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First quarter fiscal 2005 compared to first quarter fiscal 2004
Our sales for the three months ended July 31, 2004 were $5,171,758 compared to $2,024,107 for the three months ended July 31, 2003, an increase of (155%). CAUTION: Modification and Avionics currently contribute to this increase. There can be no assurance that activity will continue at this level.
Discussion of the specific changes by operation follows:
Aircraft Modifications: Sales from the Aircraft Modifications business segment including modified aircraft increased $2,054,097 (198.5%) from $1,034,867 in the first quarter of the prior fiscal year to $3,088,964 in the current first quarter of fiscal 2005. First quarter operating income was $473,157 in fiscal 2005 compared to income of $74,495 in fiscal 2004. Our emphasis is on the Learjet 20 series including the purchase, modification and resale of upgraded twenty-first century Learjets. 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 $637,389 for the three months ended July 31, 2004 compared to $323,710 in the comparable period of the preceding year, an increase of (97%). The increase resulted from Defense Military related Classic Aviation products sales. Operating profit for the three months ended July 31, 2004, was $51,964 compared to a loss of $43,364 for the three months ended July 31, 2003. 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 three months ended July 31, 2004 were $284,745 compared to sales of $274,233 for the comparable period of the prior year an increase of (3.8%). Operating profit for the three months was $1,861 compared to $3,919 for the three months ended July 31, 2003. Revenue fluctuates due to the introduction of new products and services and related installations of these products. Our contracts with its 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 service fees for the three months ended July 31, 2004 were $455,971 compared to $391,928 in the comparable period of the preceding year, an increase of (16.5%). Sales recorded from the development programs related to these services for pass-thru costs were $704,690 for the three months ended July 31, 2004.
Selling, General and Administrative (SG&A): Expenses in the three months ended July 31, 2004, were $772,577 or (15%) of sales compared to $509,394 or (25%) of sales for the three months ended July 31, 2003, an increase of $263,183 or 51.7%.
Other Income (Expense): Other income is $3,644 in the quarter ended July 31, 2004, versus $4,034 in the quarter ended July 31, 2003.
Interest expense for the three months ended July 31, 2004, increased $37,304 from $32,854 in the first quarter of the prior year to $70,158. We continue to use our line of credit to maintain operations.
We employed 74 at July 31, 2004, and 65 at July 31, 2003.
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EARNINGS
We recorded income of $423,929 in the three months ended July 31, 2004. This is comparable to income of $200,601 in the three months ended July 31, 2003. Income (Loss) per share is $0.01 and $0.01 for the three months ending July 31, 2004, and July 31, 2003, 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 $309,934 at July 31, 2004, and was $200,841 at July 31, 2003. Our unused line of credit was approximately $190,066 as of July 31, 2004 and approximately $107,126 as of July 31, 2003. The interest rate on our line of credit is prime plus two (with a floor of 7%). As of September 10, 2004, 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 $1,177,758 at July 31, 2004.
We have additional short-term promissory notes with two other banks to finance the increased RVSM related activities. Net advances against these loans were $635,194 during the three months ended July 31, 2004.
We plan to continue using the promissory notes payable to fund working capital. We believe the extensions will continue and do 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 July 31, 2004 have any material commitments for other capital expenditures other than the terms of the Indian gaming Management Agreements. Depending upon the development schedules, we will need additional funds to complete its currently 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. After a few gaming facilities become operational, gaming operations will generate additional working capital for the start up and construction of other gaming facilities. We expect that our start up and construction financing of gaming facilities will be replaced by other financial lenders, long term financing through debt issue, or equity issues.
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 its 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
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