UNITED STATES SECURITIES AND EXCHANGE COMMISSION |
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---------------------------------- FORM 10-Q ----------------------------------- |
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( Mark One)X |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) |
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For the quarter ended July 31, 2006 |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) |
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For the quarter ended July 31, 2006 |
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Commission File Number 0-1678 |
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Kansas |
41-0834293 |
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19920 West 161st Street, Olathe, Kansas 66062 |
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Registrant's telephone number, including area code: (913) 780-9595 |
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Former name, former address and former fiscal year if changed since last report: |
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Common Stock $.01 Par Value |
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months and (2) has been subject to such filing requirements for the past ninety days: Yes X No ____ |
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Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act: Yes No X_ |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act: |
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The number of shares outstanding of the Registrant's Common Stock, $0.01 par value, as of September 8, 2006 was 53,051,837 shares. |
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES |
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INDEX |
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PART I. |
FINANCIAL INFORMATION: |
PAGE NO. |
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Condensed Consolidated Balance Sheets - July 31, 2006 and April 30, 2006 |
3 |
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Condensed Consolidated Statements of Income - Three Months ended July 31, 2006 and 2005 |
4 |
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Condensed Consolidated Statements of Cash Flows - Three months ended July 31, 2006 and 2005 |
5 |
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Notes to Condensed Consolidated Financial Statements |
6 |
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Management's Discussion and Analysis Financial Condition and Results of Operations |
7-10 |
Item 3 Quantitative & Qualitative Disclosures about Market Risk |
10 |
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Item 4 Controls and Procedures |
10 |
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PART II. |
Other Information |
11 |
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Signatures |
12 |
CONDENSED CONSOLIDATED BALANCE SHEETS |
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ASSETS |
07/31/06 |
4/30/06 |
LIABILITIES AND SHAREHOLDERS' EQUITY |
07/31/06 |
4/30/06 |
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unaudited |
audited |
unaudited |
audited |
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CURRENT ASSETS: |
CURRENT LIABILITIES: |
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Cash |
$ |
563,949 |
$ |
925,577 |
Bank overdraft payable |
$ |
169,755 |
$ |
343,532 |
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Accounts receivable, net of allowance for |
Promissory notes payable |
2,620,518 |
2,393,607 |
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doubtful accounts of $149,577 at July 31, 2006 and |
770,194 |
679,086 |
Current maturities of long-term debt and capital lease |
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April 30, 2006 |
obligations |
2,407,912 |
2,375,848 |
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Contracts in process |
356,643 |
- |
Accounts payable |
547,564 |
549,482 |
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Customer deposits |
20,000 |
20,000 |
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Inventories - |
Accrued liabilities |
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Raw materials |
5,338,292 |
5,454,438 |
Compensation and compensated absences |
457,051 |
516,248 |
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Work in process |
612,551 |
599,658 |
Other |
236,658 |
265,992 |
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Finished goods |
78,845 |
94,631 |
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Aircraft |
4,869,160 |
4,849,830 |
Total current liabilities |
6,459,458 |
6,464,709 |
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10,898,848 |
10,998,557 |
LONG-TERM DEBT AND CAPITAL LEASE, NET |
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OF CURRENT MATURITIES |
1,759,124 |
1,844,312 |
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Prepaid expenses and other current assets |
73,646 |
67,563 |
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Total current assets |
12,663,280 |
12,670,783 |
Total liabilities |
8,218,582 |
8,309,021 |
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COMMITMENTS AND CONTINGENCIES |
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PROPERTY, PLANT AND EQUIPMENT: |
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Land and building |
2,283,227 |
2,283,227 |
SHAREHOLDERS' EQUITY: |
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Machinery and equipment |
1,546,215 |
1,546,215 |
Preferred stock, par value $5 |
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Office furniture and fixtures |
688,823 |
688,823 |
Authorized 50,000,000 shares, all classes |
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Leasehold improvements |
4,249 |
4,249 |
Designated Classes A and B, 200,000 shares |
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$1,000 Class A, 9.8%, cumulative if earned |
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4,522,514 |
4,522,514 |
liquidation and redemption value $100, |
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Accumulated depreciation |
(2,205,515) |
(2,166,554) |
no shares issued and outstanding |
- |
- |
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$1,000 Class B, 6%, convertible cumulative, |
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2,316,999 |
