**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

## **WASHINGTON, D.C. 20549**

**FORM 10-KSB**

** **

| **(Mark  One)**                                              |   |                                                                                                            |
|--------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------|
| **ý**                                                   |   | **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, 2001**            |
|                                                         |   |                                                                                                            |
| **o**                                                        |   | **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 SmallBusiness Issuer in its Charter)

 

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

 

 

 

| **300  Airport Road, South St. Paul, Minnesota** |   | **55075-3541** |
|--------------------------------------------------|--------|----------------|
| (Address of  Principal Executive Offices)        |   | (Zip Code)     |

 

Issuer's telephonenumber including area code: **(651) 457-7491**

 

Securitiesregistered pursuant to Section 12(b) of the Act:  **None**

 

Securitiesregistered pursuant to Section 12(g) of the Act:  **Common Stock, $.01 par value**

(Title of Class)

 

Check whether theIssuer (1) has filed all reports required to be filed by section 13 or 15(d) ofthe Exchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days: ý  Yes  o  No

 

Check if there isno disclosure of delinquent filers in response to Item 405 of Registration S-Bcontained in this form, and no disclosure will be contained, to the best of theIssuer's knowledge, in definitive proxy or information statements incorporatedby reference in Part III of this Form 10-KSB or any amendment to this Form10-KSB. ý

 

State Issuer'srevenues for the most recent fiscal year: $3,768,727.

 

Based upon theaverage bid and asked prices of the Issuer's Common Stock, the aggregate marketvalue of the Common Stock held by Non-affiliates of the Issuer as of November13, 2001 was approximately $2,482,000.

 

Number of sharesoutstanding as of November 13, 2001:  6,119,701.

 

 

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

 

Portions of theCompany's Definitive Proxy Statement to be used in connection with the electionof directors at the 2002 annual shareholders meeting (the "ProxyStatement") are incorporated by reference into Part III, Items 9-12 asfollows:

 

 
| **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.           |   |   |

 

 

                                                                                         **PART I**

 

Item 1.  Description of Business

 

Ballistic RecoverySystems, Inc. (the "Company") was incorporated in 1980 under the lawsof the State of Minnesota.

 

(a)           Business Development 

 

TheCompany designs, manufactures and markets emergency parachute recovery systemsfor use with general aviation and recreational aircraft. The emergencyparachute systems are intended for use in the event of an in-air emergency andare designed to bring down the entire aircraft and its occupants under theparachute canopy. The Company believes it is the only US manufacturer of wholeaircraft recovery systems.  In addition,the Company has designed systems for use with various military and civilianunmanned aircraft markets.

 

Since its inception, the Company has delivered over16,000 systems that have been installed on recreational and general aviationaircraft.  To date, the Company hasdocumented 142 lives saved through the use of its systems in actual in-air emergencies.

 

The Company’s beginningswere centered on recreational aircraft parachute systems for use in ultralightand experimental aircraft.  That segment of the business continues to be aconsistent generator of revenues for the Company and accounted for 42% and 69%of gross revenues for fiscal year 2001 and 2000, respectively.

 

The Company has also beensuccessful in its efforts to expand its product line through the use ofcompany-sponsored development and outside engineering contracts in the area of general aviation aircraft.  The general aviation market accounted for58% and 31% of the Company’s revenues for fiscal year 2001 and 2000,respectively.  During the past severalyears, the Company’s primary general aviation product has been for the CirrusDesign SR20 (SR20).  During the firstquarter of fiscal year 2001, Cirrus Design completed testing and certificationof its next generation aircraft called the SR22.  First deliveries of parachute systems for the SR22 were made inDecember 2000, and continue through the present.  The SR20 aircraft received Federal Aviation Administration (FAA)certification in October 1998 and includes the Company’s parachute system as astandard equipment feature. The development of the system for the SR20 was ajoint effort between the Company and Cirrus Design under an agreement thatbegan in 1994 and culminated with FAA certification of the SR20 in late 1998.Under terms of the agreement, the Company has retained the developed technologyfor the parachute systems in general and the outside company has retained thedeveloped technology that is specific to their individual aircraft.  The Company shared in the costs to developand certify the parachute system for this aircraft.  The SR22 received FAA certification in November 2000 and also hasthe Company’s product installed as standard equipment.  The SR22 is heavier and faster than thepredecessor SR20.  The Company shared inthe costs to develop the parachute system for the SR22 as well.  Cirrus Design announced in April 2001 thatit would introduce a diesel version of its aircraft called the SR21TDi(SR21).  The SR21 will be firstintroduced in the European market and is expected to be on the market sometimein the next several years.  This model,which is similar to the SR20 and SR22 aircraft, is expected to utilize theCompany’s parachute system as standard equipment as well.

 

In November 2000, theCompany entered into an agreement with Charles F. Parsons (d.b.a. MillenniumAerospace) to provide specific funding for a parachute recovery system for theCessna 172 model aircraft to be developed and certified by the Company.  The funding will be used towards researchand development for the BRS-172 product, with completion expected by mid-fiscalyear 2002.  Following completion of the product, theCompany will seek Federal Aviation Administration (FAA) approval, which willallow the product to be installed on certified Cessna 172 series aircraft.  Once certified by the FAA, the Company willbegin production and distribution of the product and Parsons will market anddistribute the product.  Underadditional terms of the agreement, the Company has the right to select factorydirect sales, which the Company intends to purse during fiscal year 2002.  The Company received 10 deposits fromcustomers and the Company has 22 firm pre-production orders for the BRS-172systems.

 

In September 2000, theCompany entered into an agreement with Charles F. Parsons (d.b.a. MillenniumAerospace) to bring back its product for the Cessna 150/152 model aircraft (the“BRS-150”).  The product is expected tobe back on the market in calendar year 2001. Under the agreement the Company developed a new rocket motor that willbe used for the product and once reintroduced, the product will be marketedunder an exclusive marketing agreement with an outside company.  The BRS-150 was originally certified by theFAA in early 1993 and was the first whole-aircraft parachute system certifiedby the FAA.

 

Subsequent to the close of the current fiscal year,the Company entered into a contract with NASA through its Small BusinessInnovation Research (SBIR) program.  The contract, which is a Phase I feasibilitystudy, covers a six month period and is a firm-fixed grant for $68,571.  The Phase I award is entitled “AdvancedAircraft Parachute Recovery System” and has been granted to allow the companyto investigate the feasibility of developing parachute systems for larger andfaster aircraft than those currently supported by the Company.  If Phase I is successful, the Company willapply for a follow-on Phase II grant. Successful Phase II proposals result in firm fixed price contracts notexceeding $600,000 with a period of performance not exceeding 24 months.

 

Over the past several years, the Company has beensuccessful in establishing various funding sources for its research anddevelopment.  Outside funding forresearch 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.

 

 (b)        Narrative Description of Business

 

**Principal Products**:

 

The Company's principal product line is whole aircraftemergency parachute recovery systems. The systems, in an in-air emergency situation, may be activated by thepilot releasing a parachute that is designed to open quickly, slow the decentof the aircraft, and lower the aircraft and its occupants safely to the groundto prevent or reduce human injury and damage to the aircraft.

 

General AviationProducts:

 

The Company entered the general aviation market in themid 1980’s when it began development of an emergency parachute recovery systemfor the Cessna 150/152 series of aircraft. In 1993, this system, known as the GARD-150 (now called the “BRS-150”),received a Supplemental Type Certificate (STC) from the FAA that allows ownersof Cessna 150/152 model aircraft to install the system.  Media attention for this new productresulted in domestic and international television and radio broadcasts as wellas coverage in domestic and international aviation and non-aviation magazines.  The Company believes that the successfulcompletion of the product for the Cessna 150/152, which generated mediaattention for both the product and the Company, created interest in theCompany’s product by outside companies. The BRS-150 was not successfully marketed as a product by the Company,and resulted in low sales volumes. However, at the close of fiscal year 2000, the Company signed anagreement to reintroduce the BRS-150 product under an exclusive marketingagreement with Charles F. Parsons (d.b.a. Millennium Aerospace).

 

In 1994, the Company entered into an agreement withCirrus Design Corporation, a privately held company that began development andcertification of a four-place all composite general aviation aircraft.  The aircraft, known as the Cirrus DesignSR20 (SR20), was successfully certified by the FAA on October 23, 1998.  This is the first FAA certified aircraft tooffer one of the Company’s recovery systems as standard equipment.  The Company began delivering systems for theSR20 during fiscal year 1999 and continuing to the present.

 

During fiscal year 2000, Cirrus Design begandevelopment and certification efforts for their next generation aircraft calledthe SR22.  The SR22 is a heavier andfaster version of the SR20 and utilizes much of the same parachute technologydeveloped for the SR20.  The SR22received FAA certification in November 2000 and was certified with theCompany’s parachute system as a standard equipment component of the aircraft.  Deliveries of parachute systems by theCompany began in December 2000 and continue to the present.  This became the third of the Company’sproducts that has received FAA certification. For fiscal year 2001, approximately 58% of the Company’s total revenuescame from Cirrus Design.

