BRSI Ballistic Recovery Systems Inc (CE)

 

 

EXPLANATORY NOTE

This Amendment No. 1 to Form 10-QSB for the three months ended March 31, 2007 of Ballistic Recovery Systems, Inc. (the “Company”) is being filed solely to restate the consolidated financial statements for the affected period to correct errors in the valuation of inventories and allocation of production overhead (these restatements are referred to herein as the “Restatements”). The Restatements amend the Form 10-QSB for the related period originally filed by the Company with the Securities and Exchange Commission on May 14, 2007. These Restatements had a negative impact on our financial position, financial results, and operations.

With the Restatement, inventory decreased by $416,408, which in turn decreased total current assets and total assets and increased the loss from operations, loss before income taxes and net loss. The decrease in inventory also increased the accumulated deficit by the same amount.

Further, with the Restatement to decrease inventory, the deferred tax benefit increased by $47,845. The total other assets and total assets were also increased by that same amount. As a result, the accumulated deficit decreased and net shareholder equity increased on the balance sheet. On the income statement, the increase in deferred tax benefit decreased the net operating loss by $47,845.

The reader should note that this Amendment No. 1 includes all of the information contained in the Company’s original report on Form 10-QSB filed on May 14, 2007, and no attempt has been made in this Amendment No. 1 to modify or update the disclosures presented in this original report on Form 10-QSB, except as required to reflect the amendments reflected above in Items 1 and 2 as applicable, of the report. As such, the information contained in the original 10-QSB, except as amended in this Amendment No. 1, remain unchanged and reflect the disclosures made as of the original filing. Accordingly, this Amendment No. 1 should be read in conjunction with the Company’s filings made with the SEC subsequent to the filing of the original 10-QSB, and this Amendment No. 1 shall not be deemed an admission that the original filing, when made, included any untrue statement of material fact or omitted to state a material fact necessary to make a statement not misleading.

TABLE OF CONTENTS

				Page
PART I		Consolidated Financial Information			F-1
Item 1		Consolidated Financial Statements			F-1
		Consolidated Balance Sheets as of March 31, 2007 (unaudited) and September 30, 2006 (audited)			F-1
		Consolidated Statements of Operations for the three and six months ended March 31, 2007 and 2006 (unaudited)			F-3
		Consolidated Statements of Cash Flow for the six months ended March 31, 2007 and 2006 (unaudited)			F-4
		Notes to consolidated financial statements			F-5
Item 2		Management’s Discussion and Analysis or Plan of Operation			1
Item 3		Controls and Procedures			6
PART II		Other Information			7
Item 1		Legal Proceedings			7
Item 4		Submission of Matters to a Vote of Security Holders			8
Item 6		Exhibits			8
		Signatures			9
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Part I Financial Information — Item 1. 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007 and 2006
(UNAUDITED)

A.

Summary of Significant Accounting Policies

Principles of Consolidation

In September 2005, the Company formed its wholly-owned subsidiary, BRS de Mexico S.A. de C.V. The consolidated financial statements include the wholly-owned subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

Operating results for the three and six months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2007. These consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended September 30, 2006, previously filed with the Securities and Exchange Commission.

In the opinion of management, such statements reflect all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented.

Foreign Currency Translations and Transactions

The Company accounts for its foreign asset and liability transactions in U.S. dollars. Therefore, there is not any material accumulated other comprehensive income or loss. Results of operations are translated using the average exchange rates throughout the year. Transaction gains or losses are recorded as incurred.

Use of Estimates

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

Cash Concentrations

Bank balances exceeded federally insured levels during the second quarter of fiscal year 2007 and 2006. Generally, these balances may be redeemed upon demand and therefore bear minimal risk.

Cash and Cash Equivalents

Short-term investments with an original maturity of three months or less are considered to be cash equivalents and are stated at their fair value.

Accounts Receivable, Credit Risk and Allowance for Doubtful Accounts

The Company sells its products to domestic and foreign customers. The Company reviews customers’ credit history before extending unsecured credit and established an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers and other information. The Company does not accrue interest on past due accounts receivable. Unless specific arrangements have been made, accounts receivable over 30 days are considered past due. The Company writes off accounts receivable when they are deemed uncollectible. There were no accounts written off during the three and six months ended March 31, 2007 and 2006. Accounts receivable are shown net of an allowance for doubtful accounts of $22,924 both at March 31, 2007 and September 30, 2006. The estimated loss that management believes is probable is included in the allowance for doubtful accounts. Due to uncertainties in the collection process, however, it is at least reasonably possible that 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 Corporation (Cirrus), which represented 74.4% and 77.4% of the Company’s total sales for the three and six months ended March 31, 2007, as compared to 69.6% and 71.8% for the same prior year periods. This customer also accounted for 69% (or $537,100) and 63% (or $339,000) of accounts receivable at March 31, 2007 and September 30, 2006, respectively. The Company supplies parachute systems to Cirrus from the Company’s general aviation product line. The dependence on Cirrus typically is highest during the first two quarters of the fiscal year due to the seasonality of the recreational product line.

In its recreational aviation product line, the Company primarily distributes its products through dealers and distributors who in turn sell the products to the end consumer. The Company believes that in the event that any individual dealers or distributors cease to represent the Company’s products, alternative dealers or distributors can be established.

Valuation of Inventories

Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (“FIFO”) method. We maintain a standard costing system for our inventories and adjust our inventories to a FIFO valuation.