2,355,960 |
liquidation and redemption value $1,000 |
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no shares issued and outstanding |
- |
- |
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SUPPLEMENTAL TYPE CERTIFICATES |
1,221,435 |
1,221,435 |
Common stock, par value $.01: |
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Authorized 100,000,000 shares |
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issued and outstanding 53,046,971 shares at |
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ADVANCES FOR INDIAN GAMING DEVELOPMENTS |
at July 31 and 49,381,003 at April 30, 2006 |
493,810 |
493,810 |
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(net of reserves of $2,912,440) |
1,806,551 |
1,806,551 |
Common stock, owed but not issued, 604,866 shares |
42,708 |
42,708 |
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Capital contributed in excess of par |
10,612,420 |
10,612,420 |
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Treasury stock at cost (600,000 shares) |
(732,000) |
(732,000) |
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Retained earnings |
(543,855) |
(587,830) |
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OTHER ASSETS |
83,400 |
83,400 |
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Total shareholders' equity |
9,873,083 |
9,829,108 |
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Total assets |
$ |
18,091,665 |
$ |
18,138,129 |
Total liabilities and shareholders' equity |
$ |
18,091,665 |
$ |
18,138,129 |
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The accompanying notes are an integral part of these financial statements |
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BUTLER NATIONAL CORPORATION AND SUBSIDIARIES |
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THREE MONTHS ENDED |
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July 31, |
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2006 |
2005 |
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(unaudited) |
(unaudited) |
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REVENUES |
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Aircraft / Modifications |
$ |
2,041,446 |
$ |
2,604,794 |
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Avionics / Defense |
204,595 |
797,524 |
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Management / Professional Services |
830,021 |
709,848 |
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Net Revenues |
3,076,062 |
4,112,166 |
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COST OF SALES |
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Aircraft / Modifications |
1,593,731 |
1,562,092 |
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Avionics / Defense |
233,708 |
427,201 |
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Management / Professional Services |
263,572 |
256,869 |
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Total Cost of Sales |
2,091,011 |
2,246,162 |
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GROSS PROFIT |
985,051 |
1,866,004 |
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
821,146 |
1,557,143 |
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OPERATING INCOME |
163,905 |
308,861 |
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OTHER INCOME (EXPENSE) |
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Interest expense |
(120,060) |
(93,252) |
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Other |
130 |
- |
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Other expense |
(119,930) |
(93,252) |
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INCOME BEFORE PROVISION FOR INCOME TAXES |
43,975 |
215,609 |
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PROVISION FOR INCOME TAXES |
- |
10,000 |
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NET INCOME |
$ |
43,975 |
$ |
205,609 |
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BASIC EARNINGS PER COMMON SHARE |
$ |
.01 |
$ |
.01 |
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Shares used in per share calculation |
53,051,837 |
55,576,044 |
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DILUTED EARNINGS PER COMMON SHARE |
$ |
.01 |
$ |
.01 |
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Shares used in per share calculation |
53,160,066 |
52,722,056 |
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The accompanying notes are an integral part of these financial statements. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of Regulation S-X and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the annual report on Form 10-K dated April 30, 2006. In our opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the three months ended July 31, 2006 are not indicative of the results of operations that may be expected for the year ending April 30, 2007. |
2. Advances for Indian Gaming Development: We are advancing funds for the establishment of Indian gaming. These funds have been capitalized in accordance with Statements of Financial Accounting Standards (SFAS) 67 "Accounting for Costs and Initial Rental Operations of Real Estate Projects." Such standard requires costs associated with the acquisition, development, and construction of real estate and real estate related projects to be capitalized as part of that project. We have advanced and invested a total of $4,718,991 in Indian gaming developments. We have reserves of $2,912,440, at July 31, 2006 and April 30, 2006. We believe that our advances for Indian gaming developments will be totally reimbursed as casinos are opened. Due to the fact that all of the proposed casinos are involved in legal and governmental actions whose outcome is not certain nor is there any time frame for resolution we believe it is necessary to establish reserves against the advances. The reserve amount is an estimate of the value we would receive if a Tribal casino was not opened and we were forced to liquidate the assets that we have acquired with our advances. The assets were intended to be used with Tribal casinos and consist of the purchase of land improvements. The land purchases are located adjacent to residential developments. We believe that these tracts could be developed and sold for residential and commercial use to recover advances if the gaming enterprises do not open. |
