UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended OctoberJuly 31, 20212022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to _____________
Commission File Number 0-1678
BUTLER NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Kansas |
| 41-0834293 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
19920 West 161st Street, Olathe, Kansas 66062
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (913) 780-9595
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None | None | None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value
(Title of Class)
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 (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files): Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ |
| Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |
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| Emerging growth company | ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes ☐ No ☒
The number of shares outstanding of the Registrant's Common Stock, $0.01 par value, as of DecemberSeptember 14, 20212022 was 75,360,45976,781,507 shares.
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
INDEX
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BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of OctoberJuly 31, 20212022 and April 30, 20212022
(in thousands except per share data)
October 31, 2021 | April 30, 2021 | July 31, 2022 | April 30, 2022 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||
Cash | $ | 12,925 | $ | 22,022 | $ | 14,796 | $ | 12,487 | ||||||||
Accounts receivable, net of allowance for doubtful accounts | 3,566 | 1,961 | 3,615 | 3,636 | ||||||||||||
Inventories | ||||||||||||||||
Parts and raw materials | 4,778 | 4,829 | 4,916 | 4,722 | ||||||||||||
Work in process | 3,609 | 3,657 | 4,333 | 4,080 | ||||||||||||
Finished goods | 72 | 82 | 72 | 70 | ||||||||||||
Total inventory, net of allowance | 8,459 | 8,568 | 9,321 | 8,872 | ||||||||||||
Contract asset | 1,101 | 421 | 1,144 | 1,470 | ||||||||||||
Prepaid expenses and other current assets | 1,800 | 1,496 | 1,602 | 1,361 | ||||||||||||
Total current assets | 27,851 | 34,468 | 30,478 | 27,826 | ||||||||||||
PROPERTY, PLANT AND EQUIPMENT: | ||||||||||||||||
Lease right-to-use assets | 3,099 | 3,099 | 3,781 | 3,240 | ||||||||||||
Construction in progress | 3,142 | 1,170 | - | 6,417 | ||||||||||||
Land | 4,751 | 4,751 | 4,751 | 4,751 | ||||||||||||
Building and improvements | 39,762 | 39,747 | 47,772 | 40,962 | ||||||||||||
Aircraft | 8,719 | 9,138 | 8,798 | 8,719 | ||||||||||||
Machinery and equipment | 4,692 | 4,253 | 5,027 | 4,917 | ||||||||||||
Office furniture and fixtures | 11,133 | 10,699 | 12,399 | 11,826 | ||||||||||||
Leasehold improvements | 4,032 | 4,032 | 4,032 | 4,032 | ||||||||||||
| 79,330 | 76,889 | 86,560 | 84,864 | |||||||||||||
Accumulated depreciation | (21,750 | ) | (20,519 | ) | (24,170 | ) | (23,290 | ) | ||||||||
Total property, plant and equipment | 57,580 | 56,370 | 62,390 | 61,574 | ||||||||||||
SUPPLEMENTAL TYPE CERTIFICATES (net of accumulated amortization of $8,674 at October 31, 2021 and $8,041 at April 30, 2021) | 8,045 | 8,211 | ||||||||||||||
SUPPLEMENTAL TYPE CERTIFICATES (net of accumulated amortization of $9,681 at July 31, 2022 and $9,336 at April 30, 2022) | 8,084 | 8,018 | ||||||||||||||
OTHER ASSETS: | ||||||||||||||||
Other assets (net of accumulated amortization of $11,234 at October 31, 2021 and $10,886 at April 30, 2021) | 1,790 | 2,872 | ||||||||||||||
Other assets (net of accumulated amortization of $11,745 at July 31, 2022 and $11,575 at April 30, 2022) | 1,524 | 1,621 | ||||||||||||||
Deferred tax asset, net | 1,710 | 0 | 1,490 | 1,770 | ||||||||||||
Total other assets | 3,500 | 2,872 | 3,014 | 3,391 | ||||||||||||
Total assets | $ | 96,976 | $ | 101,921 | $ | 103,966 | $ | 100,809 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||
Current maturities of long-term debt | $ | 5,041 | $ | 5,972 | $ | 5,054 | $ | 5,165 | ||||||||
Current maturities of lease liability | 103 | 107 | 136 | 106 | ||||||||||||
Accounts payable | 2,743 | 1,893 | 2,736 | 2,773 | ||||||||||||
Contract liability | 1,245 | 5,798 | 4,164 | 820 | ||||||||||||
Gaming facility mandated payment | 1,558 | 1,458 | 1,322 | 1,630 | ||||||||||||
Compensation and compensated absences | 1,830 | 1,862 | 1,539 | 1,911 | ||||||||||||
Income taxes payable | 922 | 212 | 1,309 | 1,049 | ||||||||||||
Other current liabilities | 440 | 265 | 348 | 211 | ||||||||||||
Total current liabilities | 13,882 | 17,567 | 16,608 | 13,665 | ||||||||||||
LONG-TERM LIABILITIES | ||||||||||||||||
Long-term debt, net of current maturities | 44,797 | 39,816 | 42,220 | 43,411 | ||||||||||||
Lease liability, net of current maturities | 2,706 | 2,759 | 3,391 | 2,899 | ||||||||||||
Deferred tax liability, net | 0 | 400 | ||||||||||||||
Total long-term liabilities | 47,503 | 42,975 | 45,611 | 46,310 | ||||||||||||
Total liabilities | 61,385 | 60,542 | 62,219 | 59,975 | ||||||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
STOCKHOLDERS' EQUITY: | ||||||||||||||||
Butler National Corporation's stockholders' equity | ||||||||||||||||
Preferred stock, par value $5: Authorized 50,000,000 shares, all classes; Designated Classes A and B 200,000 shares; $100 Class A, 9.8%, cumulative if earned liquidation and redemption value; $100, no shares issued and outstanding | 0 | 0 | ||||||||||||||
$1,000 Class B, 6%, convertible cumulative, liquidation and redemption value $1,000, no shares issued and outstanding | 0 | 0 | ||||||||||||||
Common stock, par value $.01: authorized 100,000,000 shares issued 79,070,382 shares, and outstanding 75,360,459 shares at October 31, 2021 and issued 79,070,382 shares, and outstanding 75,366,749 shares at April 30, 2021 | 790 | 790 | ||||||||||||||
Preferred stock, par value $5: Authorized 50,000,000 shares, all classes; Designated Classes A and B 200,000 shares; $100 Class A, 9.8%, cumulative if earned liquidation and redemption value; $100, no shares issued and outstanding | - | - | ||||||||||||||
$1,000 Class B, 6%, convertible cumulative, liquidation and redemption value $1,000, no shares issued and outstanding | - | - | ||||||||||||||
Common stock, par value $.01: authorized 100,000,000 shares issued 80,673,572 shares, and outstanding 76,781,507 shares at July 31, 2022 and issued 80,348,572 shares, and outstanding 76,458,146 shares at April 30, 2022 | 807 | 803 | ||||||||||||||
Capital contributed in excess of par | 11,078 | 16,900 | 12,640 | 12,160 | ||||||||||||
Treasury stock at cost, 3,709,923 shares at October 31, 2021 and 3,703,633 shares at April 30, 2021 | (1,913 | ) | (1,909 | ) | ||||||||||||
Treasury stock at cost, 3,892,065 shares at July 31, 2022 and 3,890,426 shares at April 30, 2022 | (2,079 | ) | (2,077 | ) | ||||||||||||
Retained earnings | 25,636 | 19,580 | 30,379 | 29,948 | ||||||||||||
Total Butler National Corporation's stockholders' equity | 35,591 | 35,361 | ||||||||||||||
Noncontrolling interest in BHCMC, LLC | 0 | 6,018 | ||||||||||||||
Total stockholders' equity | 35,591 | 41,379 | 41,747 | 40,834 | ||||||||||||
Total liabilities and stockholders' equity | $ | 96,976 | $ | 101,921 | $ | 103,966 | $ | 100,809 | ||||||||
See accompanying notes to condensed consolidated financial statements (unaudited)
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OctoberJuly 31, 20212022 AND 20202021
(in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED | THREE MONTHS ENDED | |||||||||||||||
October 31, | July 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
REVENUE: | ||||||||||||||||
Professional Services | $ | 9,676 | $ | 7,648 | $ | 8,962 | $ | 9,326 | ||||||||
Aerospace Products | 9,417 | 8,324 | 6,342 | 8,419 | ||||||||||||
Total revenue | 19,093 | 15,972 | 15,304 | 17,745 | ||||||||||||
COSTS AND EXPENSES: | ||||||||||||||||
Cost of Professional Services | 3,877 | 3,418 | 3,623 | 3,325 | ||||||||||||
Cost of Aerospace Products | 5,927 | 6,687 | 4,827 | 6,012 | ||||||||||||
Marketing and advertising | 1,267 | 893 | 1,331 | 1,180 | ||||||||||||
Employee benefits | 546 | 566 | 614 | 575 | ||||||||||||
Depreciation and amortization | 705 | 1,075 | 771 | 702 | ||||||||||||
General, administrative and other | 2,028 | 1,646 | 2,513 | 1,929 | ||||||||||||
Total costs and expenses | 14,350 | 14,285 | 13,679 | 13,723 | ||||||||||||
OPERATING INCOME | 4,743 | 1,687 | 1,625 | 4,022 | ||||||||||||
OTHER INCOME (EXPENSE): | ||||||||||||||||
Interest expense | (640 | ) | (1,065 | ) | (723 | ) | (614 | ) | ||||||||
Gain on sale of airplane | 75 | 0 | ||||||||||||||
Forgiveness of debt | - | 2,001 | ||||||||||||||
Gain on sale of building | 69 | - | ||||||||||||||
Total other income (expense) | (565 | ) | (1,065 | ) | (654 | ) | 1,387 | |||||||||
INCOME BEFORE INCOME TAXES | 4,178 | 622 | 971 | 5,409 | ||||||||||||
PROVISION FOR INCOME TAXES | ||||||||||||||||
Provision for income taxes | 794 | 120 | 260 | 631 | ||||||||||||
Deferred income tax | 234 | 0 | 280 | - | ||||||||||||
NET INCOME | 3,150 | 502 | 431 | 4,778 | ||||||||||||
Net income attributable to former noncontrolling interest in BHCMC, LLC | 0 | (181 | ) | |||||||||||||
Net income attributable to noncontrolling interest in BHCMC, LLC | - | (1,872 | ) | |||||||||||||
NET INCOME ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION | $ | 3,150 | $ | 321 | $ | 431 | $ | 2,906 | ||||||||
BASIC EARNINGS PER COMMON SHARE | $ | 0.04 | $ | 0.00 | $ | 0.01 | $ | 0.04 | ||||||||
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION | 75,364,083 | 74,130,934 | 76,456,284 | 75,366,749 | ||||||||||||
DILUTED EARNINGS PER COMMON SHARE | $ | 0.04 | $ | 0.00 | $ | 0.01 | $ | 0.04 | ||||||||
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION | 75,364,083 | 74,130,934 | 76,456,284 | 75,366,749 | ||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited)
SIX MONTHS ENDED | ||||||||
October 31, | ||||||||
2021 | 2020 | |||||||
REVENUE: | ||||||||
Professional Services | $ | 19,401 | $ | 13,001 | ||||
Aerospace Products | 17,836 | 15,960 | ||||||
Total revenue | 37,237 | 28,961 | ||||||
COSTS AND EXPENSES: | ||||||||
Cost of Professional Services | 7,578 | 6,828 | ||||||
Cost of Aerospace Products | 11,939 | 11,788 | ||||||
Marketing and advertising | 2,471 | 1,845 | ||||||
Employee benefits | 1,121 | 1,151 | ||||||
Depreciation and amortization | 1,407 | 2,118 | ||||||
General, administrative and other | 3,956 | 3,416 | ||||||
Total costs and expenses | 28,472 | 27,146 | ||||||
OPERATING INCOME | 8,765 | 1,815 | ||||||
OTHER INCOME (EXPENSE): | ||||||||
Interest expense | (1,254 | ) | (1,653 | ) | ||||
Forgiveness of debt | 2,001 | 0 | ||||||
Gain on sale of airplane | 75 | 0 | ||||||