Provisions to reduce inventories to the lower of cost or market are made based on a review of excess and obsolete inventories through an examination of historical component consumption, current market demands and shifting production methods. Significant assumptions with respect to market trends and customer product acceptance are utilized to formulate our provision methods. Sudden or continuing downward changes in the Company’s product markets may cause us to record additional inventory revaluation charges in future periods. No write-off provision was made to our inventories for the three and six months ended March 31, 2007 or 2006.

Customer Deposits

The Company requires order deposits from most of its domestic and international customers. These deposits represent either partial or complete down payments for orders. These down payments are refundable and are recorded as customer deposits. The deposits are recognized as revenue when the product is shipped. The Company’s major customer, Cirrus, does not make order deposits.

Income Taxes

Differences between accounting rules and tax laws cause differences between the bases of certain assets and liabilities for financial reporting purposes and tax purposes. The tax effects of these differences, to the extent they are temporary, are recorded as deferred tax assets and liabilities under Statement of Financial Accounting Standards No. (SFAS) 109. Temporary differences relate primarily to: stock based compensation; allowances for doubtful accounts; inventory valuation allowances; depreciation; valuation of warrants issued to a customer; net operating loss; and accrued expenses not currently deductible.

Furniture, Fixtures and Leasehold Improvements

Furniture, fixtures and leasehold improvements are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, ranging from three to seven years for equipment and ten years for the airplane. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is expensed as incurred; significant renewals and betterments are capitalized. Deduction is made for retirements resulting from renewals or betterments. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term, or the estimated useful life of the assets.

Goodwill

The Company applies SFAS No. 142, Goodwill and Other Intangible Assets related to the carrying amount of goodwill and other intangible assets. Goodwill will be tested for impairment annually in the fourth quarter or more frequently if changes in circumstances or the occurrence of events suggest an impairment exists. The Company has concluded that no impairment of goodwill or other intangible assets exists as of March 31, 2007 and 2006.

Intangibles

Patents are recorded at cost and are being amortized on a straight-line method over 17 years. The covenants not to compete are recorded at cost and are being amortized using the straight-line method over the terms of the agreement which range from two to fifteen years. The weighted average life of the covenants not to compete is 2.5 years at March 31, 2007.

Components of intangible assets are as follows:

Amortization expense of intangible assets was $11,709 and $14,021 for the three and six months ended March 31, 2007, compared to $30,582 and $61,163 for the three and six months ended March 31, 2006. Amortization expense is estimated to approximate $19,241, $8,854, $8,116 and $0 for the years ending September 30, 2007, 2008, 2009, and 2010, respectively.

Revenue Recognition

The Company recognizes revenue in accordance with Securities and Exchange Commission, Staff Accounting Bulletin No. 104, “Revenue Recognition”. The Company recognizes revenue on product sales upon shipment to customers.

Comprehensive Income

SFAS No. 130 establishes standards for the reporting and disclosure of comprehensive income and its components, which will be presented in association with a 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 three and six months ended March 31, 2007 and 2006, net income (loss) and comprehensive income (loss) were equivalent.

Fair Value of Financial Instruments

SFAS No. 107, “Disclosures About Fair Value of Financial Instruments” requires disclosure of the estimated fair value of financial instruments as follows:

Short-term Assets and Liabilities:

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

Long-term Debt and Covenants Not to Compete:

The fair value of long-term debt and covenants not to compete approximate their carrying value because the terms are equivalent to borrowing rates currently available to the Company for debt with similar terms and maturities.

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

The Company has various types of stock-based compensation plans. These plans are administered by the compensation committee of the Board of Directors, which selects persons to receive awards and determines the number of options subject to each award and the terms, conditions, performance measures and other provisions of the award. The Company’s general policy is to grant stock options with an exercise price at fair value at the date of grant.

Effective October 1, 2006, the Company adopted SFAS No. 123R, Share-Based Payment (SFAS 123R), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS 123R is being applied on the modified prospective basis.

Under the modified prospective approach, SFAS 123R applies to new awards and to awards that were outstanding on October 1, 2006 that are subsequently modified, repurchased, cancelled or vest. Under the modified prospective approach, compensation cost recognized includes compensation cost for all share-based payments granted prior to, but not yet vested on October 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R, and compensation cost for all shared-based payments granted subsequent to October 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Prior periods were not restated to reflect the impact of adopting the new standard.

There was no impact of adopting SFAS 123R for the three and six months ended March 31, 2007 as all options outstanding at September 30, 2006 were fully vested and no options were issued during the three and six months ended March 31, 2007. Options and warrants issued to non-employees are recorded at fair value, as required by Emerging Issues Task Force (EITF) 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” using the Black-Scholes pricing model. For the three and six months ended March 31, 2007 and 2006, the Company did not issue any stock-based awards to non-employees.

Had compensation costs been determined in accordance with the fair value method prescribed by SFAS No. 123 for all options issued to employees and amortized over the vesting period, the Company’s net income (loss) applicable to common shares and net income (loss) per common share (basic and diluted) for plan options would not have changed as indicated below.

No employee options were granted or vested during the three months ended March 31, 2007 and 2006. Had options been granted, the fair value of each option granted would have been estimated on the date of the grant using the Black-Scholes option pricing model.

Earnings (Loss) Per Common Share

Basic earnings (loss) per common share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus all additional common stock that would have been outstanding if potentially dilutive common stock related to stock options and warrants had been issued. Weighted average shares outstanding-diluted includes 60,000 shares of dilutive securities for the three months ended March 31, 2007.

Following is a reconciliation of basic and diluted earnings per common share for the three and six months ended March 31, 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 during the fiscal year.

All outstanding options (60,000 shares) were excluded in the computation of common share equivalents for the three and six months ended March 31, 2007 since there was a loss for the periods.

