business plan overview dated november 2012 pegasus ... · company no: 6480521 website: email:...

1 Registered Office: Ashford House, Grenadier Road, Exeter, Devon, EX1 3LH, United Kingdom. Registered in England and Wales

Company No: 6480521 Website: www.pegasusheli.co.uk email: [email protected],uk

BUSINESS PLAN OVERVIEW DATED NOVEMBER 2012

PEGASUS HELICOPTER GROUP LIMITED & PEGASUS HELICOPTER, INC.

INTRODUCTION Pegasus Helicopter Group (Pegasus) owns and holds patents for technology which is unlike any “conventional” helicopter flying today. This is the result of years of successful development and testing, and an investment to date in excess of $30 million at today’s US dollar value by the predecessor to Pegasus and Pegasus Helicopter Group Directors and Investors. It is currently backed by the rotorcraft industry’s best and brightest, including the engineer who co-invented the NOTAR (No Tail Rotor System) anti-torque system, seen on many “First Responder” helicopters. Pegasus uses an air pressure jet design that is fundamentally different to today’s helicopters. The technology has been proven over more than 200 flight hours. Most significantly, the Pegasus technology delivers a range of inherent advantages unlike anything the helicopter industry has ever seen before. Pegasus overcomes many of the fundamental weaknesses and dangers found in conventional helicopters, delivering vast improvements in safety, reliability, lifetime costs, and training. HISTORY Pegasus was established in 2007 in Phoenix, Arizona when a team of entrepreneurs and engineers acquired the rights to the air pressure jet technology; drawings, test data, and flight videos from the chief turbine engineer on the original program in the 1980’s. That program successfully demonstrated the philosophy of the technology. Pegasus Helicopter Inc. was formed in 2007 to purchase this IP, develop and improve it to bring it to market. In June 2008, Pegasus was listed on the Plus Market Stock Exchange in London as Pegasus Helicopter Group Plc. This was initiated as a means of raising capital on an exchange which catered to emerging businesses. Soon after however, the worldwide financial crisis erupted and investment proved difficult. An initial $2 million funding was eventually received by Pegasus Helicopter Group Plc from an overseas investor in August 2011. A program of two Phases was developed; Phase 1 to prove and improve the “Pressure-Jet” technology utilizing the $2mill investment, and Phase 2 to bring a family of Pegasus helicopters to market. The Company considers that Phase 1 is complete and now seeks additional funding to complete Phase 2 as described below. On completion of Phase 1, the U.K. Company converted Pegasus Helicopter Group Plc to Pegasus Helicopter Group Limited. In doing so the ownership of the Pegasus IP and associated patents and investors automatically transferred from the PLC to the new LTD company, including the ownership of its subsidiary Pegasus Helicopter Inc.



THE TECHNOLOGY Pegasus Helicopters offers a unique helicopter design concept using its pressure jet technology. The Pegasus air pressure-jet is fundamentally different to conventional helicopters on the worldwide helicopter market. Pegasus is so dramatically different than current helicopters that it is projected to create a large international market of its own due to its compelling features.