3. Earnings Per Share: Earnings per common share is based on the weighted average number of common shares outstanding during the year. Stock options have been considered in the dilutive earnings per share calculation. |
4. Research and Development: We charge to operations research and development costs. The amount charged in the quarters ended July 31, 2006 and 2005 were approximately $498,631 and $421,524 respectively. |
5. Borrowings: A line of credit of $1,224,285 was entered into on July 7, 2006 to be used for the BCS Design, Inc. developments. We have borrowed $112,477 at July 31, 2006. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION |
RESULTS OF OPERATIONS |
FIRST QUARTER FISCAL 2007 COMPARED TO FIRST QUARTER FISCAL 2006 Discussion of the specific changes by operation at each business segment follows: Aircraft Modifications: Sales from Aircraft Modifications including modified aircraft decreased $563,348 (21.6%) from $2,604,794 in the first three months of fiscal year 2006 to $2,041,446 in the current three months of fiscal 2007. Revenues from non RVSM modification services increased $174,346 or 15% in the first three months of fiscal 2007. RVSM revenues decreased by 67% in the first quarter of fiscal 2007, compared to the first quarter of fiscal 2006. We believe we will sell and install approximately 50 to 100 Lear 20 & 30 series RVSM kits during the next few years. In addition to the RVSM sales, we expect to experience some increase in our base modification sales. As the economy grows aircraft owners may elect to update, modify, and purchase business aircraft. A shift to business aircraft ownership positively impacts our aircraft modification revenues. Although we cannot anticipate the future we must always consider the negative impact of items such as the 9-11 event, increases in fuel prices or general economic downturns. Considerable time was spent on additions to the RVSM STC and certification of special mission STC's for our modification customers. These events reallocated used capacity and reduced RVSM completions. The modifications segment had an operating profit of $129,584 for the three months ended July 31, 2006 compared to operating profit of $69,712 for the three months ended July 31, 2005. Aircraft Acquisitions and Sales: There was no activity for the three months ended July 31, 2006 or July 31, 2005. FAA required modifications to the business aircraft fleet may increase customer demand for company owned aircraft.
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LIQUIDITY AND CAPITAL RESOURCES We do not, as of July 31, 2006, have any material commitments for other capital expenditures other than the terms of the Indian gaming Management Agreements should any additional casinos materialize. We will need additional funds to complete our planned Indian gaming opportunities. We will use current cash available as well as additional funds, for the start up and construction of gaming facilities. We anticipate initially obtaining these funds from internally generated working capital and borrowings. Analysis and Discussion of Cash Flow During the quarter our cash position decreased by $361,628. The decrease in the cash flow was attributed to an increase in inventory and work in process of $256,935 and a reduction in accounts payables and other liabilities of $264,226, and other general use for operations of $97,191. Net increase in borrowings in the first three months was $173,787. We believe all our inventory will be realized in the normal course of business. Lead-time for the components is dictated by the market place resulting in a build up of inventory to support sales and to avoid halting production because of material shortages. Revenue Recognition We perform aircraft modifications under fixed-price contracts. Revenues from fixed-price contracts are recognized on the percentage-of-completion method, measured by the direct labor costs incurred compared to total estimated direct labor costs. Revenue for off the shelf items and aircraft sales is recognized on the date of the sale.
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PART II. |
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Item 1 |
Legal Proceedings |
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Item 1A. |
Risk Factors |
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Item 2 |
Unregistered Shares of Equity Securities and Use of Proceeds |
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Item 3 |
Defaults Upon Senior Securities |
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Item 4 |
Submission of Matters to Vote of Security Holders |
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Item 5 |
Other Information |
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Item 6 |
Exhibits and reports on Form 8-K. |
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3.1 |
Articles of Incorporation, as amended and restated are incorporated by reference to Exhibit 3.1 of our Form DEF 14A filed on December 26, 2001. |
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3.2 |
Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form DEF 14A filed on December 15, 2003. |
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31.1 |
Certificate of Chief Executive Officer |
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31.2 |
Certificate of Chief Financial Officer |
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32.1 |
Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 |
Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted to |
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99 |
Exhibit Number 99 |
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27.1 |
Financial Data Schedule (EDGAR version only). Filed herewith. |
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(B) |
Reports on Form 8-K. We reported on June 8, 2006 on Form 8-K under Item 8.01 and Item 9.01 that we issued a press release announcing that Avcon Industries, Inc., a wholly owned subsidiary of the company, has received FAA approval to install it's next generation RVSM equipment in Lear 35 and 36 model airplanes. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. |
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BUTLER NATIONAL CORPORATION |
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September 13, 2006 |
/S/ Clark D. Stewart |
September 13, 2006 |
/S/ Angela D. Shinabargar |