All outstanding options (105,000 shares) were excluded in the computation of common share equivalents for the three and six months ended March 31, 2006 since there was a loss for the periods.

Restatement

The following table reconciles the previously reported amounts as of and for the three months ended March 31, 2007 and for the six months ended March 31, 2007. The impact of the adjustments was to reduce inventory by $416,408 and to increase the deferred tax benefit by $47,845. In addition, the basic earnings per common share decreased by $(.04) for the three months ended March 31, 2007 and for the six months ended March 31, 2007.

The following table reconciles previously reported balance sheet items at March 31, 2007 to the restated amount:

The follow table reconciles previously reported items on the Statement of Operations for the three months ended March 31, 2007 and for the six months ended March 31, 2007:

The following table reconciles previously reported items on the Statement of Cash Flows for the six months ended March 31, 2007:

Recently Issued Accounting Pronouncements

In June 2006, the FASB has published FASB Interpretation (FIN) No. 48 (FIN No. 48), Accounting for Uncertainty in Income Taxes, to address the noncomparability in reporting tax assets and liabilities resulting from a lack of specific guidance in FASB SFAS No. 109, Accounting for Income Taxes, on the uncertainty in income taxes recognized in an enterprise’s financial statements. Specifically, FIN No. 48 prescribes (a) a consistent recognition threshold and (b) a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides related guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and 15, 2006. The Company is currently evaluating the impact the adoptions of FIN No. 48 will have on its consolidated financial statements.

In September 2006, the FASB has published FASB SFAS No. 157, Fair Value Measurements, to eliminate the diversity in practice that exists due to the different definitions of fair value and the limited guidance for applying those definitions in GAAP that are dispersed among the many accounting pronouncements that require fair value measurements. SFAS No. 157 retains the exchange price notion in earlier definitions of fair value, but clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or liability in the principal or most advantageous market for the asset or liability. Moreover, the SFAS states that the transaction is hypothetical at the measurement date, considered from the perspective of the market participant who holds the asset or liability. Consequently, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price), as opposed to the price that would be paid to acquire the asset or received to assume the liability at the measurement date (an entry price). SFAS No. 157 also stipulates that, as a market-based measurement, fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability, and establishes a fair value hierarchy that distinguishes between (a) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (b) the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). Finally, SFAS No. 157 expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Entities are encouraged to combine the fair value information disclosed under SFAS No. 157 with the fair value information disclosed under other accounting pronouncements, including SFAS No. 107, Disclosures about Fair Value of Financial Instruments, where practicable. The guidance in this Statement applies for derivatives and other financial instruments measured at fair value under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, at initial recognition and in all subsequent periods. The provisions of SFAS No. 157 are effective for fiscals years beginning after November 15, 2007.

The Company believes the impact of SFAS No. 157 will not have a material effect of its consolidated financial statements.

In September 2006, the FASB has published FASB SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, to require an employer to fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare, and other postretirement plans in their financial statements. Previous standards required an employer to disclose the complete funded status of its plan only in the notes to the financial statements. Moreover, because those standards allowed an employer to delay recognition of certain changes in plan assets and obligations that affected the costs of providing benefits, employers reported an asset or liability that almost always differed from the plan’s funded status. Under SFAS No. 158, a defined benefit postretirement plan sponsor that is a public or private company or a nongovernmental not-for-profit organization must (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for the plan’s underfunded status, (b) measure the plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions), and (c) recognize, as a component of other comprehensive income, the changes in the funded status of the plan that arise during the year but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, Employers’ Accounting for Pensions, or SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. SFAS No. 158 also requires an employer to disclose in the notes to financial statements additional information on how delayed recognition of certain changes in the funded status of a defined benefit postretirement plan affects net periodic benefit cost for the next fiscal year. The Company believes the impact of SFAS No. 158 will not have a material effect on its consolidated financial statements.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 108, “Considering the Effects on Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”). SAB 108 requires registrants to quantify errors using both the income statement method (i.e. iron curtain method) and the rollover method and requires adjustment if either method indicates a material error. If a correction in the current year relating to prior year errors is material to the current year, then the prior year financial information needs to be corrected. A correction to the prior year results that are not material to those years, would not require a “restatement process” where prior financials would be amended. SAB 108 is effective for fiscal years ending after November 15, 2006. The Company does not anticipate that SAB 108 will have a material effect on its consolidated financial statements.

In February 2007, the FASB issued FASB SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, to expand the use of fair value measurement by permitting entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 is effective beginning the first fiscal year that begins after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS 159 on its consolidated financial statements.

Research and Development Costs

Research and development costs are charged to expense as incurred.

Advertising Expenses

Non-direct response advertising expenses are recognized in the period incurred. Non-direct response advertising expenses totaled $1,608 and $5,314 for the three and six months ended March 31, 2007 and $2,407 and $5,017 for the three and six months ended March 31, 2006, respectively.

Legal Costs

The Company expenses its legal costs as incurred except settlements which are expensed when a claim is probable and estimatable.

Shipping and Handling Costs

The Company records amounts being charged to customers for shipping and handling as sales and costs incurred in cost of sales.

B.

Covenants Not to Compete

On October 26, 1995 the Company entered into an agreement with the president and majority shareholder of Second Chantz Aerial Survival Equipment, Inc. (SCI), whereby SCI ceased all business activities, and 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. This note has been paid in full.

