total advertising expenses were $30,642 and
     $29,796 for 1999 and 1998, respectively. The advertising rates charged are
     at or below current market rates. The Company owed this related party
     $53,696 as of September 30, 1999 and $47,363 as of September 30, 1998.

7.   LINE-OF CREDIT BORROWINGS

     Beginning February 24, 1998, the Company was operating under a $150,000
     line-of-credit for use in operations. The line-of-credit was established on
     an annual renewal basis and is secured by all of the Company's assets. The
     latest line-of-credit expires February 28, 2000. The line calls for a
     variable interest rate of 2% over the bank's index rate. At September 30,
     1999, there was no outstanding balance under the line, which carried an
     interest rate of 9.75%. The previous line-of-credit was for $35,000 and was
     in place for the first portion of fiscal year 1998. The Company expects to
     renew the line each year following the review of its financial results and
     projections with the bank.

8.   INCOME TAXES

     Income taxes consisted of the following at September 30:

<TABLE>
<CAPTION>
                                                   1999               1998
                                                 -------            -------
<S>                                                 <C>                <C>
           Current:
          Federal                                   $ -                $ -
          State                                       -                  -
          State minimum fee                        (300)              (300)
                                                 ------           --------
                                                   (300)              (300)
                                                 ------           --------
           Deferred:
          Federal                                     -             75,000
          State                                       -             25,300
                                                 ------           --------
                                                      -            100,300
                                                 ------           --------

           Income tax benefit (expense)          $ (300)          $100,000
                                                 ======           ========
</TABLE>


                                       26
<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                     YEARS ENDED SEPTEMBER 30, 1999 AND 1998

8.   INCOME TAXES (CONTINUED)

     The reconciliation between expected federal income tax rates is as follows:

<TABLE>
<CAPTION>
                                                   1999                           1998
                                                   ----                           ----
                                         Amount           Percent       Amount           Percent
                                         ------           -------       ------           -------

<S>                                      <C>              <C>         <C>                <C>
         Expected federal tax            $(1,800)         (34.0%)     $ (15,200)         (34.0%)
         Surtax exemption                    800           15.3           8,400           18.9
         State income tax, net
           of federal tax
           benefit                          (300)          (5.7)         (2,900)          (6.5)
         Valuation and utilization
           of net operating loss
           carryforwards                   1,300           24.4         109,900          247.5
         State minimum fee                  (300)          (5.7)           (300)          (0.7)
                                       ---------      ---------       ---------      ---------

                                          $ (300)          (5.7)%     $ 100,000          225.2%
                                       =========      =========       =========      =========
</TABLE>

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

<TABLE>
<CAPTION>
                                                          1999              1998
                                                          ----              ----
<S>                                                 <C>           <C>
          Deferred tax assets:

            Allowance for doubtful accounts           $  1,000       $    1,000
            Inventory valuation allowance               21,000           16,000
            Section 263A adjustment                     12,000            9,300
            Depreciation of leaseholds                  (4,000)           2,700
            Vacation accrual                             5,400            6,600
            Other accruals                               2,600            6,800
            Net operating loss carryforward            942,000          962,000
                                                    ----------        ----------

         Gross deferred tax asset                      980,000        1,004,400
         Valuation allowance                          (680,000)        (704,400)
                                                    ----------       ----------

         Net deferred tax asset                        300,000          300,000
         Deferred tax liability                              -                -
                                                    ----------       ----------
         Net deferred tax asset (liability)           $300,000        $ 300,000
                                                    ==========       ==========

         Current deferred tax asset                   $ 25,000        $  25,000
         Long-term deferred tax asset                  275,000          275,000
                                                    ----------       ----------

                                                      $300,000        $ 300,000
                                                      ==========     ==========
</TABLE>

         During 1998 the Company reduced the valuation allowance relating to the
         deferred tax assets to reflect current and projected utilization. The
         recognized deferred tax asset is based upon expected utilization of the
         net operating loss carryforwards and reversal of certain timing
         differences.


                                       27

<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                     YEARS ENDED SEPTEMBER 30, 1999 AND 1998

8.   INCOME TAXES (CONTINUED)

         The Company has assessed its past earnings history and trends, sales
         backlog, budgeted sales, and expiration dates of carryforwards and has
         determined that it is more likely than not that $300,000 of deferred
         tax assets will be utilized. The remaining valuation allowance of
         $680,000 at September 30, 1999 is maintained on deferred tax assets
         which the Company has not determined to be more likely than not
         realized at this time.