Total other income (expense) | 822 | (1,653 | ) | |||||
INCOME BEFORE INCOME TAXES | 9,587 | 162 | ||||||
PROVISION FOR INCOME TAXES | ||||||||
Provision for income taxes | 1,425 | 114 | ||||||
Deferred income tax | 234 | 0 | ||||||
NET INCOME | 7,928 | 48 | ||||||
Net (income) loss attributable to former noncontrolling interest in BHCMC, LLC | (1,872 | ) | 258 | |||||
NET INCOME ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION | $ | 6,056 | $ | 306 | ||||
BASIC EARNINGS PER COMMON SHARE | $ | 0.08 | $ | 0.00 | ||||
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION | 75,365,416 | 74,258,559 | ||||||
DILUTED EARNINGS PER COMMON SHARE | $ | 0.08 | $ | 0.00 | ||||
WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION | 75,365,416 | 74,258,559 | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited)
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE sixthree months ended OctoberJuly 31, 20212022 and 20202021
(dollars in thousands) (unaudited)
| Shares of Common Stock | Common Stock | Capital Contributed in Excess of Par | Shares of Treasury Stock | Treasury Stock at Cost | Retained Earnings | Total Stock-holders’ Equity BNC | Non controlling Interest in BHCMC | Total Stock-holders’ Equity | ||||||||||||||||||||||||||||
Balance, April 30, 2020 | 77,719,677 | $ | 777 | $ | 15,600 | 3,321,415 | $ | (1,713 | ) | $ | 18,147 | $ | 32,811 | $ | 4,993 | $ | 37,804 | |||||||||||||||||||
Stock repurchase | - | - | - | 212,000 | (108 | ) | - | (108 | ) | - | (108 | ) | ||||||||||||||||||||||||
Deferred compensation, restricted stock | - | - | 150 | - | - | - | 150 | - | 150 | |||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | (15 | ) | (15 | ) | (439 | ) | (454 | ) | |||||||||||||||||||||||
Balance, July 31, 2020 | 77,719,677 | $ | 777 | $ | 15,750 | 3,533,415 | $ | (1,821 | ) | $ | 18,132 | $ | 32,838 | $ | 4,554 | $ | 37,392 | |||||||||||||||||||
Stock repurchase | - | - | - | 152,915 | (77 | ) | - | (77 | ) | - | (77 | ) | ||||||||||||||||||||||||
Deferred compensation, restricted stock | - | - | 150 | - | - | - | 150 | - | 150 | |||||||||||||||||||||||||||
Net Income | - | - | - | - | - | 321 | 321 | 181 | 502 | |||||||||||||||||||||||||||
Balance, October 31, 2020 | 77,719,677 | $ | 777 | $ | 15,900 | 3,686,330 | $ | (1,898 | ) | $ | 18,453 | $ | 33,232 | $ | 4,735 | $ | 37,967 | |||||||||||||||||||
| Shares of Common Stock | Common Stock | Capital Contributed in Excess of Par | Shares of Treasury Stock | Treasury Stock at Cost | Retained Earnings | Total Stock-holders’ Equity BNC | Non controlling Interest in BHCMC | Total Stock-holders’ Equity | ||||||||||||||||||||||||||||
Balance, April 30, 2021 | 79,070,382 | $ | 790 | $ | 16,900 | 3,703,633 | $ | (1,909 | ) | $ | 19,580 | $ | 35,361 | $ | 6,018 | $ | 41,379 | |||||||||||||||||||
Deferred compensation, restricted stock | - | - | 148 | - | - | - | 148 | - | 148 | |||||||||||||||||||||||||||
Net Income | - | - | - | - | - | 2,906 | 2,906 | 1,872 | 4,778 | |||||||||||||||||||||||||||
Balance, July 31, 2021 | 79,070,382 | $ | 790 | $ | 17,048 | 3,703,633 | $ | (1,909 | ) | $ | 22,486 | $ | 38,415 | $ | 7,890 | $ | 46,305 | |||||||||||||||||||
| Shares of Common Stock | Common Stock | Capital Contributed in Excess of Par | Shares of Treasury Stock | Treasury Stock at Cost | Retained Earnings | Total Stock-holders’ Equity BNC | Non controlling Interest in BHCMC | Total Stock-holders’ Equity | Shares of Common Stock | Common Stock | Capital Contributed in Excess of Par | Shares of Treasury Stock | Treasury Stock at Cost | Retained Earnings | Total Stock-holders’ Equity BNC | Non controlling Interest in BHCMC | Total Stock-holders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, April 30, 2021 | 79,070,382 | $ | 790 | $ | 16,900 | 3,703,633 | $ | (1,909 | ) | $ | 19,580 | $ | 35,361 | $ | 6,018 | $ | 41,379 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, April 30, 2022 | 80,348,572 | $ | 803 | $ | 12,160 | 3,890,426 | $ | (2,077 | ) | $ | 29,948 | $ | 40,834 | $ | - | $ | 40,834 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock repurchase | - | - | - | 1,639 | (2 | ) | - | (2 | ) | - | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred compensation, restricted stock | - | - | 148 | - | - | - | 148 | - | 148 | (75,000 | ) | - | 132 | - | - | - | 132 | - | 132 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | - | 2,906 | 2,906 | 1,872 | 4,778 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, July 31, 2021 | 79,070,382 | $ | 790 | $ | 17,048 | 3,703,633 | $ | (1,909 | ) | $ | 22,486 | $ | 38,415 | $ | 7,890 | $ | 46,305 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of noncontrolling interest in BHCMC, LLC | - | - | (6,119 | ) | - | - | - | (6,119 | ) | (7,890 | ) | (14,009 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred compensation, restricted stock | - | - | 149 | - | - | - | 149 | - | 149 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock repurchase | - | - | - | 6,290 | (4 | ) | - | (4 | ) | - | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock awarded to Director | 400,000 | 4 | 348 | - | - | - | 352 | - | 352 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | - | 3,150 | 3,150 | - | 3,150 | - | - | - | - | - | 431 | 431 | - | 431 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, October 31, 2021 | 79,070,382 | $ | 790 | $ | 11,078 | 3,709,923 | $ | (1,913 | ) | $ | 25,636 | $ | 35,591 | $ | - | $ | 35,591 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, July 31, 2022 | 80,673,572 | $ | 807 | $ | 12,640 | 3,892,065 | $ | (2,079 | ) | $ | 30,379 | $ | 41,747 | $ | - | $ | 41,747 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited)
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE sixthree months ended OctoberJuly 31, 20212022 and 20202021
(in thousands)
(unaudited)
SIX MONTHS ENDED | THREE MONTHS ENDED | |||||||||||||||
October 31, | July 31, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
Net income | $ | 7,928 | $ | 48 | $ | 431 | $ | 4,778 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||||||||
Depreciation and amortization | 2,631 | 3,250 | 1,458 | 1,314 | ||||||||||||
Gain on sale of building | (69 | ) | - | |||||||||||||
Deferred income tax expense | 280 | - | ||||||||||||||
Stock awarded to director | 352 | - | ||||||||||||||
Forgiveness of debt | (2,001 | ) | 0 | - | (2,001 | ) | ||||||||||
Deferred income tax expense | 234 | 0 | ||||||||||||||
Deferred compensation, restricted stock | 297 | 300 | 132 | 148 | ||||||||||||
Gain on sale of airplane | (75 | ) | 0 | |||||||||||||
Changes in operating assets and liabilities | ||||||||||||||||
Accounts receivable | (1,605 | ) | 514 | 21 | (996 | ) | ||||||||||
Income tax receivable | 0 | (65 | ) | |||||||||||||
Inventories | 109 | (893 | ) | (449 | ) | 113 | ||||||||||
Contract assets | (680 | ) | (353 | ) | 326 | (157 | ) | |||||||||
Prepaid expenses and other current assets | (296 | ) | (456 | ) | (241 | ) | (18 | ) | ||||||||
Accounts payable | 850 | 793 | (37 | ) | 423 | |||||||||||
Contract liability | (4,553 | ) | 2,141 | 3,344 | (2,994 | ) | ||||||||||
Lease liability | (57 | ) | (559 | ) | 45 | 38 | ||||||||||
Accrued liabilities | (32 | ) | (721 | ) | (372 | ) | (234 | ) | ||||||||
Gaming facility mandated payment | 100 | 64 | (308 | ) | (227 | ) | ||||||||||
Income tax payable | 710 | (206 | ) | 260 | 631 | |||||||||||
Other liabilities | 175 | 143 | 137 | 80 | ||||||||||||
Net cash provided by operating activities | 3,735 | 4,000 | 5,310 | 898 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
Capital expenditures | (3,381 | ) | (3,401 | ) | (1,797 | ) | (1,275 | ) | ||||||||
Proceeds from sale of airplane | 75 | 0 | ||||||||||||||
Proceeds from sale of building | 164 | - | ||||||||||||||
Net cash used in investing activities | (3,306 | ) | (3,401 | ) | (1,633 | ) | (1,275 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
Borrowings of long-term debt | 0 | 2,001 | ||||||||||||||
Repayments of long-term debt | (1,863 | ) | (1,804 | ) | (1,302 | ) | (988 | ) | ||||||||
Repurchase of common stock | (4 | ) | (185 | ) | (2 | ) | - | |||||||||
Purchase of noncontrolling interest in BHCMC, LLC | (7,659 | ) | 0 | |||||||||||||
Net cash provided by (used in) financing activities | (9,526 | ) | 12 | |||||||||||||
Repayments on lease right-to-use | (64 | ) | (72 | ) | ||||||||||||
Net cash used in financing activities | (1,368 | ) | (1,060 | ) | ||||||||||||
NET INCREASE (DECREASE) IN CASH | (9,097 | ) | 611 | 2,309 | (1,437 | ) | ||||||||||
CASH, beginning of period | 22,022 | 16,793 | 12,487 | 22,022 | ||||||||||||
CASH, end of period | $ | 12,925 | $ | 17,404 | $ | 14,796 | $ | 20,585 | ||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||||||||||
Interest paid | $ | 1,253 | $ | 1,644 | $ | 713 | $ | 630 | ||||||||
Income taxes paid | $ | 715 | $ | 385 | $ | - | $ | - | ||||||||
NON CASH INVESTING AND FINANCING ACTIVITY | ||||||||||||||||
Secured notes payable for purchase of noncontrolling interest in BHCMC, LLC, net | $ | 7,914 | $ | 0 | ||||||||||||
Notes receivable forgiven as part of purchase of noncontrolling interest in BHCMC, LLC | $ | 780 | $ | 0 | ||||||||||||
Deferred tax asset relating to the purchase of noncontrolling interest in BHCMC, LCC | $ | 2,344 | $ | 0 | ||||||||||||
Purchase of noncontrolling interest - note receivable and other liabilities | $ | 6,350 | $ | 0 | ||||||||||||
Lease right-of-use assets purchased | $ | 541 | $ | - | ||||||||||||
Lease liability for purchase of assets under lease | $ | 541 | $ | - | ||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited)
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(unaudited)
1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X and do not include all 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 for the fiscal year ended April 30, 20212022. In our opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the three and sixmonths ended OctoberJuly 31, 20212022 are not indicative of the results of operations that may be expected for the fiscal year ending April 30, 20222023.
Certain reclassifications within the condensed financial statement captions have been made to maintain consistency in presentation between years. These reclassifications have no impact on the reported results of operations. Financial amounts are in thousands of dollars except per share amounts.
2. Net Income Per Share: Butler National Corporation (“the Company”) follows ASC 260 that requires the reporting of both basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with ASC 260, any anti-dilutive effects on net earnings per share would be excluded. The number of potential common shares as of October 31, 2021 is 75,360,459.
