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 January 31, 2007 |
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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 January 31, 2007 |
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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 March 9, 2007 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 - January 31, 2007 and April 30, 2006 |
3 |
Condensed Consolidated Statements of Income - Three Months ended January 31, 2007 and 2006 |
4 |
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Condensed Consolidated Statements of Income - Nine Months ended January 31, 2007 and 2006 |
5 |
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Condensed Consolidated Statements of Cash Flows - Nine months ended January 31, 2007 and 2006 |
6 |
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Notes to Condensed Consolidated Financial Statements |
7 |
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Management's Discussion and Analysis Financial Condition and Results of Operations |
8-12 |
Item 3 Quantitative & Qualitative Disclosures about Market Risk |
12 |
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Item 4 Controls and Procedures |
12 |
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PART II. |
Other Information |
13 |
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Signatures |
14 |
CONDENSED CONSOLIDATED BALANCE SHEETS |
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ASSETS |
01/31/07 |
4/30/06 |
LIABILITIES AND SHAREHOLDERS' EQUITY |
01/31/07 |
4/30/06 |
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unaudited |
audited |
unaudited |
audited |
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CURRENT ASSETS: |
CURRENT LIABILITIES: |
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Cash |
$ |
1,611,252 |
$ |
925,577 |
Bank overdraft payable |
$ |
127,443 |
$ |
343,532 |
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Accounts receivable, net of allowance for |
Promissory notes payable |
2,745,230 |
2,393,607 |
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doubtful accounts of $135,421 at January 31, 2007 and |
622,465 |
679,086 |
Current maturities of long-term debt and capital lease |
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$149,577 at April 30, 2006 |
obligations |
2,962,002 |
2,375,848 |
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Contracts in process |
1,036,979 |
- |
Accounts payable |
493,496 |
549,482 |
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Customer deposits |
533,000 |
20,000 |
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Inventories - |
Accrued liabilities |
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Raw materials |
4,554,030 |
5,454,438 |
Compensation and compensated absences |
496,048 |
516,248 |
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Work in process |
650,822 |
599,658 |
Other |
344,249 |
265,992 |
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Finished goods |
91,549 |
94,631 |
-------------- |
-------------- |
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Aircraft |
4,937,214 |
4,849,830 |
Total current liabilities |
7,701,468 |
6,464,709 |
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-------------- |
-------------- |
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10,233,615 |
10,998,557 |
LONG-TERM DEBT AND CAPITAL LEASE, NET |
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OF CURRENT MATURITIES |
1,646,146 |
1,844,312 |
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Prepaid expenses and other current assets |
56,175 |
67,563 |
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-------------- |
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Total current assets |
13,560,486 |
12,670,783 |
Total liabilities |
9,347,614 |
8,309,021 |
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COMMITMENTS AND CONTINGENCIES |
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PROPERTY, PLANT AND EQUIPMENT: |
SHAREHOLDERS' EQUITY: |
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Land and building |
2,283,227 |
2,283,227 |
Preferred stock, par value $5 |
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Machinery and equipment |
1,563,268 |
1,546,215 |
Authorized 50,000,000 shares, all classes |
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Office furniture and fixtures |
688,823 |
688,823 |
Designated Classes A and B, 200,000 shares |
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Leasehold improvements |
4,249 |
4,249 |
$1,000 Class A, 9.8%, cumulative if earned |
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-------------- |
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liquidation and redemption value $100, |
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4,539,567 |
4,522,514 |
no shares issued and outstanding |
- |
- |
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Accumulated depreciation |
(2,282,643) |
(2,166,554) |
$1,000 Class B, 6%, convertible cumulative, |
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liquidation and redemption value $1,000 |
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2,256,924 |
2,355,960 |
no shares issued and outstanding |
- |
- |
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Common stock, par value $.01: |
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SUPPLEMENTAL TYPE CERTIFICATES |
1,659,773 |
1,221,435 |
Authorized 100,000,000 shares |
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issued and outstanding 53,080,764 shares at |
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at January 31 and 49,381,003 at April 30, 2006 |
530,808 |
493,810 |
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ADVANCES FOR INDIAN GAMING DEVELOPMENTS |
Common stock, owed but not issued, 571,073 shares |
5,710 |
42,708 |
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(net of reserves of $2,912,440) |
1,806,551 |
1,806,551 |
at January 31 and 4,270,834 at April 30, 2006 |
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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 |
(397,418) |
(587,830) |
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OTHER ASSETS |
83,400 |
83,400 |
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-------------- |
-------------- |
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Total shareholders' equity |
10,019,520 |
9,829,108 |
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-------------- |
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-------------- |
-------------- |
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Total assets |
$ |
19,367,134 |
$ |
18,138,129 |
Total liabilities and shareholders' equity |
$ |
19,367,134 |
$ |
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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January 31, |
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2007 |
2006 |
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(unaudited) |
(unaudited) |
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REVENUES |
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Aircraft / Modifications |
$ |
1,510,523 |
$ |
1,705,395 |