         At September 30, 1999, the Company has carryforwards available to
         offset future taxable income as follows:

<TABLE>
<CAPTION>
                                Federal                        State
                                -------                        -----
                      Regular NOL      AMT NOL            NOL       R&D Credit
                      -----------      -------            ---       ----------

          <S>         <C>             <C>            <C>            <C>
          2002        $        -      $        -     $        -     $    4,000
          2003           111,000         150,000              -          4,000
          2004           519,000         512,000              -          5,000
          2005           713,000         706,000              -              -
          2006           132,000         126,000              -              -
          2007           113,000         107,000         12,000              -
          2008           457,000         450,000         97,000              -
          2009           181,000         175,000        182,000              -
          2013             9,000           7,000          8,000              -
                      ----------      ----------     ----------     ----------
                      $2,235,000      $2,234,000     $  299,000     $   13,000
                      ==========      ==========     ==========     ==========
</TABLE>

9.   COMMON STOCK

     STOCK OPTIONS

     In fiscal year 1988, and as amended in fiscal year 1991, the Company
     adopted a non qualified stock option plan that authorizes the grant to
     officers and other employees of non qualified stock options for a maximum
     of 400,000 shares. Under the terms of the plan, the options become
     exercisable in annual increments of one-third of the shares covered by the
     option, beginning one year after grant, the exercise price of each option
     must be at least 85% of the fair market value of the stock as of the date
     of grant, and the maximum term of each option is 10 years. This plan
     expired on December 31, 1997.

     The Company has also issued options under a stock option plan for
     non-employee directors. The plan was approved by shareholders in 1990 and
     shares were issued under the plan through 1997. Following the 1997 annual
     shareholder meeting, there were no shares remaining under this plan.

     In addition to options issued pursuant to the above-described plans, the
     Company has issued options to various directors, officers, employees and
     others on a discretionary basis.


                                       28

<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                     YEARS ENDED SEPTEMBER 30, 1999 AND 1998

9.   COMMON STOCK (CONTINUED)

     STOCK OPTIONS (CONTINUED)

     Transactions during 1999 and 1998, for the plans and other issuances above
were as follows:

<TABLE>
<CAPTION>
                                         Number        Option Price
                                        of Shares      Range Per Share
                                        ---------      ---------------

<S>                                     <C>            <C>
Balance at September 30, 1997           2,172,518      $0.25 to $0.8125

Granted                                   162,760      $0.4375 to $0.75
Exercised                                 (21,500)     $0.25 to $0.453
Converted to stock under cashless
  transaction                          (1,614,416)     $0.25 to $0.8125
                                       -----------

Balance at September 30, 1998             699,362      $0.25 to $0.75

Granted                                    60,000      $           0.50
Exercised                                 (14,616)     $0.25 to $0.56
Converted to stock under cashless
  transaction                            (190,134)     $0.25 to $0.75
                                       -----------

Balance at September 30, 1999             554,612      $0.25 to $0.75
                                       ===========
</TABLE>


At September 30, 1999:
    Options vested and exercisable        454,612
    Shares available for options              -0-

10.  COMMITMENTS AND CONTINGENCIES

     LEASES

     The Company leases its production facility on an airport in South St. Paul,
     Minnesota. Total rental expense for operating leases during 1999 and 1998
     was $32,307 and $28,830, respectively.

     Future minimum lease payments required on non-cancelable operating leases
     at September 30, 1999 are as follows:

<TABLE>
<S>                 <C>
     2000           $ 33,396
     2001             33,396
     2002             33,396
     2003              8,349
                    --------
                    $108,537
                    ========
</TABLE>


                                       29

<PAGE>

                        BALLISTIC RECOVERY SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                     YEARS ENDED SEPTEMBER 30, 1999 AND 1998

11. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                             1999         1998
                                             ----         ----
<S>                                       <C>          <C>
     Cash paid for:
     Interest                             $42,158      $40,439
     Income taxes                             325        1,830
</TABLE>


     Summary of non cash activity:

     -    Common stock was issued in lieu of director's fees of $4,000 and
          $5,000, for 1999 and 1998, respectively.

     -    Options to acquire 190,134 and 1,614,416 shares of the Company's
          common stock were converted into 143,063 and 1,210,717 shares of the
          Company's common stock in a cashless transaction on July 20, 1999 and
          August 5, 1998, respectively.