On August 16, 2004, the Company extended the non-compete period by five additional years in exchange for the exercise of stock options held by SCI’s president under a stock subscription agreement backed by a promissory note. The note has a principal sum of $12,500 together with aggregate interest on the unpaid principal balance of $2,500. Payments under the note began July 1, 2005 and continued monthly with a final maturity date of October 1, 2005. The present value of the Company’s obligation under this agreement was recorded as an intangible asset and is being amortized over a total of fifteen years as shown in the accompanying financial statements.

On October 14, 2004, the Company and Mr. Mark Thomas entered into a Resignation, Consulting, Non-Competition and General Release Agreement (the “Resignation Agreement”) in connection with Mr. Thomas’ resignation as Chief Executive Officer, Chief Financial Officer, President, and as a director of the Company. Pursuant to the terms of the Resignation Agreement, Mr. Thomas resigned such offices effective October 14, 2004.
Mr. Thomas agreed, for a two year period, not to 1) call on or solicit Company customers and 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 present value of the Company’s obligation under this agreement was recorded as an intangible asset and was amortized over two years as shown in the accompanying financial statements. This obligation was paid in full in October 2006.

C.

Other Financial Information

Furniture, Fixtures and Leasehold Improvements

Furniture, fixtures and leasehold improvements consisted of the following categories at March 31, 2007 and September 30, 2006:

Related Parties — Consulting Agreements with Directors

Effective as of November 19, 2004, the Company entered into a Consulting Agreement with Mr. Boris Popov, a director of the Company, pursuant to which Mr. Popov would provide certain consulting services relating to the Company’s new product development. Pursuant to this agreement, the initial term of which was six months, Mr. Popov is required to provide a minimum of 64 hours of service per month for $3,200 per month and shall be paid an additional $50 per hour for each hour over the 64 hour minimum. On March 16, 2006 the Company extended this agreement for 24 additional months, through May 2008. Consulting expenses for Mr. Popov were $19,985 for the first and second quarters of fiscal year 2007 and $25,573 for the year ended September 30, 2006.

Product Warranties

The Company offers its customers up to a one-year warranty on its products. The warranty covers only manufacturing defects, which will be replaced or repaired by the Company at no charge to the customer. The Company has not recorded an accrual for possible warranty claims and believes that the product warranties as offered will not have a material effect on the Company’s financial position, results of operations or cash flows. Prior historical product warranties have been immaterial.

D.

Geographical Information

The Company has operations in South St. Paul, Minnesota and Mexico. Information about the Company’s operations by geographical location are as follows for the quarter ended March 31, 2007 and the year ended September 30, 2006:

The Company had a $400,000 line-of-credit with a bank which expired on February 6, 2007. The line called for a variable interest rate of 9.75% at December 31, 2006 and September 30, 2006. At September 30, 2006, there was an outstanding balance of $302,265 under the line of credit.

F.

Long-Term Debt

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. An initial payment of $700,000 plus interest was made on September 19, 2005. The remainder of $1.2 million was to be paid by the Company over a term of 8 years, although the Company had the right to pre-pay remaining amounts due at any time. On November 15, 2006, the Company paid the entire unpaid principal and interest outstanding on the first note detailed below and paid $5,000 towards unpaid principal on the second note detailed below with money raised through equity financing on October 25, 2006. As such, the first note payable detailed below was classified at September 30, 2006 as long-term pursuant to SFAS No. 6 “Classification of Short-Term Obligations Expected to be Refinanced”.

The components of long-term debt consist of the following at March 31, 2007 and September 30, 2006:

Future minimum payments required at March 31, 2007 are as follows:

G.

Shareholders’ Equity

Common Stock and Stock Warrants

On October 25, 2006, the Company, as part of its private placement offering of $3 million of equity securities, accepted subscription agreements from 23 accredited investors for the sale of 975,736 shares of the Company’s Common Stock, par value $.01 per share ( “Common Stock”), and warrants (the “Warrants”) to purchase 243,934 shares of Common Stock. The Warrants have a three-year term and an exercise price of $2.00 per share. The Company received gross proceeds from the sale of Common Stock and Warrants of $1,327,001, less commissions in the aggregate amount of $92,890 and less a retainer and expenses of in the aggregate amount of $20,000 paid to a placement agent assisting in the placement. Additionally, the Company issued a three-year warrant to purchase 85,377 shares of Common Stock at an exercise price of $2.00 per share to the placement agent (“Agent’s Warrants”). The Company has agreed to register the resale of Common Stock and Common Stock issuable upon exercise of the Warrants and Agent’s Warrants.

On November 22, 2006, the Company accepted subscription agreements from 26 accredited investors for the sale of 864,704 shares of Common Stock, and Warrants to purchase 216,176 shares of Common Stock. The Warrants have a three-year term and an exercise price of $2.00 per share. The Company received gross proceeds from the sale of Common Stock and Warrants of $1,175,997, less commissions in the aggregate amount of $82,320 to a placement agent assisting in the placement. Additionally, the Company issued a three-year Agent’s Warrant s to purchase 75,661 shares of Common Stock at an exercise price of $2.00 per share to the placement agent. The Company has agreed to register the resale of Common Stock and Common Stock issuable upon exercise of the Warrants and Agent’s Warrants.

On January 10, 2007, the Company accepted subscriptions agreements from 11 accredited investors for the sale of 194,400 shares of Common Stock and Warrants to purchase 48,600 shares of Common Stock. The warrants have a three-year term and an exercise price of $2.00 per share. The Company received gross proceeds from the sale of common stock and warrants of $264,384, less commissions in the aggregate amount of $18,507 paid to a placement agent assisting in the placement. Additionally, the Company issued a three-year warrant to purchase 17,010 shares of Common Stock at an exercise price of $2.00 per share to the placement agent. The Company has agreed to register the resale of the Common Stock and the Common Stock issuable upon exercise of the Warrants.