 

In November 2000, the Company signed an agreement withCharles F. Parsons (d.b.a. Millennium Aerospace) relating to and receivedfunding for a substantial portion of the development costs to develop and testa parachute recovery system for the Cessna 172 model aircraft.  During fiscal year 2001, the Companyreceived $200,000 in funding to develop and test such a recovery system.  The development and testing is expected tobe completed by mid-fiscal year 2002. Following completion of development andtesting, the Company intends to request certification from the FAA so thatowners of Cessna 172 aircraft can install the parachute systems on theiraircraft.  The Company expects the FAAwill grant that certification.

 

RecreationalAviation Products:

 

Recreational aviation products include productsdesigned and manufactured for use on unregistered aircraft such as ultralightsand aircraft registered with the FAA as experimental.  The Company manufactures these products and sells them directlyto individuals and through dealers and distributors who also market and sellthe aircraft and related products.

 

Contract Researchand Development:

 

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

 

In November 2001, the Company entered into a contractwith NASA for the Company’s second Phase I SBIR research grant.  The Company has been a successful recipientof both Phase I and Phase II SBIR research grants in prior years.  The contract, which is a Phase I feasibility study, covers a six month period and is a firm-fixed grant for$68,571.  The Phase I award is entitled“Advanced Aircraft Parachute Recovery System” and has been granted to allow theCompany to investigate the feasibility of developing parachute systems forlarger and faster aircraft than those currently supported by the Company.  If Phase I is successful, the Company willapply for a follow-on Phase II grant. Successful Phase II proposals result in firm fixed price contracts notexceeding $600,000 with a period of performance not exceeding 24 months.

 

**Manufacturing Operations andSuppliers:**

 

The Company’spersonnel in a South St. Paul, Minnesota facility, using componentsmanufactured to its specifications perform assembly of the Company’s productline.  The parachutes utilized by theCompany are purchased from a certain key supplier although there are othersuppliers of parachutes. The Company manufactures its own ballistic devices andreceives its solid fuel propellant from a single source.  Other components are purchased from avariety of suppliers or internally produced. The Company routinely searches for new vendors and feels alternatesources can be found should any of these vendors be unable to meet theCompany's needs.  In addition, theCompany possesses or can acquire the expertise necessary for internal productionof all key components.

 

**Patents**:

 

On August 26,1986, United States Patent No. 4,607,814 was issued to the founder of the Company, for anexplosively deployed parachute system for ultralight aircraft.  The patent is effective until 2003 and hasbeen assigned to the Company.  This patentdoes not cover the solid fuel extraction device aspect of the systems currentlybeing sold by the Company.

 

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

 

On May 2, 2000,United States Patent No. 6,056,241 was issued to the Company on behalf of oneof the Company's employees for a "Thin Film Parachute with ContinuousLateral Reinforcing Fibers ".  Theemployee assigned the patent to the Company, which with the payment ofcontinuing maintenance fees is effective until 2017.  The Company in connection with its NASA SBIR grant program thatwas completed during fiscal year 1999 developed this patented process. TheCompany does not have a current application for the patented process, but theCompany hopes that the patented process can be used in both military and civilianapplications complimenting or enhancing the Company’s current product line.

 

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

 

**Seasonality:**

 

Typically, theCompany experiences seasonality in its sports aviation line.  The second and third quarters have thehighest sales as this product line is marketed to recreational pilots who tendto fly their aircraft during the warmer months and equip their aircraft with arecovery system near the beginning of the flying season.  The Company’s expansion in the generalaviation market through the production of systems for the Cirrus Design SR20and SR22 has begun to lessen the impact of seasonality on the Company.  This trend is expected to continue as theCompany increases its deliveries in the general aviation market over the nextseveral years.

 

**Dependence on a Single Customer:**

 

During the fiscal yearended September 30, 2001 and 2000, the Company was dependent on one customer,Cirrus Design Corporation, for 58%and 31% of the Company’s total sales,respectively.  The Company suppliesparachute recovery systems to Cirrus from its general aviation product line.

 

In its recreationalaviation product line, the Company primarily distributes its products throughdealers and distributors who in turn sell to the end consumer.  The Company believes that in the event thatany individual dealers or distributors cease to represent the Company’srecreational aviation products, that alternative dealers or distributors can beestablished.

 

**Backlog of Orders:**

 

As of September30, 2001 and 2000, the Company had a backlog of orders totaling approximately$6,221,000 and $6,381,000, respectively. The backlogs included over $6.1million and $6.2 million of orders for the Cirrus Design aircraft,respectively.  This backlog is expectedto be filled within 24 months.  Due tothe backlog period involved, however, it is reasonably possible that therecould be cancellations of a portion of the currently backlogged orders.  The Company expects to fund the build outand sale of the backlogged orders through cash flow provided by the sale ofthose orders.  The Company cautionsreaders who may utilize published bookings and backlog information as tools toforecast the Company’s revenue during a given timeframe since certain purchaseorders may be subject to cancellation and/or delivery schedule revision.

 

**Research and Development**:

 

A summary ofresearch and development is as follows:
|                                                                       |   | **2001** |    | **2000** |   |
|----------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| Total  research and development expenditures                               |   | $        | 265,090 |     | $      | 235,280 |   |
|                                                                       |   |     |    |     |   |
| Revenues  recognized under contract research and development relationships |   | (59,077  | )       | (49,261  | )      |
|                                                                       |   |     |    |     |   |
| Research  and development, net                                             |   | $        | 206,013 |     | $      | 186,019 |   |

 

 

The source of the2001 outside funding was from Charles F. Parsons as part of an agreement fordevelopment and certification of the parachute system for Cessna 172 modelaircraft, and from Cirrus Design as part of a cost sharing agreement for thedevelopment and certification of the SR22 parachute system. The source for the2000 outside funding was also from Cirrus Design as part of a cost sharingagreement for the development and certification of the SR22 parachute system.

 

**Competition**:

 

The Company sellsits ballistically deployed parachute recovery systems in the United States andinternationally.  The Company enteredinto a covenant not to compete agreement on October 26, 1995 with Second Chantz(“SCI”), whom the Company believes was the only domestic competitor forballistically deployed parachute systems for the domestic sport aviationmarket.  Several foreign companies haveor are attempting to introduce new competitive products into the internationalsport aviation market. Competition is strong in the European market based onprice, but the Company continues to pursue sales in that market.  At present, none of the foreign companieshave successfully entered the domestic market. The Company believes its current systems were the first in the marketand that its products and service are superior to its competitors.

 

The FAA, as partof the Cirrus Design SR20 and SR22 certification process, has certified theCompany’s product, which is standard equipment on those aircraft.  These are the first whole aircraft recoverysystem ever certified by the FAA as standard equipment.  At present, there are no other manufacturerswith the FAA Supplemental Type Certificate or FAA certification under amanufacturer’s Type Certificate necessary to install a recovery system for thegeneral aviation market.  The Company isunaware of any other manufacturer performing contract or self-funded research anddevelopment activities in an effort to obtain Supplemental Type Certificates orType Certificates for any other FAA certified aircraft.

 

Many companieswith resources and capabilities greater than those of the Company coulddevelop, manufacture and market a parachute recovery system competitive withthat of the Company, although the Company believes that such development andapproval could take several years to complete.

 

**Environmental Compliance:**

 

The Companybelieves that it is in compliance with all current federal and stateenvironmental laws.

 

**Employees:**

 

As of September30, 2001, the Company had 15 full-time employees at its South St. Paulfacility.

 

Item 2.  Description of Property

 

The Company leasesa stand-alone 13,000 square foot office and production facility located atFleming Field Airport in South St. Paul, Minnesota.  The building is a World War II training hangar, which the Companyrenovated.

 

Item 3.  Legal Proceedings

 

The Company is notcurrently involved in any legal proceedings that are material to the business.

 

Item 4.  Submission of Matters to a Vote of SecurityHolders

 

No matters weresubmitted to a vote of security holders through a solicitation of proxies orotherwise during the fourth quarter.

 

**PART II**

 

Item 5.  Market for Common Equity and RelatedShareholder Matters

 

(a)           Market Information

 

The Company wasformerly listed on the NASDAQ stock exchange after going public in 1986.  However, NASDAQ delisted the Company in 1992following a change in the listing requirements. The stock is listed on the pinksheets and the electronic bulletin board on the over the counter market underthe trading symbol of BRSI or BRSI.OB. Several Internet stock tracking services show the Company’s trading volumeswith bid and ask prices as far back as August 1995.  Based on information provided by these Internet stock-trackingservices, the Company believes that the asking price would be $0.80 and the bidprice would be $0.85 as of September 30, 2001.