Conventional Helicopter

Pressure Jet Helicopter



Pegasus use an existing lightweight turbine engine that drives compressed air through hollow rotor blades and jettisons high speed air out from nozzles at the blade tips, resulting in rotor blade rotation. The turbine exhaust is directed over a vertical rudder at the stern of the aircraft thereby providing precise yaw control and automatic stability. The technology eliminates the need for primary and secondary mechanical drive trains and a tail rotor. The entire system is driven by air. The components that are not present in Pegasus helicopters are often the cause of accidents and downtime in conventional helicopters. In conventional helicopter technology the mechanical linkage between the engine and the rotor blades creates torque, necessitating a tail rotor to counteract it. Transmissions, tail rotors, linkages, gear boxes, drive shafts, and disengage systems are all integral features of conventional helicopters. These features dictate the very high cost to build, buy, and maintain helicopters as well as the exceptional skill level to fly them. Lifetime costs including maintenance, downtime, overhauls and spare parts are substantially reduced due to the Pegasus’ significantly fewer parts. It is estimated that the industry’s major high overhead helicopter manufacturers must achieve three times the initial price via overhauls, maintenance and spare parts in order to provide a satisfactory return. An estimated 20% of the pilots licensed to fly fixed wing aircraft have the psycho‐motor skills required to fly conventional helicopters. The skill level required to fly a Pegasus is comparable to that needed to drive a manual shift car. Learning to fly a conventional helicopter requires a substantial amount of time and skill; the primary challenge being maneuvering the aircraft while fighting the counter internally created torque forces. Because the rotor blades are turned from the tips, rather than twisted from a central drive shaft, torque is virtually eliminated and with it the need for mechanical drives, extended tail boom and tail rotor. When flying a Pegasus, the action/reaction drive at the rotor blade tips virtually eliminates torque, making a Pegasus easier and safer to takeoff, maneuver and land. The absence of a tail rotor means added safety for ground personnel and all aircraft missions. THE BUSINESS PHASE 1. The $2 million convertible note was raised with a Middle East investor in September 2011. The note is convertible into 28% of the company or 100 million shares at time of issue. The funds were used by Pegasus to build and test, under the watchful eyes of the FAA, a two seat pressure-jet helicopter utilizing the developed technology. This testing was recently successfully completed at Brown Field in San Diego. This Middle East investor preferred to remain confidential during Phase 1 and the Company and its current shareholders agreed to delist from the Plus Market Exchange in London. There remain over 140 shareholders in the company from the days of being listed.



P1 Technology Proving Aircraft During June, July and August 2012, the Pegasus two seat prototype underwent flight tests to verify the updated pressure jet concept and identify design improvements for Phase 2. The flight tests included an in-ground-effect hovers, out-of-ground-effect hovers, sideways flight both left and right, forward flight, reverse flight, right and left maximum bank turns, forward flight climbs and auto rotations. The planned flight tests were accomplished successfully. In summary, Pegasus P1 demonstrated acceptable performance, handling qualities, controllability and noise signature. Significant intellectual property was demonstrated and the engineering team recommended that Phase 2 be started. PHASE 2 The Company initially plans two models, a two-seat owner self-assembly kit and a seven-seat type-certified aircraft. Each will have newly-designed, more efficient blades and a recently patented single piece rotor hub.



The seven seat aircraft will be a fully factory assembled FAA Certified helicopter. A demonstration aircraft, in civilian configuration, will be designed and built in Phase 2. It will be equipped with a high efficiency recuperated engine (patent pending) that will make the Company’s helicopters more fuel efficient than conventional helicopters. Additionally, both models are expected to be safer, due to the advantages previously described. A gas turbine recuperator takes air leaving the compressor (high pressure) and heat exchanges it with the hot engine exhaust gases. This heated compressor air is ducted from the recuperator to the gas turbine combustor which now requires less fuel to create the heat level needed for the turbine inlet temperature. This reduced fuel consumption translates into higher efficiency. It is expected that a recuperator with light weight restraints will be lighter than the main gear box of a conventional helicopter and provide an engine efficiency at least 10 points higher.

Pegasus P3 two seat self-assembly aircraft PHASE 2 FUNDING. There are three stages in Phase 2, as follows. The completion of these three phases will require funding of $15 million, including a project reserve of 10%.



Stage1 - 12 months duration

Ø Anticipated new funding closing costs and fees, repayment of existing debt, accrued interest and outstanding expenses. Total $1.25mill;

Ø Design and manufacturing at Rotorcraft Group Services (“RGS “) at Meacham Field in Ft. Worth, Texas. CAD design, build and test a two seat and seven seat demonstration models. Pegasus will outsource its manufacturing to RGS, a full service Helicopter MRO facility;

Ø CAD Engineering for the two models including blades and rotor hub. $4.4mill; Ø Build the two seat and seven seat units demos (use "soft tooling" for blades and hub at this

stage), design and test engineering, management oversight. Total $1.85mill including $0.554mill for components and engines.

Ø Overhead, T&E. Total $0.5mill. Total Stage One Cash Required: $8.0mill.

Stage 2 - 6 months duration

Ø At RGS, design and outsource the production of hard parts, tooling and assembly tooling, KIT Build Manuals, Videos. 25% down and the balance on delivery. Total $4.1mill for production helicopters;

Ø Take orders from distributors for KIT units for two-seat aircraft for 3 months delivery. 25% deposit down. Balance on delivery;

Ø Price of KITs. Two Seat $400k. At this point, the seven-seater price is estimated at $650k plus $200k for projected amortization of Certification costs ($100million spread over 500 units) or a total anticipated price of $850k. Begin Certification planning;

Ø Engineering, Management Oversight Overhead, T&E. Total $750k. Total Stage Two Cash Required - $4.85mill.

