BRSI Ballistic Recovery Systems Inc (CE)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

þ		Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended September 30, 2007

o		Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from       to

Commission File Number 0-15318

BALLISTIC RECOVERY SYSTEMS, INC.

(Exact name of issuer as specified in its charter)

Minnesota		41-1372079
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

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

(651) 457-7491
(Issuer’s telephone number)

Securities registered pursuant to Section 12(b) of the Exchange Act:

None

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, par value $0.01 per share

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. o

The issuer’s revenues for the fiscal year ended September 30, 2007 were $9,402,351.

As of February 29, 2008, there were 11,304,767 outstanding shares of common stock, par value $0.01 per share.

The aggregate market value of the voting common stock of the issuer held by non-affiliates of the issuer on February 29, 2008 based on the closing price of the common stock as quoted on the Pink Sheets on such date was $6,859,611.

Transitional Small Business Disclosure Format: Yes o No þ

 

 

TABLE OF CONTENTS

PART I
Item 1 Description of Business			1
Item 2 Description of Property			12
Item 3 Legal Proceedings			12
Item 4 Submission of Matters to a Vote of Security Holders			13
PART II
Item 5 Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities			13
Item 6 Management’s Discussion and Analysis or Plan of Operation			14
Item 7 Consolidated Financial Statements			20
Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			20
Item 8A Controls and Procedures			20
Item 8B Other Information			21
PART III
Item 9 Directors, Executive Officers, Promoters, Control Persons, and Corporate Governance; Compliance with Section 16(a) of the Exchange Act			21
Item 10 Executive Compensation			24
Item 11 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			27
Item 12 Certain Relationships and Related Transactions, and Director Independence			29
Item 13 Exhibits			30
Item 14 Principal Accountant Fees and Services			31
Index to Consolidated Financial Statements			F-1
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

REFERENCES

References to “BRS,” the “Company,” the “Registrant,” “we,” “us,” or “our” in this Annual Report on Form 10-KSB refer to Ballistic Recovery Systems, Inc., a Minnesota corporation.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-KSB contains statements that are forward-looking in nature, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. In particular, the “Management’s Discussion and Analysis or Plan of Operation” section in Item 6 of this annual report includes forward-looking statements that reflect our current views with respect to future events and financial performance. We use words such as “expect,” “anticipate,” “believe,” “could,” “may,” and “intend” and similar expressions to identify forward-looking statements. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties inherent in future events, including, but not limited to, our dependence on Cirrus Design Corporation, potential product liability claims and payment if such claims are successful, federal transportation rules and regulation which may negatively impact our ability to ship our products in a cost efficient manner, the elimination of funding for new research and development projects, the decline in registered and unregistered aircraft sales, dependence on discretionary consumer spending, dependence on existing management, general economic conditions, changes in federal or state laws or regulations, the valuation of deferred tax assets and our restatement of certain previously issued financial statements. Investors should not unduly rely on these forward looking statements and should carefully review the risk factors set forth in this annual report.

In recent years, our growth has come from its general aviation market, primarily from sales to Cirrus Design Corporation, or Cirrus. We see our future growth coming from the following areas:

	•		Expansion of the general aviation market beyond Cirrus to other general aviation manufacturers;
	•		Growth in the emerging Very Light Jet (VLJ) market;
	•		Development of products and successful contract awards for defense related products;
	•		Development of the repack market for general aviation aircraft;
	•		Utilization of our manufacturing expertise and excess capacity for aviation and non-aviation cut and sew production in our Mexico production facility; and
	•		The manufacturing, marketing, and distribution of personal protective equipment.

We maintain our corporate headquarters and main assembly in South St. Paul, Minnesota. We also have a facility in Mexico that is used for manufacturing parachutes for BRS and other companies and related cut-and-sew products for other industries.

On November 16, 2007, we acquired through our majority owned subsidiary, Advanced Tactical Fabrication Inc., or ATF, substantially all of the assets of Head Lites Corporation, or HLC, a Minnesota corporation which manufactures high visibility personal safety products. ATF, which is 90% owned by us and 10% by HLC, is based in South St. Paul and has production facilities in Pinebluff, North Carolina and Tijuana, Mexico (Tijuana).

ATF paid $648,400 in cash for the acquisition, in addition to the assumption of certain liabilities. In connection with the transaction, ATF entered into a five-year consulting agreement with HLC, whereby ATF will be required to make monthly payments to HLC totaling $50,000 in the first year and $42,000 each year thereafter. ATF also agreed to make monthly non-compete payments to the majority shareholder of HLC for a period of five years, with payments during the first year totaling approximately $36,000 and payments in each year thereafter totaling $24,000. Further, ATF will make five annual gross margin payments to HLC in amounts equal to 8% of ATF’s gross margin during each applicable fiscal year (subject to increase under certain circumstances).

We also agreed to loan up to $450,000 to ATF in consideration of certain secured promissory notes to be issued by ATF in our favor. The notes will have a three-year term and bear interest at a rate equal to the prime rate plus 1%. The notes require quarterly payments which will be interest only for the first payment on January 1, 2008, and principal and accrued interest commencing April 1, 2008, with the final payment scheduled for July 1, 2010. These loans are to be made available to ATF if its cash flow is not sufficient to meet day-to-day operating needs.

On October 15, 2007 we established a parachute manufacturing facility in Pinebluff, North Carolina with the specific purpose of meeting “Berry Amendment” requirement for US content (related to defense related products).

Our Business

Principal Products

Our principal products are whole-aircraft emergency parachute recovery systems. Each product, when utilized in an in-air emergency and at the appropriate altitude, may be activated by the pilot releasing a parachute that is designed to deploy quickly, slow the descent of the aircraft, and lower the aircraft and its occupants safely to the ground to prevent or reduce injury and damage to the aircraft. Possible parachute usage scenarios include: mid-air collision (loss of integrity or control); severe weather upset (wind shear, turbulence); power loss with poor visibility (night or instrument flight conditions); loss of control (component failure or malfunction); engine out over hostile (unlandable) terrain; structural failure (age-weakened parts); pilot medical trauma (heart attack, allergic reaction, stroke); overstress (violent weather); and/or pilot error.

General Aviation Market

Our general aviation product line relates to products for inclusion on FAA certified aircraft through either a Type Certificate, or TC, or a Supplemental Type Certificate, or STC. We entered the general aviation market in the mid 1980’s when we developed an emergency parachute recovery system for the Cessna 150/152 series of aircraft. In 1993, this system, known as the GARD-150 (now called the “BRS-150”), received a STC from the FAA that allowed owners of Cessna 150/152 model aircraft to install the system into their aircraft. Media attention for this new product resulted in domestic and international television and radio broadcasts as well as coverage in domestic and international aviation and non-aviation print media. Although the BRS-150 did not sell in significant volumes, we believe that it helped in the development of our current products.

In fiscal year 2007, our general aviation product lines accounted for approximately 74.4% of our revenues. According to the General Aviation Manufacturers Association, or GAMA, the general aviation market experienced 24.1% growth in 2006. Our primary general aviation product has been used on the Cirrus SR20 and SR22 aircraft manufactured by Cirrus. For fiscal year 2007, sales to Cirrus accounted for approximately 74.4% of our revenues. One of our growth strategies addresses customer concentration by pursuing more general aviation business from other manufacturers.

Cirrus Design Corporation

Cirrus, based in Duluth, Minnesota, is presently the world’s largest manufacturer of single engine 4-seat certified aircraft, according to GAMA reports. Both models of Cirrus aircraft utilize our parachute system as required standard equipment.

We entered into an agreement with Cirrus Design Corporation, or Cirrus, in 1994 to develop and certify a four-place all composite general aviation aircraft designated the SR20. The FAA certified the aircraft in October 1998. It was the first FAA certified aircraft to offer one of our recovery systems as required standard equipment. As standard equipment, our parachute is included in the aircraft’s Type Certificate, or TC, issued by the FAA (for more information on the TC, please see the section entitled “Government Regulation” on pages 7-8. We began delivering systems for the SR20 in fiscal year 1999. During fiscal year 2000, Cirrus began development and certification efforts for their next generation aircraft called the SR22. The SR22 is a heavier and faster version of the SR20 and utilizes much of the same parachute technology developed for the SR20. The SR22 received a TC in November 2000 and was certified with our parachute system as a standard component of the aircraft. Deliveries of SR22 parachute systems began in December 2000. Cirrus continues to make enhancements and advancements to both the SR20 and SR22 and has new aircraft designs currently under development. We intend to approach Cirrus regarding the use of our product in such new aircraft, and anticipate that our products will continue to be offered on Cirrus aircraft as standard equipment.

We currently operate under a Purchase and Supply Agreement with Cirrus, dated as of September 1999 and amended February 2006, pursuant to which we are the non-exclusive supplier of the parachute recovery system to Cirrus. The current term of the agreement expires in December 2008, subject to rolling automatic renewal terms of 18 months unless either party terminates with 18 months advance notice. The recent amendment to this agreement also provides that Cirrus will maintain product liability insurance on the parachute system whose components are directly or indirectly supplied by us. Additionally, Cirrus has agreed to indemnify us for all related product liability claims involving our parachute system (except for claims for economic losses or damage related solely to the aircraft). The agreement also gives Cirrus limited exclusivity for an increased gross weight (3,600 pound) system for a period of one year after introduction.

In recent years, sales of Cirrus aircraft have flourished, with 710 aircraft shipped in 2007 and 721 aircraft shipped in 2006. The number of aircraft shipped in 2006 reflected an increase of approximately 20.2% over the 600 aircraft shipped by Cirrus in 2005. In 2004, Cirrus became the leading US based manufacturer of general aviation aircraft, passing longtime industry leaders such as Cessna, Piper and Mooney. According to GAMA, Cirrus is the market leader in high performance, single-engine piston, four-place airplanes.

Other General Aviation Products

In addition to our relationship with Cirrus, we develop and sell aftermarket FAA certified parachute systems for the Cessna 172 and 182 aircraft. Our systems for the Cessna aircraft are optional equipment, requiring us to obtain from the FAA a Supplemental Type Certificate, or STC. An STC allows the installation of the product without requiring the presence of the product for operation of the aircraft (for more information on the STC, please see the section entitled " Government Regulation ” on pages 7-8).

In fiscal year 2001, we began development of a parachute system for the Cessna 172 model aircraft. The development and testing was completed in fiscal year 2002 and we received FAA certification for the BRS-172 recovery system in July 2002. We made our first customer delivery in September 2002 with 17 total systems installed through the end of fiscal year 2007.

Near the end of fiscal year 2004, we finalized development of a parachute recovery system for the Cessna 182 model aircraft, which is called the BRS-182. The system utilizes many of the same components used in the recovery systems for the Cirrus aircraft models and the Cessna 172. We received the Supplemental Type Certificate or STC from the FAA in June 2004, allowing the product to be installed on certified Cessna 182 series aircraft. The first customer delivery and installation was completed in July 2004. A total of 58 Cessna units have been sold to date.

According to GAMA, Cessna delivered 674 Cessna 172/182 aircraft during calendar year 2007 compared to 736 Cessna 172/182 units in calendar year 2006.

On October 8, 2007, the Company announced an agreement with Cessna Aircraft Company, a Textron Inc. (NYSE: TXT) company, for the Cessna service stations across the world to begin offering BRS whole-airframe parachute system installations and service for the 172 Skyhawk and 182 Skylane. The Company also announced they will begin developing an STC for the parachutes to be installed on the Cessna 206.

We continue to explore opportunities to have our products be standard certified equipment or a factory installed option with several other general aviation manufacturers.

Light Sport Aircraft (LSA) Market/Recreational Market

In fiscal year 2007, our recreational product lines accounted for approximately 22.3% of our revenues. Recreational aviation products include products designed and manufactured for use on unregistered aircraft (such as ultralights) and aircraft registered with the FAA as experimental. Like our general aviation products, these recreational aviation products are designed to prevent or reduce human injury and damage to the aircraft in the event of an in-air emergency.

We manufacture these products and sell direct and through dealers and distributors who also market and sell the aircraft and related products. We currently work with approximately 30 dealers and distributors worldwide. Sales to international customers accounted for approximately 47.5% of our recreational aviation product sales in 2007.