 

The followingtable sets forth the estimated high and low bid prices for the periodsindicated.  The estimated bid pricesshown are based on information from several Internet stock-tracking services.These figures are estimates or averages and do not necessarily represent actualtransactions.

 
|               |   |   |   | **First  Quarter** |   | **Second  Quarter** |   | **Third  Quarter** |   | **Fourth  Quarter** |
|--------------------|--------|--------|--------|--------------------|--------|---------------------|--------|--------------------|--------|---------------------|
|               |   |   |   |               |   |                |   |               |   |                |
| **Common  Stock:** |   |   |   |               |   |                |   |               |
| 2001               |   | High   |   | $0.78              |   | $1.41               |   | $1.01              |   | $1.00               |
|               |   | Low    |   | $0.41              |   | $0.39               |   | $0.66              |   | $0.65               |
|               |   |   |   |               |   |                |   |               |   |                |
| 2000               |   | High   |   | $2.19              |   | $1.56               |   | $1.38              |   | $0.88               |
|               |   | Low    |   | $1.25              |   | $1.00               |   | $0.75              |   | $0.63               |
|                    |        |        |        |                    |        |                     |        |                    |        |                     |  |

 

(b)           Holders

 

As of November 13,2001, the Company estimates there were approximately 1,400 beneficial owners ofthe Company's common stock.

 

(c)           Dividends

 

No dividends have beenpaid on the Company's securities.

 

**Item 2.    Management's Discussion and Analysis of Financial Condition andResults of Operations**

 

**Resultsof Operations:**

 

Yearended September 30, 2001 compared to September 30, 2000

 

Sales

 

Sales for 2001were $3,768,727, a 60.1% increase from the $2,353,876 for 2000.  The increase is attributed to the Company’snew general aviation products.  In thecurrent fiscal year, revenues derived from the Company’s general aviationproducts accounted for approximately 58% of revenues compared to 31% in theprior fiscal year.  The Company’sprimary customer, Cirrus Design Corporation (Cirrus), is expected to continueto increase manufacturing volumes for its aircraft throughout the next fiscalyear for both its SR20 and SR22 models. As a result, the Company is forecasting further growth in 2002 andbeyond in its general aviation revenues. However, volume projections and timing of those volumes is uncertain atthis time.

 

The Company’ssport aviation business has maintained levels consistent with that of the prioryear.  Within the sport aviationbusiness, the international markets for the Company’s products have beenaffected by a number of factors.  Thesefactors include a strong US currency that raises the cost of the Company’sexports, increased competition in Europe, and increasing government regulationsthat make it more challenging to transport the Company’s product abroad.  The Company has expanded its efforts toimprove international business for its sport aviation products, but there canbe no assurances that these efforts will produce increased sales for theCompany.

 

GrossMargin

 

For 2001, grossmargin as a percentage of revenues was 37.5% compared to 38.3% for 2000.  Despite increases in raw materials and laborcosts, the consistent gross margin is the result of leveraging the Company’soperations personnel and manufacturing overhead over a larger revenuebase.  The Company’s gross marginpercentage has varied each year, and each quarter, in both a positive andnegative fashion due to a variety of factors including customer and specificproduct mix, inventory provisions, and volume related efficiencies.  Such variations will probably continue toimpact gross margin percentages in future reporting periods.

 

Selling,General and Administrative

 

Selling, general andadministrative costs as a percentage of revenues have decreased to 17.7% for2001 as compared to 22.2% for 2000.  Theactual dollar increase of 27.6% is primarily due to increased advertising,marketing and shareholder related expenditures.  Expenditures in this category are expected to increase as theCompany accelerates its efforts to expand the general aviation market whilestrengthening the sport and recreational market sales.

 

###### Research and Development

 

Outsidefunding has offset a portion of research and development costs for bothyears.  Net research and developmentcosts were 10.7% higher on a comparative basis in actual dollars.  However, as a percentage of revenues, yearto date expenditures were lower that that of the prior year.  Research and development is an integral partof the growth strategy for the Company, and will continue to play an importantrole in the Company’s success.  Thisrole will include not only that of future product developments, but in theexploitation of currently developed products for additional applications.  The Company will continue to look forsources for further outside funding of research and development, but there canbe no assurances that the Company will be successful in those efforts.

 

#### **Income before Income Taxes**

 

For 2001, income beforeincome taxes was $424,488 or 11.3% of revenues compared to $79,715 or 3.4% ofrevenues in 2000.  As the Companyexpands into different aircraft markets and expands its product applications,market conditions will determine ultimate sales levels and profitability.

 

IncomeTaxes Expense (Benefit)

 

A net benefit wasrecorded in 2001 and was a result of the valuation of the Company’s netoperating loss carryforwards.  Thebenefit was recorded based on the Company’s ability to demonstrate that therewas a reasonable likelihood of being able to utilize the carryforwards tooffset State and Federal taxes on future taxable income.  No provision was recorded in 2000 due to thelevel of profitability attained in conjunction with past provisions already recorded.  If the Company continues to demonstrate itsability to utilize even more of the carryforwards, consideration will be givento the recording of additional benefits. Based on current levels of revenues, the Company anticipates fullyrealizing the net operating loss carryforwards by the end of the next fiscalyear.

 

#### **Earnings per Share**

 

Net income of $599,010for 2001 was 15.9% of revenues or $0.10 per share, as compared to net income of$78,715, which was 3.3% of revenues or $0.01 per share for 2000.

 

**Liquidityand Capital Resources:**

 

Management intends tofund all of its continuing operation out of its current revenues with theexception of its contract research and development projects.  Based upon the Company’s currentprojections, the Company believes that it has sufficient cash from reserves andcash flow to finance operations through fiscal year 2002. The Company has alsoestablished a line-of-credit for use in operations as required.  The current line-of-credit is for $250,000and is established on an annual renewal basis with the current agreementexpiring February 28, 2002.  The Companyhas no balance currently outstanding under the line-of-credit.  Management believes that the currentbusiness operation, along with the line-of-credit, is adequate to support theongoing operations of the Company during the next twelve-month period and willmaintain and adjust expenses as necessary to improve profitability. The Companywill continue to look for non-equity sources to fund contract research and developmentprojects, but there can be no assurances that the Company will be successful inits efforts.

 

During 2001, the Companysystematically reduced its inventory levels from that of the beginning of thefiscal year as part of its cash management efforts and to reduce finished goodsinventory.  This allowed the Company topayoff its bank line of credit and maintain cash reserves.  Even with the inventory reduction, the Companymet all of its delivery commitments and maintained adequate inventory levels forfuture production requirements.

 

The Company anticipatedbeing able to expand its product line to include other certified anduncertified aircraft as the recovery system gains further marketacceptance.  The Company has been indiscussions with military and several domestic and foreign companies that haveexpressed interest in utilizing the Company’s products.  No assurance can be made as to the futurebenefits that will be derived from these discussions.

 

In November 2000, theCompany entered into an agreement which provided $200,000 of the fundingnecessary to develop and certify a parachute recovery system for the Cessna 172aircraft.  The agreement providesfunding that will be utilized to offset a portion of the expenditures necessaryfor that project.  In addition, theCompany will continue to pursue factory direct sales as allowed under theagreement.  The Company is confidentthat the development and certification of the Cessna 172 system will becompleted within 12 months, but there can no assurance that the system willreceive certification or if certified, will sell in volumes that will have amaterial impact on the Company.

 

The Company anticipates aneed to make capital improvements to its current production facility as well asexpenditures to increase inventory levels during the next fiscal year as aresult of the production of general aviation recovery systems.  It is currently the intention of the Companyto fund the expenditures through current operations as well as revenuesgenerated by those units.

 

TheCompany’s general aviation product is standard equipment on the Cirrus DesignSR20 and SR22 model aircraft.  TheCompany delivered 199 units in 2001 as compared to 65 units for 2000.  As of the end of October 2001, Cirrus hasfirm orders for 391 SR20 models and 152 SR22 models which will include theCompany’s parachute systems.  Cirrus hasdelivered 244 aircraft as of the same time period.  Cirrus expects to be able to fill the backlog of firm ordersduring the next 24 months.  Future productionvolumes for the Cirrus aircraft, and therefore, the Company’s parachutesystems, will be dictated by ultimate market demands for Cirrus’ products.  Accordingly, the Company is dependent onCirrus for its revenues.  Any negativeimpact on Cirrus’ sales would negatively impact the Company’s projectedrevenues.

 

Atthe beginning of November 2001, the Company entered into a contract with NASAthrough it’s Small Business Innovation Research (SBIR) grant program.  The Phase I grant, is a six-month feasibilitystudy to explore the possibility of the Company’s ability to develop recoverysystems for use of faster and larger aircraft than those currently supported bythe Company.  The contract is afirm-fixed contract for $68,571.  IfPhase I is successful, the Company will apply for a Phase II grant which wouldbe for a firm-fixed grant of up to $600,000 over a two year period.  No assurances can be made as to the successof Phase I, or if successful, that a Phase II grant will be awarded.  Nor can assurances be made that if either orboth Phases, if granted, are successful, that they will result in futureproducts and revenues for the Company.

 

The PrivateSecurities Litigation Reform Act of 1995 provides “safe harbor” forforward-looking statements.  Certain informationincluded in this Form 10-KSB and other materials filed or to be filed by theCompany with the Securities and Exchange Commission (as well as informationincluded in oral statements or other written statements made or to be made bythe Company) contain statements that are forward-looking, such as statementsrelating to plans for research projects, anticipated Cirrus delivery orders andschedules, development, certification and financing of the Cessna 172 system,re-certification and financing of the Cessna 150/150 system, success of andfollow-on contracts for NASA SBIR research projects, other business developmentactivities as well as other capital spending, financial sources, and theeffects of competition.  Suchforward-looking information involves important risks and uncertainties thatcould significantly affect anticipated results in the future and, accordingly,such results may differ from those expressed in any forward-looking statementsmade by or on behalf of the Company. These risks and uncertainties include, but are not limited to, theelimination of funding for new research and development projects, the declinein unregistered aircraft sales, potential product liability claims, dependenceon discretionary consumer spending, dependence on existing management, generaleconomic conditions, changes in federal or state laws or regulations.

