TWST: What is Ballistic Recovery Systems?

Mr. Nelson: Ballistic Recovery Systems started 25 years ago. We are a safety company, developing aviation safety products. Our chief product is designed to safely bring down a whole airplane. In other words, it's a parachute that's attached to the airplane that brings the airplane to the ground with its occupants, hopefully unhurt. It's sort of analogous to the airbag that you see in a car. The history of Ballistic Recovery Systems is one of ups and downs obviously, but it was started 25 years ago by Boris Popov who was flying his ultralight airplane. He had a mechanical failure and fell 400 feet to the ground. During that fall, he thought there had to be a better way, so from that fall and after his recovery, he decided to design a parachute system that could save people if they got into the ultimate problem. So the BRS system was born out of adversity, if you will, and from that, the company has moved through a time of trying to get the Federal Aviation Administration to approve our product on certified airplanes. The first airplane we were able to get FAA approval was a Cessna 150, a two place airplane that had about 25,000 to 35,000 airplanes in the field at its height; they were being used mainly for flight training. Boris Popov saw this as an excellent airplane to put a emergency recovery parachute device on and went to work. It took 13 years to get the FAA to finally approve the concept on a certified airplane. That was done, and by the time it got done, the aviation industry had changed and had moved away from two place training airplanes to four place trainer airplanes. So our first airplane, although it was the genesis of the company on the certified side, was not what we would call a roving success. We had 10 to 12 units sold, and basically it stopped at that point. We kept working though, knowing that the product did work because on the ultralight side of our business, which is the part that's the non-certified side, about half of the aircraft in the field have a BRS system installed on them. That said, we have saved about 170 lives in the ultralight side to date. So we knew it was a practical product, and we knew that it had application for more than just the ultralight side. So we continued to develop and try to work with aircraft manufacturers, and along came a company called Cirrus Design, which was a new player in the market and had at one time been an ultralight manufacturer and from that had knowledge of our product. The owners of Cirrus, the airplane company, decided that they wanted to add a parachute on their certified airplane. So they set out to build a brand new all-composite airplane that would not only be an industry- changing product, but have a high survival rate if there were accidents. So in 1993, we began the project of developing the parachute for that airplane. As we went through that process, we worked also on the Cessna 172 and looked at putting it on other airplanes. The Cirrus airplane did come out about eight years ago with our product as standard, and since then, the Cirrus airplane has now become the number one airplane in that marketplace, producing somewhere around 600 to 650 units sold last year. Obviously, since our product expanded, that has propelled us to a nice position within the marketplace. We are the only US manufacturer of a ballistic powered system. There are a couple of manufactures in Europe, but none of them are certified in the United States. As of about a year and a half ago, we had another product certified; it's the Cessna 172. We sold about a dozen of those. We're in the process of selling now another product on the 182, which is a higher, bigger model airplane than the Cessna 172. If I'm not mistaken, we must be closing in on eight or 10 sales of those now. So we're moving in that direction and, of course, continuing to develop our ultralight side of the business and the Cirrus side. About six months ago, our President, who had been with us for 12 years, decided it was time for him to move on to a different phase of his life, and we hired Larry Williams, who is our President and COO. He has been with us now almost four and a half months. He has moved the company from standing where we were for a number of years to moving it to the next level and starting to look at lots of new places and new product applications that our system can be on and hopefully save more lives. On the general aviation side of the business, we have now saved eight peoples' lives in the last year and a half ' seven last year and one the year before. We feel like one life would have been a success, but now we're even happier at the number we've saved and think that we can cut the death rate in the general aviation side substantially if we can get this product as a standard piece of equipment on all the other aircraft out there.

TWST: What is the market today? Is there both a retrofit market as well as an OEM type market opportunity?

Mr. Williams (President & COO): Yes. A good portion of our sales, of course, are tied up with the OEM market with Cirrus because we are on 100% of the airplanes that they manufacture, and since they are the largest manufacturer of general aviation airplanes in the world, that's a big part of our business. But we also do retrofit business since the BRS system is available for retrofit on the Cessna aircraft line for the 172 and the 182, and we are also expanding into other areas with the new light-sport aircraft that's coming online now in United States. We do a number of installations on ultralights and experimental airplanes and these types of airplanes as well.

Mr. Nelson: We are now up to about 130 or 135 different models or kinds of ultralight airplanes now.

TWST: What's the competitive landscape? Has anyone else tried to enter this market? What are the alternatives?