A portion of the recreational market is the light sport aircraft market segment. LSA are smaller two-seat aircraft, and are the result of federal regulations enacted in December 2004 relating to light sport aircraft. These regulations are less onerous than those relating to general aviation and made recreational flying more affordable, as they allow pilots to obtain sport pilot certification at significantly less expense, in terms of time and cost, and generally simplify the certification process. LSA aircraft resemble traditional two-seat general aviation aircraft, but weigh less than 1,320 pounds, and aircraft kit prices start as low as $20,000. The FAA has projected this market to be over 3,000 aircraft in the next 2-3 years. We believe there is significant market potential for LSA aircraft where our products would be offered as either standard equipment or a factory option.

Management believes that these lesser restrictions may have a positive effect on the LSA market in the United States, and that we will have a significant market opportunity if we can develop and manufacture compatible products. The LSA market currently has 57 approved airplane types and we are in development of designs and have orders to develop parachute recovery systems for 13 of these aircraft types. Many of the existing LSA aircraft were developed around existing European designs, some of which, but not all, utilize our products. We have developed solid relationships with US-based distributors and manufacturers of LSA aircraft, such as Flight Star and Sport Aircraft Works. We have contracted with Flight Design CT of Germany to have our products as standard equipment on every plane delivered in the United States. We continue to attempt to develop contacts in this market to further expand our LSA product business. While we are optimistic that the LSA market will continue to develop, no assurance can be given that our products will be successfully marketed within the LSA market.

We delivered 192 LSA units in fiscal year 2007.

Very Light Jet (VLJ) Market

The newest market segment, and one in which the industry and we believe has great potential, is the VLJ market. VLJs are being developed by several general aviation manufacturers, including Cirrus, Piper and Diamond (as identified below). A VLJ is a smaller version of a larger jet that, in general, seats up to five persons, weighs less than 10,000 pounds (maximum take off weight) and will retail for between $1,000,000 and $2,500,000. This market is designed to be the transition from high performance piston and turbo-charged aircraft to a jet which is easy to fly and more affordable than their costlier counterparts.

In November 2005, Cirrus announced that it intended to design a new “personal jet,” and that it intended to include a parachute on this model as standard equipment. We are in discussion with Cirrus about the possibility of including our products on its proposed personal jet.

In July 2006, the Diamond Aircraft Industries, or Diamond, a London, Ontario based manufacturer of general aviation and light jet aircraft announced that a parachute would be an option on the newly announced D-JET. We have not entered into a definitive agreement with Diamond. Our current working arrangement with Diamond is that we will be the exclusive supplier of any parachute system used on a Diamond D-JET aircraft, and that our system would be offered as a factory option. We intend to be free to supply other light jet manufacturers during the term of any agreement.

In July 2007, we entered into an agreement with Epic Aircraft, a Bend, Oregon based aircraft manufacturer, to install our parachutes on board Epic’s new Victory jet, a single-engine, all composite VLJ which will carry 4-5 passengers.

All single-engine VLJ manufacturers known to us have expressed some interest in including a whole airplane emergency recovery parachute as either standard equipment or an option. We intend to continue discussions with these manufacturers, and believe the VLJ market provides a significant market opportunity to us.

Repack Market

All of our parachute recovery systems require repack, or refurbishment, for continued service. The average refurbishment cycle on recreational aircraft is six years, and ten years for general aviation aircraft. On FAA certified Cirrus aircraft, our parachute assembly must be repacked at ten-year intervals in order to maintain its airworthiness certificate. The first Cirrus installations occurred in 1999 and we expect the repacks to begin next year. The repack entails:

	a)		replacement of the extraction rocket;
	b)		inspection of the parachute assembly including replacement of certain time change items and other parts that have reached the end of their service life; and
	c)		repacking of the parachute.

If the product is not repacked in accordance with the FAA regulations, any aircraft to which it is required equipment will not retain its certification of airworthiness. Cirrus aircraft are required to have the parachute repacked in ten-year intervals. Over the next few years, a significant portion of the Cirrus fleet will reach the ten-year milestone and will require repacking. We expect that the repack business may become a substantial business line for us, as we believe that we are the only company currently positioned to provide repack services.

Non-Aviation and Department of Defense Market

We are actively seeking new non-aviation product lines from a variety of safety-related firms to manufacture in our Mexican facility of a “cut-and-sew” nature. These opportunities require high quality, precise assembly processes in a customizable and quick-change environment. Our Tijuana facility fulfills these requirements; our trained and highly skilled workforce familiar with sewing techniques translate seamlessly to these diversified product lines. We are currently finalizing plans with three such customers for “build-to-print” activities requiring high quality standards, yet with quick-reaction-time ability to conform to end-user specific desires. We expect these contracts will reach approximately 10% of total sales revenues within the next two years.

Our subsidiary, Advanced Tactical Fabrication, Inc., or ATF, manufactures, markets, and distributes products within the Personal Protective Equipment (PPE) industry utilizing the Head Lites’™ brand high visibility components and trims, Vis-Mat™ brand high visibility vest apparel, headwear and accessories, Vis-Tac™ brand load-bearing tactical vest platforms, plus ELMO™ brand emergency lighting systems. We also anticipate that ATF will develop custom personal safety products, along with full-package supply chain management for United States or foreign-sourced cut-and-sew fabrication.

We are actively seeking opportunities to incorporate our parachute recovery systems aboard current and future planned aerial combat systems (both unmanned and manned) for the United States Department of Defense (DoD) and similar foreign agencies (Ministry of Defense). A number of inquires have been made within the industry, and we are preparing proposals to compete for these. We have also partnered with a domestic original equipment manufacturer, or OEM, desiring to sell its newly developed single-engine piston aircraft as a replacement basic trainer for the United States Air Force and United States Navy whereby each aircraft would have our parachute recovery systems installed as standard equipment in lieu of individual ejection seats or personnel parachutes.

Manufacturing

Parachute Manufacturing

Our products are primarily assembled in our South St. Paul, Minnesota facility from components manufactured by us or supplied by third parties. In September 2005, we acquired the manufacturing facility of Paranetics Technology, Inc., located in Tijuana, Mexico, for the purpose of manufacturing parachutes and related components for our general aviation and recreational market segments. We currently have three recreational product lines produced in our Mexico facility.

Other Components

We manufacture our own ballistic devices and currently outsource rocket propellant. During fiscal year 2007, we entered into a supply agreement with a second manufacturer of rocket propellant. We believe there are alternate sources for propellant in the event that either source becomes unavailable. Other components are purchased from a variety of suppliers or internally produced.

We also attempt to hold reasonable inventory of key components to provide time to secure alternate suppliers should the need arise.

Patents and Intellectual Property

It is our policy to actively seek to obtain, where appropriate, the broadest protection possible for our products, proprietary information and proprietary technology through a combination of contractual arrangements and patents, both in the United States and elsewhere in the world.

We also depend upon the skills, knowledge and experience of our personnel, some of which may not be patentable. To help protect our proprietary know-how which is not patentable, and for inventions for which patents may be difficult to enforce, we rely on trade secret protection and confidentiality agreements. To this end, as appropriate, we require employees, consultants, and other contractors to enter into confidentiality agreements which prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business.

To date, we have not been involved in any patent infringement or trade secret actions.

Patents

We currently hold two filed patents: 1) a patent relating to a “Parachute Reefing Device,” also known as the “slider,” and 2) a patent related to “thin film parachute fibers.” The patent relating to the slider (United States Patent No. 4,863,119), a device that delays the deployment of the parachute until the aircraft slows to an appropriate speed, was issued in September 1989 on behalf of two of our employees and expires in September 2008. The two employees assigned the patent to us, for which we are required to make continuing payment of maintenance fees until September 2008. The slider is currently utilized in our general aviation line, as well as in our recreational aviation products. Current development projects also utilize the reefing device as an integral design component. We do not believe that the expiration of this patent will have a material adverse impact on us or our products.

The second patent, Patent No. 6,056,241, was issued to us in May 2000 on behalf of one of our employees for a “Thin Film Parachute with Continuous Lateral Reinforcement Fibers.” The employee assigned the patent to us, for which we are required to make continuing payment of maintenance fees until August 2018. We developed this process as a result of a NASA Small Business Innovative Research grant program that was completed during the fiscal year 1999. Military and civilian markets are both being explored for potential applications of this technology, which. This patent is not actively utilized in our technology.

We further anticipate obtaining patent protection for components to one or more of our VLJ products that are currently in development.

ATF purchased the following patents from Head Lites as part of the November 2007 acquisition:

ELMO-Lyte Portable Illuminated Marker System (pending)

Illuminated Power Cable (12/13/16, provisional)

Enhanced Visibility Safety Garment (4/17/01, D440, 716)

Enhanced Visibility Safety Hat (8/19/03, D478, 409)

Enhanced Visibility Safety Vest; 207 Pro series (pending)

Enhanced Visibility Safety Vest; Centurion II (pending)

Enhanced Visibility “TEAL Team” Safety Garment (9/25/07, provisional)

High Visibility Load-bearing Tactical Vest (6/10/03, D475, 814)

Trademark Protection

The U.S. Trademark Office has acknowledged trademark of our service mark, principle register of “DEFINING AVIATION SAFETY” application, and advises that the application has been assigned on October 10, 2006, bearing Registration No. 3,152,604. ATF purchased the trademarks from Head Lites as part of the acquisition: ELMO ^© , ELMO-Lyte ^© , Lyte-Tails ^© , ELMO-America ^TM , Vis-Mat ^© , RoadStar ^TM , Centurion ^TM , 207 Pro ^TM , MnDo II ^TM , Screamer Streamer ^TM , Sentry ^TM , FliteStar ^TM , TEAL Team ^TM , Breathe-Flex ^TM , Vis-Stop ^TM , IC-ID ^TM , “ Who’s who? & Who’s where "(SM), “ Take Effective Action and Lead "(SM), Vis-Tac ^© , SAL-Com ^TM , Perimeter ^TM , Utility ^TM , C-SOC ^TM , Sea-Tac ^TM , Head Lites ^TM , Ultra 9 ^TM , Ultra 12 ^TM .

Government Regulation

In the general aviation market, some aircraft are FAA certified. As it relates to FAA certified general aviation aircraft and the incorporation of our products into these aircraft, there are two types of certifications that are available, a Type Certificate, or TC, and a Supplemental Type Certificate, or STC. With respect to the Cirrus SR20 and SR22, Cirrus obtained a TC, whereby Cirrus obtained FAA certification of the Cirrus aircraft with the inclusion of our parachute recovery system — effectively making our product required standard equipment for the Cirrus aircraft.

The STC is a certification that is obtained to constitute FAA approval of a modification to an already certified aircraft. For example, we obtain an STC to include our parachute recovery system onto an aircraft that has already obtained a Type Certificate without our product. This STC enables the manufacturer or any distributor of the aircraft to sell our product as an option. We have previously obtained STCs for the Cessna 150/152, the Cessna 172, and the Cessna 182.

Our LSA products are manufactured in accordance to the Standard Specification for Airframe Emergency Parachutes for Light Sport Aircraft, Designation No. F2316-03 of the American Society of Testing and Materials (ASTM). Under this process, we self-certify and test our LSA products under the ASTM standard, and there is no separate certification process by the FAA. The FAA does retain the authority to audit our certification process and testing.

With respect to our products manufactured for use in foreign countries, we are subject to the regulations of the respective foreign governments. The FAA currently has in place bilateral agreements with a number of these foreign governments permitting certifications completed by the FAA to satisfy the regulatory compliance relating to such foreign government, provided that the regulatory requirements are similar in such country. According to the European Aviation Safety Agency (EASA) (Regulation (EC) No 1592/2002), in the absence of a bilateral agreement with the European Community directly, the EASA or any of its member states may continue to issue certificates on the basis of certifications issued by the FAA in accordance with an existing bilateral agreement between the FAA and such member state.

The EASA reviewed all the existing agreements between its member states’ aviation agencies and the FAA. The result of this comparison showed that all contain similar provisions related to the acceptance of certifications. The EASA decided therefore to apply the most flexible and favorable provisions so as not to affect previously acquired rights. As a consequence, all certifications for US-type certificated products are accepted without conditions, and all certifications for non-US type certificated products are accepted under the following conditions:

	•		they are not a “critical component”; or
	•		they have been produced under a licensing agreement; or
	•		they have received a specific EASA approval (minor change approval or STC)

In all other cases the EASA shall examine and issue an approval in accordance with regulations, taking into account the validation provisions of existing agreements.

