Ballistic Recovery Systems Inc - Amended Quarterly Report of Financial Condition (10QSB/A)

Share Name	Share Symbol	Market	Type
Ballistic Recovery Systems Inc (CE)	USOTC:BRSI	OTCMarkets	Common Stock

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A


þ		Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 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)

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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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

Transitional Small Business Disclosure Format (check one) Yes o No þ

EXPLANATORY NOTE

This Amendment No. 1 to Form 10-QSB for the three months ended June 30, 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 amends the Form 10-QSB for the related period originally filed by the Company with the Securities and Exchange Commission on August 10, 2007. These Restatements had a negative impact on our financial position, financial results, and operations.

With the Restatement, inventory decreased by $397,026, 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. The adjustment of $397,026 is further added to an adjustment of $416,408 for the second quarter of fiscal year 2007 for a total adjustment of $813,434.

Further, with the Restatement to decrease inventory, the deferred tax benefit increased by $69,138. 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 on the balance sheet increased. On the income statement, the increase in deferred tax benefit decreased the net operating loss by $69,138. The adjustment of $69,138 is further added to a $47,845 adjustment relating to the second quarter of fiscal year 2007 for a total adjustment of $116,983.

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 August 10, 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 to be 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 June 30, 2007 (unaudited) and September 30, 2006 (audited)		F-1

	Consolidated Statements of Operations for the three and nine months ended June 30, 2007 and 2006 (unaudited)		F-3

	Consolidated Statements of Cash Flow for the nine months ended June 30, 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 6	Exhibits		8

	Signatures		9

Part I Financial Information — Item 1. Consolidated Financial Statements

BALLISTIC RECOVERY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS


	June 30, 2007			September 30,
	(Unaudited)			2006
	Restated			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	1,657,802		$	53,722
Accounts receivable — net of allowance for doubtful accounts of $22,924 and $22,924, respectively		1,161,445			541,642
Inventories		1,824,727			2,458,003
Deferred tax asset — current portion		160,700			160,700
Prepaid expenses		380,187			144,509

Total current assets		5,998,295			3,358,576


Furniture, fixtures and leasehold improvements		1,250,456			1,092,085
Less: accumulated depreciation and amortization		(619,905	)		(506,831	)

Furniture, fixtures and leasehold improvements — net		630,551			585,254


Other assets:
Patents, net of accumulated amortization of $11,717 and $11,425, respectively		697			989
Goodwill		103,774			103,774
Deferred tax asset — net of current portion		1,292,899			1,221,516
Long-term prepaid expenses		33,842			109,925
Covenant not to compete, net of accumulated amortization of $585,828 and $569,789, respectively		19,183			35,222

Total other assets		1,450,395			1,471,426


Total assets	$	7,265,807		$	5,415,256

See notes to consolidated financial statements.

F-1

BALLISTIC RECOVERY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS


	June 30, 2007			September 30,
	(Unaudited)			2006
	Restated			(Audited)
Liabilities And Shareholders’ Equity
Current liabilities:
Line of credit — bank	$	—		$	302,265
Current portion of covenant not to compete, shareholders		—			7,069
Accounts payable		456,678			692,550
Customer deposits		158,559			42,916
Accrued payroll		73,039			73,613
Other accrued liabilities		200,460			244,930

Total current liabilities		888,736			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		888,736			2,412,434


Shareholders’ equity:
Common stock ($.01 par value; 50,000,000 shares authorized; 11,304,767 and 8,089,619 shares, respectively, issued and outstanding)		113,048			80,896
Additional paid-in capital		10,264,980			6,306,007
Accumulated deficit		(4,000,957	)		(3,384,081	)

Total shareholders’ equity		6,377,071			3,002,822


Total liabilities and shareholders’ equity	$	7,265,807		$	5,415,256

See notes to consolidated financial statements.

