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BUTLER NATIONAL CORP - Quarter Report: 2021 October (Form 10-Q)

buks20211031_10q.htm
 
 

 

Table of Contents

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 October 31, 2021

 

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

 

 

 

Emerging growth company

 

 

 

  

   

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 December 14, 2021 was 75,360,459 shares.

   

 

 

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

PART I. FINANCIAL INFORMATION

 

 

 

PAGE

NO. 

Item 1

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets – October 31, 2021 (unaudited) and April 30, 2021

3

 

 

 

  Condensed Consolidated Statements of Operations - Three Months Ended October 31, 2021 and 2020 4
     
  Condensed Consolidated Statements of Operations - Six Months Ended October 31, 2021 and 2020 5
     
 

Condensed Consolidated Statements of Stockholders' Equity - Six Months Ended October 31, 2021 and 2020

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Six Months Ended October 31, 2021 and 2020

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8

 

 

 

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

Item 3

Quantitative and Qualitative Disclosures about Market Risk

25

 

 

 

Item 4

Controls and Procedures

25

 

PART II. OTHER INFORMATION

 

Item 1

Legal Proceedings

26

 

 

 

Item 1A

Risk Factors

26

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

 

 

Item 3

Defaults Upon Senior Securities

26

 

 

 

Item 4

Mine Safety Disclosures

26

 

 

 

Item 5

Other Information

26

 

 

 

Item 6

Exhibits

26

 

 

 

Signatures

27

 

 

Exhibit Index

28

 

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of October 31, 2021 and April 30, 2021

(in thousands except per share data) 

 

  

October 31, 2021

 

April 30, 2021

  

(unaudited)

    

ASSETS

        

CURRENT ASSETS:

        

Cash

 $12,925 $22,022

Accounts receivable, net of allowance for doubtful accounts

 3,566 1,961

Inventories

        

Parts and raw materials

 4,778 4,829

Work in process

 3,609 3,657

Finished goods

 72 82

Total inventory, net of allowance

 8,459 8,568

Contract asset

 1,101 421

Prepaid expenses and other current assets

 1,800 1,496

Total current assets

 27,851 34,468
         

PROPERTY, PLANT AND EQUIPMENT:

        

Lease right-to-use assets

 3,099 3,099

Construction in progress

 3,142 1,170

Land

 4,751 4,751

Building and improvements

 39,762 39,747

Aircraft

 8,719 9,138

Machinery and equipment

 4,692 4,253

Office furniture and fixtures

 11,133 10,699

Leasehold improvements

 4,032 4,032
  79,330 76,889

Accumulated depreciation

 (21,750) (20,519)

Total property, plant and equipment

 57,580 56,370
         

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
         

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

Deferred tax asset, net

 1,710 -

Total other assets

 3,500 2,872

Total assets

 $96,976 $101,921
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        

CURRENT LIABILITIES:

        

Current maturities of long-term debt

 $5,041 $5,972

Current maturities of lease liability

 103 107

Accounts payable

 2,743 1,893

Contract liability

 1,245 5,798

Gaming facility mandated payment

 1,558 1,458

Compensation and compensated absences

 1,830 1,862

Income taxes payable

 922 212

Other current liabilities

 440 265

Total current liabilities

 13,882 17,567
         

LONG-TERM LIABILITIES

        

Long-term debt, net of current maturities

 44,797 39,816

Lease liability, net of current maturities

 2,706 2,759

Deferred tax liability, net

 - 400

Total long-term liabilities

 47,503 42,975

Total liabilities

 61,385 60,542
         

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

 - -

$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 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

Capital contributed in excess of par

 11,078 16,900

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)

Retained earnings

 25,636 19,580

Total Butler National Corporation's stockholders' equity

 35,591 35,361

Noncontrolling interest in BHCMC, LLC

 - 6,018

Total stockholders' equity

 35,591 41,379

Total liabilities and stockholders' equity

 $96,976 $101,921

See accompanying notes to condensed consolidated financial statements (unaudited)

 

 

 

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED October 31, 2021 AND 2020