Seasonality

Typically, we experience seasonality in our recreational line and our general aviation line. The second and third fiscal quarters have the highest sales as this product line is marketed to recreational pilots who tend to fly their aircraft during the warmer months and equip their aircraft with a recovery system near the beginning of the flying season.

Dealer/Distributor Network

We sell our general aviation products directly to the original equipment manufacturers, or OEMs. Our recreational aviation product sales are primarily through dealers and distributors who sell to the end consumer. We believe that in the event that any individual dealers or distributors cease to represent our recreational aviation products, alternative dealers or distributors can be established. We do not have formal written agreements with all our dealers and distributors and accordingly, such dealers and distributors are not prohibited from selling products competitive with our products.

Backlog of Orders

As of September 30, 2007 and 2006, we had a backlog of orders totaling approximately $320,000 and $9,941,000, respectively. The backlogs included $0 and $9,764,000 of orders for the Cirrus aircraft for the respective periods. The size of the backlog is related to the timing of the receipt of purchase orders from Cirrus with respect to our fiscal year end. In November 2007, we received orders from Cirrus for approximately $10,000,000 to be delivered over the next 18 months in accordance with our agreement with Cirrus. Due to the backlog period involved, however, it is possible that there could be cancellations of a portion of the currently backlogged orders. We expect to fund the build out and sale of the backlogged orders through cash flow provided by the sale of those orders. We caution investors who may utilize published bookings and backlog information as tools to forecast our revenue during a given timeframe since certain purchase orders may be subject to cancellation and/or delivery schedule revision.

Research and Development

In fiscal year 2007, we expended $556,314 in research and development, compared to $465,415 expended in fiscal year 2006. Additionally, the BRS board recently elected to fund an internal Research & Development program that will be modeled after our recently completed NASA contract. We expect research and development costs to approximate $840,000 for fiscal year 2008.

We have previously performed research and development that has been funded by and on behalf of airplane manufacturers, allowing us to expand our product line and expertise in whole-aircraft recovery systems. Currently, we have no such contracts, but it has been and will continue to be a goal of ours to enter into such relationships and receive outside funding for our research and development activities to supplement our own financial commitment in research and development. There is no assurance we will enter into such contracts in the future.

Competition

As referenced above, the Cirrus SR20 and SR22 are FAA certified with a TC. These are the first whole-aircraft recovery systems certified by the FAA as standard equipment. We also hold STCs for the recovery systems for the Cessna 150/152, Cessna 172, and Cessna 182 model aircraft. There are no other manufacturers requiring STCs to install a recovery system in the general aviation market. We are unaware of any other manufacturer performing contract or self-funded research and development activities attempting to obtain TCs or STCs for any other FAA certified aircraft. As such, we believe that any potential competitor in the general aviation market will have a substantial barrier to entry.

We believe we are the only manufacturer of whole-aircraft emergency parachute systems in the general aviation market and are the only US-based manufacturer in the domestic recreational aviation market. Currently, we are aware of four foreign competitors in the international recreational aviation market and the LSA market. One of the foreign competitors has entered the US market as a standard component on a newly designed LSA airplane. While data is not publicly available, we believe these competitors are smaller than BRS.

Competition for the recreation market is strong in the international market, where purchase decisions are mainly based on price. We believe we currently have approximately 80% of the domestic market share of the “sport” market, which consists of the recreational and LSA markets, and approximately 40% of the international sport market. We further believe that our acquisition and implementation of the Mexico facility will enable us to lower the price of our products, including those in the international market, and make us better able to compete on a price basis.

Many other companies could develop, manufacture and market a parachute recovery system competitive with ours, although we believe that such development and approval could take one or more years to complete due to the technical challenges associated with performance and regulatory issues.

Insurance and Product Liability

As a manufacturer of products, we have been exposed to products liability litigation on both our general aviation and recreational products. Prior to February 2006, we historically have not maintained products liability insurance. We obtained products liability coverage for our Cirrus products in our general aviation market through the Cirrus Supply Agreement amended in February 2006, whereby Cirrus has agreed to maintain products liability insurance coverage on the parachute system whose components are directly or indirectly supplied by us. Additionally, Cirrus agreed to indemnify us for losses, for all related product liability claims involving the BRS parachute system (except for claims for economic losses or damage solely incidental to the aircraft). This coverage/indemnification is limited to claims arising after February 2006 related to Cirrus aircraft, and will not affect certain claims for products liability relating to Cirrus aircraft that arose prior to February 2006. Please see “Legal Proceedings” under Item 3 below for a discussion of such claims.

Effective October 2007, we have secured products liability insurance for all products.

Environmental Compliance

We believe that we are in compliance with all current federal and state environmental laws.

Employees

As of September 30, 2007, we had 27 full-time employees at our South St. Paul facility. No employees are represented by a labor union and we consider our relations with employees to be good.

As of September 30, 2007, we had 185 full-time employees at our BRS de Mexico SA de CV facility in Tijuana, Mexico. The employees are represented by a labor union and we consider our relations with these employees to be good. Subsequent to the end of our fiscal year, in January 2008, we reduced our personnel in Mexico to approximately 70 in response to a slower than expected ramp-up in production. We are closely evaluating required personnel as it relates to revenue generation, and have eliminated a higher portion of non-production employees to reduce overhead.

On October 15, 2007 we established a parachute manufacturing facility in Pinebluff, North Carolina with the specific purpose of meeting “Berry Amendment” requirement for US content (related to defense products). We currently have 15 employees at this location, which serves as a cut-and-sew facility. We anticipate increasing our personnel at this facility to 35 employees during the next 12 months.

Risk Factors

You should carefully consider the information described in the following risk factors, together with the other information appearing elsewhere in this report. If any of these risks actually occur, our business, financial conditions, results of operation and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or a part of your investment in our common stock.

Restatement of financial statements for the quarters ended March 31, 2007 and June 30, 2007 .

On January 11, 2008, the Audit Committee of our Board of Directors concluded that the consolidated financial statements included in our quarterly reports on Form 10-QSB for the quarters ended March 31, 2007 and June 30, 2007 should no longer be relied upon due to errors contained therein. The Audit Committee determined restatements of the consolidated financial statements for the affected periods were required due to errors in the valuation of inventories and allocation of production overhead (these restatements are referred to herein as the “Restatements”). These Restatements had a negative impact on our financial position, financial results, and operations.

Removal from OTCBB due to delay in filing annual report .

On December 31, 2007, we filed Form 12b-25 with the SEC notifying the SEC that we were not able to file this annual report within the prescribed time period because we were in the process of reconciling some inconsistencies in the accounting of inventory. While we intended to file this annual report by January 15, 2008, we required additional time to reconcile the inconsistencies in the accounting of inventory mentioned above. Since January 16, 2008, we have not been current in our reporting obligations under the Securities and Exchange Act of 1934, as amended. Pursuant to NASD Marketplace Rule 6530, effective February 20, 2008, our common stock has been removed from quotation from the Over-the-Counter Bulletin Board, or OTCBB due to our inability to timely file our annual report. Although we anticipate obtaining quotation of our common stock on the OTCBB once we have made our necessary public filings with the SEC, this process will require a market maker registered with FINRA to file an application, commonly referred to as a Form 211, on our behalf with the OTCBB for such quotation. There can be no assurances that we will successfully obtain such quotation on the OTCBB. Additionally, under Marketplace Rules, in the event we are successful in obtaining a quotation on the OTCBB and are subsequently removed from quotation by the OTCBB, this second strike will render our common stock ineligible for quotation on the OTCBB during the one-year period immediately following such second removal. These factors may negatively impact investor perception of the Company, and consequently the liquidity of our common stock

General economic conditions may adversely affect our sales and profitability.

For the most part, purchases of the aircraft for which our products exist are discretionary. Additionally, a significant portion of our business relates to products that are optional, and not standard equipment, on aircraft. As a result, demand for our products may be affected by general economic trends in the geographical areas in which our products are sold, which may have an adverse effect on our operations.

We rely on the knowledge and business and technical expertise of key executive officers and directors, whose services would be difficult to replace .

We are highly dependent on our executive officers and directors for their substantial experience in the aviation industry. Other than for our chief executive officer, we do not carry “key person” life insurance policies for any of our officers or directors. The loss of the technical knowledge and management and industry expertise of any of these key individuals could result in delays in product development, loss of customers and sales and diversion of management resources, which could adversely affect our operating results.

If we fail to comply with FAA standards, or if those standards change, our business may be negatively impacted.

The aviation industry is highly regulated in the United States by the Federal Aviation Administration, and in other countries by similar agencies, to ensure that aviation products and services meet stringent safety and performance standards. Additionally, these standards and the related aircraft regulations may evolve over time. With respect to our general aviation products, we are required to obtain certifications from the FAA, the scope of which is dependent upon whether our product is optional or standard equipment in the related aircraft. Our business depends on our ability to keep effective existing certifications and obtain necessary certifications in the future, whether for our general aviation products or other products. We cannot assure that we will continue to have success in obtaining or maintaining necessary certifications, and our failure to do so could adversely affect our operations.

Cirrus represents a substantial amount of our revenues.

During our fiscal years ended September 30, 2007 and 2006, Cirrus Design Corporation accounted for approximately 74.4% and 70.7% of our revenues, respectively. Although our growth strategy contemplates diversification of our sales to manufacturers other than Cirrus, we anticipate that we will continue to be dependent upon Cirrus for a large portion of revenues for at least the near future. To the extent that Cirrus’ business declines, Cirrus utilizes other suppliers of parachute recovery systems, or payments from Cirrus are delayed, our business, including our cash flow from operations, may be materially adversely affected.

Cirrus owns a significant portion of our outstanding voting power and of our outstanding common stock and has a director on our board of directors.

As of September 30, 2007, Cirrus held approximately 10.2% of our outstanding common stock. Furthermore, a director of Cirrus, Edward Underwood, is on our board of directors. While Cirrus does not have any warrants, preemptive rights or rights to additional securities and while Mr. Underwood does not have a contractual right to be on our board of directors, the voting power held by Cirrus, together with Mr. Underwood’s position on the board, enables Cirrus to exert considerable influence over our management and direction and all matters requiring shareholder approval. Additionally, the composition of our board could impact our ability to obtain additional non-Cirrus general aviation customers.

The board of directors and management team own a significant amount of our common stock.

As of September 30, 2007, our board of directors and management team held approximately 34% of our shares, on a fully-diluted basis assuming the exercise or conversion of all outstanding derivative securities held by them. This percentage includes 1,102,941 shares of common stock and 275,735 shares of common stock issuable upon exercise of a warrant held by CIMSA Ingenieria de Sistemas, S.A., of which Fernando Caralt, one of our directors, is the President, Chief Executive Officer and a director. This amount does not include the 10.2% of our outstanding common stock owned by Cirrus, of which Mr. Underwood is a director. In addition to the significant control these individuals have over our operations and affairs by nature of their membership on our board, these individuals collectively exert a significant voting power as shareholders.

The limited trading of our common stock may make it difficult to sell shares of our common stock.

Trading of our common stock is conducted on the “pink sheets” maintained by Pink Sheets LLC. This has an adverse effect on the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of BRS. This may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock.

The resale of shares offered by our shareholders could adversely affect the market price of our common stock in the public market, which result would in turn negatively affect our ability to raise additional equity capital.

The sale, or availability for sale, of common stock in the public market by our shareholders may adversely affect the prevailing market price of our common stock and may impair our ability to raise additional capital by selling equity or equity-linked securities. We currently have effective a prospectus (SEC File No. 333-140841) relating to the resale of an aggregate of 3,060,955 shares of our common stock (including shares of common stock issuable upon the exercise of warrants). The resale of a substantial number of shares of our common stock in the public market pursuant to such offering, and afterwards, could adversely affect the market price for our common stock and make it more difficult for our shareholders to sell our shares at times and prices that they feel are appropriate. Furthermore, we expect that, because there are a large number of shares subject to such offering, shareholders will continue to offer shares covered by that prospectus for a significant period of time, the precise duration of which we cannot predict. Accordingly, the adverse market and price pressures resulting from this offering may continue for an extended period of time and continued negative pressure on the market price of our common stock could have a material adverse effect on our ability to raise additional equity capital.

Our Articles of Incorporation grants our board of directors the power to designate and issue additional shares of common and/or preferred stock.