3. Revenue Recognition: ASC Topic 606, “Revenue from Contracts with Customers”
Under ASC 606, revenue is recognized when a customer obtains control of promised services in an amount that reflects the consideration we expect to receive in exchange for those services. To achieve this core principal, the Company applies the following five steps:
1) | Identify the contract, or contracts, with a customer |
| A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. |
2) | Identification of the performance obligations in the contract |
| At contract inception, an entity shall assess the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise to transfer to the customer. Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation. |
3) | Determination of the transaction price |
| The transaction price is the amount that an entity allocates to the performance obligations identified in the contract and, therefore, represents the amount of revenue recognized as those performance obligations are satisfied. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. |
4) | Allocation of the transaction price to the performance obligations in the contract |
| Once a contract and associated performance obligations have been identified and the transaction price has been determined, ASC 606 requires an entity to allocate the transaction price to each performance obligation identified. This is generally done in proportion to the standalone selling prices of each performance obligation (i.e., on a relative standalone selling price basis). As a result, any discount within the contract generally is allocated proportionally to all of the separate performance obligations in the contract. The Company is applying the right to invoice practical expedient to recognize revenue. As a result, the entity bypasses the steps of determining the transaction price, allocating that transaction price and determining when to recognize revenue as it will recognize revenue as billed by multiplying the price assigned to the good or service, by the units. |
5) | Recognition of revenue when, or as, we satisfy a performance obligation |
| Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Control transfers either over time or at a point in time. Revenue is recognized when control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. |
| Aircraft modifications are performed under fixed-price contracts. Revenue from fixed-priced contracts are recognized on the percentage-of-completion method, measured by the direct labor incurred compared to total estimated direct labor. |
| Revenue from Avionics products are recognized when shipped. Payment for these Avionics products is due within 30 days of the invoice date after shipment. Revenue from Gaming Management and other Corporate/Professional Services is recognized as the service is rendered. |
| Regarding warranties and returns, our products are special order and are not suitable for return. Our products are unique upon installation and tested prior to their release to the customer and acceptance by the customer. In the rare event of a warranty claim, the claim is processed through the normal course of business and may include additional charges to the customer. In our opinion, any future warranty work would not be material to the consolidated financial statements. |
| Gaming revenue is the gross gaming win as reported by the Kansas Lottery casino reporting systems, less the mandated payments by and for the State of Kansas. Electronic games-slots and table games revenue is the aggregate of gaming wins and losses. Liabilities are recognized for chips and "ticket-in, ticket-out" coupons in the customers' possession, and for accruals related to anticipated payout of progressive jackpots. Progressive gaming machines, which contain base jackpots that increase at a progressive rate based on the number of coins played, are deducted from revenue as the value of jackpots increase. Food, beverage, and other revenue is recorded when the service is received and paid. |
4. Disaggregation of Revenue
In the following table, revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.
Three Months Ended October 31, 2021 | Three Months Ended October 31, 2020 | |||||||||||||||||||||||
Professional Services | Aerospace Products | Total | Professional Services | Aerospace Products | Total | |||||||||||||||||||
Geographical Markets | ||||||||||||||||||||||||
North America | $ | 9,676 | $ | 7,522 | $ | 17,198 | $ | 7,648 | $ | 7,027 | $ | 14,675 | ||||||||||||
Europe | 0 | 1,114 | 1,114 | 0 | 938 | 938 | ||||||||||||||||||
Asia | 0 | 675 | 675 | 0 | 2 | 2 | ||||||||||||||||||
Australia and Other | 0 | 106 | 106 | 0 | 357 | 357 | ||||||||||||||||||
| $ | 9,676 | $ | 9,417 | $ | 19,093 | $ | 7,648 | $ | 8,324 | $ | 15,972 | |||||||||||||
Major Product Lines | ||||||||||||||||||||||||
Casino Gaming Revenues | $ | 8,486 | $ | 0 | $ | 8,486 | $ | 6,771 | $ | 0 | $ | 6,771 | ||||||||||||
Casino Non-Gaming Revenues | 1,087 | 0 | 1,087 | 784 | 0 | 784 | ||||||||||||||||||
Professional Services | 103 | 0 | 103 | 93 | 0 | 93 | ||||||||||||||||||
Aircraft Modification | 0 | 5,910 | 5,910 | 0 | 5,942 | 5,942 | ||||||||||||||||||
Aircraft Avionics | 0 | 665 | 665 | 0 | 625 | 625 | ||||||||||||||||||
Special Mission Electronics | 0 | 2,842 | 2,842 | 0 | 1,757 | 1,757 | ||||||||||||||||||
| $ | 9,676 | $ | 9,417 | $ | 19,093 | $ | 7,648 | $ | 8,324 | $ | 15,972 | |||||||||||||
Contract Types / Revenue Recognition Timing | ||||||||||||||||||||||||
Percentage of completion contracts | $ | 0 | $ | 5,703 | $ | 5,703 | $ | 0 | $ | 5,516 | $ | 5,516 | ||||||||||||
Goods or services transferred at a point of sale | 9,676 | 3,714 | 13,390 | 7,648 | 2,808 | 10,456 | ||||||||||||||||||
| $ | 9,676 | $ | 9,417 | $ | 19,093 | $ | 7,648 | $ | 8,324 | $ | 15,972 | |||||||||||||
Six Months Ended October 31, 2021 | Six Months Ended October 31, 2020 | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||
Professional Services | Aerospace Products | Total | Professional Services | Aerospace Products | Total | Professional Services | Aerospace Products | Total | Professional Services | Aerospace Products | Total | |||||||||||||||||||||||||||||||||||||
Geographical Markets | ||||||||||||||||||||||||||||||||||||||||||||||||
North America | $ | 19,401 | $ | 14,963 | $ | 34,364 | $ | 13,001 | $ | 13,085 | $ | 26,086 | $ | 8,962 | $ | 5,997 | $ | 14,959 | $ | 9,326 | $ | 7,443 | $ | 16,769 | ||||||||||||||||||||||||
Europe | 0 | 1,957 | 1,957 | 0 | 1,828 | 1,828 | - | 183 | 183 | - | 842 | 842 | ||||||||||||||||||||||||||||||||||||
Asia | 0 | 763 | 763 | 0 | 2 | 2 | - | 137 | 137 | - | 88 | 88 | ||||||||||||||||||||||||||||||||||||
Australia and Other | 0 | 153 | 153 | 0 | 1,045 | 1,045 | - | 25 | 25 | - | 46 | 46 | ||||||||||||||||||||||||||||||||||||
| $ | 19,401 | $ | 17,836 | $ | 37,237 | $ | 13,001 | $ | 15,960 | $ | 28,961 | $ | 8,962 | $ | 6,342 | $ | 15,304 | $ | 9,326 | $ | 8,419 | $ | 17,745 | |||||||||||||||||||||||||
Major Product Lines | ||||||||||||||||||||||||||||||||||||||||||||||||
Casino Gaming Revenues | $ | 17,074 | $ | 0 | $ | 17,074 | $ | 11,570 | $ | 0 | $ | 11,570 | $ | 7,816 | $ | - | $ | 7,816 | $ | 8,189 | $ | - | $ | 8,189 | ||||||||||||||||||||||||
Casino Non-Gaming Revenues | 2,163 | 0 | 2,163 | 1,293 | 0 | 1,293 | 1,077 | - | 1,077 | 1,066 | - | 1,066 | ||||||||||||||||||||||||||||||||||||
Professional Services | 164 | 0 | 164 | 138 | 0 | 138 | 69 | - | 69 | 71 | - | 71 | ||||||||||||||||||||||||||||||||||||
Aircraft Modification | 0 | 11,692 | 11,692 | 0 | 10,735 | 10,735 | - | 3,836 | 3,836 | - | 5,782 | 5,782 | ||||||||||||||||||||||||||||||||||||
Aircraft Avionics | 0 | 1,540 | 1,540 | 0 | 1,539 | 1,539 | - | 715 | 715 | - | 875 | 875 | ||||||||||||||||||||||||||||||||||||
Special Mission Electronics | 0 | 4,604 | 4,604 | 0 | 3,686 | 3,686 | - | 1,791 | 1,791 | - | 1,762 | 1,762 | ||||||||||||||||||||||||||||||||||||
| $ | 19,401 | $ | 17,836 | $ | 37,237 | $ | 13,001 | $ | 15,960 | $ | 28,961 | $ | 8,962 | $ | 6,342 | $ | 15,304 | $ | 9,326 | $ | 8,419 | $ | 17,745 | |||||||||||||||||||||||||
Contract Types / Revenue Recognition Timing | ||||||||||||||||||||||||||||||||||||||||||||||||
Percentage of completion contracts | $ | 0 | $ | 10,978 | $ | 10,978 | $ | 0 | $ | 9,560 | $ | 9,560 | $ | - | $ | 3,251 | $ | 3,251 | $ | - | $ | 5,275 | $ | 5,275 | ||||||||||||||||||||||||
Goods or services transferred at a point of sale | 19,401 | 6,858 | 26,259 | 13,001 | 6,400 | 19,401 | 8,962 | 3,091 | 12,053 | 9,326 | 3,144 | 12,470 | ||||||||||||||||||||||||||||||||||||
| $ | 19,401 | $ | 17,836 | $ | 37,237 | $ | 13,001 | $ | 15,960 | $ | 28,961 | $ | 8,962 | $ | 6,342 | $ | 15,304 | $ | 9,326 | $ | 8,419 | $ | 17,745 | |||||||||||||||||||||||||
Accounts Receivables, net, contract asset and contract liability were as follows (in thousands):
| October 31, | April 30, | July 31, | April 30, | |||||||||||||
2021 | 2021 | 2022 | 2022 | |||||||||||||
Accounts Receivable, net | $ | 3,566 | $ | 1,961 | $ | 3,615 | $ | 3,636 | ||||||||
Contract Asset | 1,101 | 421 | 1,144 | 1,470 | ||||||||||||
Contract Liability | 1,245 | 5,798 | 4,164 | 820 | ||||||||||||
Accounts receivable, net consist of $3,566$3,615 and $1,961$3,636 from customers as of OctoberJuly 31, 20212022 and April 30, 20212022, respectively. At OctoberJuly 31, 20212022 and April 30, 20212022, the allowance for doubtful accounts was $143$205 and $143,$205, respectively.
Contract assets are net of progress payments and performance based payments from our customers as well as advance payments from customers totaling $1,101$1,144 and $421$1,470 as of OctoberJuly 31, 20212022 and April 30, 20212022. Contract assets increased $680decreased $326 during the sixthree months ended OctoberJuly 31, 20212022, primarily due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the sixthree months ended OctoberJuly 31, 20212022 for which we have not yet billed our customers.. There were no significant impairment losses related to our contract assets during the sixthree months ended OctoberJuly 31, 20212022. We expect to bill our customers for the majority of the OctoberJuly 31, 20212022 contract assets during fiscal year end 2022.2023.
Contract liabilities decreased $4,553increased $3,344 during the sixthree months ended OctoberJuly 31, 20212022, primarily due to payments received in excess of the revenue recognized on these performance obligations in excess of payments received.obligations.
7. Inventories: Inventories are determined on a first-in, first-out basis, valued at lower of cost or net realizable value. Inventories include material, labor and factory overhead required in the production of our products.
Inventory obsolescence is examined on a regular basis. When determining our estimate of obsolescence, we consider inventory that has been inactive for five years or longer and the probability of using that inventory in future production. The obsolete inventory generally consists of Falcon and Learjet parts and electrical components. At OctoberJuly 31, 20212022 and April 30, 20212022, the estimate of obsolete inventory was $691$240 and $691$240 respectively.
8. Research and Development: We invested in research and development activities. The amount invested in the sixthree months ended OctoberJuly 31, 20212022 and 20202021 was $1,196$631 and $1,744$326 respectively.
9. Debt: At OctoberJuly 31, 20212022, the Company was utilizinghas a promissory noteline of credit with Kansas State Bank in the form of a linepromissory note with an interest rate of credit3.65% totaling $2,000. The unused line at OctoberJuly 31, 20212022 was $2,000. The interest rateThere were no advances made on this promissory note is 3.65%the line of credit during the three months ended July 31, 2022. The line of credit is due on demand and is collateralized by the first and second positions on all assets of the Company.
At OctoberJuly 31, 20212022, there was oneOne note with Academy Bank, N.A. for $32,229 (net of unamortized deferred finance costs of $252) collateralized by all of BHCMC's assets and compensation due under the State Managementmanagement contract with an interest rate of 5.32% payable over seven years with an initial twenty-year amortization and a balanceballoon payment of $33,254$19,250 at the end of seven years. The second note with Academy Bank, N.A. for $12,097 (net of unamortized deferred finance costs of $287). The interest rate on this note is 5.32%. This note matures in December 2027, with a balloon payment of $19,250.
