Grosses Up, Profits Down
Ballistic Recovery
Systems has announced its earnings results for Fiscal Year 2007
which ended September 30th, 2007. On March 7, BRS filed its Form
10-KSB for FY07 and its restated Form 10-QSBs for the quarters
ended March 30, 2007 and June 30, 2007.
BRS announced a total of $9,402,351 in sales for the fiscal year
ended September 30, 2007. This total represents an increase of 2.3%
over the $9,191,729 in sales reported for the fiscal year ended
September 30, 2006. The Company reported net loss of ($1,681,177)
for the year ended September 30, 2007 compared to a net income of
$27,377 for the year ended September 30, 2006.
BRS also restated its previously filed 10-QSB for the 2nd and
3rd quarters of FY2007. As a result of errors in financial
statements relating to the valuation of inventories and accounting
methods utilized for its Mexican subsidiary, the Company restated
the financial statements to correct accounting methods and related
issues. The Company historically fully absorbed the operational
costs for its Mexico manufacturing facility into inventory as cost
of goods sold. Upon review, and in connection with the
Company’s Form 10-KSB for the fiscal year ended September 30,
2007, it was determined that these costs were not directly
accounted to the production and processing of goods sold, and
therefore were not included as cost of goods sold.
Commenting on the results, Larry E. Williams, Chief Executive
Officer said, "While we are disappointed with the overall loss for
FY 2007, we clearly understand the need for BRS to invest now for
future years. The vast majority of the loss is directly
attributable to our increased investment in product diversification
and expanding operations to address current and potential business
gains.”
Gross margin as a percentage of revenues was 16.0% for FY2007
compared to 36.2% for FY2006. The largest factors contributing to
the reduction in gross margin were: (1) a product price reduction
to Cirrus associated with increased purchase quantities; (2)
investment in new product lines such as Head Lites to meet our
diversification strategy; and (3) delays and limitations of the
accounting system associated with the internal accounting of the
Mexico operations and related allocation of production overhead.
Mr. Williams further commented, “Diversification is a key
part of our out-year growth strategy which means we must invest
today in new products and processes. To achieve this goal, we hired
production staff which ultimately had an impact to the cost of
goods sold due to production facility inefficiencies, particularly
the down time associated with training and prototyping which
created excess non-productive labor. We also saw a sharp rise in
production overhead due to the delays in the closing of the ATF
acquisition.”
A number of factors
contributed to BRS’s late filing of its Form 10-KSB and
restatement of its two previous Form 10-QSBs with the primary
factors being related to the costing of inventory and the
associated monitoring of inventory controls connected with
operations in Mexico. As a result, the Company performed additional
analyses and other procedures with both internal and external
resources
During the year, BRS expanded parachute production in Mexico to
include manufacturing for CIMSA, a Barcelona-based parachute
manufacturer which has also invested in BRS. BRS General Manager
David Blanchard commented, “We now have three primary
production lines in Mexico: BRS parachutes and components, CIMSA
parachutes, and our newly acquired Advanced Tactical Fabrication
line. We have expensed all costs in our Mexican production facility
that would include inefficiencies and additional costs inherent in
changing a production site.”
Blanchard continued, “We have reduced our personnel in
Mexico since we are continually evaluating the required workforce
levels as they relate to revenue generation. We specifically
eliminated a higher portion of non-production employees in order to
reduce overhead. We are closely monitoring all costs to operate the
Mexico facility using timely and accurate variance analysis. We are
also reviewing all product offerings with the goal of standardizing
our products as much as possible. This will allow us to re-examine
our pricing and margins for all BRS, ATF and Mexico products. We
will continue our strong focus on identifying cost savings and
reductions on an ongoing basis.”
Chief Financial Officer Carl Langr said, “We believe this
investment enhances our ability to achieve consistent growth in
revenue and a return to profitability. We are building on the
market acceptance of whole airplane emergency recovery parachutes
as we grow. With the addition of ATF, we expect to see significant
growth in sales as we build market demand. Labor and operating
expenses are the focus moving forward to assure profitability."
Highlighted Results of Operations for the Fiscal Year 2007:
- G&A expenses remained stable at 27.9% of sales in FY07
- R&D investment increased to 5.9% of sales in FY07
Williams added, “The Company has realized for some time
that growing the basic infrastructure in Mexico would take
significant capital investment at the outset with little payback in
the short term. In fact, Fiscal Year 2007 saw what we believe are
unprecedented opportunities for the Mexico operation which had only
minimal impact to fiscal 2007 revenues. In order to take advantage
of new customers and processes, BRS invested heavily in both
capital equipment and personnel to meet these opportunities. The
payback for these investments is only now becoming apparent through
increased orders and improving efficiencies.”
In particular, the Company has set its goals going forward on
several new programs which were only just beginning to form as FY08
began. VP of Sales & Marketing, Gary Moore, commented,
“These programs, over the next few months to a year and a
half, will continue to grow and develop into substantial new
product lines. In addition, the recent establishment of our newest
facility in Pinebluff, North Carolina will provide a great
opportunity for BRS Fabrication to gain Department of
Defense-related market share.”