F-2

BALLISTIC RECOVERY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months ended June 30, 2007 and 2006
(UNAUDITED)


	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
	Restated						Restated
Sales	$	2,606,081		$	2,468,209		$	6,900,215		$	6,691,717
Cost of sales		2,024,638			1,642,989			5,186,625			4,253,492


Gross profit		581,443			825,220			1,713,590			2,438,225

Selling, general and administrative		729,840			578,574			1,965,981			1,912,046
Research and development		170,455			118,916			402,470			366,560
Intangible amortization		2,213			30,410			16,039			91,230


Income (loss) from operations		(321,065	)		97,320			(670,900	)		68,389

Other income (expense):
Interest expense		(5,847	)		(33,823	)		(35,440	)		(101,823	)
Other income		11,710			107			18,081			209


Income (loss) before income taxes		(315,202	)		63,604			(688,259	)		(33,225	)

Income tax expense (benefit)		(39,338	)		23,482			(71,383	)		(12,000	)


Net income (loss)	$	(275,864	)	$	40,122		$	(616,876	)	$	(21,225	)


Basic earnings (loss) per share	$	(0.03	)	$	0.01		$	(0.06	)	$	(0.00	)


Weighted average number of shares outstanding — basic		10,247,262			7,744,400			9,848,535			7,717,117


Diluted earnings (loss) per share	$	(0.03	)	$	0.01		$	(0.06	)	$	(0.00	)


Weighted average number of shares outstanding — diluted		10,265,987			7,770,077			9,864,141			7,717,117


Dividends per share	$	0.00		$	0.00		$	0.00		$	0.00

See notes to consolidated financial statements.

F-3

BALLISTIC RECOVERY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Nine Months Ended June 30, 2007 and 2006
(UNAUDITED)


	Nine Months Ended June 30
	2007			2006
	Restated
Cash flows from operating activity:
Net income (loss)	$	(616,876	)	$	(21,225	)
Adjustments to reconcile net income (loss) to net cash from operating activity:
Deferred income tax		(71,383	)		44,884
Depreciation and amortization		113,366			110,628
Amortization of covenant not to compete		16,039			91,230
Common stock issued for services		13,875			9,060
(Increase) decrease in:
Accounts receivable		(619,803	)		(108,691	)
Inventories		633,276			(641,123	)
Prepaid income taxes		—			230,544
Prepaid expenses		(194,053	)		(93,592	)
Long-term prepaid expenses		76,083			18,639
Increase (decrease) in:
Accounts payable		(235,872	)		137,691
Customer deposits		115,643			(39,531	)
Accrued expenses		10,256			(9,280	)


Net cash from operating activities		(759,449	)		(270,766	)


Cash flows from investing activities:
Capital expenditures		(158,371	)		(105,146	)
Payment for patent		—			(750	)


Net cash from investing activities		(158,371	)		(105,896	)


Cash flows from financing activities:
Net proceeds from issuance of common stock and common stock warrants		3,865,835			414,220
Net proceeds from borrowings under line of credit — bank		(302,265	)		98,370
Principal payments on long-term debt		(1,049,091	)		(112,816	)
Proceeds from exercise of common stock options		14,490			42,939
Principal payments on covenant not to compete		(7,069	)		(62,518	)


Net cash from financing activities		2,521,900			380,195


Increase (decrease) in cash and cash equivalents		1,604,080			3,533
Cash and cash equivalents — beginning of period		53,722			103,102


Cash and cash equivalents — end of period	$	1,657,802		$	106,635


Cash paid for (received from) taxes	$	—		$	(258,268	)
Cash paid for interest	$	40,938		$	97,522
Summary of non-cash activity:
Issuance of common stock for board of director fees for future periods included in prepaid expenses	$	41,625		$	36,240
Conversion of bonus accured into common stock	$	55,300		$	—
Issuance of common stock in exchange for stock subscription receivable — related party	$	—		$	25,000

See notes to consolidated financial statements.

F-4

BALLISTIC RECOVERY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 nine months ended June 30, 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 third quarter of fiscal year 2007 and 2006. Generally, these balances may be redeemed upon demand and therefore bear minimal risk.

F-5

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 nine months ended June 30, 2007 and 2006. Accounts receivable are shown net of an allowance for doubtful accounts of $22,924 both at June 30, 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 71.2% and 75.1% of the Company’s total sales for the three- and nine months ended June 30, 2007, as compared to 66.8% and 70.0% for the same prior year periods. This customer also accounted for 64% (or $748,176) and 63% (or $339,000) of accounts receivable at June 30, 2007 and September 30, 2006, respectively. The Company supplies parachute systems to Cirrus from the Company’s general aviation product line. The Company’s dependence on Cirrus typically is highest during the first two quarters of the fiscal year due to the seasonality of the Company’s 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 nine months ended June 30, 2007 or 2006.