 

Item7.  Financial Statements andSupplementary Data

 

 
| (1)    | Financial  Statements for the years ended September 30, 2001 and 2000:                                   |   |
|--------|----------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                     |   |
|   | Independent Auditors'  Report                                                                            |   |
|   |                                                                                                     |   |
|   | Balance Sheets as  of September 30, 2001 and 2000                                                        |   |
|   |                                                                                                     |   |
|   | Statements  of Operations for the years ended September 30, 2001 and 2000                                |   |
|   |                                                                                                     |   |
|   | Statements of  Shareholders' Equity for the years ended September 30, 2001 and 2000                      |   |
|   |                                                                                                     |   |
|   | Statements  of Cash Flows for the years ended September 30, 2001 and 2000                                | 17     |
|   |                                                                                                     |   |
|   | Notes to Financial  Statements                                                                           |   |
|   |                                                                                                     |   |
|   |                                                                                                     |   |
| (2)    | Financial  Statement Schedules of Supplemental Information are no longer required under  Regulation S-B. |   |

 

 

# **Callahan, Johnston &Associates, LLC**

## **Certified Public Accountants and Consultants**

7400 Lyndale AvenueSouth, Suite 140

Minneapolis, MN  55423

(612) 861-0970 Fax (612)861-5827

 

 

INDEPENDENT AUDITORS' REPORT

 

 

 

Shareholders and Board of Directors

Ballistic Recovery Systems, Inc.

South St. Paul, Minnesota

 

We have auditedthe accompanying balance sheets of Ballistic Recovery Systems, Inc. as ofSeptember 30, 2001 and 2000 and the related statements of operations,shareholders' equity, and cash flows for the years then ended.  These financial statements are theresponsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

We conducted ouraudits in accordance with auditing standards generally accepted in the UnitedStates of America.  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includes anassessment of the accounting principles used and significant estimates made bymanagement, as well as an evaluation of the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion,the financial statements referred to above present fairly, in all materialrespects, the financial position of Ballistic Recovery Systems, Inc. as of September30, 2001 and 2000, and the results of operations, cash flows and changes inshareholders’ equity for the years then ended, in conformity with accountingprinciples generally accepted in the United States of America.

 

 

/s/ Callahan, Johnston & Associates, LLC

 

Callahan, Johnston & Associates, LLC

Minneapolis, Minnesota

October 26, 2001

 

PART II - Item 7. Financial Statements

 

BALLISTIC RECOVERY SYSTEMS, INC.

BALANCE SHEETS

September 30, 2001 and 2000

 
| **ASSETS**                                                                                                                          |   | **2001**   |      | **2000**   |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|------------|-----------|------------|--------|
| Current  assets:                                                                                                                    |   |       |      |       |   |
| Cash                                                                                                                                |   | $          | 667,608   |       | $      | 33,858 |   |
| Accounts  receivable - net of allowance for doubtful accounts of $10,000 and $2,500,  respectively                                  |   | 17,388     |      | 98,391     |   |
| Inventories                                                                                                                         |   | 686,402    |      | 846,109    |   |
| Deferred  tax asset - current portion                                                                                               |   | 280,000    |      | 25,000     |   |
| Prepaid  expenses                                                                                                                   |   | 14,113     |      | ---        |   |
| Total  current assets                                                                                                               |   | 1,665,511  |      | 1,003,358  |   |
|                                                                                                                                |   |       |      |       |   |
| Furniture,  fixtures and leasehold improvements                                                                                     |   | 198,006    |      | 170,004    |   |
| Less  accumulated depreciation                                                                                                      |   | (127,066   | )         | (116,339   | )      |
| Furniture,  fixtures and leasehold improvements - net                                                                               |   | 70,940     |      | 53,665     |   |
|                                                                                                                                |   |       |      |       |   |
| Other  assets:                                                                                                                      |   |       |      |       |   |
| Patents  less accumulated amortization of $7,995 and $7,308, respectively                                                           |   | 3,670      |      | 4,356      |   |
| Deferred  tax asset - long-term portion                                                                                             |   | 220,000    |      | 275,000    |   |
| Other  intangible assets less accumulated amortization of $35,978 and $25,699,  respectively                                        |   | 15,419     |      | 25,699     |   |
| Covenant  not to compete less accumulated amortization of $224,501 and $186,557,  respectively                                      |   | 154,937    |      | 192,881    |   |
| Total  other assets                                                                                                                 |   | 394,026    |      | 497,936    |   |
|                                                                                                                                |   |       |      |       |   |
| Total  assets                                                                                                                       |   | $          | 2,130,477 |       | $      | 1,554,959 |   |
|                                                                                                                                |   |       |      |       |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                           |   |       |      |       |   |
|                                                                                                                                |   |       |      |       |   |
| Current  liabilities:                                                                                                               |   |       |      |       |   |
| Accounts  payable                                                                                                                   |   | $          | 106,353   |       | $      | 143,990 |   |
| Customer  deposits                                                                                                                  |   | 86,061     |      | 74,693     |   |
| Accrued  payroll                                                                                                                    |   | 41,902     |      | 35,039     |   |
| Other  accrued liabilities                                                                                                          |   | 213,525    |      | 65,738     |   |
| Line-of-credit  borrowings                                                                                                          |   | ---        |      | 220,600    |   |
| Current  portion of bank note                                                                                                       |   | ---        |      | 16,874     |   |
| Current  portion of covenant not to compete                                                                                         |   | 32,584     |      | 29,204     |   |
| Current  liabilities                                                                                                                |   | 480,425    |      | 586,138    |   |
|                                                                                                                                |   |       |      |       |   |
| Long-term  bank note and covenant, less current portions                                                                            |   | 126,169    |      | 161,198    |   |
|                                                                                                                                |   |       |      |       |   |
| Shareholders’  equity:                                                                                                         |   |       |      |       |   |
| Common  stock ($.01 par value; 10,000,000 shares authorized; 6,119,701 and 5,905,798  shares, respectively, issued and outstanding) |   | 61,197     |      | 59,058     |   |
| Additional  paid-in capital                                                                                                         |   | 2,761,347  |      | 2,646,236  |   |
| Accumulated  deficit                                                                                                                |   | (1,298,661 | )         | (1,897,671 | )      |
| Total  shareholders’ equity                                                                                                    |   | 1,523,883  |      | 807,623    |   |
| Total  liabilities and shareholders’ equity                                                                                    |   | $          | 2,130,477 |       | $      | 1,554,959 |   |

 

The Accompanying Notesare an Integral Part of these Financial Statements.

 

BALLISTIC RECOVERYSYSTEMS, INC.

STATEMENTS OF OPERATIONS

Years Ended September 30,2001 and 2000

 

 
|                                           |   | **2001**  |      | **2000**  |   |
|------------------------------------------------|--------|-----------|-----------|-----------|--------|
| Sales                                          |   | $         | 3,768,727 |      | $      | 2,353,876 |   |
| Cost  of sales                                 |   | 2,353,385 |      | 1,450,963 |   |
|                                           |   |      |      |      |   |
| Gross  profit                                  |   | 1,415,342 |      | 902,913   |   |
|                                           |   |      |      |      |   |
| Selling,  general and administrative           |   | 667,452   |      | 523,113   |   |
| Research  and development , net                |   | 206,013   |      | 186,019   |   |
|                                           |   |      |      |      |   |
| Income  from operations                        |   | 541,877   |      | 193,781   |   |
|                                           |   |      |      |      |   |
| Other  income (expense):                       |   |      |      |      |   |
| Interest  expense                              |   | (29,183   | )         | (37,261   | )      |
| Intangible  amortization                       |   | (48,223   | )         | (48,223   | )      |
| Other  - net                                   |   | (39,983   | )         | (28,582   | )      |
|                                           |   |      |      |      |   |
| Income  before income taxes                    |   | 424,488   |      | 79,715    |   |
|                                           |   |      |      |      |   |
| Income  taxes expense (benefit)                |   | (174,522  | )         | 1,000     |   |
|                                           |   |      |      |      |   |
| Net  income                                    |   | $         | 599,010   |      | $      | 78,715 |   |
|                                           |   |      |      |      |   |
|                                           |   |      |      |      |   |
| Basic  earnings per share                      |   | $         | 0.10      |      | $      | 0.01 |   |
|                                           |   |      |      |      |   |
| Weighted  average number of shares outstanding |   | 6,095,903 |      | 5,896,026 |   |
|                                           |   |      |      |      |   |
| Diluted  earnings per share                    |   | $         | 0.10      |      | $      | 0.01 |   |
|                                           |   |      |      |      |   |
| Weighted  average number of shares outstanding |   | 6,114,202 |      | 6,109,802 |   |

 

 

The Accompanying Notesare an Integral Part of these Financial Statements.

