SecProbe.io

CORRESP
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300 Airport Road, South St. Paul, MN
55075 • Phone: 651-457-7491 • Fax: 651-457-8651

www.brsparachutes.com

Defining Aviation Safety

March 10, 2005

VIA EDGAR & FEDERAL EXPRESS

Mr. David R. Humphrey

Branch Chief

Division of Corporation Finance

Securities and Exchange Commission

Judiciary Plaza

450 Fifth Street, N.W.

Washington, DC 20549

Re:                               Ballistic
Recovery Systems, Inc.  (the “Company”)

Form 10-KSB  for the year ended September 30,
2004 (the “Form 10-KSB”)

File No. 0-15318

Dear Mr. Humphrey:

I am
writing to respond to your comment letter dated February 18, 2005
regarding our Form 10-KSB.  I am
President and Chief Operating Officer of the Company.  Our responses to the Securities and Exchange
Commission (“SEC”) Staff’s specific comments are provided below. We have
included your original comments (in bold) followed by our responses, which have
been numbered to correspond to your letter.
As suggested in your comment letter, we propose revising all future SEC
filings in response to these comments.  We
do not intend to file an amended Form 10-KSB that incorporates these
revisions.

Form 10-KSB for the Fiscal Year
Ended September 30, 2004

1.                                      We
note your response to our prior comment #4.
You state that you computed the warrant value of $0.161 per share using
a 35 percent discount on the June 29, 2004 closing price of $2.10 per
share.  We note the factors you described
in support of your use of a marketability
discount.  Pleases tell us why a discount
of 35 percent is reasonable and appropriate given these factors.  Also, please tell us your basis for applying
this marketability discount to then current market price of your common stock,
an input of the option pricing calculation, rather than applying the discount to
the computed call option value, the output of the option pricing
calculation.  Paragraph 8 of SFAS 123
states that transactions should be based on the more reliably measurable of the
fair value of the consideration received or the fair value of the equity
instruments issued.  We note that you
issued these warrants in exchange for the cancellation of

approximately $604,000 of purchase discounts due Cirrus as well as
Cirrus’ agreement to purchase additional products from you from 2002 through
2004.  We are not convinced that Cirrus
would agree to cancel $604,000 of purchase discounts and agree to buy
additional products in exchange for warrants with a total fair value of
approximately $125,000, the fair value you attributed to the warrants.  Therefore, it appears that the fair value of
the consideration you received is significantly in excess of the fair value you
computed for the warrants.  We believe
your use of a significant marketability discount results in a less reliable
measure of the fair value of the warrants due to the subjective nature of the
assumption.  Therefore, please tell us
why the cancellation of the purchase discounts would not be a more reliable
measurement of the minimum fair value of the warrants issued.  We believe you should reconsider your
measurement of the fair value of the warrants and amend your filing as
appropriate.

Reasonableness of 35% discount.

In considering the appropriate size of the discount,
the Company first considered the illiquidity of the security, which is
particularly unique in this situation given the holder of the warrant.  The following factors account for an
unusually high degree of illiquidity of the underlying securities.

•                                          The
common stock issuable upon exercise of the warrants has not been registered
under the Securities Act of 1933 and is accordingly restricted and must be sold
in accordance with Rule 144 promulgated under the Securities Act of 1933
upon exercise.

•                                          The
warrants do not have attached demand or piggy back registration rights.

•                                          The
Company’s stock is traded over the counter (vs. an exchange such as NASDAQ,
Smallcap or AMEX) with approximately 45% of the outstanding shares of stock
held by the affiliates of the Company.

•                                          At
the time of the filing in question, the Company had approximately 6.8 million
shares outstanding and the daily trading volumes were, and continue to be, very
sporadic with many trading days with volumes of zero.

•                                          There
is no established market for the Company’s options or warrants.

Additional circumstances that significantly impact the
marketability of the underlying securities specifically for the warrant
holder, Cirrus Design Corporation (“Cirrus”), include:

•                                           The
stock ownership percentage of Cirrus as a result of the exercise  of the warrants generates an even
higher level of illiquidity than the Rule 144 one year holding period
restriction for the restricted stock once acquired.  The sale of the underlying shares is impacted
by the remaining Rule 144 compliance with quarterly volume limits set at
between 60,000 and 70,000 shares tradable per quarter (a maximum of 1% of the
outstanding shares can be sold during a 90 day period).  Assuming a trading volume similar to
historical levels, of the 650,000 shares underlying warrant #4, the liquidation

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period
would be 10 quarters or 2.5 years.
Either that, or the shares could be sold in a private transaction, but
this would most likely be accompanied by a purchase discount, which gets back
to the Company’s original position that the share pricing should be discounted
prior to the application of the Black Scholes pricing model.