Our authorized capital consists of 50,000,000 shares, of which 15,000,000 are designated as common stock, par value $.01 per share, and 35,000,000 are undesignated. Pursuant to authority granted by our Articles of Incorporation, our board of directors, without any action by the shareholders, may designate and issue, from our authorized capital, shares in such classes or series (including classes or series of common stock and/or preferred stock) as it deems appropriate and establish the rights, preferences, and privileges of such shares, including dividends, liquidation and voting rights. The rights of holders of classes or series of common stock or preferred stock that may be issued could be superior to the rights of the common stock offered hereby. Our board of directors’ ability to designate and issue shares could impede or deter an unsolicited tender offer or takeover proposal. Further, the issuance of additional shares having preferential rights could adversely affect other rights appurtenant to the shares of common stock offered hereby. Any such issuances will dilute the percentage of ownership interest of our shareholders and may dilute our book value.

We are subject to Sarbanes-Oxley and the reporting requirements of federal securities laws, which can be expensive.

As a public reporting company, we are subject to the Sarbanes-Oxley Act of 2002, as well as the information and reporting requirements of the Securities Exchange Act of 1934, as amended, and other federal securities laws. The costs of compliance with the Sarbanes-Oxley Act and of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC, and furnishing audited reports to shareholders, are significant and may increase in the future.

In 2005, a jury awarded damages to Parsons and Aerospace Marketing in the combined amount of approximately $3.4 million for breach of contract. BRS settled this matter directly with Parsons and Aerospace on September 19, 2005 by agreeing to pay $1.9 million pursuant to terms described in the settlement agreement. An initial payment of $700,000 plus interest was made on September 19, 2005. The remainder of the settlement amount is due over a term of 8 years, although we have the right to pre-pay remaining amounts due at any time. On November 16, 2006, we prepaid $721,219 of such sum, leaving a balance of $315,000, and paid off the remaining liability on June 17, 2007.

McGrath

In April 2005, Sue Jean McGrath, individually and as successor in interest to Charles W. McGrath, deceased, Charles W. McGrath III, Tanya Sue McGrath, Janny Sue McGrath, individually v. Cirrus Design Corporation, Ballistic Recovery Systems, Inc., and Aerospace Systems and Technologies, Inc. , U.S. District Court, Northern District of California, File No. C05-1542, was commenced. The plaintiffs have alleged vicarious liability, strict product liability, negligence and breach of warranty against the defendants arising from the crash of a Cirrus Design Corp. SR22 airplane near Sugar Bowl, California. On December 6, 2007, the court granted summary judgment to all defendants, including the Company. The plaintiffs have agreed not to pursue an appeal in exchange for our agreement not to seek recoverable costs.

Rayner

On September 16, 2005, an action was commenced against us by Robert Treat Rayner, in the Circuit Court of the 5th Judicial Circuit in and from Lake County Florida, File No. 04 CA 1749. The Complaint alleges that plaintiff was injured when his ultralight aircraft crashed while being towed by another ultralight. Plaintiff alleges that he deployed his BRS system, but that it failed to deploy properly. BRS is undertaking an investigation of the claim and has responded to the suit. The case is currently in discovery. At this time, we cannot state with any degree of certainty what the outcome of this matter will be or the amount or range of potential loss, if any. BRS believes that it has strong defenses to the suit and will vigorously defend against the claims.

The following table lists the high and low price for our common stock as quoted, in U.S. dollars, on the internet tracking services during each quarter within the last two fiscal years and the fiscal quarter most recently ended:

The quotations from the internet tracking services reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

Record Holders

The number of holders of record of our common stock as of September 30, 2007 was approximately 360, not including those holding in “street name.”

Dividends

We have not declared dividends at any time during the last two fiscal years and do not anticipate any dividends will be paid during the fiscal year ending September 30, 2008.

Equity Compensation Plan Information

The following table summarizes outstanding options under our 2004 Stock Option Plan, as well as outstanding options that we have issued to certain officers, directors and employees of our Company outside of any plan as of September 30, 2007:

Results of Operations

Fiscal year ended September 30, 2007 compared to fiscal year ended September 30, 2006

Sales

Total sales increased $210,622, or 2.3%, from $9,191,729 for the year ended September 30, 2006 to $9,402,351 for the year ended September 30, 2007. Sales from our general aviation products, which consist primarily of sales to Cirrus, increased $356,249, or 5.4%, from $6,634,693 for the year ended September 30, 2006 to $6,990,942 for the year ended September 30, 2007. Sales from our general aviation products accounted for 74.4% of total revenue for fiscal year 2007 compared to 72.2% of total sales for fiscal year 2006. Sales from our recreational and LSA products decreased ($290,688), or (12.2%), from $2,391,780 for the year ended September 30, 2006 to $2,101,092 for the year ended September 30, 2007. Other revenue increased by $177,215, or 112.2%, from $157,927 for the year ended September 30, 2006 to $335,142 for the year ended September 30, 2007 due to new product lines associated with the Mexico operations.

Our general aviation products are standard equipment on the Cirrus SR20 and SR22 model aircraft. We delivered 678 and 706 units to Cirrus in fiscal years 2007 and 2006, respectively. We believe that Cirrus has a backlog of aircraft orders, all of which are required to include our parachute systems. We understand that Cirrus expects to be able to fill the backlog of firm aircraft orders during the next 12 months. We also understand that Cirrus is expected to maintain fiscal year 2007 manufacturing volumes for its aircraft throughout fiscal year 2008. As a result, we are forecasting flat growth in 2008 in our general aviation revenues. No assurance can be given that general aviation revenues will remain as anticipated. Future production volumes for the Cirrus aircraft, and therefore, our parachute systems, will be dictated by ultimate market demands for Cirrus’ products. Accordingly, we are, and will likely be, dependent on Cirrus for a material portion of our revenues for fiscal year 2008. Any negative impact on Cirrus’ sales would have a significant negative impact on our revenues.

Near the end of fiscal year 2004, we finalized development of a parachute recovery system for the Cessna 182 model of aircraft, which is called the BRS-182. We received the Supplemental Type Certificate, or STC, from the FAA in June 2004. This STC allows the product to be installed on certified Cessna 182 series aircraft. The first customer delivery and installation was completed in July 2004. Our sales and marketing efforts resulted in the sale and delivery of eight BRS-182 units during fiscal year 2007. We continue direct sales and marketing for the BRS-182. No assurances can be made as to the success of sales efforts or if the product will sell in sufficient volumes to impact our financial performance.

We also have in production the BRS-172 product for the Cessna 172 model aircraft certified in July 2002. Our sales and marketing efforts resulted in the sale and delivery of no BRS-172 units during fiscal year 2007. Although certified, there can be no assurances that the BRS-172 product will sell in volumes that will have a material impact on us.

Our recreational and LSA aircraft product line sales decreased by (12.2%) during fiscal year 2007 compared to the prior fiscal year driven mostly by leveling off of sales to Flight Design for the CT aircraft and other LSA design delays. LSA and recreational sales accounted for 22.3% of our revenues for fiscal year 2007 versus 26.0% of our revenues for fiscal year 2006. The LSA and recreational aircraft products business relies on customer acceptance of our parachute concept and the existence of installation designs for light sport and recreational aircraft.

We anticipate being able to expand our general aviation and recreational product lines to include other certified and non-certified aircraft as our recovery systems gain further market acceptance. We are in ongoing discussions with domestic and foreign general aviation and recreational aircraft companies that have expressed interest in utilizing certain of our products. These companies produce both certified and non-certified aircraft. No assurance can be made as to the future benefits, if any, that we will derive from these discussions.

We have commenced the establishment of a repack center which will have the capacity to repack the parachute systems. Cirrus will be notifying its owners on a systematic basis of the need to have the parachute system repacked. We anticipate that we will be the exclusive provider of repacking services on Cirrus aircraft.

Gross Margin

Gross margin as a percentage of revenues was 16.0% for fiscal year 2007 compared to 36.2% for fiscal year 2006. The largest factors contributing to this reduction in gross margin were investment in new product lines for diversification, Mexican production facility inefficiencies and excess non-productive labor in our Mexico facility of production overhead due to the delay in closing the Head Lites acquisition.

During the year ended September 30, 2007, we expanded our parachute production at our production facility in Mexico and diversified its product line in an effort to meet our diversification strategy. In compliance with Statement of Financial Accounting Standards No. 151, we have expensed all costs in our Mexican production facility that would include inefficiencies and excess costs inherent in changing a production site. In addition, we hired production labor in anticipation of expanding our revenues with the addition of the ATF business which we expected to acquire on October 1, 2007. The actual closing for the acquisition was on November 16, 2007, which resulted in excess non-productive labor in our Mexico facility. Included in these costs are the addition of new employees and training of such employees to add two new product lines. As a result of our expected and unexpected Mexico production variances and under-utilization of labor, our gross profit decreased by approximately $1.8 million for the year ended September 30, 2007.

In response to these variances, we have reduced our personnel in Mexico to 70 in January 2008, from 185 full-time employees as of September 30, 2007. We are closely evaluating required personnel as it relates to revenue generation. We eliminated a higher portion of non-production employees to reduce overhead.

We will closely monitor and control all costs to operate the Mexico facility using a timely and accurate variance analysis. We are reviewing all product offerings to standardize our products. We are re-examining our pricing and margin analysis for all BRS, ATF and Mexico products. We will continue our focus on identifying cost savings and reductions on an ongoing basis.

Selling, General and Administrative

Selling, general and administrative costs as a percentage of sales were 27.9% for both fiscal years 2007 and 2006. Director’s fees increased by $13,000 during fiscal year 2007 due to additional board and committee meetings. Management expects selling, general and administrative costs as a percentage of sales to remain relatively stable going forward.

Research and Development

Research and development costs were 5.9%, or $556,314, and 5.1%, or $465,415, of sales for fiscal years 2007 and 2006, respectively. Management believes that research and development is an integral part of the growth strategy for us, and will continue to play an important role in our success. Therefore, increases in research and development expenditures are planned for the future in the areas of new product development and in the expansion of currently developed products for additional applications. We have budgeted approximately $638,000 for engineering and 2.0% of net projected sales, or $202,000, for research and development expenditures for fiscal 2008.

We have undertaken research and development on potential new products and services including enhancements to current products. Such efforts may result in future offerings and model upgrades to existing products. The development efforts are funded through current operations and it is unclear what impact, if any, these will have on our future sales or financial performance.

Payroll and Employee Benefit Expenses

Payroll and employee benefit expenses increased $317,339, or 17.1%, from $1,860,186 for the year ended September 30, 2006 to $2,177,525 for the year ended September 30, 2007. This increase was primarily due to the addition of personnel to respond to increased business and new markets. As a percentage of overall sales, the payroll and employee benefit expenses increased by 3.0%, from 20.2% for the year ended September 30, 2006 to 23.2% for the year ended September 30, 2007. We expect these average labor costs to remain stable in the future.

Depreciation

Depreciation increased $5,966, or 4.0%, from $149,624 for the year ended September 30, 2006 to $155,590 for the year ended September 30, 2007, primarily due to addition of capital equipment for the Mexico operations.

Amortization

Amortization of intangibles decreased by $103,388, or 85.0%, from $121,640 for the year ended September 30, 2006 to $18,252 for the year ended September 30, 2007. The decrease is attributed to the amortization of the covenant not to compete for the former CEO, Mr. Thomas, being completed during the first quarter of the fiscal year.

Interest Expense

Interest expense decreased by $96,809, or 73.2%, from $132,249 for the year ended September 30, 2006 to $35,440 for the year ended September 30, 2007. The decrease was caused by using proceeds from common stock offerings to reduce debt.

Net Income (Loss) and Earnings (Loss) per Share

Income (loss) before income taxes as a percentage of revenues was (19.1)% and 0.5% for fiscal years 2007 and 2006, respectively. On a fully diluted basis, after-tax net income of $27,377 for fiscal year 2006 was $0.00 per share, as compared to net (loss) of $1,681,177, which was $(0.16) per share, on a fully diluted basis per share for the 2007 fiscal year.