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Avionics / Defense |
620,857 |
558,529 |
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Management / Professional Services |
1,212,250 |
807,377 |
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-------------- |
-------------- |
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Net Revenues |
3,343,630 |
3,071,301 |
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COST OF SALES |
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Aircraft / Modifications |
1,289,732 |
1,537,451 |
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Avionics / Defense |
577,630 |
258,968 |
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Management / Professional Services |
593,202 |
247,589 |
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-------------- |
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Total Cost of Sales |
2,460,564 |
2,044,008 |
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GROSS PROFIT |
883,066 |
1,027,293 |
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
855,135 |
826,120 |
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-------------- |
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OPERATING INCOME |
27,931 |
201,173 |
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OTHER INCOME (EXPENSE) |
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Interest expense |
(139,597) |
(129,190) |
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Other |
- |
4,769 |
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-------------- |
-------------- |
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Other expense |
(139,597) |
(124,421) |
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INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES |
(111,666) |
76,752 |
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PROVISION FOR INCOME TAXES |
(7,856) |
(39,257) |
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-------------- |
-------------- |
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NET INCOME |
$ |
(119,522) |
$ |
37,495 |
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======== |
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BASIC EARNINGS PER COMMON SHARE |
$ |
(.01) |
$ |
.00 |
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======== |
======== |
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Shares used in per share calculation |
53,051,837 |
52,576,044 |
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DILUTED EARNINGS PER COMMON SHARE |
$ |
(.01) |
$ |
.00 |
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======== |
======== |
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Shares used in per share calculation |
53,146,665 |
52,722,056 |
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The accompanying notes are an integral part of these financial statements. |
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES |
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NINE MONTHS ENDED |
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January 31, |
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2007 |
2006 |
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(unaudited) |
(unaudited) |
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REVENUES |
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Aircraft / Modifications |
$ |
5,655,338 |
$ |
6,318,358 |
Avionics / Defense |
1,996,512 |
2,042,556 |
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Management / Professional Services |
3,122,950 |
3,875,852 |
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-------------- |
-------------- |
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Net Revenues |
10,774,800 |
12,236,766 |
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COST OF SALES |
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Aircraft / Modifications |
4,527,137 |
5,544,392 |
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Avionics / Defense |
1,558,890 |
1,044,890 |
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Management / Professional Services |
1,340,943 |
2,319,560 |
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Total Cost of Sales |
7,426,970 |
8,908,842 |
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-------------- |
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GROSS PROFIT |
3,347,830 |
3,327,924 |
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
2,723,420 |
2,577,684 |
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-------------- |
-------------- |
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OPERATING INCOME |
624,410 |
750,240 |
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OTHER INCOME (EXPENSE) |
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Interest expense |
(401,101) |
(345,586) |
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Other |
34,783 |
4,769 |
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-------------- |
-------------- |
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Other expense |
(366,318) |
(340,817) |
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INCOME BEFORE PROVISION FOR INCOME TAXES |
258,092 |
409,423 |
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PROVISION FOR INCOME TAXES |
(67,680) |
(59,257) |
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-------------- |
-------------- |
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NET INCOME |
$ |
190,412 |
$ |
350,166 |
======== |
======== |
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BASIC EARNINGS PER COMMON SHARE |
$ |
.01 |
$ |
.01 |
======== |
======== |
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Shares used in per share calculation |
53,051,837 |
52,576,044 |
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======== |
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DILUTED EARNINGS PER COMMON SHARE |
$ |
.01 |
$ |
.01 |
======== |
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Shares used in per share calculation |
53,146,665 |
52,722,056 |
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The accompanying notes are an integral part of these financial statements. |
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES |
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NINE MONTHS ENDED |
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January 31, |
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2007 |
2006 |
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(unaudited) |
(unaudited) |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income (loss) |
$ |
190,412 |
$ |
350,166 |
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Adjustments to reconcile net income (loss) to net cash provided by |
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(used in) operations - |
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Depreciation |
116,089 |
99,821 |
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Changes in assets and liabilities: |
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Accounts receivable |
56,621 |
577,310 |
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Contracts in process |
(765,965) |
(338,540) |