 

BALLISTIC RECOVERYSYSTEMS, INC.

STATEMENTS OF SHAREHOLDERS’ EQUITY

Years Ended September 30,2001 and 2000

 

 
|                                                 |   | **Common Stock** |   | **Additional** |                 |        |          | **Share-**          |   |
|------------------------------------------------------|--------|------------------|--------|----------------|----------------------|-------------|---------------|---------------------|--------|
|                                                 |   | **Number of**    |   |           |                 | **Paid-in** |          | **Accumulated**     |   | **holders’** |   |
|                                                 |   | **Shares**       |   | **Amount**     |                 | **Capital** |          | **Equity(Deficit)** |   | **Equity** |   |
| Balance  9/30/99                                     |   | 5,859,449        |   | $              | 58,595               |        | $             | 2,631,762           |   | $ |  (1,976,386 | ) | $ | 713,971 |   |
|                                                 |   |             |   |           |                 |        |          |                |   |   |   |
| Issuance  of stock in lieu of director fees          |   | 3,334            |   | 33             |            | 3,967       |     | ---                 |   | 4,000 |   |
|                                                 |   |             |   |           |                 |        |          |                |   |   |   |
| Stock  options exercised                             |   | 25,000           |   | 250            |            | 10,687      |     | ---                 |   | 10,937 |   |
|                                                 |   |             |   |           |                 |        |          |                |   |   |   |
| Net  stock issued under cashless transaction         |   | 18,015           |   | 180            |                 | (180        | )             | ---                 |   | --- |   |
|                                                 |   |             |   |           |                 |        |          |                |   |   |   |
| Net  income                                          |   | ---              |   | ---            |                 | ---         |          | 78,715              |   | 78,715 |   |
|                                                 |   |             |   |           |                 |        |          |                |   |   |   |
| Balance  9/30/00                                     |   | 5,905,798        |   | $              | 59,058               |        | $             | 2,646,236           |   | $ | (1,897,671 | ) | $ | 807,623 |   |
|                                                 |   |             |   |           |                 |        |          |                |   |   |   |
|                                                 |   |             |   |           |                 |        |          |                |   |   |   |
| Restricted  Stock issued under financing arrangement |   | 200,000          |   | 2,000          |                 | 108,000     |          | ---                 |   | 110,000 |   |
|                                                 |   |             |   |           |                 |        |          |                |   |   |   |
| Issuance  of stock in lieu of director fees          |   | 11,492           |   | 115            |            | 7,135       |     | ---                 |   | 7,250 |   |
|                                                 |   |             |   |           |                 |        |          |                |   |   |   |
| Net  stock issued under cashless transaction         |   | 2,411            |   | 24             |       | (24         | )             | ---                 |   | --- |   |
|                                                 |   |             |   |           |                 |        |          |                |   |   |   |
| Net  income                                          |   | ---              |   | ---            |                 | ---         |          | 599,010             |   | 599,010 |   |
|                                                 |   |             |   |           |                 |        |          |                |   |   |   |
| Balance  9/30/01                                     |   | 6,119,701        |   | $              | 61,197               |        | $             | 2,761,347           |   | $ | (1,298,661 | ) | $ | 1,523,883 |   |

 

 

The Accompanying Notesare an Integral Part of these Financial Statements.

 

BALLISTIC RECOVERYSYSTEMS, INC.

STATEMENTS OF CASH FLOW

Years Ended September 30,2001 and 2000

 

 
|                                                                      |   | **2001** |    | **2000** |   |
|---------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| Cash  flows from operating activity:                                      |   |     |    |     |   |
| Net  income                                                               |   | $        | 599,010 |     | $      | 78,715 |   |
| Adjustments  to reconcile net income to net cash from operating activity: |   |     |    |     |   |
| Depreciation  and amortization                                            |   | 38,465   |    | 21,158   |   |
| Provision  for deferred tax benefit                                       |   | (200,000 | )       | ---      |   |
| Amortization  of covenant not to compete                                  |   | 37,944   |    | 37,944   |   |
| Inventory  valuation reserve                                              |   | 75,000   |    | (2,000   | )      |
| Stock  issued in lieu of board fees                                       |   | 7,250    |    | 4,000    |   |
| Provision  for bad debts                                                  |   | 7,500    |    | ---      |   |
| (Increase)  decrease in:                                                  |   |     |    |     |   |
| Accounts  receivable                                                      |   | 73,503   |    | (39,317  | )      |
| Inventories                                                               |   | 84,707   |    | (503,754 | )      |
| Prepaid  expenses                                                         |   | (14,113  | )       | 6,398    |   |
| Increase  (decrease) in:                                                  |   |     |    |     |   |
| Accounts  payable                                                         |   | (37,637  | )       | 85,410   |   |
| Customer  deposits                                                        |   | 11,368   |    | (19,564  | )      |
| Accrued  expenses                                                         |   | 154,650  |    | (2,631   | )      |
|                                                                      |   |     |    |     |   |
| Net  cash flows from operating activities                                 |   | 837,647  |    | (333,641 | )      |
|                                                                      |   |     |    |     |   |
| Cash  flows from investing activities:                                    |   |     |    |     |   |
| Capital  expenditures                                                     |   | (44,775  | )       | (4,454   | )      |
|                                                                      |   |     |    |     |   |
| Net  cash flows from investing activities                                 |   | (44,775  | )       | (4,454   | )      |
|                                                                      |   |     |    |     |   |
| Cash  flows from financing activities:                                    |   |     |    |     |   |
| Net  borrowing under line-of-credit agreement                             |   | (220,600 | )       | 220,600  |   |
| Proceeds  form sale of stock                                              |   | 110,000  |    | ---      |   |
| Exercise  of stock options                                                |   | ---      |    | 10,937   |   |
| Principal  payments on debt                                               |   | (19,318  | )       | (15,312  | )      |
| Principal  payments on covenant not to compete                            |   | (29,204  | )       | (26,174  | )      |
|                                                                      |   |     |    |     |   |
| Net  cash flows from financing activities                                 |   | (159,122 | )       | 190,051  |   |
|                                                                      |   |     |    |     |   |
| Increase  (decrease) in cash                                              |   | 633,750  |    | (148,044 | )      |
| Cash  - beginning of year                                            |   | 33,858   |    | 181,902  |   |
|                                                                      |   |     |    |     |   |
| Cash  - end of period                                                     |   | $        | 667,608 |     | $      | 33,858 |   |

 

 

The Accompanying Notesare an Integral Part of these Financial Statements.

 

BALLISTIC RECOVERYSYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDEDSEPTEMBER 30, 2001 AND 2000

 

 

1.     Summary of Significant AccountingPolicies

 

Nature of Business

 

BallisticRecovery Systems, Inc. (the "Company") designs, manufactures anddistributes rocket deployed whole-aircraft emergency parachute systems for useon general aviation and recreational aircraft. The emergency parachute systemsare intended for use in the event of an in-air emergency and are designed tobring down the entire aircraft and its occupants under the parachute canopy.

 

TheCompany has also been successful in its efforts to expand its product linethrough the use of company-sponsored development and outside engineeringcontracts in the area of general aviation aircraft.  The Company is currently producing and selling emergency recoverysystems for two four-place general aviation aircraft, known as the CirrusDesign SR20 (SR20) and SR22.  Theproducts were developed in a joint effort between the Company and themanufacturer.  These aircraft werecertified by the Federal Aviation Administration (FAA) in 1998 and 2000,respectively, and features the Company’s parachutes as standard equipment.  In September 2000, the Company entered intoan agreement to bring back production of its system for the Cessna 150/152model aircraft.  The Company expectsthis system to be produced and distributed by the end of year 2001.  In November 2001, the Company also enteredinto a contract to develop and market a product for the Cessna 172 model ofaircraft.  The development andcertification for the Cessna 172 is expected by mid-fiscal year 2002. TheCompany’s products are sold both domestically and internationally.

 

Use of Estimates

 

Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andreported amounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

##### Cash Concentrations

 

Bankbalances periodically exceeded federally insured levels during 2001 and 2000,and exceeded federally insured levels as of September 30, 2001.

 

AccountsReceivable

 

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

 

Legal Matter

 

The Company is notcurrently involved in any legal proceedings that are material to the business.

 

### Customer Concentration

 

Onemajor customer, Cirrus Design Corporation, represented 58.0%and 31.5% of theCompany’s total sales in fiscal year 2001 and 2000, respectively.  This customer also accounted for 0.0% and68.2% of accounts receivable at September 30, 2001 and 2000, respectively.  The Company supplies parachute systems toCirrus from its general aviation product line.

 

Inits recreational aviation product line, the Company primarily distributes itsproducts through dealers and distributors who in turn sell to the endconsumer.  The Company believes that inthe event that any individual dealers or distributors cease to represent the Company’sproducts, that alternative dealers or distributors can be established.

 

Inventories

 

Inventoriesare recorded at the lower of cost (determined on a first-in basis) or market.Approximately 1/3 of the inventory on hand at the end of fiscal year 2001 and2000 related to unique components used in products for the Company’s majorcustomer as referred to above.  Theestimated loss that management believes is probable is included in theinventory valuation allowance.  Due touncertainties, however, it is at least reasonably possible that management’sestimate will change during the next year. That amount cannot be estimated.