Mr. Nelson: About five years ago, we bought our competitor. That competitor, which was as strong as we were at that point, decided he wanted to get out of the business, so we bought him. So in the United States, there are no competitors. In Czechoslovakia, I know there's one, and there's still one in Germany. So we believe that there are two or maybe three others in the world today that could compete against us. But they don't have a product that performs like ours and that has been certified by the FAA.

TWST: What's the agenda today for BRS? What are the priorities for the next 12 to 24 months? What would make that time frame a success?

Mr. Williams: We're focused right now on two primary areas. One is just performance, and that is to make sure that we're doing things as efficiently as we can and we're looking at our cost basis and how we can drive cost out. Then we're also looking at growth as being a big part of our corporate strategy moving forward in the next two to three years, and that is by increasing ourselves in the current product line and then also by growth, either by developing new products that we can get into, different aircraft for example, or by acquisitions where we may be looking at trying to grow the company.

TWST: How strong financially is the company? Are there areas or priorities for improvement of balance sheet and P&L?

Mr. Nelson: As Chairperson, I always think there's area for improvement, but we probably today are in the best financial shape we've ever been. Larry has guided us pretty nicely there. There is essentially no debt at all, and we're doing about 40% GMs, right?

Mr. Williams: Yes. It fluctuates a little. We had a very, very strong quarter last quarter, and our sales so far are going very well in terms of this particular quarter. But we're averaging in about the 40s. We also have a little over $2 million in cash right now.

Mr. Nelson: If I remember correctly, this last year was the fourth year that we paid dividends, and we're still able to grow the product line and the profitability of the company.

TWST: What historically has been the shareholder base with BRS? Has that base undergone any changes or transitions?

Mr. Nelson: It has gone through three major transitions. One is that 13 or 14 years ago when the FAA took so long to approve the first product, we were close to running out of money and we were having problems. At that point in time, we had a major influx of cash from an outside owner who bought up about 35% of the company. Our major person we supply to, Cirrus, has now purchased a 15% ownership in the company. So we have two major owners ' one Darryl Brandt, who owns just under 30%, and Cirrus Design, which now owns about 15.3% of the company. Then you have the founder who owns about 8% of the company, and then the rest of the board which owns enough to make up just over 50% ownership. The other 50% is out there floating around with individuals or people who think that the aviation business is the place to be.

TWST: Where is this technology going?

Mr. Nelson: When you look at where we are today, we are using a rocket- propelled engine to extract the parachute. Ultimately, we probably will look at some type of alternative to that rocket fuel. We may look at compressed air; we may look at just anything that is out there, but right now we think we are on the leading edge of how to do this particular technology. We don't think that there's a thing that we can come up within the short run that is going to make it better or safer. So I would say, at least from my perspective, that side of our technology we are going to be with for a while, but we are continuing to look at different ways of doing things.

Mr. Williams: We are challenged with a product that when you put anything on an airplane, you always look at weight, size and cost. So as we are looking at new product development, and as we are looking at enhancing the current product that we have, we keep these things in mind. What can we do to take weight out? What can we do to take cost out? What can we do to improve the product? The next level for BRS is a parachute system that will work on a larger, heavier airplane that flies faster. We worked on a couple of NASA grants that were completed last year, specifically designed for the purpose of looking at faster applications and even getting into the light jet market. So we plan on taking that technology and the information we gained from that work and developing it into a commercially viable product.

TWST: Is that technologically the barrier to entering other markets? Do you feel at some point that military markets or other types of aircraft or other types of air transport will be viable markets?

Mr. Williams: There is a practical aspect that comes into this as well. If you take an Airbus A380, the new airplane being built by Airbus today as the super jumbo jet, you are talking about an airplane with a gross weight of over 1 million pounds. Is it possible to put an emergency recovery parachute on an airplane that big and bring it down safely? The answer is yes. Is it practical to do that because of the size of the systems, the weight, the displacements, and the other things that you would have to look at? The answer to that is no, it is not. So we are going to be limited as far as application on something that large. But when you start talking about military applications or getting into personal light jets, that is, the small jets that people can afford to own and operate, or even into a bigger class of airplane, when you get up to a higher weight and more passengers, those are areas that we believe the product will work for future applications. Those are areas we are developing products for today, and it's what we think the future of our company will be in terms of developing these systems for the next level of airplane.

Mr. Nelson: Does the company see a high growth into the heavy commercial side of the business? I would say the answer is no. Do we see the possibility some day of having a recovery system on a commuter-sized airplane? I would say the answer is yes. How quickly or how soon all depends on how much money and how much weight and a number of other things. There is no limit, but we believe practically that it doesn't make a lot of sense for us to spend a lot of shareholders' money looking at that very high end.