As noted above, the Company registered for resale Common Stock and Common Stock issuable upon exercise of the Warrants and Agent’s Warrants. The private placement offering required the Company to file a registration statement after the closing of the private placement offering within 45 days. The final closing of the private placement offering was January 10, 2007 and the registration statement was filed on February 22, 2007 and amended on March 21, 2007. The registration statement was declared effective by he Securities and Exchange Commission on March 23, 2007.

On June 22, 2006 and June 23, 2006, the Company accepted subscriptions from certain directors and executive officers of the Company relating to the issuance of an aggregate of 322,956 shares of common stock and warrants to acquire 16,401 shares of common stock for an aggregate purchase price of $439,220. The warrants have a three-year term and an exercise price of $2.00 per share and have piggy-back registration rights. The Company paid no underwriting discounts or commissions in connection with these sales. The price per share was the same as the offering price as in the equity offering that closed on October and November 2006. The common shares issued were restricted and unregistered shares. The price per common share was $1.36 per share and the market price was approximately $1.50 per share. The discount to market was due to the significant amount of shares issued and the fact the shares were restricted and unregistered. The discount was not in exchange for board services or any other services rendered or to be rendered.

On June 15, 2006, the Company issued 6,000 shares of common stock to each of its five Board Members for a total of 30,000 shares, as partial compensation for the next five board meetings through the Company’s 2007 Annual Meeting of Stockholders. The shares were valued at $1.51 per share (fair value at the date of issuance) and are expensed as services are provided.

Stock Options

In March 2004, Company shareholders at their annual meeting approved the 2004 Stock Option Plan (the “2004 Plan”), which provides for the granting of up to 600,000 options to officers, directors, employees and consultants for the purchase of stock. Under the 2004 Plan, stock options must be granted at an exercise price not less than the fair market value of the Company’s common stock on the grant date. Vesting requirements of all awards under this plan are time based and vary by individual grant. The options expire on the date determined by the Board of Directors but may not extend more than ten years from the grant date. Unexercised options are canceled 90 days after termination, and unvested awards are canceled on the date of termination of employment and become available under the Stock Option Plan for future grants.

The weighted average remaining contractual term of options exercisable at March 31, 2007, was 1.21 years.

The following table summarizes information about stock options outstanding at March 31, 2007:

The aggregate intrinsic value of options outstanding and exercisable is $0 and $0 at March 31, 2007 and 2006, respectively.

As of March 31, 2007, there was $0 of total unrecognized compensation costs related to the outstanding stock options.

H.

Commitments and Contingencies

Legal Proceedings

(a) In August 2003, the Company was served in two related actions, Kathleen F. Fischer and Susan Sedgwick in U.S. District Court for the Northern District of New York. These actions arise from the crash of a Cirrus Design Corp. SR22 airplane in April 2002 near Parish, New York. The Plaintiffs have brought claims for strict products liability, negligence and breach of warranty against Cirrus Design, the airplane’s manufacturer, the Company, which manufactures the CAPS (Cirrus Airframe Parachute System), a parachute system which is a required component of the plane, and Wings Aloft, Inc., which provided training on the SR22 to the decedents. In June and August 2006, the Company settled with such plaintiffs without any liability to the Company.

(b) On April 17, 2004, an action was commenced against the Company by Aerospace Marketing, Inc. and Charles Parsons v. Ballistic Recovery Systems, Inc., U.S. District Court, Middle District of Florida, File No. 04-CV-242. The action resulted from the Company’s notification to Charles F. Parson in April 2004 of its intent to terminate the sales and marketing contract between the Company and Mr. Parsons relating to the BRS-172 and BRS-150 products for lack of performance.

In 2005, a jury awarded damages to Parsons and Aerospace Marketing in the combined amount of approximately $3.4 million for breach of contract. BRS settled this matter directly with Parsons and Aerospace on September 19, 2005 by agreeing to pay $1.9 million pursuant to terms described in the settlement agreement. An initial payment of $700,000 plus interest was made on September 19, 2005. The remainder of the settlement amount was to be paid by BRS over a term of 8 years, although BRS had the right to pre-pay remaining amounts due at any time. On November 16, 2006, the Company prepaid $721,219 of such sum. The current balance is $315,000, which requires interest only payments through September 2010, and principal and interest payments from October 2010 through September 2013.

(c) In April 2005, an action was commenced against the Company by Sue Jean McGrath, individually and as successor in interest to Charles W. McGrath, deceased, Charles W. McGrath III, Tanya Sue McGrath, Janny Sue McGrath, individually v. Cirrus Design Corporation, Ballistic Recovery Systems, Inc., and Aerospace Systems and Technologies, Inc., U.S. District Court, Northern District of California, File No. C05-1542. The plaintiffs have alleged vicarious liability, strict product liability, negligence and breach of warranty against the defendants arising from the crash of a Cirrus Design Corp. SR22 airplane near Sugar Bowl, California. The case is currently in the early stages of discovery. At this time the Company cannot state with any degree of certainty what the outcome of the matter or the amount or range of potential damages will be.

(d) On September 16, 2005, an action was commenced against the Company by Robert Treat Rayner, in the Circuit Court of the 5th Judicial Circuit in and from Lake County Florida, File No. 04 CA 1749. The Complaint alleges that plaintiff was injured when his ultralight aircraft crashed while being towed by another ultralight. Plaintiff alleges that he deployed his BRS system, but that it failed to deploy properly. BRS is undertaking an investigation of the claim and has responded to the suit. At this time, the Company cannot state with any degree of certainty what the outcome of these matters 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.