Liquidity and Capital Resources

We incurred a significant loss before income tax benefit of approximately $1.8 million for the year ended September 30, 2007. In addition, we acquired substantially all of the assets of Head Lites Corporation on November 16, 2007 for $648,000 in cash, made a deposit of approximately $196,000 on October 19, 2007 related to our new lease in Minnesota (see Note 13 to our financial statements found elsewhere in this Annual Report) and continued to incur excessive production variances from our Mexico plant through December 2007. As of March 3, 2008, we had borrowed the maximum of $820,000 on our line of credit (see Note 13 to our financial statements found elsewhere in this Annual Report). Management anticipates the impact of the actions listed below will generate sufficient cash flows to pay current liabilities, operating lease obligations and cash necessary to support operations:

	•		Reduction of operating expenses by reductions in personnel made principally at our Mexico plant since year-end
	•		Renew our line of credit — bank agreement (see Note 7 to our financial statements found elsewhere in this Annual Report) which expires on April 30, 2008 and/or explore other financing alternatives including possible long-term debt financing
	•		If necessary, reduce reseach and development expenses
	•		Other alternatives as deemed necessary

We believe that we will have sufficient cash flows to meet short-term obligations, working capital, and operating requirements for at least the next twelve months.

On August 15, 2007, we entered into a loan agreement with Anchor Bank Saint Paul, N.A., pursuant to which we obtained a line of credit in the aggregate principal amount of up to $820,000, subject to certain limitations. In connection with the loan agreement, we issued Anchor Bank a promissory note in the aggregate principal amount of up to $820,000. The note bears a variable interest at a rate equal to the prime rate, and requires us to make monthly interest-only payments on the outstanding balance, with a balloon payment of outstanding principal and interest on April 30, 2008. Our obligations under the note are secured by all of our business assets. The proceeds of the loan are to be used for general working capital. The balance of this note was $0 at September 30, 2007, and the note currently has a balance of $820,000.

We anticipate a need to make continuing capital improvements of approximately $165,000 during the fiscal year ending September 30, 2008 to our current production facilities in both the US and Mexico and continued equipment and tooling upgrades. In addition, we have agreed to make available to ATF a loan of up to $450,000 to be used for its cash needs in its day-to-day operations. BRS has extended funds to ATF on the agreement, and ATF has made interest payments to BRS in accordance with the terms of this loan agreement.

Effective October 2007, we have secured our own product liability insurance for all products world-wide, which includes fielded products. However, a significant judgment against us in our existing litigation could nonetheless have a material impact. We incurred approximately $256,000 in legal fees during fiscal year 2007 and $220,000 in legal fees for fiscal year 2006 attributable to all legal support matters and the defense of our pending lawsuits.

In addition to the requirements under the Sarbanes-Oxley Act, we will require increased expenditures as we implement expanded compliance infrastructure and oversight.

Off-Balance Sheet Arrangements

During the year ended September 30, 2007, we did not engage in any off-balance sheet arrangements as defined in Item 303(c) of Regulation S-B.

Critical Accounting Policies and Estimates

Our Management Discussion and Analysis or Plan of Operation is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, the reported amounts of revenues and expenses during the reporting period, and related disclosures of contingent assets and liabilities for the periods indicated. The notes to the consolidated financial statements contained herein describe our significant accounting policies used in the preparation of the consolidated financial statements.

Our critical accounting policies are discussed below.

Revenue Recognition

We recognize revenue in accordance with the Securities Exchange Commission’s Staff Accounting Bulletin No. 104 (SAB No. 104) Revenue, which requires that four basic criteria be met before revenue can be recognized: (i) persuasive evidence of a customer arrangement exists; (ii) the price is fixed or determinable; (iii) collectibility is reasonably assured; and (iv) product delivery has occurred or services have been rendered. Sales are not conditional based on customer acceptance provisions or installation obligations. We recognize revenue as products are shipped based on FOB shipping point terms when title passes to the customer.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The allowance for doubtful accounts is an estimate based on specifically identified accounts. We evaluate specific accounts where information that the customer may have an inability to meet its financial obligations is known. In these cases, management uses its judgment, based on the best available facts and circumstances, and records a specific reserve for that customer against amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved. If circumstances change, we estimate the recoverability of amounts due could be reduced or increased by a material amount. Such a change in estimated recoverability would be accounted for in the period in which the facts that give rise to the change become known.

Valuation of Inventories

Our inventories are stated at the lower of cost or market and include materials, labor and overhead. Cost is determined by the first-in, first-out (“FIFO”) method. Provisions to reduce inventories to the lower of cost or market are made based on a review of excess and obsolete inventories through an examination of historical component consumption, current market demands and shifting product technology. Significant assumptions with respect to market trends are utilized to formulate our provision methods. Sudden or downward changes in markets we serve may cause us to record additional inventory revaluation charges in future periods. Our labor and overhead allocated to inventory is based on normal capacity of our plants.

Impairment of Long-Lived Assets

We evaluate the carrying value of long-lived assets, including furniture, fixtures and leasehold improvements, for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the assets, the carrying value is reduced to the estimated fair value as measured by the associated discounted cash flows. We use historical financial information, internal plans and projections and industry information in making such estimates. We did not recognize any impairment charges for our long-lived assets, including intangible assets, during the years ended September 30, 2007 and 2006. Although we have not generated positive cash flows from operations during fiscal years 2007 and 2006, management believes that based on cost reduction actions and estimated revenue growth and margin improvement initiatives, we will have cash flows from these long-lived assets in the future. While we currently believe the expected cash flows from these long-lived assets, including intangible assets, exceeds the carrying amount, materially different assumptions regarding future performance and discount rates could result in future impairment losses. In particular, if we no longer believe we will achieve our long-term projected sales or operating expenses, we may conclude in connection with any future impairment tests that the estimated fair value of our long-lived assets, including intangible assets, are less than the book value and recognize an impairment charge. Such impairment would adversely affect our earnings.

Under SFAS No. 142, we currently evaluate goodwill for impairment using a two-step test based upon a fair value approach. The first step is used to identify a potential impairment through an estimate of the fair value of certain reporting units (as defined by SFAS No. 142), while the second step calculates the amount of impairment, if any. Additionally, goodwill shall be tested for impairment between annual tests if an event occurs or circumstances change that would reduce the fair value of an entity below its carrying value. We evaluated goodwill for impairment using the method described in the preceding paragraph and determined the fair value of our reporting units by application of a discounted cash flow analysis. We make estimates that are included in our discounted cash flow analyses based upon the best available information at the time of the fair value determination.

Income Taxes

The carrying value of our net deferred tax assets assumes that we will be able to generate sufficient taxable income in the United States based on estimates and assumptions. We record a 100% valuation allowance to reduce the carrying value of our net Mexico deferred tax asset to the amount that is more likely than not to be realized. For the year ended September 30, 2007, we recorded a $594,000 valuation allowance for Mexico net operating losses as we have never been profitable in Mexico since we commenced business in Mexico in September 2005. In the event we were to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase net income in the period such determination is made. On a quarterly basis, we evaluate the realizability of our deferred tax assets and assess the requirement for a valuation allowance.

Contingencies

We are subject to the possibility of various loss contingencies, including legal claims, in the normal course of business. We accrue for loss contingencies when a loss is probable and can be estimated. See footnote 11 to the consolidated financial statements for additional information.

Recently Issued Accounting Standards

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in its tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective in fiscal years beginning after December 15, 2006. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption, with the cumulative effect adjustment reported as an adjustment to the opening balance of retained earnings. We are currently assessing the impact of FIN 48 on our results of operations and financial position.

During February 2007, the FASB Board issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently assessing the effect that SFAS 159 will have on our results of operations and financial position.

During December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51” (“SFAS 160”). This statement establishes accounting and reporting standards for noncontrolling interests in subsidiaries and for the deconsolidation of subsidiaries and clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement also requires expanded disclosures that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. We do not believe that the adoption of SFAS 160 will have a material effect on our results of operations or financial position.

During December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141 (Revised 2007)”). While this statement retains the fundamental requirement of SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method ) be used for all business combinations, SFAS 141 (Revised 2007) now establishes the principles and requirements for how an acquirer in a business combination: recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in the acquiree; recognizes and measures the goodwill acquired in the business combination or the gain from a bargain purchase; and determines what information should be disclosed in the financial statements to enable the users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141 (Revised 2007) is effective for fiscal years beginning on or after December 15, 2008. We do not believe that the adoption of SFAS 141 (Revised 2007) will have a material effect on its results of operations or financial position.

We have discussed corrective actions and future plans, as set forth below, with our Audit Committee and Virchow, Krause & Company, LLP. Further, our management, including our Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Annual Report on Form 10-KSB. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures did not provide reasonable assurance of effectiveness as of the end of our fiscal year ended September 30, 2007 because of the material weaknesses identified above. We are currently taking steps to remediate such material weakness as described below.

In an effort to remediate the material weakness, we performed additional analyses and other procedures to ensure that our consolidated financial statements included in this Annual Report were prepared in accordance with accounting principles generally accepted in the United States of America. These measures included, among other things, expansion of our year-end closing procedures and dedication of significant internal resources and external consultants to scrutinize account analyses and reconciliations at a detailed level, each of which represent changes in our internal controls over financial reporting. As a result of these and other expanded procedures, we concluded that the consolidated financial statements included in this Annual Report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America. We have also, as of February 4, 2008, appointed a new chief financial officer to fill the vacant position resulting from our prior chief financial officer’s resignation in December 2007. On a going forward basis, management will continue to evaluate our internal controls and procedures. We believe such enhancements to our system of internal controls and monitoring of such internal controls will be adequate to provide reasonable assurance that our internal control objectives will be met in subsequent periods.

Robert L. Nelson has served as a director since 1993. Mr. Nelson serves as our Chairman of the Board and Secretary. Between October 14, 2004 and May 10, 2005, he also served as our Chief Executive Officer and between October 14, 2004 and July 22, 2005, as Chief Financial Officer. Additionally, between October 14, 2004 and through December 31, 2004, Mr. Nelson held the positions of interim President and Chief Operating Officer as we searched for a candidate for such positions. He is the president of Robert L. Nelson and Associates, a consulting firm specializing in aviation. Mr. Nelson is an instrument-rated private pilot. Through December 2000, Mr. Nelson was on the executive board of the Twin Cities Salvation Army. In addition he is a member of the Woodbury Economic Development Authority and an arbitrator for the NASD. Until March 1998, Mr. Nelson was president and chief operations officer of Wipaire, Inc. an aviation float manufacturer. Mr. Nelson’s past experience in aviation includes positions with Cessna Aircraft Company, Rockwell Aviation Corporation, Grumman American and Grumman Corporation and past president and founder of the National Aircraft Finance Association.

Boris Popov has served as a director since 1980. Mr. Popov is the founder of our Company and holds the title of Chairman Emeritus. Mr. Popov is president of Northern Sun, Inc., a privately owned St. Paul, Minnesota based company that is engaged in aircraft equipment sales. He is also a private pilot.

Thomas H. Adams, Jr. has served as a director since 1986. Mr. Adams retired during 1996 from his position as a Northwest Airlines 747 captain flying Trans-Pacific routes. Mr. Adams is a board member of the International Aerobatics Club and an active experimental aerobatics pilot and past member of the national aerobatics team.

Darrel D. Brandt has served as a director since 1991. Mr. Brandt was our acting Chief Executive Officer from December 1991 through November 1995. Mr. Brandt is an independent real estate developer and private investor.

Edward L. Underwood has served as a director since 2005. Mr. Underwood is a retired Executive Director of Arcapita (formerly Crescent Capital Investment, Inc.), responsible for post-acquisition management and monitoring for Arcapita’s portfolio companies. Prior to joining Arcapita, Mr. Underwood served as Chief Financial Officer for Burnham Service Company, a $200 million revenue trucking and logistics company. Prior to Burnham, Mr. Underwood spent nine years with Investcorp, most recently as part of the Post-Acquisition Management team where he was responsible for monitoring the operations and performance of acquired companies. Mr. Underwood has a BS in Industrial Engineering from the Georgia Institute of Technology and an MBA from Cornell University. Mr. Underwood also serves on the Board of Cirrus Design, a significant shareholder and client of ours. Mr. Underwood is an instrument-rated private pilot.

Fernando Caralt has served as a director since June 25, 2007. Since 1997, Mr. Caralt has served as the President, Chief Executive Officer and a director of CIMSA Ingenieria de Sistemas, S.A., a global leader in the parachute industry based in Spain and a significant shareholder of the Company. Mr. Caralt has served as a director of INGENIA Ingenieria Aeronautica AIE, an association of aeronautical companies in Spain, since 2004. He also has served as a director of TAF Helicopters, S.A., a helicopter operator company based in Spain, since 2002.

