FORWARD LOOKING INFORMATION
The information set forth below includes "forward-looking" information as outlined in the Private Securities Litigation Reform Act of 1995. 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 Cautionary Statements for a discussion of factors which could affect our operations and forward-looking statements contained herein.
End of third quarter fiscal 2005 compared to end of third quarter fiscal 2004
Our sales for the nine months ended January 31, 2005 were $18,113,456 compared to $7,013,130 for the nine months ended January 31, 2004, an increase of 158%. Our operating income for the nine months ended January 31, 2005 was $1,935,892 compared to $589,148 for the nine months ended January 31, 2004, an increase of 228%. CAUTION: Modification and Avionics currently contribute to this increase. There is no assurance that activity will continue at this level.
Our sales for the quarter ended January 31, 2005 were $7,011,117 compared to $2,626,047 for the three months ended January 31, 2004, an increase of 167%. Our operating income for the three months ended January 31, 2005 was $768,557 compared to $219,410 for the three months ended January 31, 2004 an increase of 250%. CAUTION: Modification and Avionics currently contribute to this increase. There is no assurance that activity will continue at this level.
Discussion of the specific changes by operation at each business segment follows:
Aircraft Modifications: Sales from the Aircraft Modifications business segment, including modified aircraft, increased $8,962,653 (246%) from $3,641,002 in the nine months of the prior fiscal year to $12,603,655 in the first nine months of fiscal 2005. Nine month operating income was $1,496,094 in fiscal 2005 compared to income of $510,292 in fiscal 2004. Our emphasis is on for the Learjet 20 series including the purchase, modification and resale of upgraded twenty-first century Learjets. Aircraft sales for the nine month ended January 31, 2005 were $455,000. Our long-term effort is to enhance our position in the market and increase market share of all modification products.
Avionics: Sales from the Avionics business segment were $2,244,101 for the nine months ended January 31, 2005 compared to $1,347,420 in the comparable period of the preceding year, an increase of 66%. The increase resulted from Defense Military related Classic Aviation products sales. Operating income for the nine months ended January 31, 2005, was $605,814 compared to a profit of $100,923 for the nine months ended January 31, 2004. Defense and Military related Classic Avionics products are being designed, manufactured and sold to military aircraft manufacturers. Management plans for this business segment to continue to increase in future years due to the additional new Classic Aviation Products.
Services - SCADA Systems and Monitoring Services: Sales from the Scada Systems and Monitoring Services business segment for the nine months ended January 31, 2005 were $907,227 compared to sales of $828,857 for the comparable period of the prior year a increase of 9.5%. Operating profit for the nine months was $324,436 compared to $346,141 for the nine months ended January 31, 2004. Revenue fluctuates due to the introduction of new products and services and related installations of these products. Our contracts with our two largest customers have been renewed for fiscal 2005.
Corporate / Professional Services: We provide as a management service licensed architectural services through our subsidiary BCS Design, Inc. These services include commercial and industrial building design and graphic representation. We also provide as a management service professional design, development and management of Indian gaming establishments. These services include the architectural services of BCS Design, Inc., arrangements for financing, and on site contract management of establishments for Indian tribes and others. Management consulting and professional fees for the nine months ended January 31, 2005 were $2,358,472 compared to $1,195,851 in the comparable period of the preceding year, an increase of 97%. Sales recorded from the development programs related to these services for pass-thru costs were $1,363,170 for the nine months ended January 31, 2005.
Selling, General and Administrative (SG&A): Expenses in the nine months ended January 31, 2005, were $2,345,644 or (13%) of sales compared to $2,049,443 or (29%) of sales for the nine months ended January 31, 2004, an increase of $295,200 or 14%.
Other Income (Expense): Interest expense for the nine months ended January 31, 2005, increased $106,956 from $110,289 in the first nine months of the prior year to $217,246. We continue to use its line of credit to maintain operations.
We employed 97 at January 31, 2005, and 68 at January 31, 2004.
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EARNINGS
We recorded income of $1,671,791 in the nine months ended January 31, 2005. This is comparable to a profit of $483,943 in the nine months ended January 31, 2004. Income (Loss) per share is $0.04 and $0.01 for the nine months ending January 31, 2005, and January 31, 2004, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Borrowed funds have been used primarily for working capital. Bank (Industrial State Bank) debt related to our operating line was $364,546 at January 31, 2005, and was $145,463 at January 31, 2004. Our unused line of credit was approximately $135,454 as of January 31, 2005 and approximately $354,537 as of January 31, 2004. The interest rate on our line of credit is prime plus two (with a floor of 7%). As of February 25, 2005, the interest rate is 7.0%.
We opened a new line of credit at ISB February 10, 2004 to support the additional inventory requirements of the RVSM product line. The current debt relating to this line of credit was $1,500,000 at January 31, 2005. As of February 25, 2005, the interest rate is 7.0%
We have additional short-term promissory notes with two other banks to finance the increased RVSM and Lear twenty-first century upgrade activities. The current balance of these loans was $1,500,000 at January 31, 2005. As of February 25, 2005 the interest rates ranged from 5% to 6%.
We plan to continue using the promissory notes payable to fund working capital. We believe the extensions will continue and does not anticipate the repayment of these notes in fiscal 2005. The extension of the promissory notes-payable is consistent with prior years. If the Bank were to demand repayment of the notes payable we currently do not have enough cash to pay off the notes without materially adversely affecting the financial condition of the Company.
We do not, as of January 31, 2005 have any material commitments for other capital expenditures.
FORWARD LOOKING INFORMATION
The information set forth below includes "forward-looking" information as outlined in the Private Securities Litigation Reform Act of 1995. 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 Cautionary Statements for a discussion of factors which could affect our operations and forward-looking statements contained herein.
Part I Item 3 Quantitative and Qualitative Disclosures about Market Risk
None
Part I Item 4 Controls and Procedures
We maintain a set of disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Our principal executive and financial officers have evaluated our disclosure controls and procedures within 90 days prior to the filing of this Quarterly Report on Form 10-Q and have determined that such disclosure controls and procedures are effective.
Subsequent to our evaluation, there were no significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.
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