 

Customer Deposits

 

TheCompany requires order deposits from most of its domestic and internationalcustomers.  These deposits representeither partial or complete down payments for orders.  These down payments are recorded as customer deposits.  The deposits are recognized as revenue whenthe product is shipped.

 

Fixed Assets

 

Fixedassets are stated at cost. Depreciation is computed using the straight-linemethod over the estimated useful lives of the related assets, ranging fromthree to seven years. When assets are retired or otherwise disposed of, thecost and related accumulated depreciation are removed from the accounts and theresulting gain or loss is recognized in income for the period.  The cost of maintenance and repairs isexpensed as incurred; significant renewals and betterments are capitalized.Deduction is made for retirements resulting from renewals or betterments.

 

Intangibles

 

Patentsare recorded at cost and are being amortized on a straight-line method over 17years.  The covenant not to compete isrecorded at cost and is being amortized using the straight-line method over theten-year term of the agreement.  Other intangibleassets are recorded at cost and are being amortized on a straight-line methodover five years.

 

Stock-BasedConsideration

 

TheCompany has applied the fair value based method of accounting for employee andnon-employee stock-based consideration and/or compensation in accordance withFASB Statement 123.

 

ComprehensiveIncome

 

SFASNo. 130 establishes standards for the reporting and disclosure of comprehensiveincome and its components which will be presented in association with acompany’s financial statements. Comprehensive income is defined as the change in a business enterprise’sequity during a period arising from transactions, events or circumstancesrelating to non-owner sources, such as foreign currency translation adjustmentsand unrealized gains or losses on available-for-sale securities.  It includes all changes in equity during aperiod except those resulting from investments by or distributions toowners.  For the fiscal years endedSeptember 30, 2001 and 2000, net income and comprehensive income wereequivalent.

 

Fair Value ofFinancial Instruments

 

SFASNo. 107, “Disclosures About Fair Value of Financial Instruments” requiresdisclosure of the estimated fair value of financial instruments as follows:

 

*        Short-termAssets and Liabilities*:

 

The fair values of cash, accounts receivable,accounts payable, accrued liabilities, and short-term debt approximate theircarrying values due to the short-term nature of these financial instruments.

 

*        Long-termDebt*:

 

The fair value of long-term debt approximatetheir carrying value because the terms are equivalent to borrowing ratescurrently available to the company for debt with similar terms and maturities.

 

EarningsPer Share

 

Thecompany has implemented FASB 128: Earnings Per Share.  Basic EPS excludes dilution and is computed by dividing netincome by the weighted-average number of common shares outstanding for theyear.  Diluted EPS reflects thepotential dilution from stock options and is computed using the treasury stockmethod.  Under the treasury stock methodstock options are assumed to have been exercised at the beginning of the periodif the exercise price exceeds the average market price during the period.

 
| **Dates  Outstanding**                               |   | **Shares  Outstanding** |   | **Days  Outstanding** |   | **Weighted  Average Shares** |    |
|------------------------------------------------------|--------|-------------------------|--------|-----------------------|--------|------------------------------|---------|
|                                                 |   |                    |   |                  |   |                         |    |
| 10/1/00 to  9/30/01                                  |   | 5,905,798               |   | 365                   |   | 5,905,798                    |    |
| 11/02/00 to  9/30/01                                 |   | 200,000                 |   | 332                   |   | 181,918                      |    |
| 11/20/00 to  9/30/01                                 |   | 2,857                   |   | 314                   |   | 2,458                        |    |
| 1/25/01 to  9/30/01                                  |   | 3,429                   |   | 248                   |   | 2,330                        |    |
| 2/20/01 to  9/30/01                                  |   | 2,411                   |   | 221                   |   | 1,460                        |    |
| 3/20/01 to 9/30/01                                   |   | 1,655                   |   | 194                   |   | 880                          |    |
| 6/07/01 to  9/30/01                                  |   | 1,765                   |   | 115                   |   | 556                          |    |
| 6/19/01 to  9/30/01                                  |   | 1,786                   |   | 103                   |   | 504                          |    |
|                                                 |   |                    |   |                  |   |                         |    |
| Weighted-Average  Shares for basic EPS               |   |                    |   |                  |   | 6,095,903                    |    |
|                                                 |   |                    |   |                  |   |                         |    |
| Incremental  shares from assumed exercise of options |   |                    |   |                  |   | 18,299                       |    |
|                                                 |   |                    |   |                  |   |                         |    |
| Adjusted  Weighted-Average Shares for diluted EPS    |   |                    |   |                  |   | 6,114,202                    |    |
|                                                 |   |                    |   |                  |   |                         |    |
| Income available  to common stockholders             |   |                    |   |                  |   | $                            | 599,010 |   |
|                                                      |        |                         |        |                       |        |                              |         |  |

 

 

Income Taxes

 

Timingdifferences relate primarily to: allowances for doubtful accounts; inventoryvaluation allowances; and accrued expenses not currently deductible. Beginningin fiscal year 1997 and continuing to the present, a deferred tax asset, net ofa valuation reserve, is reflected for future benefit of the Company’s netoperating loss carry forwards and net timing differences.

 

Research andDevelopment Costs

 

Research anddevelopment costs are charged to expense as incurred.

 

AdvertisingExpenses

 

Non-directresponse advertising expenses are recognized in the period incurred.  Non-direct response advertising expensestotaled $68,045 in 2001 and $45,804 in 2000.

 

2.     New Product Development, Research andDevelopment Funding and Income Recognition

 

Upon satisfaction of contingencies on November2, 2000, an agreement between the Company and Charles F. Parsons (d.b.a.Millennium Aerospace) dated October 26, 2000 became effective.  The purpose of the agreement was to providespecific funding for a parachute recovery system for the Cessna 172 modelaircraft to be developed and certified by the Company.  The Agreement called for an investment byParsons of $200,000.  The investmenttook the form of an equity infusion valued at $110,000 for 200,000 restrictedshares of the Company’s Common Stock and $90,000 for research anddevelopment.  The funding will be usedtowards research and development for the BRS-172 product, with completionexpected by mid-fiscal year 2002. Following completion of the product, the Company will seek FederalAviation Administration (FAA) approval, which will allow the product to beinstalled on certified Cessna 172 series aircraft.  Once certified by the FAA, the Company will begin production anddistribution of the product and Parsons will market and distribute the product.  Under additional terms of the agreement, theCompany will continue its efforts to solicit Cessna 172 owners for deposits,which will secure their purchase commitments for the product oncecertified.  The Company has received 10deposits from customers and will continue its efforts through the beginning of fiscalyear 2002.  To date, including the 10deposits, the Company has 22 firm pre-production orders for the BRS-172systems.

 

Duringthe past several years, the Company’s primary general aviation product has beenfor the Cirrus Design SR20 (SR20).  During the first quarter of fiscal year 2001, Cirrus Design completedtesting and certification of its next generation aircraft called the SR22.  First deliveries of parachute systems forthe SR22 were made in December 2000, and continue through the present.  The SR20 aircraft received Federal AviationAdministration (FAA) certification in October 1998 and includes the Company’sparachute system as a standard equipment feature. The development of the systemfor the SR20 was a joint effort between the Company and Cirrus Design under anagreement that began in 1994 and culminated with FAA certification of the SR20in late 1998. Under terms of the agreement, the Company has retained thedeveloped technology for the parachute systems in general and the outside companyhas retained the developed technology that is specific to their individualaircraft.  The Company shared in thecosts to develop and certify the parachute system for this aircraft.  The SR22 received FAA certification inNovember 2000 and also has the Company’s product installed as standardequipment.  The SR22 is heavier andfaster than the predecessor SR20.  TheCompany shared in the costs to develop the parachute system for the SR22 aswell.  The net amount of expensesincurred by the Company is reflected in Research and Development expenses inthe financial statements.

 

CirrusDesign announced in April 2001 that it would introduce a diesel version of itsaircraft called the SR21TDi (SR21).  TheSR21 will be first introduced in the European market and is expected to be onthe market sometime in the next several years. This model, which is similar to the SR20 and SR22 aircraft, is expectedto utilize the Company’s parachute system as standard equipment as well.

 

InSeptember 2000, the Company entered into an agreement to bring back its productfor the Cessna 150/152 model aircraft (the “BRS-150”), which is expected to beback on the market in calendar year 2001. Under the agreement the Company developed a new rocket motor that willbe used for the product and once reintroduced, the product will be marketedunder an exclusive marketing agreement with an outside company.  To date, the Company has 6 firm orders forthe BRS-150 systems.