TWST: Introduce us to your top-level management team. Assess the experience and leadership credentials you have on board today. What areas are you looking to augment?

Mr. Nelson: We believe that by adding Larry Williams we have really strengthened the leadership of the company. Mark Thomas was always a very fine leader. He took us through 12 years that were tough years for us, and we were trying to put things together. We believe that the next 12, 15 or 20 years that Larry will be with us are going to be our growth years, the ones where we are going to see a lot of product developed and offered in the marketplace. So I would give Larry great kudos. If we have a weakness in our management team, it is that we don't have a Chief Financial Officer right now. Larry is currently looking for a CFO. When it comes to our sales and marketing effort, Larry is very strong in that area, and he is strengthening our focus. We added a young man last year as a sales manager who comes to us from the heavy airplane side of the business. We think that he has good strengths, good contacts and good possibilities. On our ultralights and LSA side, we have some folks who have been with the company for 15 years or so. So we think we have the depth to go out to do that.

Mr. Williams: As far as the executive leadership and the senior management of the company goes, we are very strong. We've had very little turnover here. Even though we have gone through the change of the President at the top level of the company, the actual turnover for BRS remains very low. I think we have a very dedicated and experienced group of people here who are really committed to aviation safety. There are very few people who get to go to work and do what we do in terms of working on a product that will result in the saving of a human life. So we have a different breed here, and in fact, one of the things we were recently informed of is that Aviation Week & Space Technology is awarding Ballistic Recovery Systems with a special award that they just have started this year for our technological advancements and our dedication to safety in aviation. We will be getting that in April of this year, and that speaks well to the group of employees that we have here.

Mr. Nelson: When you talk to employees, their first comment is that they're not making a parachute; they're building something that is going to save somebody. There is a lot of pride in that. I would also add that I think that when you look at our board, my history, obviously, is that I have been in the aviation business for 35 or 40 years with a good part of that either in the financing of airplanes or the selling of airplanes. I worked for Cessna Aircraft and for Grumman Corporation and for Rockwell Corporation. I have a big background in the aviation business. Having said that, in terms of the other board members, four of us are instrument rated pilots who have owned their own airplanes or who have owned their own ultralights or who have flown 747s for a long time. So we have an aviation background in our board.

TWST: What compels investors to review BRS and to include BRSI in their current portfolios as well as in their longer-term investment strategies?

Mr. Nelson: As you look at our company, we are a company that is on the edge of aviation safety in a world where more and more people are looking to figure out how to use this product and increase safety. We have people who've never flown in an airplane, who, when they look at our airplane and then look at a Cessna or a Piper, will say, 'Hey, that one has a parachute on it. This one doesn't; we are going on that one.' That technology is available for 270,000 existing airplanes that are out there. We don't have them all approved, but we are in the process of approving models so that you can keep adding and adding. It is a huge market that we continue to grow into. As the aviation business has continued to expand and grow, the FAA has embraced our technology or embraced our product and said, 'BRS has certified the whole-airplane parachute on five different models. We believe it is a good product. It is a safe product, and it will save people's lives.' So as we move forward, it will be easier for our company to have that market niche out in front of anybody else and develop products that will carry us and develop this company into a very large organization. We have designs on doing some other things that are in the growth area by acquisitions, but obviously I can't talk through those; those are down the road. That is one of the other ways we will be looking as we move forward. So if I were an investor, I would look at the finance standpoint, I would look at our history, and I would look at the strength of our balance sheet. We are as strong as any small company out there. We've no debt, lots of cash, and product balance, so we are starting to move in the right directions.

Mr. Williams: The other thing that easily escapes people is the fact that we have been in business for 25 years. This is not a startup; it's not a venture. This is proven technology. The need for our product is not going to diminish. If anything, it is going to continue to grow and expand into other applications. As we have more and more saves, I think that is more and more opportunity for people to get involved in the company that has that kind of a history and that kind of a background.

Mr. Nelson: I forget about the history because I have been on the board for 12 years. I keep preaching all the time that this is a product that is necessary, and it is a product that will save people. One person's life is worth a lot to us, and that is why we are in this business ' to save lives.

TWST: Thank you. (DWA)

ROBERT NELSON Chairman & CEO LARRY E. WILLIAMS President & COO Ballistic Recovery Systems, Inc. 300 Airport Road South St. Paul, MN 55075-3541 (651) 457-7491 (651) 457-8651 - FAX e-mail:

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