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Inventories |
493,927 |
(1,187,627) |
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Prepaid expenses and other current assets |
11,388 |
(26,140) |
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Accounts payable |
(272,075) |
(342,479) |
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Customer deposits |
513,000 |
(10,000) |
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Accrued liabilities |
58,058 |
(57,227) |
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-------------- |
-------------- |
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Cash provided by (used in) operating activities |
401,455 |
(934,716) |
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-------------- |
-------------- |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Capital expenditures |
(455,390) |
(28,600) |
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-------------- |
------------- |
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Cash provided by (used in) investing activities |
(455,391) |
(28,600) |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Borrowings under promissory notes, net |
351,622 |
1,045,234 |
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Repayments of long-term debt, net |
387,989 |
(332,948) |
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-------------- |
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Cash provided by (used in) financing activities |
739,611 |
712,286 |
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-------------- |
-------------- |
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NET INCREASE (DECREASE) IN CASH |
685,675 |
(251,030) |
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CASH, beginning of period |
925,577 |
1,066,955 |
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-------------- |
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CASH, end of period |
$ |
1,611,252 |
$ |
815,925 |
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======== |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
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Interest paid |
$ |
401,102 |
$ |
345,585 |
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Income taxes paid |
47,180 |
69,257 |
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The accompanying notes are an integral part of these 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 nine months ended January 31, 2007 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 January 31, 2007 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 are intended to be used for Tribal casino development and consist of purchased land and 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 nine months ended January 31, 2007 and 2006 were approximately $1,506,362 and $342,449 respectively. |
5. Borrowings: A line of credit in the amount of $1,224,285 was entered into on July 7, 2006. An additional line of credit in the amount of $1,508,000 was entered into on October 25, 2006. Both lines of credit are to be used for the BCS Design, Inc. construction projects in Junction City, Kansas. As of January 31, 2007 we have borrowed $733,249 and $219,591 respectively. On January 16, 2007 the operating line of credit was increased by $500,000. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION |
RISK FACTORS The information set forth below includes "forward-looking" information and is subject to Risk Factors as outlined in the Private Securities Litigation Reform Act of 1995. The Risk Factors listed under Item 1A of our Form 10-K and the Cautionary Statements, filed by us as Exhibit 99 to our Form 10-K, are incorporated herein by reference and you are specifically referred to such Risk Factors and Cautionary Statements for a discussion of factors which could affect our operations and forward-looking statements contained herein. |
RESULTS OF OPERATIONS |
YEAR TO DATE JANUARY 31, 2007 COMPARED TO YEAR TO DATE JANUARY 31, 2006 Discussion of the specific changes by operation at each business segment follows: Aircraft Modifications: Sales from Aircraft Modifications including modified aircraft decreased $663,019 (10.5%) from $6,318,358 in the first nine months of fiscal year 2006 to $5,655,338 in the current nine months of fiscal 2007. Sales for the months of December 2006 and January 2007 were 34% less than the same months in fiscal 2006. Revenues from non RVSM modification services increased $143,563 or 3.5% in the first nine months of fiscal 2007. RVSM revenues decreased by 35% in the first nine months of fiscal 2007, compared to the first nine months of fiscal 2006. We believe we will sell and install approximately an additional 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 and 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 $665,813 for the nine months ended January 31, 2007 compared to operating profit of $393,066 for the nine months ended January 31, 2006. Aircraft Acquisitions and Sales: There was no activity for the nine months ended January 31, 2007 compared to the acquisition of four aircraft during the nine months ended January 31, 2006. FAA required modifications to the business aircraft fleet may increase customer demand for company owned aircraft.
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THIRD QUARTER FISCAL 2007 COMPARED TO THIRD 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 $194,872 (11.4%) from $1,705,395 in the third quarter of fiscal year 2006 to $1,510,523 in the current quarter of fiscal 2007. Revenues from non RVSM modification services decreased $115,789 or 9.3% in the third quarter of fiscal 2007. RVSM revenues decreased by 16.8% in the third quarter of fiscal 2007, compared to the third quarter of fiscal 2006. We believe we will sell and install approximately an additional 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 and 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 $141,642 for the three months ended January 31, 2007 compared to operating profit of $42,262 for the three months ended January 31, 2006. Aircraft Acquisitions and Sales: There was no activity for the three months ended January 31, 2007. We acquired one aircraft during the three months ended January 31, 2006. 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 January 31, 2007, 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 The increase of $600,000 in cash can generally be attributed to the following. We received a customer deposit of $513,000 for work to be completed in the quarter ending April 30, 2007. Net income contributed $190,000 while inventory use contributed an additional $494,000. We had additional borrowings of over $700,000 of which we used to finance construction projects in Junction City. STC certifications accounted for and additional $438,000. 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 |
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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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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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March 16, 2007 |
/S/ Clark D. Stewart |
March 16, 2007 |
/S/ Angela D. Shinabargar |