 

3.     Purchase and Supply Agreement

 

OnSeptember 17, 1999, the Company entered into a Purchase and Supply Agreementwith Cirrus Design Corporation (Cirrus), the manufactured of the SR20 aircraftthat utilizes the Company’s parachute system as standard equipment.  Under the Agreement, Cirrus has been issuedfour warrants to acquire an aggregate of up to 1.4 million shares of restrictedCompany stock.  In order to execute thewarrants, Cirrus must meet certain purchase levels of the Company’s emergencyparachute systems for the SR20 and derivative aircraft over the subsequent fiveyears.  The purchase levels that must beachieved along with the corresponding number of shares under each warrant andwarrant strike price are as follows:

 
| **Warr #** |   | **Exercise Period** |   | **Warrant Shares** |   | **Exercise Price per  Warrant Share** |   | **Purchase Commitment**     |
|------------|--------|---------------------|--------|--------------------|--------|---------------------------------------|--------|-----------------------------|
| 1          |   | 01-2002 to 02-2003  |   | 250,000            |   | $1.00                                 |   | 250 units in calendar  2002 |
| 2          |   | 01-2003 to 02-2004  |   | 250,000            |   | $1.00                                 |   | 400 units in calendar  2003 |
| 3          |   | 01-2003 to 02-2004  |   | 250,000            |   | $1.25                                 |   | 400 units in calendar  2003 |
| 4          |   | 01-2004 to 02-2005  |   | 650,000            |   | $1.25                                 |   | 500 units in calendar  2004 |

 

 

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

 

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

 
| **Fiscal Year** |   | **Equity Contribution** |
|-----------------|--------|-------------------------|
| 2003            |   | $                       | 250,000 |
| 2004            |   | 562,500                 |
| 2005            |   | 812,500                 |
| Total           |   | $                       | 1,625,000 |

 

 

 

4.     Covenant Not to Compete

 

OnOctober 26, 1995 the Company entered into an agreement with the president andmajority shareholder of Second Chantz Aerial Survival Equipment, Inc. (SCI),whereby SCI ceased all business activities, and SCI's president and majorityshareholder entered into a ten-year covenant not to compete with theCompany.  The payments required underthis agreement contained a non-interest-bearing portion and a portion thatbears interest at a rate below the Company's incremental borrowing rate.  Under generally accepted accountingprinciples the future payments were discounted at the Company's incrementalborrowing rate.

 

The4% ten year note calls for monthly payments of $4,036 through October2005.  Payments under this agreement areunsecured.

 

Thepresent value of the Company’s obligation under this agreement was recorded asan intangible asset and is being amortized over ten years as shown in theaccompanying financial statements.

 

Futurepayments under this agreement are as follows:

 
|       |   | **Future Dollars** |    | **Present Dollars** |   |
|------------|--------|--------------------|---------|---------------------|--------|
|       |   |               |    |                |   |
| 2002       |   | 48,436             |    | 32,583              |   |
| 2003       |   | 48,436             |    | 36,354              |   |
| 2004       |   | 48,436             |    | 40,561              |   |
| 2005       |   | 48,436             |    | 45,255              |   |
| Thereafter |   | 4,036              |    | 4,002               |   |
|       |   | $                  | 197,780 |                | $      | 158,755 |   |
|            |        |                    |         |                     |        |  |  |

 

TheCompany also granted SCI's president an option to purchase 50,000 shares of theCompany's common stock at an exercise price of $.25.  This option expires October 2005.

 

5.     Long-Term Debt

 

OnNovember 5, 1996, the Company signed a note payable with the bank in the amountof $70,030.  The purpose of the loan wasto pay for renovations to the current production facility that the Company tookpossession of on October 1, 1996.  Thescheduled maturity date of the note was November 5, 2001, but was paid off bythe Company in September 2001.

 

6.     Other Financial Information

 

Inventories

 

Inventoriesconsisted of the following at September 30, 2000 and 1999:

 
|               |   | **2001** |    | **2000** |   |
|--------------------|--------|----------|---------|----------|--------|
| Raw  materials     |   | $        | 519,511 |     | $      | 219,175 |   |
| Work  in process   |   | 134,971  |    | 506,281  |   |
| Finished  goods    |   | 31,920   |    | 120,653  |   |
| Total  Inventories |   | $        | 686,402 |     | $      | 846,109 |   |

 

DepreciationExpense

 

Depreciation expense totaled $25,795 in 2001 and$22,630 in 2000.

 

Long-Lived Assets

 

In accordance with SFAS 121, Accounting For TheImpairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of,the Company reviews its long-lived assets and intangibles related to thoseassets periodically to determine potential impairment by comparing the carryingvalue of the long-lived assets outstanding with estimated future cash flowsexpected to result from the use of the assets, including cash flows fromdisposition.  Should the sum of theexpected future cash flows be less than the carrying value, the Company wouldrecognize an impairment loss.  Animpairment loss would be measured by comparing the amount by which the carryingvalue exceeds the fair value of the long-lived assets and intangibles.  To date, management has determined that noimpairment of long-lived assets exists.

 

Export Sales

 

The Company's international sales are made throughindependent representatives in various foreign countries.  International sales as a percentage of totalsales were 7% in 2001 and 11% in 2000.

 

Major Suppliers

 

During the fiscal years ended September 30, 2001 and2000, the Company purchased its parachutes from a certain key vendor. TheCompany manufactures its own ballistic devices, but the fuel for the ballisticdevices is purchased from a single source. The Company routinely searches for new suppliers and feels alternatesources can be found should any of these suppliers be unable to meet theCompany’s needs.

 

### Related Party

 

The Company contracts with an officer/shareholder ofthe Company to coordinate its advertising. Total advertising expenses were $60,178 and $50,327 for fiscal year 2001and 2000,respectively, with $36,405 and $34,888, respectively of these totalbeing paid to this individual.  Theadvertising rates charged are at or below current market rates.  The Company owed this related party nothingas of September 20, 2001 and $20,358 as of September 30, 2000.

 

### Profit Sharing Plan

 

The Company adopted a defined contribution profitsharing plan in fiscal year 2000, which covers most of its employees.  The Company contribution to this plantotaled $25,239 in 2001 and $5,974 in 2000.

 

7.     Line-of Credit Borrowings

 

Since February 28, 2001, the Company has beenoperating under a $250,000 line-of-credit for use in operations.  The line-of-credit was established on anannual renewal basis and is secured by all of the Company’s assets.  The latest line-of-credit expires February28, 2002.  The line calls for a variableinterest rate of 1.5% over the bank’s index rate.  At September 30, 2001 there was no outstanding balance under theline of credit and at September 30, 2000, the Company had balance due of$220,600 under the line, which carried an interest rate of 11.25%. The previousline-of-credit was also for $250,000 and was in place for the first portion offiscal year 2000.  The Company expectsto renew the line each year following the review of its financial results andprojections with the bank.

 

8.     Income Taxes

 

Income taxes consisted of the following atSeptember 30:

 
|                                          |   | **2001** |    | **2000** |   |
|-----------------------------------------------|--------|----------|---------|----------|--------|
| Current:                                      |   |     |    |     |   |
| Federal                                       |   | $        | -       |     | $      | - |   |
| State                                         |   | (24,478  | )       | -        |   |
| State alternative minimumtax and minimum  fee |   | (1,000   | )       | (1,000   | )      |
|                                          |   | (25,478  | )       | (1,000   | )      |
| Deferred:                                     |   |     |    |     |   |
| Federal                                       |   | 188,433  |    | -        |   |
| State                                         |   | 11,567   |    | -        |   |
|                                          |   | 200,000  |    | -        |   |
|                                          |   |     |    |     |   |
| Income tax benefit (expense)                  |   | $        | 174,522 |     | $      | (1,000 | ) |

 

The reconciliation between expected federalincome tax rates is as follows:

 
|                                                               |   | **2001**   |     | **2000**    |         |
|--------------------------------------------------------------------|--------|------------|----------|-------------|--------------|
|                                                               |   | **Amount** |     | **Percent** |         | **Amount** |   | **Percent** |   |
|                                                               |   |       |     |        |         |   |   |   |   |
| Expected federal tax                                               |   | $          | (141,550 | )           | (34.0%       | ) | $ | (26,800 | ) | (34.0% | ) |
| Surtax exemption                                                   |   | -          |     | -           |         | 8,300 |   | 10.5 |   |
| State income tax, netof federal tax benefit                   |   | (26,927    | )        | (6.5        | )            | (5,100 | ) | (6.5 | ) |
| Valuation and utilizationof net operating  loss carryforwards |   | 343,999    |     | 82.6        |    | 23,600 |   | 30.0 |       |
| State AMT                                                          |   | -          |     | -           |         | (700 | ) | (.9 | ) |
| State minimum fee                                                  |   | (1,000     | )        | (.2         | )            | (300 | ) | (.4 | ) |
|                                                               |   |       |     |        |         |   |   |   |   |
| Income tax benefit(expense)                                        |   | $          | 174,522  |        | 41.9         | % | $ | (1,000 | ) | (1.3% | ) |

 