I.

Dividend Payment

The Board of Directors examines the liquidity and capital requirements of the Company at each board meeting. If in the judgment of the Board of Directors, they may declare a special dividend. No dividend was declared or paid in the three and six months ended March 31, 2007.

J.

Warrants

Stock warrant activity is as follows for the six months ended March 31:

Warrants outstanding and exercisable as of March 31, 2007, are as follows:

Stock warrants issued during the six months ended March 31, 2007 were awarded for:

		2007
Common stock		$	686,758

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Results of Operations:

Sales

Total sales decreased $133,762, or 5.8%, from $2,316,634 for the three months ended March 31, 2006 to $2,182,872 for the three months ended March 31, 2007, due to a weakening of LSA sales. On a year to date basis, sales increased $70,627, or 1.7%, from $4,223,508 for the six months ended March 31, 2006 to $4,294,135 for the six months ended March 31, 2007. Sales from the Company’s general aviation products, which consist primarily of sales to Cirrus, increased $2,943, or 0.2% for the second quarter and increased $257,647, or 8.2% year to date. Sales from the Company’s general aviation products accounted for 76.5% and 79.3% of total revenue for the three and six months ended March 31, 2007, respectively, compared to 72.0% and 74.6% for the three and six months ended March 31, 2006, respectively. Sales from the Company’s recreational and LSA products decreased $142,097, or 21.9% for the second quarter and decreased $192,412, or 17.9% year to date.

Sales of the Company’s general aviation products consist largely of sales to Cirrus where the Company’s products are standard equipment on the Cirrus SRV, SR20 and SR22 model aircraft. The Company delivered 324 and 332 units to Cirrus in first two quarters of fiscal years 2007 and 2006, respectively. The Company believes that Cirrus has a backlog of aircraft orders, all of which are required to include the Company’s parachute systems. The Company understands that Cirrus expects to be able to fill the backlog of firm aircraft orders during the next 12 months. The Company also understands that Cirrus is expected to maintain fiscal year 2006 manufacturing volumes for its aircraft throughout fiscal year 2007. As a result, the Company is forecasting flat growth in 2007 in its general aviation revenues. No assurance can be given that general aviation revenues will remain as anticipated. Until the Company becomes diversed in general aviation, future production volumes for the Company’s parachute systems, will be dictated by ultimate market demands for Cirrus’ products. Accordingly, the Company is, and will likely be, dependent on Cirrus for a material portion of its revenues for fiscal year 2007. Any negative impact on Cirrus’ sales would have a significant negative impact on the Company’s revenues.

The Company’s recreational and LSA aircraft product line sales decreased by 17.9% during the first two quarters of fiscal year 2007 compared to the first two quarters of the prior fiscal year. LSA and recreational sales accounted for 20.5% of the Company’s revenues for first two quarters of fiscal year 2007 versus 25.4% of the Company’s revenues for the first two quarters of the prior fiscal year. The LSA and recreational aircraft products business relies on customer acceptance of the Company’s parachute concept and the existence of installation designs for light sport and recreational aircraft.

The Company anticipates being able to expand its general aviation and recreational product lines to include other certified and non-certified aircraft as the Company’s recovery systems gain further market acceptance. The Company is in ongoing discussions with domestic and foreign general aviation and recreational aircraft companies that have expressed interest in utilizing certain of the Company’s products. These companies produce both certified and non-certified aircraft. No assurance can be made as to the future benefits, if any, that the Company will derive from these discussions. The Company did recently announce a relationship with Diamond Aircraft, a manufacturer of a full line of general aviation aircraft, to develop a parachute system for the 5 seat DA50 Super Star as well as the previously announced Diamond DJet.

The Company has 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. The Company anticipates that it will be the exclusive provider of repacking services on Cirrus aircraft.

Gross Operating Margin

Gross operating margin as a percentage of revenues was 18.8% for the second quarter of fiscal year 2007 compared to 37.0% for the comparative quarter of fiscal year 2006. On a year to date basis, the gross operating margin was 35.8% and 38.2 for fiscal years 2007 and 2006, respectively. The factors contributing to the gross margin reduction was the costing of inventory and related monitoring of inventory control related to the operations in Mexico. Other factors that contributed to the decline in the gross margin were increased freight costs with the addition of the Mexican facilty, increases in U.S. labor costs and various material costs, and an increase in the inventory reserve of $15,000. In addition, a price reduction was given to Cirrus associated with increased purchase quantities. The Company expects to provide additional pricing reductions to its larger customers in the future and as a result, the gross margins could be impacted. The Company’s objective is to maintain or improve overall gross margins in the future.

Selling, General and Administrative

Selling, general and administrative costs as a percentage of sales were 28.3% ($617,921) for the second quarter of fiscal year 2007 as compared to 29.9% ($692,820) for the second quarter of fiscal year 2006. On a year to date basis, these costs were 28.8% ($1,236,141) and 31.6% ($1,333,472) for fiscal years 2007 and 2006, respectively. This net decrease for the first two quarters of $97,331 in selling, general and administrative costs consisted of a decrease in general and administrative start-up costs for our Mexico production facility of $266,251, off-set by an increase in insurance costs associated with the indemnification agreement with Cirrus totaling $169,601. Prior to February 3, 2006, there were no product liability costs as the Company did not maintain product liability insurance on any of its products. The prior year costs associated with the Mexico operation included relocating operations to a new building, setting up and production of test products and the testing of those products.