Carl D. Langr was appointed our Chief Financial Officer on February 4, 2008. From December 2003 to his commencement of employment with the Company, Mr. Langr served as interim Chief Financial Officer and Controller of CorVu North America, a performance management software company based in Edina, Minnesota. From October 1998 to December 2003, Mr. Langr served as Controller for E & C Systems, Inc., a consulting and engineering firm located in Little Canada, Minnesota, which has since merged into Foth & Van Dyke. Mr. Langr received his Bachelor of Arts Degree in Accounting from the University of Northern Iowa.

Significant Employees

Gary Moore , 51, Vice President of Sales & Marketing. Mr. Moore has been with us since June 2006, and has over 30 years military and commercial aerospace experience. From October 2005 to June 2006, Mr. Moore worked as an independent consultant for an international non-profit agency (AFS-USA International Programs) as well as interpreter for Hispanic clients in the Twin Cities area. From May 2002 to September 2005, Mr. Moore was a Subcontracts Manager and International Business Development/Sales Manager with Lockheed Martin, managing and negotiating international supplier contracts, among other responsibilities. From November 2001 to May 2002, Mr. Moore worked at University Hospitals and Clinics at The University of Iowa in Iowa City, Iowa as a contract statistical analyst. Prior to that, from October 1998 to October 2001, Mr. Moore was a Marketing and Sales Manager for Rockwell Collins, where he managed existing customer base and expanded market penetration of Rockwell Collins’ avionic product lines in Latin America and the Asian Pacific. Mr. Moore also served on active-duty as a Naval Flight Officer in the U.S. Navy early in his career. Mr. Moore received an undergraduate degree in Biology from the University of Texas at Austin, an M.S. in Financial Management from the Naval Postgraduate School in Monterey, California, and an MBA in International Business/Marketing from George Washington University in Washington, D.C.

John M. Gilmore , 56, Director, Cessna Customer Support. Mr. Gilmore has been with us since December 9, 2003 and is an experienced sales executive, current aircraft owner and flight instructor with over 3,000 hours of flight time. Prior to being named Director, Cessna Customer Support, Mr. Gilmore served as our Vice President of Sales. He also taught ground school for Aviation Seminars. Mr. Gilmore was previously employed as vice president of sales and marketing for Jetways, Inc. He is a successful sales and marketing executive with over 15 years experience leading technology sales in the computer industry.

Frank Hoffmann , 36, Vice President of Engineering. Mr. Hoffman has been with us since January 2006 and serves as our Liaison to the German Aviation Authorities. From 2003 to the end of 2005, Mr. Hoffmann served as a civil servant to the German Federal Agency for Defense Technology and Procurement. During this time, he positioned himself as the Flight Test Director for all Manned and Unmanned Parachute Systems of the German Defense Sector at the Aeronautical Flight Testing Center in Manching, Bavaria. Furthermore, he was named German NATO speaker for all Precision Airdrop Issues. Prior to that, from 1990 to 2003, Mr. Hoffmann served as a technical officer for the F-4F “Phantom 2” with the German Air Force. Mr. Hoffman received a Masters Degree in Aerospace Engineering from the University of the German Armed Forces in Munich in 1995.

Section 16 (a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires executive officers and directors and persons who beneficially own more than 10% of our common stock to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. Executive officers, directors and greater-than-10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on a review of the copies of such forms furnished to us during fiscal year ended September 30, 2007 and written representations from the executive officers, directors and greater-than-10% beneficial owners of our common stock, all reports were filed in a timely manner, except for the following:

To our knowledge, Cirrus Design Corp., which owns over 10% of the Company’s stock has never filed a Form 3.

Thomas Adams received a stock grant on 3/15/07 that has not yet been reported.

Darrel Brandt received a stock grant on 3/15/07 that was reported on an amended Form 4 filed on 5/17/07.

John Gilmore filed a Form 3 dated 1/1/2007 on 1/18/07.

Frank Hoffman filed a Form 3 dated 1/1/2007 on 1/25/07; and received a stock grant on 1/16/07 that was reported on 1/25/07.

Gary Moore reported a 2/22/07 purchase on 2/27/07.

Robert Nelson received a stock grant on 3/15/07 that was reported on 5/4/07.

Boris Popov received a stock grant on 3/15/07 that was reported on 5/4/07.

Edward Underwood received a stock grant on 3/15/07 that was reported on 5/11/07.

Code of Ethics

We have adopted a Code of Ethics for our senior financial executives. The Code of Ethics was filed as Exhibit B to our Proxy Statement filed on January 23, 2004. A copy of the Code of Ethics will be provided, without charge, to any person requesting it in writing, addressed to the attention of the Corporate Secretary, Ballistic Recovery Systems, Inc., 300 Airport Road, South St. Paul, Minnesota, 55075.

Audit Committee

During fiscal year 2007, Mr. Brandt, Mr. Nelson, and Mr. Underwood served on our Audit Committee. The board of directors has determined that Mr. Underwood was an “audit committee financial expert” as that term is defined in Item 407(d) of Regulation S-B promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Messrs. Nelson and Underwood qualify as “independent directors” as that term is defined in Section 4200(a)(15) of National Association of Securities Dealers’ listing standards or under the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act. Mr. Brandt is not independent under such standards.

In March 2008, Messrs. Nelson and Underwood resigned from the Audit Committee. The Board subsequently determined that the entire Board shall fulfill the functions of the Audit Committee for the remainder of fiscal year 2008, or until such time that the Board establishes a committee for such purpose.

(2)		Constitutes a discretionary cash bonus approved by our compensation committee pursuant to the terms of Mr. Williams’ employment agreement based on his job performance during the fiscal year ended September 30, 2007. The cash bonus was paid in November 2007. Total does not include a discretionary cash bonus of $116,400 which was approved by our compensation committee pursuant to the terms of his then-current employment agreement based on his job performance during the fiscal year ended September 30, 2006 and paid to Mr. Williams in November 2006.
(3)		Does not include 17,767 shares of our common stock issued to Mr. Williams on January 16, 2007 based upon his job performance during the fiscal year ended September 30, 2006, which were accrued at September 30, 2006.
(4)		Constitutes a non-discretionary bonus paid to Mr. Williams in November 2007 pursuant to the terms of his employment agreement.
(5)		Constitutes a discretionary bonus paid to Mr. Moore in November 2007 in the form of cash and 625 shares of restricted stock based on our performance during the fiscal year ended September 30, 2007. The shares of restricted stock were approved and declared as of November 28, 2007, when our common stock had a fair market value of $1.65.
(6)		Constitutes a cash payment to gross up the executive for the executive’s tax obligations relating to the issuance of restricted stock as a discretionary bonus to the executive.
(7)		Constitutes a discretionary bonus paid to Mr. Gilmore in November 2007 in cash based on our performance during the fiscal year ended September 30, 2007. Does not include a discretionary cash bonus of $700 paid to Mr. Gilmore in November 2006 based on our performance during the fiscal year ended September 30, 2006.
(8)		Consists of 450 shares of restricted stock issued to Mr. Gilmore as a discretionary bonus based on our performance during the fiscal year ended September 30, 2007. The shares of restricted stock were approved and declared as of November 28, 2007, when our common stock had a fair market value of $1.65. Does not include 1,100 shares of restricted stock issued to Mr. Gilmore on January 16, 2007 based upon our performance during the fiscal year ended September 30, 2006.
(9)		Constitutes a commission paid to Mr. Gilmore on sales of our products sold as follows: (i) 0.75% of sport sales in the United States (ii) 1% of sports sales internationally.
(10)		Mr. Hedquist resigned from his position as our Chief Financial Officer effective December 14, 2007.
(11)		Does not include a discretionary cash bonus of $1,400 paid to Mr. Hedquist in November 2006 based on our performance during the fiscal year ended September 30, 2006.
(12)		Does not include 2,200 shares of restricted stock issued to Mr. Hedquist on January 16, 2007 based upon our performance during the fiscal year ended September 30, 2006.
(13)		Constitutes a discretionary bonus paid to Mr. Hoffmann in November 2007 in cash based on our performance during the fiscal year ended September 30, 2007. Does not include a discretionary cash bonus of $450 paid to Mr. Hoffmann in November 2006 based on our performance during the fiscal year ended September 30, 2006.
(14)		Consists of 625 shares of restricted stock issued to Mr. Hoffmann as a discretionary bonus based on our performance during the fiscal year ended September 30, 2007. The shares of restricted stock were approved and declared as of November 28, 2007, when our common stock had a fair market value of $1.65. Does not include 600 shares of restricted stock issued to Mr. Hoffmann on January 16, 2007 based upon our performance during the fiscal year ended September 30, 2006.

Employment Agreement with our Executives

Chief Executive Officer

Larry Williams became our President and Chief Operating Officer on December 6, 2004, and our Chief Executive Officer on May 6, 2005. Mr. Williams entered into an employment agreement with us dated May 6, 2005 identifying the terms of his services as Chief Executive Officer, President and Chief Operating Officer. On January 4, 2007, we entered into a two-year employment agreement with Mr. Williams superseding the terms of the prior agreement. Under the new employment agreement, Mr. Williams is entitled to receive a base salary of $194,000 effective as of October 1, 2006. Mr. Williams is also eligible for a potential annual bonus of up to 100% of his base salary. Up to 25% of the potential annual bonus, or $48,500, is discretionary and would be paid in cash as determined by our Compensation Committee within 90 days of fiscal year end.

The remaining 75% of the potential annual bonus, up to $145,500, is non-discretionary (the “Maximum Non-Discretionary Bonus”), and based upon two components: a net sales component and a net income component. With respect to the sales component, Mr. Williams could earn up to 35% of the Maximum Non-Discretionary Bonus if our actual sales equals our budgeted sales for the fiscal year. To the extent our actual sales exceeds our budgeted sales for such fiscal year, the percentage payable is increased up to a maximum of 15% of the Maximum Non-Discretionary Bonus. To the extent our actual sales are less than our budgeted sales, the sales component of the non-discretionary bonus will be proportionately reduced. No sales component of the non-discretionary bonus will be paid to the extent that actual sales is less than 80% of budgeted sales.

With respect to the income component of the non-discretionary bonus, Mr. Williams could earn up to 35% of the Maximum Non-Discretionary Bonus if our actual net income equals our budgeted net income for the fiscal year. To the extent our actual net income exceeds our budgeted net income for such fiscal year, the percentage payable is increased up to a maximum of 15% of the Maximum Non-Discretionary Bonus. To the extent, our actual net income is less than our budgeted net income, the income component of the non-discretionary bonus will be proportionately reduced. No income component of the non-discretionary bonus will be paid to the extent that actual net income is less than 80% of budgeted net income.

Any non-discretionary bonus is to be paid within 10 days of the filing of our Annual Report on Form 10-KSB. Upon our mutual agreement with Mr. Williams, up to 50% of any non-discretionary bonus may be paid in our restricted common stock.

The employment agreement further provides that to the extent Mr. Williams is terminated without Cause, he is entitled to a severance payment of 18 months of his base salary, paid out over such period in accordance with our payroll schedule. “Cause,” as defined in the agreement, includes acts of dishonesty, fraud, material and deliberate injury or attempted injury relating to our business or company, conviction of a felony or a continued failure to satisfactorily perform job duties. In the event of a Change of Control pursuant to which Mr. Williams is terminated without Cause, Mr. Williams is entitled to 24 months of his base salary paid out over such time in accordance with our normal payroll. “Change of Control” is defined in the agreement to include: (i) the acquisition by any person of beneficial ownership of twenty-five (25%) percent or more of our outstanding shares of common stock; (ii) a merger, reorganization or consolidation whereby our shareholders immediately prior to such event do not hold more than fifty (50%) percent of the voting stock of the surviving entity after completion of the event; or (iii) our liquidation or dissolution or the sale of all or substantially all of our assets.

The employment agreement includes standard confidentiality provisions and an 18-month non-compete provision. In the event of a termination of employment without Cause following a Change of Control, the non-compete provisions shall continue for as long as severance payments are made (i.e., 24 months).

Furthermore, the employment agreement provides that Mr. Williams will be nominated by our board of directors each year to serve as a director so long as he is Chief Executive Officer. In the event Mr. Williams resigns or is terminated, the agreement provides that Mr. Williams will also resign from the board.