At October 31, 2021, there was one note$118) collateralized by all of BHCMC's assets and compensation due under the State Managementmanagement contract with a balance of $13,810 (net of unamortized deferred finance costs of $140). Thean interest rate on this note is 5.83%. This note maturesof 5.75% payable in full over five years. These notes contain a covenant to maintain a debt service coverage ratio of 1.3 to October 2026.1.0. These notes also contain a liquidity covenant requiring the Company to maintain an aggregate sum of $1.5 million of unrestricted cash. We are in compliance with these covenants at July 31, 2022.
At OctoberJuly 31, 20212022, there was one note with 1st Source Bank with an interest rate of 6.25% collateralized by aircraft security agreements totaling $841.$377. This note was used for the purchase and modifications of collateralized aircraft. This note matures in January 2023.
At OctoberJuly 31, 20212022, there is one note with Fidelity State Bank and Trust Company totaling $191$175 collateralized by real estate in Dodge City, Kansas. The interest rate on this note is 6.25%. This note matures in June 2024.
At OctoberJuly 31, 2021, there is one note collateralized by equipment with a balance of $11. The interest rate on this note is 4.5%. This note matures in April 2022.
At October 31, 20212022, there is a note payable with Bank of America, N.A. collateralized by real estate with a balance of $1,187.$1,067. The interest rate on this note is at LIBORSOFR plus 1.75%. This note matures in March 2029.
At OctoberJuly 31, 20212022, there is a note payable with Bank of America, N.A. collateralized by real estate with a balance of $544.$489. The interest rate on this note is at LIBORSOFR plus 1.75%. This note matures in March 2029.
At July 31, 2022, there is a note payable with Patriots Bank collateralized by aircraft security agreements with a balance of $1,160. The interest rate on this note is 4.35%. This note matures in March 2029.
At July 31, 2022, there is a note payable with an interest rate of 8.13% collateralized by equipment with a balance of $50. This note matures in October 2025.
In May 2020, the Company received a Paycheck Protection Program (PPP) loan for $2,001. In June 2021, the Company received notice of forgiveness from the Small Business Administration.
We are not in default of any of our notes as of OctoberJuly 31, 20212022.
We believe that our current banks will provide the necessary capital for our business operations. However, we continue to maintain contact with other banks that have an interest in funding our working capital needs to continue our growth in operations in 20212022 and beyond.
10. Other Assets: Our other asset account includes assets of $5,500 related to the Kansas Expanded Lottery Act Management Contract privilege fee, $5,980$6,224 of gaming equipment we were required to pay for ownership by the State of Kansas Lottery, JET autopilot intellectual property of $1,417 and miscellaneous other assets of $127.$128. BHCMC expects the $5,500 privilege fee to have a value over the remaining life of the initial Management Contract with the State of Kansas which will end in December 2024. The State of Kansas approved a renewal management contract and an amendment to the current management contract for our Professional Services company BNSC via BHCMC. The renewal will take effect December 15, 2024, and continue to 2039, another 15 years. The Managers Certificate asset for use of gaming equipment is being amortized over a period of three years based on the estimated useful life of gaming equipment. The JET intellectual property is being amortized over a period of fifteen years.
11. Stock Options and Incentive Plans:
In November 2016, the shareholders approved and adopted the Butler National Corporation 2016 Equity Incentive Plan. The maximum number of shares of common stock that may be issued under the Plan is 12.5 million.
On April 12, 2019, the Company granted 2.5 million restricted shares to employees. These shares have voting rights at date of grant and become fully vested and nonforfeitable on April 11, 2024. The restricted shares were valued at $0.38 per share, for a total of $950. On March 17, 2020, the Company granted 5.0 million restricted shares to employees. These shares have voting rights at date of grant and become fully vested and non-forfeitable on March 16, 2025. The restricted shares were valued at $0.41 per share, for a total of $2.0 million. The deferred compensation related to these grants will be expensed on the financial statements over the five year vesting period.
In July 2022, the Company granted a board member 400,000 shares under the plan. These shares were fully vested and nonforfeitable on the date of grant. These shares were valued at $0.88 per share, for a total of $352. The compensation related to this grant was expensed in the current period. No other equity awards have been made under the plan.
For the sixthree months ended OctoberJuly 31, 20212022 and OctoberJuly 31, 20202021, the Company expensed $297$484 and $300,$148, respectively.
Number of Shares | Weighted Average Grant Date Fair Value | |||||||
Total shares issued | 7,900,000 | $ | 0.42 | |||||
Forfeited, in prior periods | (50,000 | ) | $ | 0.40 | ||||
Forfeited, during the year ended April 30, 2022 | (50,000 | ) | $ | 0.40 | ||||
Forfeited, during the quarter ended July 31, 2022 | (75,000 | ) | $ | 0.40 | ||||
Total | 7,725,000 | $ | 0.42 | |||||
12. Stock Repurchase Program
The Board of Directors approved a stock purchase program authorizing the repurchase of up to $4,000 of its common stock. The timing and amount of any share repurchases will be determined by Butler National’s management based on market conditions and other factors. The program is currently authorized through May 1, 2022.2023.
The table below provides information with respect to common stock purchases by the Company through OctoberJuly 31, 20212022.
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||||
Shares purchased in prior periods | 2,933,415 | $ | 0.37 | 2,933,415 | $ | 2,911 | 3,103,633 | $ | 0.38 | 3,103,633 | $ | 2,823 | ||||||||||||||||||||
Quarter ended October 31, 2020 (a) | 152,915 | $ | 0.50 | 152,915 | $ | 2,835 | ||||||||||||||||||||||||||
Quarter ended January 31, 2021 (a) | 0 | $ | 0 | 0 | $ | 2,835 | ||||||||||||||||||||||||||
Quarter ended April 30, 2021 (a) | 17,303 | $ | 0.65 | 17,303 | $ | 2,823 | ||||||||||||||||||||||||||
Quarter ended July 31, 2021 (a) | 0 | $ | 0 | 0 | $ | 2,823 | - | $ | - | - | $ | 2,823 | ||||||||||||||||||||
Quarter ended October 31, 2021 (a) | 6,290 | $ | 0.62 | 6,290 | $ | 2,819 | 6,290 | $ | 0.62 | 6,290 | $ | 2,819 | ||||||||||||||||||||
Quarter ended January 31, 2022 (a) | - | $ | - | - | $ | 2,819 | ||||||||||||||||||||||||||
Quarter ended April 30, 2022 (a) | 180,503 | $ | 0.91 | 180,503 | $ | 2,655 | ||||||||||||||||||||||||||
Quarter ended July 31, 2022 (a) | 1,639 | $ | 0.84 | 1,639 | $ | 2,653 | ||||||||||||||||||||||||||
Total | 3,109,923 | $ | 0.38 | 3,109,923 | 3,292,065 | $ | 0.41 | 3,292,065 | ||||||||||||||||||||||||
(a) | These shares of common stock were purchased through a private transaction |
13. Lease Right-to-Use
On May 1, 2019, the Company adopted ASU 2016-02 Leases – Topic 842. ASU 2016-02 requires that on the balance sheet a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.
We lease hangars and office space with initial lease terms of twofive, fiveforty-six, and fifty years.
October 31, 2021 | July 31, 2022 | |||||||
Lease right-to-use assets | $ | 3,099 | $ | 3,781 | ||||
Less accumulated depreciation | 531 | 558 | ||||||
Total | $ | 2,568 | $ | 3,223 | ||||
Future minimum lease payments for assets under capitalfinance leases at OctoberJuly 31, 2022 are as follows:
2023 | $ | 260 | ||
2024 | 252 | |||
2025 | 114 | |||
2026 | 116 | |||
2027 | 119 | |||
Thereafter | 12,918 | |||
Total minimum lease payments | 13,779 | |||
Less amount representing interest | 10,252 | |||
Present value of net minimum lease payments | 3,527 | |||
Less current maturities of lease liability | 136 | |||
Lease liability, net of current maturities | $ | 3,391 |
Finance lease costs at July 31, 2022 and July 31, 2021 are as follows:
2022 | $ | 247 | ||
2023 | 252 | |||
2024 | 204 | |||
2025 | 104 | |||
2026 | 106 | |||
Thereafter | 7,067 | |||
Total minimum lease payments | 7,980 | |||
Less amount representing interest | 5,171 | |||
Present value of net minimum lease payments | 2,809 | |||
Less current maturities of lease liability | 103 | |||
Lease liability, net of current maturities | $ | 2,706 |
FinanceLeaseCost | ||||||||
July 31, 2022 | July 31, 2021 | |||||||
Finance lease cost: | ||||||||
Amortization of right-of-use assets | $ | 46 | $ | 52 | ||||
Interest on lease liabilities | 45 | 38 | ||||||
Total finance lease cost | $ | 91 | $ | 90 | ||||
July 31, 2022 | July 31, 2021 | |||||||
Weighted average remaining lease term - Financing leases | 46 years | 44 years | ||||||
Weighted average discount rate - Financing leases | 5.8 | % | 5.0 | % | ||||
14. Purchase of Noncontrolling Interest:
On October 18, 2021, Butler National Service Corporation (“BNSC”), a wholly-owned subsidiary of Butler National Corporation (“Company”), acquired the remaining BHCMC equity and the Company now indirectly owns 100% of BHCMC. BNSC acquired the remaining BHCMC equity from BHC Investment Company L.C. (“Seller”) for approximately $16.4 million paid at closing (the “Transaction”).
The closing was effected pursuant to a Sale and Purchase Agreement for Preferred Member Interest Units between Seller and BNSC (“Purchase Agreement”). BNSC and Seller agreed to utilize an effective date for the Transaction of August 1, 2021.
The Transaction purchase price was paid by a combination of available cash and an $8.0$8.0 million borrowing on a commercial loan with Academy Bank, N.A. (“Academy Bank”). BHCMC executed a Loan Modification Agreement with Academy, dated October 18, 2021 (“Manager Loan”) and BNSC executed a guaranty of the obligations thereunder. The Manager Loan amended and restated the original $7.0$7.0 million loan executed December 22, 2020 with Academy to acquire the casino land and buildings. The other $35$35 million loan executed in connection with the casino land acquisition in 2020 was unchanged by the Transaction. As a result, of July 31, 2022, approximately $13.8$12.1 million is outstanding under the Manager Loan and it remains collateralized by real estate in Dodge City with an interest rate of 5.75% fully amortizing over five years. The Manager Loan will now mature on October 18, 2026.
The following table summarizes the purchase price and accounting of the transaction:
Purchase Price Summary: | ||||
Secured notes payable, net of financing costs | $ | 7,914 | ||
Forgiven note receivable from seller | 780 | |||
Cash paid | 7,659 | |||
Total | $ | 16,353 | ||
Accounting Summary: | ||||
Capital contributed in excess of par | $ | 6,119 | ||
Book basis of the noncontrolling interest in BHCMC, LLC | 7,890 | |||
Deferred tax asset related to step up in basis | 2,344 | |||
Total | $ | 16,353 |
15. Segment Reporting and Sales by Major Customer:
Industry Segmentation
Current Activities - The Company focuses on two primary activities, Professional Services and Aerospace Products.
Aerospace Products:
Aircraft Modifications principally includes the modification of customer and company owned business-size aircraft for specific operations or special missions such as addition of aerial photography capabilities and ISR modifications. We provide these services through our subsidiary, Avcon Industries, Inc. ("Aircraft Modifications" or "Avcon").
Special mission electronics principally includes the manufacture, sale, and service of electronics upgrades for classic weapon control systems used on commercial and military aircraft and vehicles. We provide the products through our subsidiary, Butler National Corporation - Tempe, Arizona.
Butler Avionics sells, installs and repairs aircraft avionics equipment (airplane radio equipment and flight control systems). These systems are flight display systems which include intuitive touchscreen controls with large display that enhance pilot situational awareness and give users unprecedented access to high-resolution terrain mapping, graphical flight planning, geo-referenced charting, traffic display, satellite weather and much more. Butler Avionics is also recognized nationwide for its troubleshooting and repair work particularly on autopilot systems.
Professional Services:
Butler National Service Corporation ("BNSC") provides management services to the Boot Hill Casino, a "state-owned casino".
BCS Design, Inc. provides licensed architectural services. These services include commercial and industrial building design.