F-6

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 June 30, 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 2.17 years at June 30, 2007.

F-7

Components of intangible assets are as follows:


	June 30, 2007				September 30, 2006
	Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Intangible assets subject to amortization:
Patents	$	12,414	$	11,717	$	12,414	$	11,425
Covenants not to compete	$	605,011	$	585,828	$	605,011	$	569,789

Amortization expense of intangible assets was $2,213 and $16,039 for the three- and nine months ended June 30, 2007, compared to $30,410 and $91,230 for the three- and nine months ended June 30, 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 nine months ended June 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, 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.

F-8

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 nine months ended June 30, 2007 as all options outstanding at September 30, 2006 were fully vested and no options were issued during the three and nine months ended June 30, 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 nine months ended June 30, 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.

F-9


	Three		Nine
	Months		Months
	Ended		Ended
	June 30,		June 30,
	2006		2006

Net income (loss):

As reported	$	40,122	$	(21,225	)
Pro forma		40,122		(21,225	)

Basic net income (loss) per common share:

As reported	$	0.01	$	(0.00	)
Pro forma	$	0.01	$	(0.00	)

Diluted net income (loss) per common share:

As reported	$	0.01	$	(0.00	)
Pro forma	$	0.01	$	(0.00	)

Stock based compensation:

As reported	$	0	$	0
Pro forma	$	0	$	0

No employee options were granted or vested during the nine months ended June 30, 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 45,000 shares of dilutive securities for the nine months ended June 30, 2007.

Following is a reconciliation of basic and diluted earnings per common share for the three- and nine months ended June 30, 2007 and 2006, respectively:


	Three Months Ended					Nine Months Ended
	June 30,					June 30,
	2007			2006		2007			2006
Earnings (loss) per common share — basic:	Restated					Restated

Net income (loss)	$	(275,864	)	$	40,122	$	(616,876	)	$	(21,225	)

Weighted average shares outstanding		10,247,262			7,744,400		9,848,535			7,717,117

Net income (loss) per common share — basic	$	(0.03	)	$	0.01	$	(0.06	)	$	(0.00	)

Earnings (loss) per common share — diluted:

Net income (loss)	$	(275,864	)	$	40,122	$	(616,876	)	$	(21,225	)

Weighted average shares outstanding		10,247,262			7,744,400		9,848,535			7,717,117

Common stock equivalents		0			25,677		0			0

Weighted average shares and potential diluted shares outstanding		10,747,262			7,770,077		9,848,535			7,717,117

Net income (loss) per common share — diluted	$	(0.03	)	$	0.01	$	(0.06	)	$	(0.00	)

F-10

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 (45,000 shares) were excluded in the computation of common share equivalents for the three and nine months ended June 30, 2007 since there was a loss for the period.

All outstanding options (90,000 shares) were included in the computation of common share equivalents for the three months ended June 30, 2006 because their respective exercise prices were less than the average market price of the common stock. The 16,401 warrants were excluded from the three month computation. All outstanding options (90,000 shares) and warrants (16,401 shares) were excluded in the computation of common share equivalents for the nine months ended June 30, 2006 since there was a loss for the period.

Restatement

The following table reconciles the previously reported amounts as of and for the three months ended June 30, 2007 and for the nine months ended June 30, 2007. The impact of the adjustments was to reduce Inventory by $397,026 for the quarter ended June 30, 2007 in addition to a $416,408 adjustment at March 31, 2007, resulting in a total adjustment of $813,434 for the two quarters combined. The adjustment to the deferred tax benefit resulting from these adjustments was $47,845 for the quarter ended March 31, 2007 and $69,138 for the quarter ended June 30, 2007 resulting in a $116,983 benefit for the two quarters combined. In addition, the basic earnings per common share decreased by $(.03) for the three months ended June 30, 2007 and by a total of $(.06) for the six months ended June 30, 2007.