Differences between accounting rules and tax lawscause differences between the bases of certain assets and liabilities forfinancial 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, andconsisted of the following:

 
|                               |   | **2001** |    | **2000** |   |
|------------------------------------|--------|----------|---------|----------|--------|
| Deferred tax assets:               |   |     |    |     |   |
| Allowance for doubtful accounts    |   | $        | 4,300   |     | $      | 1,000 |   |
| Inventory valuation allowance      |   | 54,700   |    | 20,000   |   |
| Section 263A adjustment            |   | 24,000   |    | 28,500   |   |
| Depreciation of leaseholds         |   | (9,800   | )       | (7,100   | )      |
| Amortization of fuel formulations  |   | 6,700    |    | 4,100    |   |
| Vacation accrual                   |   | 7,500    |    | 5,200    |   |
| Other accruals                     |   | 22,500   |    | (10,000  | )      |
| Net operating loss carryforwards   |   | 538,100  |    | 871,000  |   |
|                               |   |     |    |     |   |
| Gross deferred tax asset           |   | 648,000  |    | 912,700  |   |
| Valuation allowance                |   | (148,000 | )       | (612,700 | )      |
|                               |   |     |    |     |   |
| Net deferred tax asset             |   | 500,000  |    | 300,000  |   |
| Deferred tax liability             |   | -        |    | -        |   |
| Net deferred tax asset (liability) |   | $        | 500,000 |     | $      | 300,000 |   |
|                               |   |     |    |     |   |
| Current deferred tax asset         |   | $        | 280,000 |     | $      | 25,000 |   |
| Long-term deferred tax asset       |   | 220,000  |    | 275,000  |   |
|                               |   |     |    |     |   |
| Net deferred tax asset (liability) |   | $        | 500,000 |     | $      | 300,000 |   |

 

The recognized deferred tax asset is based uponexpected utilization of the net operating loss carryforwards and reversal ofcertain timing differences.  The Companyhas assessed its past earnings history and trends, sales backlog, budgetedsales, and expiration dates of carryforwards and has determined that it is morelikely than not that $500,000 of deferred tax assets will be utilized.  The remaining valuation allowance of$148,000 at September 30, 2001 is maintained on deferred tax assets which theCompany has not determined to be more likely than not realized at this time.

 

AtSeptember 30, 2001, the Company has carryforwards available to offset futuretaxable income as follows:
|   |   |            |      |        |   |      |   |
|--------|--------|-----------------|-----------|-------------|--------|-----------|--------|
|   |   |            |      | **Federal** |   | **State** |   |
|   |   | **Regular NOL** |      | **AMT NOL** |   | **NOL**   |   |
|   |   |            |      |        |   |      |   |
| 2004   |   | $               | -         |        | $      | 25,000    |   | $ | - |   |
| 2005   |   | 690,000         |      | 706,000     |   | -         |   |
| 2006   |   | 132,000         |      | 126,000     |   | -         |   |
| 2007   |   | 113,000         |      | 106,000     |   | -         |   |
| 2008   |   | 457,000         |      | 450,000     |   | -         |   |
| 2009   |   | 181,000         |      | 175,000     |   | -         |   |
| 2013   |   | 9,000           |      | 7,000       |   | -         |   |
|   |   |            |      |        |   |      |   |
|   |   | $               | 1,582,000 |        | $      | 1,595,000 |   | $ | - |   |

 

9.     Common Stock

 

Stock Options

 

The Company has issued options to various directors,officers, employees and others on a discretionary basis.

 

Transactions during 2000 and 1999, for these issuanceswere as follows:

 
|                                           |   | **Number**    |   | **Option Price**    |              |
|------------------------------------------------|--------|---------------|--------|---------------------|-------------------|
|                                           |   | **Of Shares** |   | **Range per Share** |              |
|                                           |   |          |   |                |              |
| Balance  at September 30, 1999                 |   | 554,612       |   | $                   | 0.25 to $0.75     |   |
| Granted                                        |   | 87,500        |   | $                   | 0.50 to $1.25     |   |
| Exercised                                      |   | (25,000       | )      | $                   | 0.44              |   |
| Converted  to stock under cashless transaction |   | (22,850       | )      | $                   | 0.25 to $0.56     |   |
| Expired                                        |   | (122,000      | )      | $                   | 0.43 to $0.56     |   |
|                                           |   |          |   |                |              |
| Balance  at September 30, 2000                 |   | 472,262       |   | $                   | 0.25 to $1.25     |   |
| Granted                                        |   | 195,000       |   | $                   | 0.4375 to $0.9063 |   |
| Converted  to stock under cashless transaction |   | (5,000        | )      | $                   | 0.453             |   |
| Expired                                        |   | (166,012      | )      | $                   | 0.453 to $0.50    |   |
|                                           |   |          |   |                |              |
| Balance  at September 30, 2001                 |   | 496,250       |   | $                   | 0.3125 to $1.25   |   |

 

 
| At  September 30, 2001:         |   |    |   |
|---------------------------------|--------|---------|--------|
| Options  vested and exercisable |   | 399,581 |   |
| Shares  available for options   |   | -0-     |   |

 

10.   Commitments and Contingencies

 

Leases

 

The Company leases its production facility on anairport in South St. Paul, Minnesota. Total rental expense for operating leasesduring 2001 and 2000 was $37,877 and $36,017, respectively.

 

Future minimumlease payments required on non-cancelable operating leases at September 30,2001 are as follows:

 
| 2002   |   | 35,628 |   |
|--------|--------|--------|--------|
| 2003   |   | 8,907  |   |
|   |   |   |   |
|   |   | $      | 44,535 |   |
|        |        |        |        |  |

 

11.   Supplemental Cash Flow Information

 
|            |   | 2001   |   | 2000   |   |
|-----------------|--------|--------|--------|--------|--------|
| Cash  paid for: |   |   |   |   |   |
| Interest        |   | $      | 29,183 |   | $      | 37,262 |   |
| Income  taxes   |   | 1,994  |   | 1,000  |   |
|                 |        |        |        |        |        |  |  |

 

Summary of noncash activity:

 

•      Common stock was issued in lieu ofdirector’s fees of $7,250 and $4,000, for 2001 and 2000, respectively.

 

•      Options toacquire 5,000 shares, 5,000 shares and 17,850 shares of the Company’s commonstock were converted into 2,411 shares, 2,857 shares and 15,158 shares of theCompany’s common stock in a cashless transaction on February 21, 2001, January12, 2000 and November 17, 1999, respectively.

 

12.   Subsequent Event

 

On November 2, 2001, theCompany entered into a contact with NASA through its Small Business InnovationResearch (SBIR) program.  The contract,which is a Phase I feasibility study, covers a six month period and is afirm-fixed grant for $68,571.  The PhaseI award is entitled “Advanced Aircraft Parachute Recovery System” and has been granted to allow the company toinvestigate the feasibility of developing parachute systems for larger andfaster aircraft than those currently supported by the Company.  If Phase I is successful, the Company willapply for a follow-on Phase II grant. Successful Phase II proposals result in firm fixed price contracts notexceeding $600,000 with a period of performance not exceeding 24 months.

 

Item 8.    Changes in and Disagreements withAccountants on Accounting and Financial Disclosures

 

There have been nodisagreements with the Company's independent certified public accountants onaccounting principles or practices or financial statement disclosures.

 

**PART III**

 

Item 9.    Directors, Executive Officers, Promoters andControl Persons:  Compliance withSection 16(a) of the Exchange Act

 

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

 

Item 10.  Executive Compensation

 

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

 

Item 11.  Security Ownership of Certain BeneficialOwners and Management

 

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

 

Item 12.  Certain Relationships and Related Transactions

 

The informationrequired 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 |    |   |                                                                                                                                                                                                                                                                                                                                   |
|--------|----------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |     |    |   |                                                                                                                                                                                                                                                                                                                                   |
|   | Page     | Exhibit |   |                                                                                                                                                                                                                                                                                                                                   |
|   | Number   | Number  |   | Description                                                                                                                                                                                                                                                                                                                            |
|   |     | 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    |   | Cessna 172 Development  and Funding Agreement dated October 26, 2000 between the Company and Charles  F. Parsons appears as exhibit 10.1 to the Company’s Report on Form 8-K filed  November 13, 2000 and is incorporated herein by reference.                                                                                    |
|   |     |    |   |                                                                                                                                                                                                                                                                                                                                   |
|   |     | 10.2    |   | 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.                                                                                         |
|   |     |    |   |                                                                                                                                                                                                                                                                                                                                   |
|   |     | 10.3    |   | 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. |
|   |     |    |   |                                                                                                                                                                                                                                                                                                                                   |
|   |     | 10.4    |   | 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.                                                                                                                                                                                                  |
|   |     |    |   |                                                                                                                                                                                                                                                                                                                                   |
|   |     | 10.5    |   | 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.                                                                                                                                                                               |

 

(b)           TheCompany did not file any Current Reports on Form 8-K during the fourth quarterended September 30, 2001.

 

SIGNATURES

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, 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 SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant and in the capacities and on the datesindicated.

 

Signature

Title

Date

 

 

 

 /s/ Darrel D. Brandt

Director

November 13, 2001

Darrel D. Brandt

 

 

 

 

 

 /s/ Boris Popov

Director

November 13, 2001

Boris Popov

 

 

 

 

 

 /s/ Robert L. Nelson

Director

November 13, 2001

Robert L. Nelson

 

 

 

 

 

 /s/ Thomas H. Adams

Director

November 13, 2001

Thomas H. Adams

 

 

 

 

 

/s/ Mark B.  Thomas

Director

November 13, 2001

Mark B. Thomas

 

 

  |