Three Months Ended October 31, 2021 | Gaming | Aircraft Modification | Aircraft Avionics | Special Mission Electronics | Other | Total | ||||||||||||||||||||||||||||||||||||||||||
Three Months Ended July 31, 2022 | Gaming | Aircraft Modification | Aircraft Avionics | Special Mission Electronics | Other | Total | ||||||||||||||||||||||||||||||||||||||||||
Revenues from customers | $ | 9,573 | $ | 5,910 | $ | 665 | $ | 2,842 | $ | 103 | $ | 19,093 | $ | 8,893 | $ | 3,836 | $ | 715 | $ | 1,791 | $ | 69 | $ | 15,304 | ||||||||||||||||||||||||
Interest expense | 576 | 53 | 0 | 5 | 6 | 640 | 642 | 66 | - | 7 | 8 | 723 | ||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 574 | 44 | 1 | 37 | 49 | 705 | 626 | 53 | 2 | 39 | 51 | 771 | ||||||||||||||||||||||||||||||||||||
Operating income (loss) | 3,075 | 1,245 | (114 | ) | 1,485 | (948 | ) | 4,743 | 2,642 | 54 | 48 | 616 | (1,735 | ) | 1,625 | |||||||||||||||||||||||||||||||||
Three Months Ended October 31, 2020 | Gaming | Aircraft Modification | Aircraft Avionics | Special Mission Electronics | Other | Total | ||||||||||||||||||
Revenues from customers | $ | 7,555 | $ | 5,942 | $ | 625 | $ | 1,757 | $ | 93 | $ | 15,972 | ||||||||||||
Interest expense | 982 | 65 | 0 | 6 | 12 | 1,065 | ||||||||||||||||||
Depreciation and amortization | 954 | 47 | 1 | 33 | 40 | 1,075 | ||||||||||||||||||
Operating income (loss) | 1,621 | 471 | (98 | ) | 520 | (827 | ) | 1,687 | ||||||||||||||||
Six Months Ended October 31, 2021 | Gaming | Aircraft Modification | Aircraft Avionics | Special Mission Electronics | Other | Total | ||||||||||||||||||
Revenues from customers | $ | 19,237 | $ | 11,692 | $ | 1,540 | $ | 4,604 | $ | 164 | $ | 37,237 | ||||||||||||
Interest expense | 1,124 | 108 | 0 | 11 | 11 | 1,254 | ||||||||||||||||||
Depreciation and amortization | 1,152 | 89 | 3 | 70 | 93 | 1,407 | ||||||||||||||||||
Operating income (loss) | 6,619 | 2,388 | (133 | ) | 1,988 | (2,097 | ) | 8,765 | ||||||||||||||||
Six Months Ended October 31, 2020 | Gaming | Aircraft Modification | Aircraft Avionics | Special Mission Electronics | Other | Total | ||||||||||||||||||||||||||||||||||||||||||
Three Months Ended July 31, 2021 | Gaming | Aircraft Modification | Aircraft Avionics | Special Mission Electronics | Other | Total | ||||||||||||||||||||||||||||||||||||||||||
Revenues from customers | $ | 12,863 | $ | 10,735 | $ | 1,539 | $ | 3,686 | $ | 138 | $ | 28,961 | $ | 9,255 | $ | 5,782 | $ | 875 | $ | 1,762 | $ | 71 | $ | 17,745 | ||||||||||||||||||||||||
Interest expense | 1,484 | 132 | 0 | 14 | 23 | 1,653 | 548 | 55 | - | 6 | 5 | 614 | ||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 1,882 | 93 | 3 | 65 | 75 | 2,118 | 578 | 45 | 2 | 33 | 44 | 702 | ||||||||||||||||||||||||||||||||||||
Operating income (loss) | 1,011 | 1,387 | 102 | 1,119 | (1,804 | ) | 1,815 | 3,544 | 1,143 | (19 | ) | 503 | (1,149 | ) | 4,022 | |||||||||||||||||||||||||||||||||
Our Chief Operating Decision Maker (CODM) does not evaluate operating segments using asset or liability information.
Major Customers: Revenue from major customers (10 percent or more of consolidated revenue) were as follows:
Six Months Ended October 31, 2021 | Six Months Ended October 31, 2020 | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | |||||||||||||
Aerospace Products – two customers in the six months ended October 31, 2021, no customers in the six months ended October 31, 2020 | 23.3 | % | 0 | |||||||||||||
Aerospace Products – one customer in the three months ended July 31, 2022, one customer in the three months ended July 31, 2021 | 11.7 | % | 10.7 | % | ||||||||||||
Professional Services | 0 | 0 | - | - | ||||||||||||
In the sixthree months ended OctoberJuly 31, 20212022 the Company derived 34.4%28.7% of total revenue from five Aerospace customers. The top customer provided 12.4%11.7% of total revenue while the next top four customers ranged from 2.6%2.2% to 10.9%9.8%.
The pandemic caused by the disease COVID-19 washas caused volatility in world-wide financial markets since first reported in Wuhan, China in December 2019 and has since spread throughout the world. Financial markets have been volatile in 2020, and 2021, primarily due to uncertainty with respect to the severity and duration of the pandemic.
The Although many experts believe the pandemic resultedhas ended in federal, state2022, the threat of outbreaks and local governments around the world implementing increasingly stringent measures to help control the spreadnew variations of the virus including quarantines, “shelter in place”continue to affect operations and “stay at home” orders, travel restrictions or bans, business curtailments, school closures, and other protective measures.finances of businesses like ours.
Our aerospace segment qualified as “essential” under applicable federal guidance and state orders. The facilities have continued operations. We are enforcing social distancing and enhanced health, safety and sanitization measures in accordance with guidelines from the Center for Disease Control (the “CDC”).
Our professional services operations at the Boot Hill Casino & Resort was forced to close from March 18, 2020 thru May 21, 2020. The casino reopened to the public on May 22, 2020 with reduced hours to allow for extra time for cleaning and sanitizing in accordance with CDC guidelines and limited number of games and food offerings. We are also continuing to enforce social distancing measures throughout the casino and are subject to state mandated restrictions. Since reopening the Boot Hill Casino & Resort we have experienced lower customer headcount, which has been off-set by a larger net revenue per customer. We are experiencing, and expect to continue experiencing, lower demand for our professional services and increased costs and other challenges related to COVID-19 that adversely affects our business.
The COVID-19 pandemic has impacted our business operations and financial results beginning in the fourth quarter of fiscal 2020and continues to impact us.us in fiscal 2023. We face numerous uncertainties in estimating the direct and indirect effects on our present and future business operations, financial condition, results of operations, and liquidity. Due to several rapidly changing variables related to the COVID-19 pandemic, we cannot reasonably estimate future economic trends and the timing of when stability will return. Refer to Item 1A. “Risk Factors” for a disclosure of risk factors related to COVID-19.
As schools, businesses and the economy in general have slowly reopened,recovers, and vaccinations rates in our operating territory improve and new infections decline, we have continued to see improvements in customer headcount. However, the unpredictable nature of the pandemic could again lead to closures, decreased traffic and demand, and increased COVID-19- related operating expenses, for the foreseeable future. While COVID-19 has resulted in, and will continue to bring, significant challenges and uncertainty to our operating environment, we believe that our resilient business model and the strength of our brand and balance sheet position us well to emerge from the pandemic.
17. Extension of the Shareholder Rights Plan:
On July 22, 2021, the Company extended the shareholder rights plan between the Company and UMB Bank, N.A. as rights agent dated as of August 2, 2011 (the “Rights Plan”). The Rights Plan is intended to protect the interests of the Company’s stockholders and enable them to realize the full potential value of their investment by reducing the likelihood that any person or group gains control of the Company, through open market accumulation or other tactics, without appropriately compensating all stockholders. Pursuant to the Rights Plan, the Company issued, by means of a dividend, one preferred share purchase right (a "Right") for each outstanding share of our Common Stock to shareholders of record on the close of business on August 2, 2011. Shares issued after August 2, 2011 also include one Right. Until a triggering event, these Rights will trade with, and be represented by, the shares of our Common Stock. The Rights will generally become exercisable only if any person (or any persons acting as a group) acquires 15% or more of our outstanding Common Stock (the “Acquiring Person”) in a transaction not approved by the Board, subject to certain exceptions.
If the Rights become exercisable, all holders of Rights, other than the Acquiring Person, will be entitled to acquire shares of the Company’s common stock at a 50% discount. In such situation, Rights held by the Acquiring Person would become void and will not be exercisable.
Each Right entitles the registered holder to purchase from the Company one two-hundredth of a share of Series C Participating Preferred Stock, par value $5.00 per share (the “Preferred Shares”), of the Company at a price of $10 per one two-hundredth of a Participating Preferred Share represented by a Right (the “Purchase Price”), subject to adjustment. Unless a triggering event occurs, the value of the Right is considered de minimis.
Unless earlier redeemed, terminated or exchanged pursuant to the terms of the Rights Plan, or the Rights Plan is extended, the Rights will expire at the close of business on August 2, 2031. The Board may terminate the Rights Plan before that date if the Board determines that there is no longer a threat to shareholder value.
18. Subsequent Events:
Effective September 1, 2022, the Kansas Lottery launched the operation of intrastate sports wagering. The Company is currently managing online sports wagering on behalf of the Kansas Lottery through DraftKings sports wagering platform. At this time, the Company cannot reasonably quantify the impact on the financial statements.
The Company evaluated its OctoberJuly 31, 20212022 financial statements for subsequent events through the filing date of this report. The Company is not aware of any other subsequent events that would require recognition or disclosure in the consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THROUGHOUT THIS ITEM 2 ALL NON TABULAR FINANCIAL RESULTS ARE PRESENTED IN THOUSANDS OF U.S. DOLLARS EXCEPT WHERE MILLIONS OF DOLLARS IS INDICATED.
Forward-Looking Statements
Statements made in this report, other reports and proxy statements filed with the Securities and Exchange Commission, communications to stockholders, press releases, and oral statements made by representatives of the Company that are not historical in nature, or that state the Company or management intentions, hopes, beliefs, expectations or predictions of the future, may constitute "forward-looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements can often be identified by the use of forward-looking terminology, such as "could," "should," "will," "intended," "continue," "believe," "may," "expect," "hope," "anticipate," "goal," "forecast," "plan," "guidance" or "estimate" or the negative of these words, variations thereof or similar expressions. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties, and assumptions. It is important to note that any such performance and actual results, financial condition or business, could differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A (Risk Factors) of the Annual Report on Form 10-K for the fiscal year ended April 30, 2021,2022, and elsewhere herein or in other reports filed with the SEC. Other unforeseen factors not identified herein could also have such an effect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time.
The forward-looking statements in this report are only predictions and actual events or results may differ materially. In evaluating such statements, a number of risks, uncertainties and other factors could cause actual results, performance, financial condition, cash flows, prospects and opportunities to differ materially from those expressed in, or implied by, the forward-looking statements. These risks, uncertainties and other factors include those set forth in Item 1A (Risk Factors) of the Annual Report on Form 10-K for the fiscal year ended April 30, 2021,2022, including the following factors:
| ● | the geographic location of our casino; | |
● | customer concentration risk; |
● | executive officers are family members; |
● | industrial business cycles; |
● | fixed-price contracts; |
● | development, production, testing and marketing of new products; |
● | loss of key personnel; |
● | risks associated with international sales; |
● | future acquisitions and investments; |
● | change of control restrictions; |
| ● | launching new online gaming or sports wagering channels; | |
| ● | ability to generate returns on sports wagering operations; | |
| ● | fraud, theft, and cheating; | |
● | cyber-security threats; |
● | extensive regulation across our industries; |
| ● | evolving government regulations and law; | |
● | changes in regulations of financial reporting; |
● | the stability of |
● | potential impairment losses; |
● | marketability restrictions of our common stock; |
● | the possibility of a reverse-stock split; |
● | stock dilution caused by the annual employer match to our 401(k) plan; |
● | market competition; |
● | acts of terrorism and war; |
| ● | inclement weather and natural disasters; | |
● | pandemics or other national health crisis (including COVID-19); |
● | fluctuating fuel and energy costs; |
| ● | rising inflation; | |
● | extensive taxation; |
Except as expressly required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this report. Results of operations in any past period should not be considered indicative of the results to be expected for future periods. Fluctuations in operating results may also result in fluctuations in the price of the Company's common stock.