Stage 3 - 12 months duration to peak monthly production

Ø At RGS in Ft Worth, commence production of the two seat at 3 units per month, rising to 6 per month after 6 months. Sales forecast for the 2 seat KIT units are subject to availability of aftermarket engines, i.e. the Rolls Royce C20 for the two-seat. Since the 7 seat aircraft is contemplated to be FAA Type-Certified, it will use new C40 engines. Also during this stage, testing and refinement of the seven-seat and its Type-Certification steps will continue;

Ø Components total $205k for the two-seater (plus 10% or $21k paid to RGS for each unit). $349k for the seven-seater (with $35k paid to RGS).

Ø Payment terms - vendors 30 days, RGS 15 days; Ø Budgeted engineering and overhead $2.15mill.

Total Stage Three Cash Required - Net $2.15mill before achieving positive cash-flow. SUMMARY: TOTAL FUNDING REQUIRED FOR ALL THREE STAGES OF PHASE 2 BUDGETED for

$15mill including a 10% reserve.

Since the production is outsourced to RGS, this results in no meaningful requirements for plant and equipment expenditures. This factor, combined with 25% deposits required with orders (an industry practice), results in an efficient cash business model.



These estimated budgeted amounts were arrived at after discussions with management and are subject to final pricing from suppliers once Phase 2 funding is received and CAD drawings are available.

It is assumed that $100million is raised at the beginning of year 2 for FAA Type-Certification either through an IPO in Asia or the U.S. or with a strategic partner.

PATENTS: Pegasus has received a patent for a one piece rotor hub and is applying for a patent for a

Pressure-Jet recuperated engine and also possibly for high efficiency tip nozzles. The recuperated engine has other markets than just aerospace.

AIR PRESSURE JET TECHNOLOGY: COMPETITIVE ADVANTAGES SAFETY

Ø Reduced demands on the pilot. The elimination of torque and related operational instability reduces the needed degree of pilot skill and attention. The high inertia rotor of the Pegasus allows easier, safer power-off descents from any altitude and virtually eliminates the “dead man’s curve”. In the simplest explanation, the Dead Man’s Curve is a diagram of speed and altitude where the average pilot may be unable to complete an autoration landing without significant damage or loss of life. Pegasus has virtually no unsafe areas of operation because the rotor system has very high inertia rotor blades. This means that, even with an engine failure or high pressure high altitude failure, the blades will continue to rotate at operating RPM for sufficient time to complete an autorotation landing;

Ø Elimination of drive train failure. Absence of the entire mechanical drive train including transmissions, gear boxes, drive shafts, clutch and disengage systems, eliminates all accidents caused by failure of any of these components;

Ø Elimination of tail rotor accidents; Ø True VTOL capability. The high inertia rotor unit with a wide RPM operating range allows faster,

true vertical takeoffs and landings.



MECHANICAL SIMPLICITY

Ø Less than half the moving parts of a conventional helicopter. STABILITY

Ø Inherently gyroscopic; Ø No torque stresses on rotor hub or airframe; Ø Less vibration; Ø No unstable attempt at torque balancing.

EASE OF MAINTENANCE

Ø Less down time; Ø Fewer critical parts to maintain, repair, overhaul or replace; Ø Reduced expertise needed by ground personnel.

EASE OF OPERATION

Ø Less pilot skill required; Ø Wider permissible rotor speed range; Ø High inertia rotor allows slower, safer power-off descent; Ø Simple yaw control by deflection of engine exhaust by vertical rear stabilizer; Ø Longer allowable pilot reaction time; Ø Safe auto rotational descent.



INCREASED FLIGHT CAPABILITIES

Ø Steep approaches, rapid vertical climb, and jump takeoffs; Ø Quick stops from vertical flights; Ø True VTOL operational capabilities over a wider density-altitude range; Ø Slower power off descent.

NOISE REDUCTION

Ø Noise signature significantly reduced; Ø Blade “slapping” non-existent during powered flight.