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


				Total			Deferred		Total
	Inventory			Cur. Assets			Tax Asset		Other Assets
Previously Reported Amounts	$	2,638,161		$	6,811,729		$	1,175,916	$	1,333,412
Impact of Adjustments		(813,434	)		(813,434	)		116,983		116,983
Restated Amounts	$	1,824,727		$	5,998,295		$	1,292,899	$	1,450,395


	Total			Accumulated			Total			Total Liab.
	Assets			Deficit			Equity			And Equity
Previously Reported Amounts	$	7,962,258		$	(3,304,506	)	$	7,073,522		$	7,962,258
Impact of Adjustments		(696,451	)		(696,451	)		(696,451	)		(696,451	)
Restated Amounts	$	7,265,807		$	(4,000,957	)	$	6,377,071		$	7,265,807

F-11

The follow table reconciles previously reported items on the Statement of Operations for the three months ended June 30, 2007 and for the nine months ended June 30, 2007:


Three Months	Cost of		Gross			Loss From			Loss Before
Ended June 30, 2007	Sales		Profit			Operations			Taxes
Previously Reported Amounts	$	1,627,612	$	978,469		$	75,961		$	81,824
Impact of Adjustments		397,026		(397,026	)		(397,026	)		(397,026	)
Restated Amounts	$	2,024,638	$	581,443		$	(321,065	)	$	(315,202	)


Three Months	Income Tax			Net			Loss
Ended June 30, 2007	Benefit			Loss			Per Share
Previously Reported Amounts	$	29,800		$	52,024		$	0.00
Impact of Adjustments	$	(69,138	)		(327,888	)		(0.03	)
Restated Amounts	$	(39,338	)	$	(275,864	)	$	(0.03	)


Nine Months	Cost of		Gross			Loss From			Loss Before
Ended June 30, 2007	Sales		Profit			Operations			Taxes
Previously Reported Amounts	$	4,373,191	$	2,527,024		$	142,534		$	125,175
Impact of Adjustments		813,434		(813,434	)		(813,434	)		(813,434	)
Restated Amounts	$	5,186,625	$	1,713,590		$	(670,900	)	$	(688,259	)


Three Months	Income Tax		Net			Loss
Ended June 30, 2007	Benefit		Loss			Per Share
Previously Reported Amounts	$	45,600	$	79,575		$	0.00
Impact of Adjustments		116,983		(696,451	)		(0.06	)
Restated Amounts		71,383	$	(616,876	)	$	(0.06	)

The following table reconciles previously reported items on the Statement of Cash Flows for the nine months ended June 30, 2007:


	Net Income			Deferred
	(Loss)			Taxes			Inventory
Previously Reported Amounts	$	79,575		$	45,600		$	(180,158	)
Impact of Adjustments		(696,451	)		(116,983	)		(813,434	)
Restated Amounts	$	(616,876	)	$	(71,383	)	$	633,276

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 adoption of FIN No. 48 will have (based on continuing guidance published by the FASB) 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. 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 on its consolidated financial statements.

F-12

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. 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 is effective for fiscal periods 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 $8,896 and $14,210 for the three- and nine months ended June 30, 2007 and $5,326 and $10,343 for the three- and nine months ended June 30, 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.

F-13

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 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.

		The present value of the Company’s obligation under the non-compete 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

		Inventories

		The components of inventory consist of the following at June 30, 2007 and September 30, 2006:


	06/30/2007		09/30/2006
Raw materials	$	1,245,787	$	2,100,501
Work in process		518,711		340,434
Finished goods		60,229		17,068

Total inventories	$	1,824,727	$	2,458,003

Furniture, Fixtures and Leasehold Improvements

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


	06/30/2007		09/30/2006
Office furniture and equipment	$	398,627	$	345,535
Manufacturing equipment		568,646		463,367
Airplane		283,183		283,183

Total furniture, fixtures and leasehold improvements	$	1,250,456	$	1,092,085

F-14

Depreciation Expense

Depreciation expense totaled $39,365 and $113,074 for the three- and nine months ended June 30, 2007, and $37,284 and $110,115 for the three- and nine months ended June 30, 2006, respectively.

Other Accrued Liabilities

Other accrued liabilities consisted of the following categories at June 30, 2007 and September 30, 2006:


	06/30/2007		09/30/2006
Bonus and profit sharing plan accrual	$	131,114	$	215,971
Other miscellaneous accruals		69,346		28,959

Total other accrued liabilities	$	200,460	$	244,930

		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 an aggregate of $27,333 for the first three quarters of fiscal year 2007 and $25,573 for the year ended September 30, 2006.