Executive Bonus Compensation

Our executive officers and employees generally are eligible for a discretionary annual bonus in the form of cash and/or restricted stock. Upon the recommendation of our chief executive officer and management, our compensation committee each year determines the aggregate amount of our bonus pool available to the employees of our Company, including the executive officers (with the exception of the chief executive officer), based on our performance during the fiscal year, including without limitation our ability to meet our annual budget. The compensation committee then determines the amounts of the discretionary bonuses to be paid to the employees (other than the chief executive officer) based on both our performance and the individual employee’s performance.

With respect to the discretionary bonus payable to our chief executive officer, our board of directors determines the amount of the bonus upon the recommendation of our compensation committee.

Outstanding Equity Awards at Fiscal Year-End

None of our named executive officers held any outstanding equity awards as of September 30, 2007.

Severance and Change of Control Arrangements

See “Employment Agreements with Executives -Chief Executive Officer” above for a description of the severance and change of control arrangement with Mr. Williams. We have not entered into a severance or change of control provision with any of our other executives.

Each of our non-employee directors currently receives $4,500 per board meeting attended, with the Chairman of our board receiving $9,000 per board meeting attended. Until March 16, 2006, members of our board committees received an additional $1,000 per meeting, but this amount was increased to $1,500 per meeting on such date. The chair of each committee receives an additional $500 per meeting. Audit committee members were not separately compensated for their quarterly review of financial statements.

On March 16, 2006, the board also approved an annual grant of 6,000 shares of common stock to non-employee directors for their participation at board meetings relating to that fiscal year. The non-employee directors were granted the 6,000 shares of common stock on June 15, 2006; the fair market value of the common stock was $1.51 per share at the time of grant. On March 15, 2007, the board approved the issuance of 6,000 shares of common stock to the non-employee directors at such time for participation in board meetings through our 2008 annual meeting. The non-employee directors were granted the 6,000 shares of common stock on May 15, 2007; the fair market value of the common stock was $1.83 per share at the time of the grant.

Additionally, to the extent our directors are shareholders, they participate in declared dividends along with other holders of our common stock.

ITEM 12.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

On November 19, 2004, we entered into a Consulting Agreement with Boris Popov pursuant to which Mr. Popov would provide us certain consulting services relating to new product/development. Pursuant to this agreement, the term of which was six months, Mr. Popov was required to provide a minimum of 64 hours of service per month for $3,200 per month and be paid an additional $50 per hour for each hour over the 64 hour minimum. On March 16, 2005, we and Mr. Popov extended this agreement for an additional 12 months. On March 16, 2006, we and Mr. Popov extended the term of the agreement for an additional 24 months. We paid Mr. Popov $27,333 in fiscal year 2007 and $25,573 in fiscal year 2006 pursuant to such agreement. The fees paid pursuant to our consulting agreement with Mr. Popov were in addition to, and independent of, any fees or compensation owed or paid to him in his capacity as a non-employee director.

On June 25, 2007, we completed a private placement offering to CIMSA Ingenieria de Sistemas, S.A., a Spanish company, of 1,102,941 shares of our common stock and a three-year warrant to acquire up to 275,735 shares of our common stock at $2.00 per share. The warrant is subject to price adjustment and economic anti-dilution features until December 22, 2007, as well as anti-dilution protection from stock splits and similar events for the term of the warrant. We received gross proceeds of $1,500,000 in the offering. We did not engage a placement agent or broker in connection with the transaction. We have agreed to register the resale of the common stock, including the common stock issuable upon exercise of the warrants issued in the offering. Pursuant to the securities purchase agreement with CIMSA, we named Fernando Caralt, the President, Chief Executive Officer and a director of CIMSA, to our board of directors. Additionally, we agreed to negotiate and execute three agreements with CIMSA by August 31, 2007: (a) a manufacturing agreement pursuant to which CIMSA would subcontract certain manufacturing agreements to us over a three-year period; (b) a development agreement pursuant to which we would subcontract with CIMSA for certain development and design services over a three-year period; and (c) a one-year consulting agreement with Fernando Caralt to provide certain consulting services to the Company for cash compensation not to exceed $50,000. We did not do business with CIMSA prior to March 2007. During the fiscal year ended September 30, 2007, we generated revenues of $87,804 from CIMSA.

We have not yet entered into a development agreement with CIMSA as required pursuant to the securities purchase agreement, but have reached agreements for the manufacturing agreement and consulting agreement. Although we have not entered into a written consulting agreement with Mr. Caralt, we have agreed to general terms on a consulting arrangement with Mr. Caralt whereby he is entitled to a consulting fee of $4,167 per month he provides consulting services to us. This arrangement commenced in July 2007. On October 16, 2007, we entered into a letter manufacturing agreement with CIMSA as required pursuant to the securities purchase agreement with CIMSA. Under the letter agreement, we will manufacture at least 50% of the sewing production needs of CIMSA at our manufacturing facilities, including current facilities in Pinebluff, North Carolina and Tijuana, Mexico. Under the letter agreement, CIMSA will provide us with training and necessary information to manufacture the CIMSA products in amounts and at prices to be determined by the parties through purchase orders issued under the letter agreement. Unless earlier terminated mutually by the parties or by one party upon default, the term of the letter agreement shall continue until either party terminates with twelve (12) months’ prior written notice. This agreement superseded a manufacturing agreement by and between us and CIMSA dated January 25, 2007.

Corporate Governance

Our board of directors has seven directors and has established an Audit Committee, a Compensation Committee, and a Strategic Planning Committee as its standing committees. Our board does not have a nominating committee or an executive committee or any committees performing similar functions, because all of the directors participate. As of March 6, 2008, the entire board also fulfills the functions of the Audit Committee. We are not currently listed on a national securities exchange or on an inter-dealer quotation system that has requirements that a majority of the board of directors be independent, however, the board has determined that Messrs. Nelson, Adams and Underwood are “independent” under the definition set forth in Section 4200(a)(15) of National Association of Securities Dealers’ listing standards, which is the definition that our board has chosen to use for the purposes of the determining independence.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act, Ballistic Recovery Systems, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 6, 2008.

In accordance with the Securities Exchange Act, this report has been signed by the following persons on behalf of Ballistic Recovery Systems, Inc. and in the capacities and on the date indicated.

Name		Title		Date
/s/ Larry E. Williams   Larry E. Williams		Chief Executive Officer, President, Chief Operating Officer and Director (Principal Executive Officer)		March 6, 2008
/s/ Carl D. Langr   Carl D. Langr		Chief Financial Officer (Principal Financial and Accounting Officer)		March 6, 2008
/s/ Robert L. Nelson		Chairman, Secretary and Director		March 6, 2008
Robert L. Nelson
/s/ Boris Popov		Director		March 6, 2008
Boris Popov
/s/ Thomas H. Adams, Jr.		Director		March 6, 2008
Thomas H. Adams, Jr.
/s/ Darrel D. Brandt		Director		March 6, 2008
Darrel D. Brandt
		Director
Edward Underwood
		Director
Fernando Caralt

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm Virchow, Krause & Company, LLP			F-2
Consolidated Balance Sheets as of September 30, 2007 and 2006			F-3
Consolidated Statements of Operations for the Years Ended September 30, 2007 and 2006			F-5
Consolidated Statements of Shareholders’ Equity for the Years Ended September 30, 2007 and 2006			F-6
Consolidated Statements of Cash Flows for the Years Ended September 30, 2007 and 2006			F-7
Notes to Consolidated Financial Statements			F-8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders, Audit Committee and Board of Directors
Ballistic Recovery Systems, Inc. and Subsidiary
South St. Paul, Minnesota

We have audited the accompanying consolidated balance sheets of Ballistic Recovery Systems, Inc. and Subsidiary as of September 30, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ballistic Recovery Systems, Inc. and Subsidiary as of September 30, 2007 and 2006 and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Virchow, Krause & Company, LLP

Minneapolis, Minnesota
February 22, 2008

Ballistic Recovery Systems, Inc. and Subsidiary

See notes to consolidated financial statements.

Ballistic Recovery Systems, Inc. and Subsidiary
Consolidated Balance Sheets
September 30, 2007 and 2006

		2007				2006
Liabilities And Shareholders’ Equity
Current liabilities:
Line of credit — bank		$	—			$	302,265
Current portion of covenants not to compete, shareholder							7,069
Accounts payable			776,251				692,550
Customer deposits			104,410				42,916
Accrued payroll			75,939				73,613
Other accrued liabilities			294,726				244,930
Total current liabilities			1,251,326				1,363,343
Long-term debt, less current portion							320,000
Long-term debt refinanced through equity offering in October and November 2006							729,091
Total liabilities			1,251,326				2,412,434
Commitments and contingencies
Shareholders’ equity:
Undesignated shares $(.01 par value; 35,000,000 and 15,000,000 shares authorized, respectively; none issued and outstanding)			—				—
Common stock $(.01 par value; 15,000,000 and 10,000,000 shares authorized, respectively; 11,304,767 and 8,089,619 shares, respectively, issued and outstanding)			113,048				80,896
Additional paid-in capital			10,262,357				6,306,007
Accumulated deficit			(5,065,258	)			(3,384,081	)
Total shareholders’ equity			5,310,147				3,002,822
Total liabilities and shareholders’ equity		$	6,561,473			$	5,415,256

See notes to consolidated financial statements.

See notes to consolidated financial statements.

See notes to consolidated financial statements.

See notes to consolidated financial statements.

Ballistic Recovery Systems, Inc. and Subsidiary

		Cash and Cash Equivalents
		Short-term investments with an original maturity of three months or less at the date of purchase are considered to be cash equivalents and are stated at their fair value.
		Accounts Receivable, credit risk and allowance for doubtful accounts
		The Company sells its products to domestic and foreign companies. The Company reviews customers’ credit history before extending unsecured credit and established an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers and other information. The Company does not accrue interest on past due accounts receivable. Unless specific arrangements have been made, accounts receivable over 30 days are considered past due. The Company writes off accounts receivable when they are deemed uncollectible. Accounts receivable are shown net of an allowance for doubtful accounts of $65,000 and $22,924 at September 30, 2007 and 2006, respectively. The Company’s contract research and development projects are billed to its customers on an uncollateralized credit basis. The estimated loss that management believes is probable is included in the allowance for doubtful accounts. Due to uncertainties in the collection process, however, it is at least reasonably possible that management’s estimate will change during the next year, which cannot be estimated.
		Customer Concentration
		The Company had sales to one major customer, Cirrus Design, which represented 74.4% of the Company’s total sales for fiscal year 2007 and 70.7% of the Company’s total sales for fiscal year 2006. This customer also accounted for 62% (or $821,000) and 63% (or $339,000) of accounts receivable at September 30, 2007 and 2006, respectively. The Company supplies parachute systems to Cirrus Design from the Company’s general aviation product line. A separate customer accounted for 13.3% of accounts receivable at September 30, 2007.
		In its recreational aviation product line, the Company primarily distributes its products through dealers and distributors who in turn sell the products to the end consumer. The Company believes that in the event that any individual dealers or distributors cease to represent the Company’s products, alternative dealers or distributors can be established.
		Valuation of Inventories
		The Company’s inventories are stated at the lower of cost or market and include materials, labor and overhead. Cost is determined by the first-in, first-out (“FIFO”) method. Provisions to reduce inventories to the lower of cost or market are made based on a review of excess and obsolete inventories through an examination of historical component consumption, current market demands and shifting product technology. Significant assumptions with respect to market trends are utilized to formulate our provision methods. Sudden or downward changes in markets we serve may cause us to record additional inventory revaluation charges in future periods. These variances could directly impact gross profit performance and may cause variability in gross profit results from reporting period to reporting period. In accordance with Statement of Financial Accounting Standards (SFAS) No. 151 “Inventory Costs an amendment to ARB No. 43, Chapter 4”, the Company expenses unallocated overhead as a current period expense based on normal capacity of the Company’s Mexico and South St. Paul plant. Gross profit for the year ended September 30, 2007 were negatively impacted due to production variances incurred as the Company significantly increased labor in Mexico in advance of production anticipated for additional product lines to be manufactured in Mexico and excessive variances in labor and raw materials as the Company’s Mexico operations increased significantly. As a result of the Company’s expected and unexpected Mexico production variances and under-utilization of labor, the Company’s gross profit decreased by approximately $1.5 million for the year ended September 30, 2007.
		Customer Deposits
		The Company requires order deposits from most of its domestic and international customers. These deposits represent either partial or complete down payments for orders. These down payments are recorded as customer deposits. The deposits are recognized as revenue when the product is shipped.