•                                           As
a customer accounting for 75 to 80% of the revenues and being a holder of over
15% of the Company’s common stock upon exercise of the warrants in question,
Cirrus would have even tighter constraints on sales of shares as they are in a
position to possess material inside information relating to their company’s
performance and the corresponding material impact on the Company’s performance.

The Company considered all of the above factors when
considering the reasonableness of the discount; namely, there is a higher level
of illiquidity. Additionally, in an
effort to determine what level of discount would be reasonable for applying to
a restricted security, the Company’s research indicated several sources that
supported the Company’s position that a historical discount of 35% for a
transaction in restricted stock was appropriate.  The following is a summary of independent
studies that support the discount factor:

  Study

  Average Discount

  SEC Institutional
  Investor

  32.6

  %

  Gelman

  33.0

  %

  Trout

  33.5

  %

  Moroney

  35.6

  %

  Maher

  35.4

  %

  Standard Research
  Consultants

  45.0

  %

  Willamette Management
  Associates

  31.2

  %

  Silber

  33.8

  %

  FMV Opinions, Inc.

  23.0

  %

The Company’s position to apply a marketability
discount was further supported by its research into the valuations of
restricted stock.  One source, which is
attached as Annex A, is the Internal Revenue Service’s Revenue Ruling 77-287 which refers to SEC Rule 144 restrictions and
provides an overview for the rational for applying discounts to restricted
shares.  The Ruling highlights that many
factors are relevant in determining a discount level for an underlying stock, but

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there is no disagreement that a restricted
security should be discounted compared to its freely traded counterpart.

Based upon these studies and
a review of the Company’s equity market, the Company believes that its position
to apply a discount factor of 35% is supportable and justified.

2. Basis for applying discount to
then current market price.

In determining how to properly value the expense
associated with the warrants in question, the Company initially looked at the
basis for the inputs of the data utilized by the Black Scholes pricing
models.  As you are aware, the Black
Scholes model is based on the underlying premise that the data input in the
Black Scholes model is for securities that are registered and freely
traded.  The Company discounted the stock price before the application of
the Black Scholes calculation to provide for an accurate calculation by the
model which requires the market price or fair market value of the underlying
security for its calculation (i.e. the fair value of a freely tradable
security).

3.
Cancellation of the Purchase Discounts as more reliable measurement.

The SEC’s comment that Cirrus would not give up
$604,000 in purchase discounts in exchange for warrants that the Company valued
at $125,000 requires comment.  First, we
believe the possibility of owning equity via the exercise of warrants in the
Company was very important to Cirrus.
The underlying warrants gave Cirrus the ability to acquire over 15% of
the Company if they chose to exercise all underlying warrants.  The Company’s products are a critical and
required component of Cirrus’ product: their planes, as certified by the FAA,
are required to have our products.
Accordingly, we believe Cirrus placed significant value of ownership in
the Company, which has proven correct as they have executed the warrants.  This ownership is a significant influence
position for Cirrus and has significant intrinsic value to Cirrus (which is
separate and apart from the value of any purchase discounts related to products
shipped to Cirrus) since the Company could not alter this obligation once the
warrants were issued.  In addition, due
to the thinly traded history of the Company’s common stock and the fact that
the insiders of the Company control nearly 50% of the outstanding shares, it
would be difficult for Cirrus to acquire shares on the open market at this
level of ownership.

With respect to the valuation of the purchase
discount, the $604,000 was a speculative number derived from negotiations with
Cirrus in 1999 as the amount estimated, at time, that Cirrus was giving up in
future purchase discounts in exchange for the warrants.  The Company believes that the $604,000 number
was truly speculative in that the Company was uncertain that Cirrus, a
relatively new start-up company, would ever reach the purchase volumes that
would trigger the discount.  In fact,
Cirrus only purchased 12 units from BRS in 1999.