		Pursuant to the Securities Purchase Agreement dated June 22, 2007 with CIMSA Ingenieria de Sistema, S.A., a Spanish company (“CIMSA”), the Company agreed to enter into a one-year consulting agreement with Fernando Caralt, a director of the Company, whereby Mr. Caralt would provide certain consulting services to the Company for $50,000. As of the date of this report, the Company and Mr. Caralt have not entered into that agreement.

		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 Tijuana, Mexico. Information about the Company’s operations by geographical location are as follows for the quarter ended June 30, 2007 and the year ended September 30, 2006:


	Minnesota		Mexico		Consolidated
As of June 30, 2007:
Total Assets	$	7,294,504	$	667,754	$	7,962,258
Long-lived assets	$	958,298	$	292,158	$	1,250,456
Inventories	$	1,532,281	$	292,446	$	1,824,727

F-15


	Minnesota		Mexico		Consolidated
As of September 30, 2006:
Total Assets	$	4,687,830	$	727,426	$	5,415,256
Long-lived assets	$	890,705	$	201,380	$	1,092,085
Inventories	$	1,931,957	$	526,046	$	2,458,003

E.		Line-of-Credit Borrowings

		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

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


	06/30/2007		09/30/2006
Note payable — Parsons, paid in full with proceeds received from common stock offerings in October and November 2006. (Paid November 15, 2006).	$	—	$	729,091
Note payable — Parsons, paid in full on June 17, 2007		—		320,000

Total long-term debt		—		1,049,091
Less: debt refinanced through equity offering		—		729,091
Less: current portion		—		—

Long-term debt, net of current portion	$	—	$	320,000

G.		Shareholders’ Equity

		Common Stock and Stock Warrants

		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.

F-16

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 Agent’s 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 and Agent’s 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 on January 10, 2007 and the registration statement was initially filed with the Securities and Exchange Commission on February 22, 2007. The Company filed an amendment to the registration statement on March 21, 2007 and it was declared effective by the Securities and Exchange Commission on March 23, 2007.

On March 15, 2007, the Company agreed to issue 6,000 shares of common stock to each of its five independent Board Members for a total of 30,000 shares, as partial compensation for services at the next five board meetings through the Company’s 2008 Annual Meeting of Stockholders. The shares were valued at $1.85 per share (fair value at the date of award) and are expensed as services are provided. These shares were issued on May 16, 2007.

On June 25, 2007, the Company issued 1,102,941 shares of Common Stock and a warrant to purchase an additional 275,735 shares of Common Stock to CIMSA. The warrant has 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 Warrant of $1,500,000. The Company has agreed to register the resale of the Common Stock and the Common Stock issuable upon exercise of the warrant. There was no placement agent involved with this transaction. In addition, on June 25, 2007, the Board of Directors of the Company, pursuant to the CIMSA Securities Purchase Agreement, increased the Board size from six directors to seven and appointed Fernando Caralt to serve on the Board of Directors. Mr. Caralt is currently President of CIMSA, which has utilized the Company’s manufacturing services during fiscal 2007. No determination has been made by the Board of Directors with respect to any Board Committee appointments for Mr. Caralt.

F-17

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 June 30, 2007, was 0.75 year.

The following table summarizes information about stock options outstanding at June 30, 2007:


			Weighted		Range of
			Average		Option
			Exercise		Exercise
	Options		Price		Price
Options Outstanding — September 30, 2004		310,000		1.09	$	0.44 - $1.38
Granted		—		—		—
Canceled or expired		—		—		—
Exercised		160,000		1.07	$	0.44 - $1.38

Options Outstanding — September 30, 2005		150,000	$	1.11	$	0.91 - $1.38
Granted		—		—		—
Canceled or expired		—		—		—
Exercised		60,000	$	0.945	$	0.91 - $1.38

Options Outstanding — September 30, 2006		90,000	$	1.22	$	1.05 - $1.38
Granted		—		—		—
Canceled or expired		34,500	$	1.38	$	1.38
Exercised		10,500	$	1.38	$	1.38

Options Outstanding — June 30, 2007		45,000			$	1.05
Options Exercisable — June 30, 2007		45,000			$	1.05

The aggregate intrinsic value of options outstanding and exercisable is $31,500 and $43,650 at June 30, 2007 and 2006, respectively.