Investors should also be aware that while the Company, from time to time, communicates with securities analysts; it is against its policy to disclose any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the Company has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of Butler National Corporation.
Management Overview
Management is focused on increasing long-term shareholder value from increased cash generation, earnings growth, and prudently managing capital expenditures. We plan to do this by continuing to drive increased revenue from product and service innovations, strategic acquisitions, and targeted marketing programs.
We have two separate reporting segments: Aerospace Products and Professional Services. Aerospace Products and Professional Services do not share the same customers and suppliers and have substantially distinct businesses. The Aerospace Products operating segment provides products and services in the aerospace industry. Companies in Aerospace Products derive their revenue from system design, engineering, manufacturing, integration, installation, repairing, overhauling, servicing and distribution of aerostructures, avionics, aircraft components, accessories, subassemblies and systems. The Professional Services operating segment provides services in the gaming industry. Professional Services companies manage a gaming and entertainment facility and provide architectural and engineering services. These reporting segments operate through various subsidiaries and affiliates listed in the Company’s fiscal year 20212022 Annual Report on Form 10-K.
Aerospace Products. The Aerospace Products segment includes the manufacture, sale and service of electronic equipment and systems and technologies to enhance and support products related to aircraft. Additionally, we also operate several Federal Aviation Administration (the "FAA") Repair Stations. Companies in Aerospace Products concentrate on Learjet, Beechcraft King Air, Cessna turbine engine, Cessna multi-engine piston and Dassault Falcon 20 aircraft. Specifically, the design, distribution and support for products for older aircraft, or “Classic” aircraft are areas of focus for companies in Aerospace Products.
Products. The products that the companies within this group design, engineer, manufacture, integrate, install, repair and service include:
| ● | Aerial surveillance products | ● | GARMIN GTN Global Position System Navigator with Communication Transceiver | |
| ● | Aerodynamic enhancement products | ● | J.E.T autopilot products | |
| ● | Airspeed and altimeter systems | ● | Electrical systems and switching equipment | |
| ● | Avcon Fins | ● | Noise suppression systems | |
| ● | ADS-B (transponder) systems | ● | Rate gyroscopes | |
| ● | Conversion of passenger configurations to cargo | ● | Replacement vertical accelerometers | |
| ● | Cargo/sensor carrying pods and radomes | ● | Provisions for external stores | |
| ● | Electronic navigation instruments, radios and transponders | ● | Attitude heading reference systems |
Modifications. The companies in Aerospace Products have authority pursuant to Federal Aviation Administration Supplemental Type Certificates (“STCs”) and Parts Manufacturer Approval (“PMA”), to build required parts and subassemblies and to make applicable installations. Companies in Aerospace Products perform modifications in the aviation industry including:
| ● | Aerial photograph capabilities | ● | Extended tip fuel tanks | |
| ● | Aerodynamic improvements | ● | Radar systems | |
| ● | Avionics systems | ● | ISR – Intelligence Surveillance Reconnaissance | |
| ● | Cargo doors | ● | Special mission modifications | |
| ● | Conversion from passenger to freighter configuration | ● | Stability enhancements | |
| ● | Extended doors | ● | Traffic collision avoidance systems |
Special Mission Electronics. We supply defense-related, commercial off-the-shelf products to various commercial entities and government agencies and subcontractors in order to update or extend the useful life of aircraft with older components and technology. These products include:
| ● | Cabling | ● | HangFire Override Modules | |
| ● | Electronic control systems | ● | Test equipment | |
| ● | Gun Control Units for Apache and Blackhawk helicopters | ● | Gun Control Units for land and sea based military vehicles |
Professional Services. The Professional Services segment includes the management of a gaming facility and related dining and entertainment facilities in Dodge City, Kansas. Boot Hill Casino and Resort features approximately 645450 slot machines and 20 table games. Due to COVID-19, Boot Hill Casino and Resort currently operates 520 slot machines and 1614 table games. Companies in Professional Services also provide licensed architectural services, including commercial and industrial building design, and engineering services.
Boot Hill. Butler National Service Corporation (“BNSC”), viaand BHCMC, LLC (“BHCMC”), a company in Professional Services, has managedmanages The Boot Hill Casino and Resort in Dodge City, Kansas (“Boot Hill”) since 2009 pursuant to the Lottery Gaming Facility Management Contract, by and among BNSC, BHCMC and the Kansas Lottery, originally dated December 8, 2009, as subsequently amended (“Boot Hill Agreement”). As required by Kansas law, all games, gaming equipment and gaming operations, including sports wagering, at Boot Hill are owned and operated by the Kansas Lottery. In July 2022, in anticipation of the legalization of sports wagering in the state of Kansas, the Company entered into provider contracts for sports wagering platforms with DraftKings, Golden Nugget Online Gaming LLC, and Bally Corporation subject to regulatory approval.
Architectural and Engineering Services. Companies in Professional Services provide licensed architectural, including commercial and industrial building design, and engineering services.
COVID-19 Overview
The pandemic caused by the disease COVID-19 was first reportedhas caused volatility in Wuhan, China in December 2019 and hasworld-wide financial markets since spread throughout the world. Financial markets have been volatile in 2020, and 2021, primarily due to uncertainty with respect to the severity and duration of the pandemic.
The Although many experts believe the pandemic resultedhas ended in federal, state2022, the threat of outbreaks and local governments around the world implementing increasingly stringent measures to help control the spreadnew variations of the virus including quarantines, “shelter in place”continue to affect operations and “stay at home” orders, travel restrictions or bans, business curtailments, school closures, and other protective measures.finances of businesses like ours.
Our aerospace segment qualified as “essential” under applicable federal guidance and state orders. The facilities have continued operations. We are enforcing social distancing and enhanced health, safety and sanitization measures in accordance with guidelines from the Center for Disease Control (the “CDC”).
Our professional services operations at the Boot Hill Casino & Resort was forced to close from March 18, 2020 thru May 21, 2020. The casino reopened to the public on May 22, 2020 with reduced hours to allow for extra time for cleaning and sanitizing in accordance with CDC guidelines and limited number of games and food offerings. We are also continuing to enforce social distancing measures throughout the casino and are subject to state mandated restrictions. Since reopening the Boot Hill Casino & Resort we have experienced lower customer headcount, which has been off-set by a larger net revenue per customer. We are experiencing, and expect to continue experiencing, lower demand for our professional services and increased costs and other challenges related to COVID-19 that adversely affects our business.
The COVID-19 pandemic has impacted our business operations and financial results beginning in the fourth quarter of fiscal 2020 and continues to impact us.us in fiscal 2023. We face numerous uncertainties in estimating the direct and indirect effects on our present and future business operations, financial condition, results of operations, and liquidity. Due to several rapidly changing variables related to the COVID-19 pandemic, we cannot reasonably estimate future economic trends and the timing of when stability will return. Refer to Item 1A. “Risk Factors” for a disclosure of risk factors related to COVID-19.
As schools, businesses and the economy in general have slowly reopened,recovers, and vaccinations rates in our operating territory improve and new infections decline, we have continued to see improvements in customer headcount. However, the unpredictable nature of the pandemic could again lead to closures, decreased traffic and demand, and increased COVID-19- related operating expenses, for the foreseeable future. While COVID-19 has resulted in, and will continue to bring, significant challenges and uncertainty to our operating environment, we believe that our resilient business model and the strength of our brand and balance sheet position us well to emerge from the pandemic.
Results Overview
The sixthree months ended OctoberJuly 31, 20212022 revenue increased 29%decreased 14% to $37.2$15.3 million compared to $29.0$17.7 million in the sixthree months ended OctoberJuly 31, 2020.2021. In the sixthree months ended OctoberJuly 31, 20212022 the professional services revenue was $19.4$9.0 million compared to $13.0$9.3 million in the sixthree months ended OctoberJuly 31, 2020, an increase2021, a decrease of 49%4%. In the sixthree months ended OctoberJuly 31, 20212022 the Aerospace Products revenue was $17.8$6.3 million compared to $16.0$8.4 million in the sixthree months ended OctoberJuly 31, 2020, an increase2021, a decrease of 12%25%.
The sixthree months ended OctoberJuly 31, 20212022 net income increaseddecreased to $6.1 million$431 compared to a net income of $306$2.9 million in the sixthree months ended OctoberJuly 31, 2020.2021. The sixthree months ended OctoberJuly 31, 2021,2022, operating income increaseddecreased to $8.8$1.6 million from an operating income of $1.8$4.0 million in the sixthree months ended OctoberJuly 31, 2020.2021.
RESULTS OF OPERATIONS
SIXTHREE MONTHS ENDED OCTOBERENDING JULY 31, 20212022 COMPARED TO SIXTHREE MONTHS ENDED OCTOBERENDING JULY 31, 20202021
(dollars in thousands) | Six Months Ended October 31, 2021 | Percent of Total Revenue | Six Months Ended October 31, 2020 | Percent of Total Revenue | Percent Change 2020-2021 | |||||||||||||||
Revenue: | ||||||||||||||||||||
Professional Services | $ | 19,401 | 52 | % | $ | 13,001 | 45 | % | 49 | % | ||||||||||
Aerospace Products | 17,836 | 48 | % | 15,960 | 55 | % | 12 | % | ||||||||||||
Total revenue | 37,237 | 100 | % | 28,961 | 100 | % | 29 | % | ||||||||||||
Costs and expenses: | ||||||||||||||||||||
Costs of Professional Services | 7,578 | 20 | % | 6,828 | 24 | % | 11 | % | ||||||||||||
Cost of Aerospace Products | 11,939 | 32 | % | 11,788 | 41 | % | 1 | % | ||||||||||||
Marketing and advertising | 2,471 | 6 | % | 1,845 | 6 | % | 34 | % | ||||||||||||
Employee benefits | 1,121 | 3 | % | 1,151 | 4 | % | -3 | % | ||||||||||||
Depreciation and amortization | 1,407 | 4 | % | 2,118 | 7 | % | -34 | % | ||||||||||||
General, administrative and other | 3,956 | 11 | % | 3,416 | 12 | % | 16 | % | ||||||||||||
Total costs and expenses | 28,472 | 76 | % | 27,146 | 94 | % | 5 | % | ||||||||||||
Operating income | $ | 8,765 | 24 | % | $ | 1,815 | 6 | % | 383 | % | ||||||||||
(dollars in thousands) | Three Months Ended July 31, 2022 | Percent of Total Revenue | Three Months Ended July 31, 2021 | Percent of Total Revenue | Percent Change 2021-2022 | |||||||||||||||
Revenue: | ||||||||||||||||||||
Professional Services | $ | 8,962 | 59 | % | $ | 9,326 | 53 | % | -4 | % | ||||||||||
Aerospace Products | 6,342 | 41 | % | 8,419 | 47 | % | -25 | % | ||||||||||||
Total revenue | 15,304 | 100 | % | 17,745 | 100 | % | -14 | % | ||||||||||||
Costs and expenses: | ||||||||||||||||||||
Costs of Professional Services | 3,623 | 24 | % | 3,325 | 19 | % | 9 | % | ||||||||||||
Cost of Aerospace Products | 4,827 | 31 | % | 6,012 | 34 | % | -20 | % | ||||||||||||
Marketing and advertising | 1,331 | 9 | % | 1,180 | 6 | % | 13 | % | ||||||||||||
Employee benefits | 614 | 4 | % | 575 | 3 | % | 7 | % | ||||||||||||
Depreciation and amortization | 771 | 5 | % | 702 | 4 | % | 10 | % | ||||||||||||
General, administrative and other | 2,513 | 16 | % | 1,929 | 11 | % | 30 | % | ||||||||||||
Total costs and expenses | 13,679 | 89 | % | 13,723 | 77 | % | 0 | % | ||||||||||||
Operating income | $ | 1,625 | 11 | % | $ | 4,022 | 23 | % | -60 | % | ||||||||||
Revenue:
Revenueincreased 29% decreased 14% to $37.2$15.3 million in the sixthree months ended OctoberJuly 31, 2021,2022, compared to $29.0$17.7 million in the sixthree months ended OctoberJuly 31, 2020.2021. See "Operations by Segment" below for a discussion of the primary reasons for the increasedecrease in revenue.