Research and Development, net

Research and development costs were 8.7% ($190,452) and 6.0% ($139,530) of sales for the second quarter of fiscal years 2007 and 2006, respectively. On a year to date basis, these costs were 5.4% ($232,016) and 5.7% ($247,644) for fiscal years 2007 and 2006, respectively. This decrease is due primarily to efficiencies implemented in developmental tests to reduce costs. Increases in research and development expenditures are planned for the future in the areas of new product development and in the expansion of currently developed products for additional applications.

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

Acquisitions

As part of the overall growth strategy of the Company, it is management’s intent to seek out, evaluate and execute strategic acquisitions to grow the product base and integrate operations with the primary focus on cost savings and product diversification. Management cannot state at this point with any degree of certainty what the results of any pending acquisitions may be or the financial impact on Company operations.

Intangible Amortization

The Company records amortization expense related to the covenant not to compete agreements entered into with SCI and Mr. Thomas over the remaining life of the agreements. Intangible amortization expense decreased by $28,197 for the second quarter of fiscal year 2007 and decreased $46,994 year to date over the same periods in the prior year due to the completion of the amortization on the covenant not to compete agreement entered into with Mr. Thomas. This covenant not to compete became fully amortized in October 2006.

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

Income (loss) before income taxes as a percentage of revenues was(18.9)% and (1.9%) for the second quarter of fiscal year 2007 and 2006, respectively.

On a diluted share basis, the net loss of $(359,604) for the second quarter of fiscal year 2007 or ($0.04) per share, as compared to net loss of ($27,612), which was ($0.00) per share for the prior fiscal year quarter.

Liquidity and Capital Resources:

As of March 31, 2007, the Company had cash and cash equivalents of $667,444.

On October 25, 2006, the Company, as part of its private placement offering of $3 million of equity securities, accepted subscription agreements from 23 accredited investors for the sale of 975,736 shares of the Company’s Common Stock, par value $.01 per share ( “Common Stock”), and warrants (the “Warrants”) to purchase 243,934 shares of Common Stock. The Warrants have a three-year term and an exercise price of $2.00 per share. The Company received gross proceeds from the sale of Common Stock and Warrants of $1,327,001, less commissions in the aggregate amount of $92,890 and less a retainer and expenses of in the aggregate amount of $20,000 paid to a placement agent assisting in the placement. Additionally, the Company issued a three-year warrant to purchase 85,377 shares of Common Stock at an exercise price of $2.00 per share to the placement agent (“Agent’s Warrants”). The Company has agreed to register the resale of Common Stock and Common Stock issuable upon exercise of the Warrants and Agent’s Warrants.

On November 22, 2006, the Company accepted subscription agreements from 26 accredited investors for the sale of 864,704 shares of Common Stock, and Warrants to purchase 216,176 shares of Common Stock. The Warrants have a three-year term and an exercise price of $2.00 per share. The Company received gross proceeds from the sale of Common Stock and Warrants of $1,175,997, less commissions in the aggregate amount of $82,320 to a placement agent assisting in the placement. Additionally, the Company issued a three-year Agent’s Warrant s to purchase 75,661 shares of Common Stock at an exercise price of $2.00 per share to the placement agent. The Company has agreed to register the resale of Common Stock and Common Stock issuable upon exercise of the Warrants and Agent’s Warrants.

On January 10, 2007, the Company accepted subscriptions agreements from 11 accredited investors for the sale of 194,400 shares of Common Stock and Warrants to purchase 48,600 shares of Common Stock. The warrants have a three-year term and an exercise price of $2.00 per share. The Company received gross proceeds from the sale of common stock and warrants of $264,384, less commissions in the aggregate amount of $18,507 paid to a placement agent assisting in the placement. Additionally, the Company issued a three-year warrant to purchase 17,010 shares of Common Stock at an exercise price of $2.00 per share to the placement agent. The Company has agreed to register the resale of the Common Stock and the Common Stock issuable upon exercise of the Warrants.

On November 15, 2006, the Company paid the unpaid principal and interest outstanding of $721,143 on the first note payable to Parsons and Aerospace Marketing and paid $5,000 towards unpaid principal on the second note payable to Parsons and Aerospace Marketing, leaving a principal balance payable of $315,000.

The Company anticipates a need to make continuing capital improvements of approximately $138,000 during the fiscal year ending September 30, 2007 to its current production facilities in both the US and Mexico and continued equipment and tooling upgrades. The Company believes that existing cash and cash equivalents and cash generated from operations will provide sufficient cash flow to meet working capital, capital expenditure and operating requirements during the next 12 months.

The Company does not presently have product liability insurance on any products other than the Cirrus products and must fund the expenses of its pending lawsuits. Furthermore, a significant judgment against the Company in its existing litigation could have a material impact on the Company. The Company has incurred approximately $103,537 in legal fees for the first six months of fiscal year 2007 and $258,000 in legal fees for fiscal year 2006 attributable to all legal support matters and the defense of its pending lawsuits.

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

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this Form 10-QSB and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contain statements that are forward-looking, such as statements relating to anticipated Cirrus Design delivery orders and schedules, the repack business, plans for research projects, development, anticipated delivery orders and schedules for the Cessna 182 system, the Cessna 172 system, success of contracts for NASA SBIR research projects, the timing and impact of regulations on Light Sport Aircraft sales, other business development activities as well as other capital spending, financial sources, and the effects of competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, dependence on Cirrus, potential product liability claims and payment if such claims are successful, federal transportation rules and regulation which may negatively impact the Company’s ability to ship its products in a cost efficient manner, the elimination of funding for new research and development projects, the decline in registered and unregistered aircraft sales, dependence on discretionary consumer spending, dependence on existing management, general economic conditions, and changes in federal or state laws or regulations.