In short, we respectfully believe that the SEC is
giving undue credence and overvaluing  the importance of the purchase
discounts.  The Company believes that the
valuations as presented in the financial statements regarding the warrants
issued to Cirrus are fair and complete.
The Company

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will, however, expand the
disclosures of the underlying assumptions regarding the calculations for all
future filings including any filings with comparative period disclosures.

Other

In connection with responding to our
comments, please provide, in writing, a statement from the company
acknowledging that:

•                                           the company is responsible for the adequacy and accuracy
of the disclosure in the filing;

•                                           staff comments or changes to disclosure in response to
staff comments do not foreclose the Commission from taking any action with
respect to the filing; and

•                                           the company may not assert staff comments as a defense
in any proceeding initiated by the Commission or any person under the federal
securities laws of the United States.

As President and Chief Operating
Officer of the Company, the Company acknowledges that:

•                                          The
Company is responsible for the adequacy and accuracy of the disclosure in the
filing;

•                                          SEC
comments or changes to disclosure in response to Staff comments do not
foreclose the Commission from taking any action with respect to the filing; and

•                                          The
Company may not assert staff comments as a defense in any proceeding initiated
by the Commission or any person under the federal securities laws of the United
States.

*  *  *
*  *

If you want to discuss this or have any additional
questions or comments regarding our responses or about the Company, the Form 10-KSB
or this letter, please feel free to call me at 651-457-7491.

  Very truly yours,

  /s/ Larry Williams

  Larry Williams

  President and Chief Operating Officer

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cc:           Robert L. Nelson,
Chairman of the Board, Chief Executive Officer

Darrel Brandt, Chairman, Audit Committee

Steven Stensrud, Virchow, Krause & Company,
LLP

Douglas T. Holod, Maslon Edelman Borman &
Brand, LLP

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ANNEX A

Guide to
Valuation of Restricted Stock

Revenue
Ruling 77-287

Sec. 1. Purpose

The purpose of this Revenue Ruling is to amplify Rev. Rul. 59-60, 1959-1
C.B. 237, as modified by Rev. Rul. 65-193, 1965-2 C.B. 370, and to provide
information and guidance to taxpayers, Internal Revenue Service personnel, and
others concerned with the valuation, for Federal tax purposes, of securities
that cannot be immediately resold because they are restricted from resale
pursuant to Federal securities laws. This guidance is applicable only in cases
where it is not inconsistent with valuation requirements of the Internal
Revenue Code of 1954 or the regulations thereunder.  Further, this
ruling does not establish the time at which property shall be valued.

Sec. 2. Nature of the Problem

It frequently becomes necessary to establish the fair market value of
stock that has not been registered for public trading when the issuing company
has stock of the same class that is actively traded in one or more securities
markets. The problem is to determine the difference in fair market value
between the registered shares that are actively traded and the unregistered
shares. This problem is often encountered in estate arid gift tax cases.
However; it is sometimes encountered when unregistered shares are issued in
exchange for assets or the stock of an acquired company.

Sec. 3. Background and Definitions

1.               The Service
outlined and reviewed in general the approach, methods, and factors to be
considered in valuing shares of closely-held corporate stock for estate and
gift tax purposes in Rev. Rul. 59-60, as modified by Rev. Rul. 65-193. The
provisions of Rev. Rul. 59-60, as modified, were extended to the valuation of
corporate securities for income, and other tax purposes by Rev. Rul. 68-609,
1968-2 C.B. 327.

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2.               There are several
terms currently in use in the securities industry that denote restrictions
imposed on the resale and transfer of certain securities. The term frequently
used to describe these securities is “restricted securities,” but they are
sometimes referred to as “registered securities,” “investment letter stock,” “control
stock,” or “private placement stock.”  Frequently these terms are
used interchangeably. They all indicate that these particular securities cannot
lawfully be distributed to the general public until a registration statement
relating to the corporation underlying the securities has been filed, and has
also become effective under the rules promulgated and enforced by the
United States Securities & Exchange Commission (SEC) pursuant to the
Federal securities laws. The following represents a more refined definition of
each of the following terms along with two other terms “exempted securities”
and “exempted transactions.”

a.               The term “restricted
securities” is defined in Rule 144 adopted by the SEC as securities
acquired directly or indirectly from the issuer thereof, or from an affiliate
of such issuer, in a transaction or chain of transactions not involving any
public offering.

b.              The term “unregistered
securities” refers to those securities with respect to which a registratio