SALES THROUGH DISTRIBUTORS Discussions are under way with helicopter distributors in China, Brazil, Taiwan, Russia, Mexico, Malaysia and the Philippines. There is considerable interest from two companies in China. China is expected to become a very large market as the air space restrictions for general aviation are being relaxed. TARGET MARKETS It is expected that Pegasus will create a substantial new market for helicopters. It is estimated that 10% of the population has the skill levels to fly conventional helicopters whereas 90% of the population has the skill to fly Pegasus pressure jets. Anticipated markets include civil, law enforcement, safety and security, emergency and medical, commuters, island hoppers, pleasure seekers, police and traffic control, surveillance, border patrol and med-vac are just a few of the buyers Pegasus anticipates. Pegasus is flexible in that it can operate on different fuels, namely, diesel, auto gas and jet fuel. BARRIERS TO ENTRY If someone wanted to start today to develop pressure jet technology through successful flight testing, our estimate is it would take $50 to $75 million in costs and 3 to 5 years to be successful. This would be equivalent to having to complete what was accomplished by Pegasus’ predecessor and Phase 1 Pegasus development. For a new startup business, this development probably could not be funded today. For one of the major helicopter companies it would take the same lead time, but the concept of a simple, inexpensive aircraft is contrary to their business models. They build complex and expensive machines, resulting in a future stream of revenues equal to a multiple of the base sales price in terms of spares, maintenance and overhauls. Such conventional industry helicopters are also subject to high downtime. Pegasus’s patent protection should also prove to be a barrier.



UNIT SALES AND P&L FORECAST (Dollars in thousands) Year 1 Year 2 Year 3 Year 4 Year 5 Unit Sales - 2 Seater - 7 Seater

54

-

250

-

275

-

300

-

325 200

Revenues - 2 Seater - 7 Seater

21,600 -

100,000 -

110,000 -

120,000 -

130,000 170,000

Total Revenues

21,600

100,000

110,000

120,000

300,000

Cost of Sales - Components - 10% of Comp-RGS

11,070 1,107

51,250 5,125

56,375 5,637

61,500 6,150

136,425 13,642

Total Cost of Sales

12,177

56,375

62,012

67,650

150,067

Gross Profit - $ - % of Revenues

9,423 44

43,625 44

47,988 44

52,350 44

149,933 50

SG&A - Distributor commiss. 10% - Sales/commissions 5% - Advertising/air shows/PR - Engineering - Management/G&A - Supplies & Packaging 5% - Professional services - Telephone - T&E - Insurance - Misc

2,160 1,080 1,050 1,750

640 1,080

250 100 250 350

50

10,000 5,000 2,100 3,500

740 5,000

350 150 350 450 100

11,000 5,500 3,250 3,550

840 5,500

375 175 400 500 125

12,000 6,000 4,000 3,650

940 6,000

400 200 450 550 150

30,000 15,000

5,000 4,500 1,040

15,000 500 300 750

1,000 250

Total Operating Expenses

8,760

27,740

31,215

34,340

73,340

EBITDA

663

15,885

16,773

18,010

76,593

Amortization (over 500 units) - CAD - Tooling - Manuals/Videos - Certification

259) ) )

1,200) ) )

1,319) ) )

1,440) ) )

3,980) ) )

40,000 Earnings before taxes - $ - %

404 2

14,685 15

15,454 14

16,570 14

32,613 11



COMPETITION The following is a comparison of the specifications between the 5 Seat Robinson and the proposed 7 Seat Pegasus. Robinson have been quite successful with their FAA Type-Certified helicopter at a selling price of $850k which is being produced at 10 per week or some 500 per year. This is a competitive price for a type-certified unit. In addition to the Pegasus advantages in the table below, the Pegasus unit is anticipated to enjoy better fuel efficiency at some 18 gallons per hour compared to 20 gallons per hour.