As of June 30, 2007, there was $0 of total unrecognized compensation costs related to the outstanding stock options.

F-18

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 arose 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 remaining balance of $315,000 was paid in full on June 17, 2007.

(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 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, although Cirrus has agreed to indemnify the Company for damages related to this claim.

(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. The case is currently in discovery. At this time, the Company 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.

F-19

Dividend Payment

The Board of Directors examines the liquidity and capital requirements of the Company at each board meeting. The Board of Directors has the authority to declare a special dividend. No dividend was declared or paid in the three and nine months ended June 30 2007.

Warrants

Stock warrant activity is as follows for the nine months ended June 30, 2007:


	Outstanding		Exercise Price
Outstanding at September 30, 2006		16,401	$	2.00
Granted		962,493		2.00
Exercised or forfeited		—		—

Outstanding at June 30, 2007		978,894	$	2.00

Warrants outstanding and exercisable as of June 30, 2007, are as follows:


	Weighted-Average
	Remaining
	contractual	Exercise
Warrants	life	prices
978,894	2.32	$2.00

Stock warrants issued during the nine months ended June 30, 2007 were awarded for:


	2007
Common stock		962,493

F-20


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

Results of Operations:

Sales

Total sales increased $137,872, or 5.6%, from $2,468,209 for the three months ended June 30, 2006 to $2,606,081 for the three months ended June 30, 2007. On a year to date basis, sales increased $208,498, or 3.1%, from $6,691,717 for the nine months ended June 30, 2006 to $6,900,215 for the nine months ended June 30, 2007. Sales from the Company’s general aviation products, which consist primarily of sales to Cirrus, increased $178,315, or 9.9% for the third quarter and increased $435,963, or 8.8% year to date. Sales from the Company’s general aviation products accounted for 76.2% and 78.1% of total revenue for the three and nine months ended June 30, 2007, respectively, compared to 73.3% and 74.1% for the three and nine months ended June 30, 2006, respectively. Sales from the Company’s recreational and LSA products decreased $72,366 from $658,669 to $586,303, or 11.0% for the third quarter and decreased $264,779 from $1,732,953 to $1,468,174, or 15.2% 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 504 and 519 units to Cirrus in first three 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 fiscal year 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 of Cirrus aircraft would have a significant negative impact on the Company’s revenues.

The Company’s recreational and LSA aircraft product line sales decreased by 15.2% during the first three quarters of fiscal year 2007 compared to the first three quarters of the prior fiscal year. LSA and recreational sales accounted for 21.3% of the Company’s revenues for first three quarters of fiscal year 2007 versus 25.9% of the Company’s revenues for the first three quarters of the prior fiscal year. The LSA and recreational aircraft products business relies on acceptance of the aircraft by the aviation public, 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. No assurance can be given that the Company will enter into a formal supply agreement with Diamond Aircraft or, if entered into, that such relationship would be commercially successful. Furthermore, the Company would not expect to see any revenues from any such agreement until fiscal year 2009 at the earliest.

The Company has commenced the establishment of a repack center which will have the capacity to repack the parachute systems primarily for Cirrus-related units. 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 22.3% for the third quarter of fiscal year 2007 compared to 33.4% for the comparative quarter of fiscal year 2006. On a year to date basis, the gross operating margin was 24.8% and 36.4% 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. 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 28.0% ($729,840) for the third quarter of fiscal year 2007 as compared to 23.4% ($578,574) for the third quarter of fiscal year 2006. On a year to date basis, these costs were 28.5% ($1,965,981) and 28.6% ($1,912,046) for fiscal years 2007 and 2006, respectively. This net increase for the first three quarters of $53,935 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 $166,286, an increase in Board of Directors fees totaling $53,995, and an increase in new personnel totaling $102,206. 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

Research and development costs were 6.5% ($170,455) and 4.8% ($118,916) of sales for the third quarter of fiscal years 2007 and 2006, respectively. On a year to date basis, these costs were 5.8% ($402,470) and 5.5% ($366,560) of sales for fiscal years 2007 and 2006, respectively. This increase is due primarily to increased product development in connection with new product lines. 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 future 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 third quarter of fiscal year 2007 and decreased $75,191 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 3.1% and 2.6% for the third quarter of fiscal year 2007 and 2006, respectively.