		Income Taxes
		Differences between accounting rules and tax laws cause differences between the bases of certain assets and liabilities for financial reporting purposes and tax purposes. The tax effects of these differences, to the extent they are temporary, are recorded as deferred tax assets and liabilities under SFAS 109. Temporary differences relate primarily to: stock based compensation; allowances for doubtful accounts; inventory valuation allowances; depreciation; net operating loss; and accrued expenses not currently deductible. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely then not to be realized.
		Furniture, Fixtures and Leasehold Improvements
		Furniture, fixtures and leasehold improvements are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, ranging from three to seven years for equipment and ten years for the airplane. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is expensed as incurred; significant renewals and betterments are capitalized. Deduction is made for retirements resulting from renewals or betterments. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term, or the estimated useful life of the assets.
		Goodwill
		The Company applies SFAS No. 142 , Goodwill and Other Intangible Assets related to the carrying amount of goodwill and other intangible assets. Goodwill is tested for impairment annually in the fourth quarter or more frequently if changes in circumstances or the occurrence of events suggest impairment exists.
		The Mexico operations are tested for impairment in the fourth quarter or at other times if an event occurs or circumstances change that would reduce the fair value of the Mexico operation. Due to operating profits and cash flows being lower than expected for both the years ended September 30, 2007 and 2006, in the opinion of the Company’s management, goodwill during the year ended September 30, 2007 was impaired. A goodwill impairment loss of approximately $104,000 was recognized in the Mexico subsidiary. The fair value of that subsidiary was estimated using the expected present value of future cash flows.
		Intangibles
		Patents are recorded at cost and are being amortized on a straight-line method over 17 years. The covenants not to compete are recorded at cost and are being amortized using the straight-line method over the terms of the agreement which range from two to fifteen years. The weighted average life of the covenants not to compete is 1.5 years at September 30, 2007.
		Components of intangible assets are as follows:

Amortization expense of intangible assets was $18,641and $121,640 for the years ended September 30, 2007 and 2006, respectively. Amortization expense is estimated to approximate $8,854, $8,116, and $0 for the years ending September 30, 2008, 2009, and 2010, respectively.

		The Company recognizes revenue in accordance with Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 (SAB No. 104) Revenue, which requires that four basic criteria be met before revenue can be recognized: (i) persuasive evidence of a customer arrangement exists; (ii) the price is fixed or determinable; (iii) collectibility is reasonably assured; and (iv) product delivery has occurred and services have been rendered. Sales are not conditional based on customer acceptance provisions or installation obligations. The Company recognizes revenue as products are shipped based on FOB shipping point terms when title passes to the customer.
		Comprehensive Income
		SFAS No. 130, Reporting Comprehensive Income , establishes standards for the reporting and disclosure of comprehensive income and its components, which will be presented in association with a company’s consolidated financial statements. Comprehensive income is defined as the change in a business enterprise’s equity during a period arising from transactions, events or circumstances relating to non-owner sources, such as foreign currency translation adjustments and unrealized gains or losses on available-for-sale securities. It includes all changes in equity during a period except those resulting from investments by or distributions to owners. For the years ended September 30, 2007 and 2006, net income (loss) and comprehensive income (loss) were equivalent.
		Fair Value of Financial Instruments
		SFAS No. 107 , “Disclosures About Fair Value of Financial Instruments” requires disclosure of the estimated fair value of financial instruments as follows:

Short-term Assets and Liabilities:

The fair values of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, line of credit-bank, and short-term debt approximate their carrying values due to the short-term nature of these financial instruments.

Long-term Debt and Covenants Not to Compete:

		The fair value of long-term debt and covenants not to compete approximate their carrying value because the terms are equivalent to borrowing rates currently available to the Company for debt with similar terms and maturities.
		Segment Reporting
		A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. The Company’s segments have similar economic characteristics and are similar in the nature of the products sold, type of customers, methods used to distribute the Company’s products and regulatory environment. Management believes that the Company meets the criteria for aggregating its operating segments into a single reporting segment.
		Stock-Based Compensation
		SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), provides for the use of a fair value based method of accounting for employee stock compensation. However, SFAS 123 also allows an entity to continue to measure compensation cost for stock options granted to employees using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and related interpretations, which only requires charges to compensation expense for the excess, if any, of the fair value of the underlying stock at the date a stock option is granted (or at an appropriate subsequent measurement date) over the amount the employee must pay to acquire the stock , if such amounts differ materially from historical amounts. The Company has elected to continue to account for employee stock options using the intrinsic value method under APB 25. By making that election, it is required by SFAS 123 and SFAS 148, “ Accounting for Stock-Based Compensation —Transition and Disclosure ” to provide pro forma disclosures of net income (loss) and earnings (loss) per share as if a fair value based method of accounting had been applied.

		On December 16, 2004, the FASB, issued SFAS No. 123(R), “ Share-Based Payment ”, which is a revision of SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be valued at fair value on the date of grant, and to be expensed over the applicable vesting period. Pro forma disclosure of the income statement effects of share-based payments is no longer an alternative. For the Company, SFAS No. 123(R) is effective for all share-based awards granted on or after October 1, 2006. In addition, companies must also recognize compensation expense related to any awards that are not fully vested as of the effective date. Compensation expense for the unvested awards will be measured based on the fair value of the awards previously calculated in developing the pro forma disclosures in accordance with the provisions of SFAS No. 123. We implemented SFAS No. 123(R) on October 1, 2006 using the modified prospective method.
		There were no options granted in the year ended September 30, 2007 or that were vested or modified. As such, the Company did not record any compensation pursuant to SFAS No. 123(R) for the year ended September 30, 2007 for options granted. The Company did grant 30,000 shares of common stock on May 16, 2007 for board services to be rendered. The fair value at the date of the grant was $1.83 per share. The Company is expensing the fair value over the period services are rendered. The amortization for stock granted for the year ended September 30, 2007 was $13,875. Amortization of shares issued in the year ended September 30, 2006 was $27,180 and $18,120 for the years ended September 30, 2007 and 2006, respectively.
		Had compensation costs been determined in accordance with the fair value method prescribed by SFAS No. 123 for all options issued to employees and amortized over the vesting period, the Company’s net income applicable to common shares and earnings per common share (basic and diluted) for plan options would not have changed for the year ended September 30, 2006.
		Earnings (loss) per Common Share
		Basic earnings (loss) per common share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus all additional common stock that would have been outstanding if potentially dilutive common stock related to stock options and warrants had been issued. Weighted average shares outstanding-diluted includes 0 and 32,071 shares of dilutive securities for the years ended September 30, 2007 and 2006, respectively.
		Following is a reconciliation of basic and diluted earnings (loss) per common share for fiscal years ended September 30, 2007 and 2006, respectively:

The Company uses the treasury method for calculating the dilutive effect of the stock options and warrants (using the average market price).

		Warrants and options of 978,894 and 45,000 were excluded for the computation of diluted earnings per share for the year ended September 30, 2007 since the net effect was anti-dilutive for the year. Warrants for 16,401 were excluded from the computation of diluted earnings per share for the year ended September 30, 2006 since their effect was anti-dilutive for the year.
		Recently Issued Accounting Pronouncements
		In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in its tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective in fiscal years beginning after December 15, 2006. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption, with the cumulative effect adjustment reported as an adjustment to the opening balance of retained earnings. The Company is currently assessing the impact of FIN 48 on its results of operations and financial position.
		During February 2007, the FASB Board issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the effect that SFAS 159 will have on its results of operations and financial position.
		During December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51” (“SFAS 160”). This statement establishes accounting and reporting standards for noncontrolling interests in subsidiaries and for the deconsolidation of subsidiaries and clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement also requires expanded disclosures that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The Company does not believe that the adoption of SFAS 160 will have a material effect on its results of operations or financial position.
		During December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141 (Revised 2007)”). While this statement retains the fundamental requirement of SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method ) be used for all business combinations, SFAS 141 (Revised 2007) now establishes the principles and requirements for how an acquirer in a business combination: recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in the acquiree; recognizes and measures the goodwill acquired in the business combination or the gain from a bargain purchase; and determines what information should be disclosed in the financial statements to enable the users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141 (Revised 2007) is effective for fiscal years beginning on or after December 15, 2008. The Company does not believe that the adoption of SFAS 141 (Revised 2007) will have a material effect on its results of operations or financial position.
		Research and Development Costs
		Research and development costs are charged to expense as incurred.
		Advertising Expenses
		Non-direct response advertising expenses are recognized in the period incurred. Non-direct response advertising expenses totaled $29,802 in 2007 and $18,649 in 2006.
		Legal Costs
		The Company expenses its legal costs as incurred except settlements which are expensed when a claim is probable and estimatable.

		Shipping and Handling Costs
		The Company records amounts being charged to customers for shipping and handling as sales and costs incurred in cost of sales.
3.		Cirrus Design Purchase and Supply Agreement
		The Company currently operates under a Purchase and Supply Agreement with Cirrus, in September 1999 and amended February 2006 (the “Cirrus Supply Agreement”). Under the Cirrus Supply Agreement, the Company is the non-exclusive supplier of the parachute recovery system to Cirrus.
		The current term of the Cirrus Supply Agreement expires in December 2008, but the Agreement is subject to rolling automatic renewal terms of 18 months, unless terminated by either party upon 18 months advance notice. The recent amendment to the Agreement also provides that Cirrus will maintain product liability insurance on the parachute system whose components are directly or indirectly supplied by BRS. Additionally, Cirrus has agreed to indemnify BRS for all related product liability claims involving the BRS parachute system (except for claims for economic losses or damage related solely to the aircraft) related to parachute systems sold to Cirrus after February 6, 2006. The Cirrus Supply Agreement also gives Cirrus limited exclusivity for an increased gross weight (3,600 pound) system for a period of one year after introduction.
4.		Covenants Not to Compete
		On October 26, 1995 the Company entered into an agreement with the president and majority shareholder of Second Chantz Aerial Survival Equipment, Inc. (SCI), whereby SCI ceased all business activities, and SCI’s president and majority shareholder entered into a ten-year covenant not to compete with the Company. The payments required under this agreement contained a non-interest-bearing portion and a portion that bears interest at a rate below the Company’s incremental borrowing rate. Under generally accepted accounting principles the future payments were discounted at the Company’s incremental borrowing rate. The 4% ten year note called for monthly payments of $4,036 through October 2005. Payments under this agreement were unsecured.
		On August 16, 2004, the Company extended the non-compete period by five additional years in exchange for the exercise of stock options held by SCI’s president under a stock subscription agreement backed by a promissory note. The note had a principal sum of $12,500 together with aggregate interest on the unpaid principal balance of $2,500. Payments under the note began July 1, 2005 and continued monthly with a final maturity date of October 1, 2005. The present value of the Company’s obligation under this agreement was recorded as an intangible asset and was being amortized over a range of two to 15 years.
		On October 14, 2004, the Company and Mr. Mark Thomas entered into a Resignation, Consulting, Non-Competition and General Release Agreement (the “Resignation Agreement”) in connection with Mr. Thomas’ resignation as Chief Executive Officer, Chief Financial Officer, President, and as a director of the Company. Pursuant to the terms of the Resignation Agreement, Mr. Thomas resigned such offices effective October 14, 2004.
		Mr. Thomas agreed, for a two year period, not to 1) call on or solicit Company customers, 2) directly or indirectly, become employed by, consult with, manage, own or operate any business engaged in the design, manufacturing, marketing or distribution of (i) emergency parachute recovery systems for recreational, general and commercial aviation aircraft and unmanned aircraft or (ii) general aviation aircraft. Mr. Thomas also agreed not to divulge any trade secrets or confidential information regarding the Company. In exchange for such Resignation Agreement, the Company agreed to pay Mr. Thomas an aggregate of $230,000; $60,000 of which was paid 15 days after execution of the Agreement and $170,000 of which would be paid over a 24 month period ($7,083 per month) during the compliance of Mr. Thomas’ non-competition /non-disclosure requirements. The agreement ended during the year ended September 30, 2007.

5.		Other Financial Information
		Inventories
		The components of inventories consist of the following at September 30:

		2007				2006
Raw materials		$	1,179,076			$	2,100,501
Work in process			598,486				340,434
Finished goods			10,704				17,068
Total inventories		$	1,788,266			$	2,458,003