     -    Stock options for common stock were exercised in lieu of director's
          fees of $1,500 for 1999.


                                       30

<PAGE>

                               PART II (Continued)

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURES

         There have been no disagreements with the Company's independent
         certified public accountants on accounting principles or practices or
         financial statement disclosures.


                                    PART III


ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         The information required by this item is incorporated by reference from
         the Proxy Statement.

ITEM 10. EXECUTIVE COMPENSATION

         The information required by this item is incorporated by reference from
         the Proxy Statement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this item is incorporated by reference from
         the Proxy Statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item is incorporated by reference from
         the Proxy Statement.


                                     PART IV


ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.

         (a)      EXHIBITS

<TABLE>
<CAPTION>
                  Page              Exhibit
                  Number            Number           Description
                  ------            ------           -----------

<S>                                 <C>              <C>
                                    3.1              Company's Articles of
                                                     Incorporation, as amended,
                                                     appear as Exhibit 3.1 to
                                                     the Company's Registration
                                                     Statement on Form S-1 (No.
                                                     33-21843) filed May 12,
                                                     1988 ("Form S-1") and are
                                                     incorporated herein by
                                                     reference.

                                    3.2              Company's Restated Bylaws
                                                     as amended, were filed as
                                                     Exhibit 3.2, under Form 8,
                                                     Amendment No. 1 ("1990
                                                     Amendment") to the
                                                     Company's Report on Form
                                                     10-K for the fiscal year
                                                     ended September 30, 1990
                                                     (the "1990 10-K") and are
                                                     incorporated herein by
                                                     reference.

                                    10.1             Purchase and Supply
                                                     Agreement dated September
                                                     17, 1999 between the
                                                     Company and Cirrus Design
                                                     Corporation appears as
                                                     exhibit 10.1 to the
                                                     Company's Report on Form
                                                     8-K filed September 20,
                                                     1999 and is incorporated
                                                     herein by reference.
</TABLE>


                                       31

<PAGE>

                               PART IV (CONTINUED)

ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K (CONTINUED).

         (a)      EXHIBITS (CONTINUED)

<TABLE>
<CAPTION>
                  Page              Exhibit
                  Number            Number           Description
                  ------            ------           -----------

<S>                                 <C>              <C>
                                    10.2             Covenant not to Compete
                                                     Agreement dated October 26,
                                                     1995 between the Company
                                                     and the President and
                                                     majority shareholder of
                                                     Second Chantz Aerial
                                                     Survival Equipment, Inc.
                                                     appears as Exhibit 10.1 to
                                                     the Company's Report on
                                                     Form 10-KSB for the fiscal
                                                     year ended September 30,
                                                     1995 and is incorporated
                                                     herein by reference.

                                    10.3             Non-qualified Stock Option
                                                     Plan appears as Exhibit
                                                     10-1 to Amendment No. 1 to
                                                     the Form S-1 and is
                                                     incorporated herein by
                                                     reference.

                                    10.4             Stock Option Plan for
                                                     Non-employee Directors
                                                     dated February 12, 1990
                                                     appears as Exhibit 10.5 to
                                                     the 1989 10-K and is
                                                     incorporated herein by
                                                     reference.

                                    27               Financial Data Schedule for
                                                     the 1999 10KSB is
                                                     incorporated herein by
                                                     reference.
</TABLE>

(b)      The Company filed one Current Report on Form 8-K during the fourth
         quarter ended September 30, 1999 and is referenced as exhibit 10-1
         above.


                                       32

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                        BALLISTIC RECOVERY SYSTEMS, INC.

By /s/ Mark B. Thomas
  -----------------------
       Mark B. Thomas
       Principal Executive Officer, Principal Financial Officer and Principal
       Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

Signature                                 Title               Date
---------                                 -----               ----

 /s/ Darrel D. Brandt                   Director              December 14, 1999
-----------------------
Darrel D. Brandt

 /s/ Boris Popov                        Director              December 14, 1999
-----------------------
Boris Popov

 /s/ Robert L. Nelson                   Director              December 14, 1999
-----------------------
Robert L. Nelson

 /s/ Thomas H. Adams                    Director              December 14, 1999
-----------------------
Thomas H. Adams

/s/ Mark B. Thomas                      Director              December 14, 1999
-----------------------
Mark B. Thomas


                                       33