Earnings per share were relatively consistent in the fiscal periods. On a diluted earnings per share basis, net income of $52,024 for the third quarter of fiscal year 2007 was 2.0% of sales or $0.01 per share, as compared to net income of $40,122, which was 1.6% of sales or $0.01 per share for the prior fiscal year quarter.

Liquidity and Capital Resources:

As of June 30, 2007, the Company had cash and cash equivalents of $1,657,802. 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.

In closings completed on October 25, 2006, November 22, 2006 and January 10, 2007, the Company completed a private placement offering to accredited investors of an aggregate of 508,710 units at a price per unit of $5.44, each unit consisting of four shares of our common stock and a three-year warrant to purchase an additional share of common stock at an exercise price of $2.00 per share. Accordingly, the Company issued an aggregate of 2,034,840 shares of common stock and warrants to purchase an aggregate of 508,710 shares of common stock in the offering, in consideration of total gross proceeds of $2,767,382, less commissions of approximately $193,717 paid to The Oak Ridge Financial Services Group, Inc., which served as a placement agent in the offering. The Company further issued to Oak Ridge and its designated subagents three-year warrants to purchase an aggregate of 178,048 shares of common stock at an exercise price of $2.00 per share. The Company registered the resale of the common stock and the common stock issuable upon exercise of the warrants and placement agent’s warrants pursuant to a registration statement on Form SB-2 which became effective on March 23, 2007.

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. On June 17, 2007, the Company paid the remaining $315,000 balance.

On June 25, 2007, the Company issued 1,102,941 shares of Common Stock and a warrant to purchase an additional 275,735 shares of Common Stock to CIMSA Ingenieria de Sistema, S.A., a Spanish company (“CIMSA”). The warrant has 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 the warrant of $1,500,000. The Company has agreed to register the resale of the Common Stock and the Common Stock issuable upon exercise of the Warrant. There was no placement agent involved with this transaction.

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 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 $163,400 in legal fees for the first nine months of fiscal year 2007 and $220,000 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, development of Diamond and light jet products, market acceptance of the LSA products, 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 three quarters ended June 30, 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


ITEM 3.		CONTROLS AND PROCEDURES

As of June 30, 2007, the Company carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer at the time concluded that our disclosure controls and procedures are effective in alerting them on a timely basis to material information required to be disclosed in our periodic reports to the Securities and Exchange Commission. During the quarter ended June 30, 2007, there were no changes in our internal control over financial reporting that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION


ITEM 1.		LEGAL PROCEEDINGS

Aerospace Marketing, Inc./Parsons

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.

McGrath

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 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, although Cirrus has agreed to indemnify the Company for damages related to this claim.

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. The case is currently in discovery. At this time, the Company 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.


ITEM 6.		EXHIBITS

Exhibits

The following documents are included or referenced in this report.


Exhibit Number		Description

	3.1	Amended and Restated Articles of Incorporation as of March 15, 2007 (incorporated by reference to Exhibit 3.1 to the Company’s Amended Registration Statement on Form SB-2/A filed on March 21, 2007).

	3.2	Amended and Restated Bylaws as of March 15, 2007 (incorporated by reference to Exhibit 3.2 to the Company’s Amended Registration Statement on Form SB-2/A filed on March 21, 2007).

	4.1	Form of Warrant issued to CIMSA Ingenieria de Sistema, S.A. dated June 22, 2007 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on June 26, 2007).

	10.1	Securities Purchase Agreement between the Company and CIMSA Ingenieria de Sistema, S.A. dated June 22, 2007 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on June 26, 2007).

	31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.

	31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting Officer.

	32.1	Section 1350 Certification of Principal Executive Officer.

	32.2	Section 1350 Certification of Principal Accounting Officer.

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

Exhibit Index


Exhibit Number		Description

	31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.

	31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting Officer.

	32.1	Section 1350 Certification of Principal Executive Officer.

	32.2	Section 1350 Certification of Principal Accounting Officer.

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BRSI Ballistic Recovery Systems Inc (CE)