● | Professional Services derives its revenue from (a) professional management services in the gaming industry through Butler National Service Corporation ("BNSC") and BHCMC, LLC ("BHCMC"), and (b) professional architectural, engineering and management support services. Revenue from Professional Services |
● | Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft. Aerospace Products revenue |
Costs and expenses:
Costs and expenses related to Professional Services and Aerospace Products include the cost of engineering, labor, materials, equipment utilization, control systems, security and occupancy. Costs and expenses increased 5%remained constant in the sixthree months ended OctoberJuly 31, 2021 to $28.52022 at $13.7 million compared to $27.1$13.7 million in the sixthree months ended OctoberJuly 31, 2020.2021. Costs and expenses were 76%89% of total revenue in the sixthree months ended OctoberJuly 31, 2021,2022, as compared to 94%77% of total revenue in the sixthree months ended OctoberJuly 31, 2020.2021.
Costs of Professional Services increased 11%9% in the sixthree months ended OctoberJuly 31, 20212022 to $7.6$3.6 million compared to $6.8$3.3 million in the sixthree months ended OctoberJuly 31, 2020.2021. Costs were 20% of total revenue in the six months ended October 31, 2021, as compared to 24% of total revenue in the sixthree months ended OctoberJuly 31, 2020.2022, as compared to 19% of total revenue in the three months ended July 31, 2021.
Costs of Aerospace Products increased 1%decreased 20% in the sixthree months ended OctoberJuly 31, 20212022 to $11.9$4.8 million compared to $11.8$6.0 million for the sixthree months ended OctoberJuly 31, 2020.2021. Costs were 32%31% of total revenue in the sixthree months ended OctoberJuly 31, 2021,2022, as compared to 41%34% of total revenue in the sixthree months ended OctoberJuly 31, 2020.2021. The decrease is directly related to the decrease in aircraft modification revenue.
Marketing and advertising expenses increased 34%13% in the sixthree months ended OctoberJuly 31, 2021,2022, to $2.5$1.3 million compared to $1.8$1.2 million in the sixthree months ended OctoberJuly 31, 2020.2021. Expenses were 6%9% of total revenue in the sixthree months ended OctoberJuly 31, 2021,2022, as compared to 6% of total revenue in the sixthree months ended OctoberJuly 31, 2020.2021. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions.
Employee benefits expenses as a percent of total revenue was 4% in the three months ended July 31, 2022, compared to 3% in the sixthree months ended OctoberJuly 31, 2021, compared2021. These expenses increased 7% to 4%$614 in the sixthree months ended OctoberJuly 31, 2020. These expenses decreased 3% to $1.1 million2022, from $575 in the sixthree months ended OctoberJuly 31, 2021, from $1.2 million in the six months ended October 31, 2020.2021. These expenses include the employers' share of all federal, state and local taxes, paid time off for vacation, holidays and illness, employee health and life insurance programs and employer matching contributions to retirement plans.
Depreciation and amortization expenses as a percent of total revenue was 4% in the six months ended October 31, 2021, compared to 7% in the six months ended October 31, 2020. These expenses decreased 34% to $1.4 million in the six months ended October 31, 2021 from $2.1 million in the six months ended October 31, 2020. These expenses include depreciation related to owned assets being depreciated over various useful lives and amortization of intangible items including the Kansas privilege fee related to the Boot Hill Casino being expensed over the initial term of the gaming contract with the State of Kansas. BHCMC, LLC depreciation and amortization expense for the six months ended October 31, 2021 was $1.2 million compared to $1.8 million in the six months ended October 31, 2020.
General, administrative and other expenses as a percent of total revenue was 11% in the six months ended October 31, 2021, compared to 12% in the six months ended October 31, 2020. These expenses increased 16% to $4.0 million in the six months ended October 31, 2021, from $3.4 million in the six months ended October 31, 2020.
Other expense:
Interest expense was $1.3 million in the six months ended October 31, 2021, compared with interest expense of $1.7 million in the six months ended October 31, 2020. Interest related to obligations of BHCMC, LLC was $1.1 million in the six months ended October 31, 2021 compared to $1.5 million in the six months ended October 31, 2020.
Operations by Segment
We have two operating segments, Professional Services and Aerospace Products. The Professional Services segment includes revenue contributions and expenditures associated with casino management services and professional architectural, engineering and management support services. Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.
The following table presents a summary of our operating segment information for the six months ended October 31, 2021 and October 31, 2020:
(dollars in thousands) | Six Months Ended October 31, 2021 | Percent of Total Revenue | Six Months Ended October 31, 2020 | Percent of Total Revenue | Percent Change 2020-2021 | |||||||||||||||
Professional Services | ||||||||||||||||||||
Revenue | ||||||||||||||||||||
Boot Hill Casino | $ | 19,237 | 99 | % | $ | 12,863 | 99 | % | 50 | % | ||||||||||
Management/Professional Services | 164 | 1 | % | 138 | 1 | % | 19 | % | ||||||||||||
Revenue | 19,401 | 100 | % | 13,001 | 100 | % | 49 | % | ||||||||||||
Costs of Professional Services | 7,578 | 39 | % | 6,828 | 52 | % | 11 | % | ||||||||||||
Expenses | 6,464 | 33 | % | 5,446 | 42 | % | 19 | % | ||||||||||||
Total costs and expenses | 14,042 | 72 | % | 12,274 | 94 | % | 14 | % | ||||||||||||
Professional Services operating income before former noncontrolling interest in BHCMC, LLC | $ | 5,359 | 28 | % | $ | 727 | 6 | % | 637 | % | ||||||||||
(dollars in thousands) | Six Months Ended October 31, 2021 | Percent of Total Revenue | Six Months Ended October 31, 2020 | Percent of Total Revenue | Percent Change 2020-2021 | |||||||||||||||
Aerospace Products | ||||||||||||||||||||
Revenue | $ | 17,836 | 100 | % | $ | 15,960 | 100 | % | 12 | % | ||||||||||
Costs of Aerospace Products | 11,939 | 67 | % | 11,788 | 74 | % | 1 | % | ||||||||||||
Expenses | 2,491 | 14 | % | 3,084 | 19 | % | -19 | % | ||||||||||||
Total costs and expenses | 14,430 | 81 | % | 14,872 | 93 | % | -3 | % | ||||||||||||
Aerospace Products operating income | $ | 3,406 | 19 | % | $ | 1,088 | 7 | % | 213 | % | ||||||||||
Professional Services
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Aerospace Products
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SECOND QUARTER FISCAL 2022 COMPARED TO SECOND QUARTER FISCAL 2021
(dollars in thousands) | Three Months Ended October 31, 2021 | Percent of Total Revenue | Three Months Ended October 31, 2020 | Percent of Total Revenue | Percent Change 2020-2021 | |||||||||||||||
Revenue: | ||||||||||||||||||||
Professional Services | $ | 9,676 | 51 | % | $ | 7,648 | 48 | % | 27 | % | ||||||||||
Aerospace Products | 9,417 | 49 | % | 8,324 | 52 | % | 13 | % | ||||||||||||
Total revenue | 19,093 | 100 | % | 15,972 | 100 | % | 20 | % | ||||||||||||
Costs and expenses: | ||||||||||||||||||||
Costs of Professional Services | 3,877 | 20 | % | 3,418 | 21 | % | 13 | % | ||||||||||||
Cost of Aerospace Products | 5,927 | 31 | % | 6,687 | 42 | % | -11 | % | ||||||||||||
Marketing and advertising | 1,267 | 7 | % | 893 | 6 | % | 42 | % | ||||||||||||
Employee benefits | 546 | 3 | % | 566 | 3 | % | -4 | % | ||||||||||||
Depreciation and amortization | 705 | 4 | % | 1,075 | 7 | % | -34 | % | ||||||||||||
General, administrative and other | 2,028 | 10 | % | 1,646 | 10 | % | 23 | % | ||||||||||||
Total costs and expenses | 14,350 | 75 | % | 14,285 | 89 | % | 0 | % | ||||||||||||
Operating income | $ | 4,743 | 25 | % | $ | 1,687 | 11 | % | 181 | % | ||||||||||
Revenue:
Revenue increased 20% to $19.1 million5% in the three months ended OctoberJuly 31, 2021,2022, compared to $16.0 million in the three months ended October 31, 2020. See "Operations by Segment" below for a discussion of the primary reasons for the increase in revenue.
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Costs and expenses:
Costs and expenses related to Professional Services and Aerospace Products include the cost of engineering, labor, materials, equipment utilization, control systems, security and occupancy. Costs and expenses increased 0% in the three months ended October 31, 2021 to $14.4 million compared to $14.3 million in the three months ended October 31, 2020. Costs and expenses were 75% of total revenue in the three months ended October 31, 2021, as compared to 89% of total revenue in the three months ended October 31, 2020.
Costs of Professional Services increased 13% in the three months ended October 31, 2021 to $3.9 million compared to $3.4 million in the three months ended October 31, 2020. Costs were 20% of total revenue in the three months ended October 31, 2021, as compared to 21% of total revenue in the three months ended October 31, 2020.
Costs of Aerospace Products decreased 11% in the three months ended October 31, 2021 to $5.9 million compared to $6.7 million for the three months ended October 31, 2020. Costs were 31% of total revenue in the three months ended October 31, 2021, as compared to 42% of total revenue in the three months ended October 31, 2020.
Marketing and advertising expenses increased 42% in the three months ended October 31, 2021, to $1.3 million compared to $0.9 million in the three months ended October 31, 2020. Expenses were 7% of total revenue in the three months ended October 31, 2021, as compared to 6% of total revenue in the three months ended October 31, 2020. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions.
Employee benefits expenses as a percent of total revenue was 3% in the three months ended October 31, 2021, compared to 3% in the three months ended October 31, 2020. These expenses decreased 4% to $546 in the three months ended October 31, 2021, from $566 in the three months ended October 31, 2020. These expenses include the employers' share of all federal, state and local taxes, paid time off for vacation, holidays and illness, employee health and life insurance programs and employer matching contributions to retirement plans.
Depreciation and amortization expenses as a percent of total revenue was 4% in the three months ended OctoberJuly 31, 2021, compared2021. These expenses increased 10% to 7%$771 in the three months ended OctoberJuly 31, 2020. These expenses decreased 34% to $7052022 from $702 in the three months ended OctoberJuly 31, 2021 from $1.1 million in the three months ended October 31, 2020.2021. These expenses include depreciation related to owned assets being depreciated over various useful lives and amortization of intangible items including the Kansas privilege fee related to the Boot Hill Casino being expensed over the initial term of the gaming contract with the State of Kansas. BHCMC, LLC depreciation and amortization expense for the three months ended OctoberJuly 31, 20212022 was $575$626 compared to $954$578 in the three months ended OctoberJuly 31, 2020.2021.
General, administrative and other expenses as a percent of total revenue was 10%16% in the three months ended OctoberJuly 31, 2021,2022, compared to 10%11% in the three months ended OctoberJuly 31, 2020.2021. These expenses increased 23%30% to $2.0$2.5 million in the three months ended OctoberJuly 31, 2021,2022, from $1.6$1.9 million in the three months ended OctoberJuly 31, 2020.2021. The increase is primarily due to the stock award and cash compensation awarded to a board member of $492.
Other expense:
Interest expense was $640$723 in the three months ended OctoberJuly 31, 2021,2022, compared with interest expense of $1.1 million$614 in the three months ended OctoberJuly 31, 2020.2021. Interest related to obligations of BHCMC, LLC was $576$642 in the three months ended OctoberJuly 31, 20212022 compared to $1.0 million$548 in the three months ended OctoberJuly 31, 2020.2021.
Operations by Segment
We have two operating segments, Professional Services and Aerospace Products. The Professional Services segment includes revenue contributions and expenditures associated with casino management services and professional architectural, engineering and management support services. Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.