Off-Balance Sheet Arrangements

During the first two quarters ended March 31, 2007, the Company did not engage in any off-balance sheet arrangements as defined in Item 303(c) of Regulation S-B.

Critical Accounting Policies and Estimates

Our discussion and analysis or results of operation is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reporting period, and related disclosures of contingent assets and liabilities for the periods indicated. The notes to the financial statements contained herein describe our significant accounting policies used in the preparation of the financial statements. On an on-going basis, we evaluate our estimates, including, but not limited to, those related to our allowance for doubtful accounts, inventory valuations, the lives and continued usefulness of furniture, fixtures and leasehold improvements, deferred tax assets and contingencies. Due to uncertainties, however, it is at least reasonably possible that management’s estimates will change during the next year, which cannot be estimated. Realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Actual future operating results, as well as changes in future performance, could have a material adverse impact on the valuation reserves. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions.

Recently Issued Accounting Pronouncements

In June 2006, the FASB has published FASB Interpretation (FIN) No. 48 (FIN No. 48), Accounting for Uncertainty in Income Taxes, to address the noncomparability in reporting tax assets and liabilities resulting from a lack of specific guidance in FASB SFAS No. 109, Accounting for Income Taxes, on the uncertainty in income taxes recognized in an enterprise’s financial statements. Specifically, FIN No. 48 prescribes (a) a consistent recognition threshold and (b) a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides related guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN No. 48 are effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact the adoptions of FIN No. 48 will have on its consolidated financial statements.

In September 2006, the FASB has published FASB SFAS No. 157, Fair Value Measurements, to eliminate the diversity in practice that exists due to the different definitions of fair value and the limited guidance for applying those definitions in GAAP that are dispersed among the many accounting pronouncements that require fair value measurements. SFAS No. 157 retains the exchange price notion in earlier definitions of fair value, but clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or liability in the principal or most advantageous market for the asset or liability. Moreover, the SFAS states that the transaction is hypothetical at the measurement date, considered from the perspective of the market participant who holds the asset or liability. Consequently, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price), as opposed to the price that would be paid to acquire the asset or received to assume the liability at the measurement date (an entry price). SFAS No. 157 also stipulates that, as a market-based measurement, fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability, and establishes a fair value hierarchy that distinguishes between (a) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (b) the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). Finally, SFAS No. 157 expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Entities are encouraged to combine the fair value information disclosed under SFAS No. 157 with the fair value information disclosed under other accounting pronouncements, including SFAS No. 107, Disclosures about Fair Value of Financial Instruments, where practicable. The guidance in this Statement applies for derivatives and other financial instruments measured at fair value under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, at initial recognition and in all subsequent periods. The provisions of SFAS No. 157 are effective for fiscals years beginning after November 15, 2007. The Company believes the impact of SFAS No. 157 will not have a material effect of its consolidated financial statements.

In September 2006, the FASB has published FASB SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, to require an employer to fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare, and other postretirement plans in their financial statements. Previous standards required an employer to disclose the complete funded status of its plan only in the notes to the financial statements. Moreover, because those standards allowed an employer to delay recognition of certain changes in plan assets and obligations that affected the costs of providing benefits, employers reported an asset or liability that almost always differed from the plan’s funded status. Under SFAS No. 158, a defined benefit postretirement plan sponsor that is a public or private company or a nongovernmental not-for-profit organization must (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for the plan’s underfunded status, (b) measure the plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions), and (c) recognize, as a component of other comprehensive income, the changes in the funded status of the plan that arise during the year but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, Employers’ Accounting for Pensions, or SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. SFAS No. 158 also requires an employer to disclose in the notes to financial statements additional information on how delayed recognition of certain changes in the funded status of a defined benefit postretirement plan affects net periodic benefit cost for the next fiscal year. The Company believes the impact of SFAS No. 158 will not have a material effect on its consolidated financial statements.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 108, “Considering the Effects on Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”). SAB 108 requires registrants to quantify errors using both the income statement method (i.e. iron curtain method) and the rollover method and requires adjustment if either method indicates a material error. If a correction in the current year relating to prior year errors is material to the current year, then the prior year financial information needs to be corrected. A correction to the prior year results that are not material to those years, would not require a “restatement process” where prior financials would be amended. SAB 108 is effective for fiscal years ending after November 15, 2006. The Company does not anticipate that SAB 108 will have a material effect on its consolidated financial statements.

In February 2007, the FASB issued FASB SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, to expand the use of fair value measurement by permitting entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 is effective beginning the first fiscal year that begins after November 15, 2007. The Company is currently evaluating the impact of adopting SFAS 159 on its consolidated financial statements.

Part II. OTHER INFORMATION

Rayner

On September 16, 2005, an action was commenced against the Company by Robert Treat Rayner, in the Circuit Court of the 5th Judicial Circuit in and from Lake County Florida, File No. 04 CA 1749. The Complaint alleges that plaintiff was injured when his ultralight aircraft crashed while being towed by another ultralight. Plaintiff alleges that he deployed his BRS system, but that it failed to deploy properly. BRS is undertaking an investigation of the claim and has responded to the suit. At this time, the Company cannot state with any degree of certainty what the outcome of these matters 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.

Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 7, 2008		/s/ Larry E. Williams
		By Larry E. Williams
		Principal Executive Officer
		/s/ Carl D. Langr
		By Carl D. Langr
		Principal Accounting Officer

Grafico Azioni Ballistic Recovery Systems (CE) (USOTC:BRSI)
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Grafico Azioni Ballistic Recovery Systems (CE) (USOTC:BRSI)
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