HELICOPTER COMPARISON

ROBINSON R66 PJ 600ENGINE TYPE DE-‐RATED ROLLS ROYCE RR 300 RECUPERATED RR250 C40MAX GROSS WEIGHT 2,700 LB (1,225 KG) 4,000 LB (1,814 KG)APROX EMPTY WEIGHT 1,280 LB (581 KG) 1,700 LB (771 KG)FUEL CAPACITY 493 LB (224 KG) 628 LB (285 KG)PASSANGERS AND BAGGAGE W/MAX FUEL 927 LB (420 KG) 1,672 LB (758 KG)CRUISE SPEED UP TO 125 KTS UP TO 140 KTS (4000FT)MAX RANGE (NO RESERVE) APROX 325 NM (375 SM) 440 NM (SL)HOVER CEILING IGE (MAX GROSS WEIGHT) OVER 10,000 FT OVER 10,000 FTHOVER CEILING OGE (MAX GROSS WEIGHT) OVER 10,000 FT OVER 10,000 FTRATE OF CLIMB OVER 1,000 FT/MIN OVER 1,300 FT/MINMAXIMUM OPERATING ALTITUDE 14,000 FT 14,000 FT INDUSTRY FORECAST An industry forecast for 2012 to 2016 reflects sales of 4,700-5,200 helicopters worldwide compared to 4,300 for the period 2007 to 2011. Five year demand by region reflects Asia 20%, Europe 26%, North America 26%, Latin America 22% and Middle East/Africa 6%. The Light Single Engine Helicopter is expected to comprise some 45% of the total market. PHASE 3. FAA Certification of the seven-seat type-certified aircraft. Possible funding sources include an IPO in Asia or the U.S. or with a strategic partner during year 2 to raise $100 million.



ENGINEERING & MANAGEMENT TEAMS

Robert Zummo, (Chairman & Chief Executive Officer), has approximately 40 years of experience in aerospace, automotive and defense having worked for Grumman Aerospace, Textron Aerostructures, LTV Corp., General Defense, Insilco, Safety Components and Valentec Systems. Michael Spanos, (Executive Director) & Director, graduated from San Francisco State University with a Bachelors of Science in Information Systems Design. From 1992 to 1999, Mr. Spanos worked as a software engineer and developer for several Fortune 500 companies including Pacific Bell, Charles Schwab and DHL. In 1999, Mr. Spanos founded Rotary Engineering LLC, a company which was a full service machine shop that provides services to the aerospace and other industries. Christopher McDonald-Drewitt, Previously Non-Executive Chairman of the Plc, has recently taken the position of Group Contracts and Purchasing Director. With over 30 years of experience in international project management in the shipping industry, global trading, logistics, the defense industry and Oil & Gas. Mr..Drewitt became the Marine Manager of the UK government’s Oil and Gas company, The British National Oil Corporation (Development) Limited where he was responsible for a £80mill operation. David White has 40+ years of gas turbine experience: Low emission combustion systems, advanced (hybrid) cycles; many patents, owner of Tritek Consulting, formerly Manager Advanced Turbine Systems Development at Solar Turbines; consultant on many government programs. Philip Pang, President, Pegasus Asia, is an accomplished global executive with 21 years of experience in automotive, manufacturing, defense, general aviation and consulting. Previous employment included General Motors, TRW, Autoliv, Safety Components International, Valentec Systems and Wilden Pump. Philip graduated from the University of Illinois at Chicago with a Bachelor's degree in Mechanical Engineering and an MBA from Kellogg School of Management, Northwestern University. Philip works at Pegasus’ Helicopter Shanghai office.

Francis X. Suozzi, Senior Strategic & Financial Advisor, has senior financial experience at three Fortune 500 companies and general management results in the aerospace industry.

Andrew Logan has over 40 years’ experience in the helicopter technology development, design, manufacturing and certification. He was Chief Technology Officer at MD Helicopters, and VP General Manager of Boeing and McDonnell Douglas. He is a co patent holder of the NOTAR (no tail rotor) Technology and received the Howard Hughes Award for technology development. Charles Vehlow is a West Point Graduate, a decorated helicopter pilot in Vietnam, served as an associate professor at West Point where he taught helicopter design. He has held the positions of Vice President for McDonnell Douglas’ Apache Longbow’s development, test and production programs, Vice President of Boeing’s helicopter division and President of MD Helicopters. David Oglesbe was Director of Sales at Bell Helicopter and VP Sales and Marketing at MD Helicopters. He is a licensed FAA flight instructor and commercial pilot. Frank Verbeke has 45 years as mechanical engineer and is a turbine and mechanical design expert. In 1970 he founded a consulting engineering program in the acoustics, aerodynamics and thermodynamics for turbine engines. In the 1980s, he was involved with the predecessor company to Pegasus, which developed the pressure jet technology, which he acquired and sold to Pegasus.

business plan overview dated november 2012 pegasus ... · company no: 6480521 website: email:...

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