The following table presents a summary of our operating segment information for the three months ended OctoberJuly 31, 20212022 and OctoberJuly 31, 2020:2021:
(dollars in thousands) | Three Months Ended October 31, 2021 | Percent of Total Revenue | Three Months Ended October 31, 2020 | Percent of Total Revenue | Percent Change 2020-2021 | Three Months Ended July 31, 2022 | Percent of Total Revenue | Three Months Ended July 31, 2021 | Percent of Total Revenue | Percent Change 2021-2022 | ||||||||||||||||||||||||||||||
Professional Services | ||||||||||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||||||
Boot Hill Casino | $ | 9,573 | 99 | % | $ | 7,555 | 99 | % | 27 | % | $ | 8,893 | 99 | % | $ | 9,255 | 99 | % | -4 | % | ||||||||||||||||||||
Management/Professional Services | 103 | 1 | % | 93 | 1 | % | 11 | % | 69 | 1 | % | 71 | 1 | % | -3 | % | ||||||||||||||||||||||||
Revenue | 9,676 | 100 | % | 7,648 | 100 | % | 27 | % | 8,962 | 100 | % | 9,326 | 100 | % | -4 | % | ||||||||||||||||||||||||
Costs of Professional Services | 3,877 | 40 | % | 3,418 | 45 | % | 13 | % | 3,623 | 41 | % | 3,325 | 36 | % | 9 | % | ||||||||||||||||||||||||
Expenses | 3,433 | 36 | % | 2,714 | 35 | % | 26 | % | 3,328 | 37 | % | 3,007 | 32 | % | 11 | % | ||||||||||||||||||||||||
Total costs and expenses | 7,310 | 76 | % | 6,132 | 80 | % | 19 | % | 6,951 | 78 | % | 6,332 | 68 | % | 10 | % | ||||||||||||||||||||||||
Professional Services operating income before former noncontrolling interest in BHCMC, LLC | $ | 2,366 | 24 | % | $ | 1,516 | 20 | % | 56 | % | ||||||||||||||||||||||||||||||
Professional Services operating income | $ | 2,011 | 22 | % | $ | 2,994 | 32 | % | -33 | % | ||||||||||||||||||||||||||||||
(dollars in thousands) | Three Months Ended October 31, 2021 | Percent of Total Revenue | Three Months Ended October 31, 2020 | Percent of Total Revenue | Percent Change 2020-2021 | Three Months Ended July 31, 2022 | Percent of Total Revenue | Three Months Ended July 31, 2021 | Percent of Total Revenue | Percent Change 2021-2022 | ||||||||||||||||||||||||||||||
Aerospace Products | ||||||||||||||||||||||||||||||||||||||||
Revenue | $ | 9,417 | 100 | % | $ | 8,324 | 100 | % | 13 | % | $ | 6,342 | 100 | % | $ | 8,419 | 100 | % | -25 | % | ||||||||||||||||||||
Costs of Aerospace Products | 5,927 | 63 | % | 6,687 | 80 | % | -11 | % | 4,827 | 76 | % | 6,012 | 72 | % | -20 | % | ||||||||||||||||||||||||
Expenses | 1,113 | 12 | % | 1,466 | 18 | % | -24 | % | 1,901 | 30 | % | 1,379 | 16 | % | 38 | % | ||||||||||||||||||||||||
Total costs and expenses | 7,040 | 75 | % | 8,153 | 98 | % | -14 | % | 6,728 | 106 | % | 7,391 | 88 | % | -9 | % | ||||||||||||||||||||||||
Aerospace Products operating income | $ | 2,377 | 25 | % | $ | 171 | 2 | % | 1290 | % | ||||||||||||||||||||||||||||||
Aerospace Products operating income (loss) | $ | (386 | ) | -6 | % | $ | 1,028 | 12 | % | -138 | % | |||||||||||||||||||||||||||||
Professional Services
● | Revenue from Professional Services |
● | Costs of Professional Services increased |
● | Expenses increased |
Aerospace Products
● | Revenue |
● | Costs of Aerospace Products decreased |
● | Expenses |
Employees
Other than persons employed by our gaming subsidiaries there were 115113 full time and 5 part time employees on July 31, 2022, compared to 118 full time and 4 part time employees on OctoberJuly 31, 2021, compared to 1112021. As of September 9, 2022, staffing is 109 full time and 5 part time employees on October 31, 2020. As of December 10, 2021, staffing is 112 full time and 54 part time employees. Our staffing at Boot Hill Casino & Resort on OctoberJuly 31, 20212022 was 172194 full time and 4857 part time employees compared to 166161 full time and 6655 part time employees on OctoberJuly 31, 2020.2021. At December 10, 2021September 9, 2022 there are 174192 full time and 5061 part time employees. None of the employees are subject to any collective bargaining agreements.
Liquidity and Capital Resources
We believe that our current banks will provide the necessary capital for our business operations. However, we continue to maintain contact with other banks that have an interest in funding our working capital needs to continue our growth in operations in fiscal 20222023 and beyond. Please see footnote 9 to the Company's financial statements regarding "Debt" for additional details concerning our liquidity and capital resources.
Analysis and Discussion of Cash Flow
During the sixthree months ended OctoberJuly 31, 20212022 our cash position decreasedincreased by $9.1$2.3 million. Net income was $7.9 million$431 for the sixthree months ended OctoberJuly 31, 2021.2022. Cash flows provided by operating activities was $3.7$5.3 million for the sixthree months ended OctoberJuly 31, 2021.2022. Non-cash activities consisting of depreciation and amortization provided $2.6$1.5 million, while deferred compensation provided $297,$132, gain on the sale of an airplanea building used $69, deferred income tax expense provided $75,$280, and forgiveness of debt used $2.0stock awarded to director provided $352. Contract assets increased our cash position by $326. Contract liability increased our cash position by $3.3 million. Contract assetsInventories decreased our cash position by $680. Contract liability$449. Accounts receivable increased our cash position by $21. Gaming facility mandated payments decreased our cash position by $4.6 million. Inventories increased our cash position by $109. Accounts receivable decreased our cash position by $1.6 million. Gaming facility mandated payments increased our cash position by $100.$308. Prepaid expenses and other assets decreased our cash by $296. An increase$241. A decrease in accounts payable, a decrease in accrued expenses,liabilities and lease liabilities, and an increase in other current liabilities increaseddecreased our cash by $993.$227. Income tax payable increased our cash position by $710. A decrease in lease liability decreased our cash position by $57.$260.
Cash used in investing activities was $3.3$1.6 million for the sixthree months ended OctoberJuly 31, 2021.2022. We invested $467$411 towards STCs, and $888$1.0 million on equipment and furnishings and $2.0 million$534 on the construction of new hangers. We received $75$164 in proceeds from the sale of an airplane.a building.
Cash used by financing activities was $9.5$1.4 million for the sixthree months ended OctoberJuly 31, 2021.2022. We made repayments on our debt of $1.9$1.3 million. We used $7.7 million to purchase the noncontrolling interestmade repayments on lease right-to-use of BHCMC, LLC.$64. We purchased company stock of $4.$2. The stock acquired was placed in treasury.
During the quarter ended July 31, 2022, the Company spent an additional $534 on the completion of its hangars in contruction in progress. At July 31, 2022, these new hangars have been reclassified from construction in progress to building and improvements on the balance sheet.
Critical Accounting Policies and Estimates
We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amount of revenue and other significant areas involving management judgments and estimates. These significant accounting policies relate to revenue recognition, the use of estimates, long-lived assets, and Supplemental Type Certificates. These policies and our procedures related to these policies are described in detail below and under specific areas within this "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Revenue Recognition: See footnote 3 to the condensed consolidated financial statements.
Lease Right-to-Use: See footnote 13 to the condensed consolidated financial statements.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our financial statements. Significant estimates include assumptions about percentage-of-completion, collection of accounts receivable, inventory obsolescence, the valuation of long-lived assets, including the STC’s, valuation for deferred tax assets and useful life of fixed and other long-term assets.
Long-lived Assets: The Company accounts for its long-lived assets in accordance with ASC Topic 360-10, "Accounting for the Impairment or Disposal of Long-Lived Assets." ASC Topic 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value or disposable value.
Supplemental Type Certificates: Supplemental Type Certificates (STCs) are authorizations granted by the Federal Aviation Administration (FAA) for specific modification of a certain aircraft. The STC authorizes us to perform modifications, installations, and assemblies on applicable customer-owned aircraft. Costs incurred to obtain STCs are capitalized and subsequently amortized over a seven year life. The legal life of an STC is indefinite.
Changing Prices and Inflation
We have experienced upward pressure from inflation in fiscal year 2022.2023. From fiscal year 20212022 to fiscal year 20222023 most of the increases we experienced were in material costs. This additional cost may not be transferable to our customers resulting in lower income in the future. We anticipate fuel costs and possibly interest rates to rise in fiscal 20222023 and 2023.2024.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934 and are not required to provide the information required under this item.
Item 4. CONTROLS AND PROCEDURES
We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Our principal executive and financial officers have evaluated our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q and have determined that such disclosure controls and procedures are effective, based on criteria in the Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
Evaluation of disclosure controls and procedures: Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.
In connection with the preparation of this Form 10-Q, our Chief Executive Officer and our Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of OctoberJuly 31, 2021.2022. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of OctoberJuly 31, 2021.2022.
Internal Control Over Financial Reporting
Limitations on Controls
Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Changes in Internal Control Over Financial Reporting: In our opinion there were no changes in the Company's internal control over financial reporting during the sixthree months ended OctoberJuly 31, 20212022 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
| LEGAL PROCEEDINGS. | |||||||
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| RISK FACTORS. | |||||||
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| UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | |||||||
| The table below provides information with respect to common stock purchases by the Company during the | ||||||||
Period | Total Number of Shares Purchased (a) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | ||||||||||||
August 1, 2021 - August 31, 2021 | - | $ | - | - | $ | 2,823,000 | ||||||||||
September 1, 2021 - September 30, 2021 | 6,290 | $ | 0.62 | 6,290 | $ | 2,819,000 | ||||||||||
October 1, 2021 - October 31, 2021 | - | $ | - | - | $ | 2,819,000 | ||||||||||
Total | 6,290 | $ | 0.62 | 6,290 | ||||||||||||
Period | Total Number of Shares Purchased (a) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | ||||||||||||
May 1, 2022 - May 31, 2022 | - | $ | - | - | $ | 2,655,000 | ||||||||||
June 1, 2022 - June 30, 2022 | - | $ | - | - | $ | 2,655,000 | ||||||||||
July 1, 2022 - July 31, 2022 | 1,639 | $ | 0.84 | 1,639 | $ | 2,653,000 | ||||||||||
Total | 1,639 | $ | 0.84 | 1,639 | ||||||||||||
(a) Our Board of Directors authorized the repurchase of shares of Butler National common stock in the open market or otherwise, at an aggregate purchase price of $4,000,000. The timing and amount of any share repurchases will be determined by Butler National's management based on market conditions and other factors. The program is currently authorized through May 1, |
| DEFAULTS UPON SENIOR SECURITIES. | |
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| None. |
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| MINE SAFETY DISCLOSURES. | |
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| Not applicable. |
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| OTHER INFORMATION. | |
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| None. |
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| EXHIBITS. | |
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| 3.1 | |
| 3.2 | Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form 10-Q filed on March 14, 2013. | |
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4.1 | ||
| 4.2 | Amendment One to Rights Agreement between Butler National Corporation and UMB Bank, N.A. dated July 22, 2021, incorporated by reference to Exhibit 4.2 of our Form 8-K filed on July 26, 2021. | |
| 10.1 | ||
| 31.1 | Certificate of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a). |
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| 31.2 | Certificate of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a). |
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| 32.1 | |
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| 32.2 | |
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| 101 | The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended |
| 104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarterly period ended |
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.
| BUTLER NATIONAL CORPORATION |
| (Registrant) |
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/s/ Clark D. Stewart | |
Date | Clark D. Stewart |
| (President and Chief Executive Officer) |
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/s/ Tad M. McMahon | |
Date | Tad M. McMahon |
| (Chief Financial Officer) |
Exhibit Number | Description of Exhibit |
3.1 | |
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3.2 | |
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4.1 | |
| 4.2 | Amendment One to Rights Agreement between Butler National Corporation and UMB Bank, N.A. dated July 22, 2021, incorporated by reference to Exhibit 4.2 of our Form 8-K filed on July 26, 2021. |
| 10.1 | Employment agreement between Butler National Corporation and Joe A. Peters dated February 4, 2020, incorporated by reference to Exhibit 10.1 of our Form 8-K filed on June 22, 2022. |
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31.1 | Certificate of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a). |
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31.2 | Certificate of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a). |
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32.1 | Certifications of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 | Certifications of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101 | The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended |
| 104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarterly period ended |