(in thousands, except per share data)

(unaudited)

 

  

THREE MONTHS ENDED

  

October 31,

  

2021

 

2020

REVENUE:

        

Professional Services

 $9,676 $7,648

Aerospace Products

 9,417 8,324

Total revenue

 19,093 15,972
         

COSTS AND EXPENSES:

        

Cost of Professional Services

 3,877 3,418

Cost of Aerospace Products

 5,927 6,687

Marketing and advertising

 1,267 893

Employee benefits

 546 566

Depreciation and amortization

 705 1,075

General, administrative and other

 2,028 1,646

Total costs and expenses

 14,350 14,285
         

OPERATING INCOME

 4,743 1,687
         

OTHER INCOME (EXPENSE):

        

Interest expense

 (640) (1,065)

Gain on sale of airplane

 75 -

Total other income (expense)

 (565) (1,065)
         

INCOME BEFORE INCOME TAXES

 4,178 622
         

PROVISION FOR INCOME TAXES

        

Provision for income taxes

 794 120

Deferred income tax

 234 -
         

NET INCOME

 3,150 502

Net income attributable to former noncontrolling interest in BHCMC, LLC

 - (181)

NET INCOME ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION

 $3,150 $321
         

BASIC EARNINGS PER COMMON SHARE

 $0.04 $0.00
         

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION

 75,364,083 74,130,934
         

DILUTED EARNINGS PER COMMON SHARE

 $0.04 $0.00
         

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION

 75,364,083 74,130,934

 

See accompanying notes to condensed consolidated financial statements (unaudited)

 

 

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE Six MONTHS ENDED October 31, 2021 AND 2020
(in thousands, except per share data)
(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 -

Gain on sale of airplane

 75 -

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 -
         

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 six months ended October 31, 2021 and 2020

(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
                                     

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)
                                     

Net Income

 - - - - - 3,150 3,150 - 3,150
                                     

Balance, October 31, 2021

 79,070,382 $790 $11,078 3,709,923 $(1,913) $25,636 $35,591 $- $35,591

 

See accompanying notes to condensed consolidated financial statements (unaudited)

 

 

 

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE six months ended October 31, 2021 and 2020

(in thousands)

(unaudited) 

 

  

SIX MONTHS ENDED

  

October 31,

  

2021

 

2020

CASH FLOWS FROM OPERATING ACTIVITIES

        

Net income

 $7,928 $48

Adjustments to reconcile net income to net cash provided by operating activities

        

Depreciation and amortization

 2,631 3,250

Forgiveness of debt

 (2,001) -

Deferred income tax expense

 234 -

Deferred compensation, restricted stock

 297 300

Gain on sale of airplane

 (75) -
         

Changes in operating assets and liabilities

        

Accounts receivable

 (1,605) 514

Income tax receivable

 - (65)

Inventories

 109 (893)

Contract assets

 (680) (353)

Prepaid expenses and other current assets

 (296) (456)

Accounts payable

 850 793

Contract liability

 (4,553) 2,141

Lease liability

 (57) (559)

Accrued liabilities

 (32) (721)

Gaming facility mandated payment

 100 64

Income tax payable

 710 (206)

Other liabilities

 175 143

Net cash provided by operating activities

 3,735 4,000
         

CASH FLOWS FROM INVESTING ACTIVITIES

        

Capital expenditures

 (3,381) (3,401)

Proceeds from sale of airplane

 75 -

Net cash used in investing activities

 (3,306) (3,401)
         

CASH FLOWS FROM FINANCING ACTIVITIES

        

Borrowings of long-term debt

 - 2,001

Repayments of long-term debt

 (1,863) (1,804)

Repurchase of common stock

 (4) (185)

Purchase of noncontrolling interest in BHCMC, LLC

 (7,659) -

Net cash provided by (used in) financing activities

 (9,526) 12
         

NET INCREASE (DECREASE) IN CASH

 (9,097) 611
         

CASH, beginning of period

 22,022 16,793
         

CASH, end of period

 $12,925 $17,404
         

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

        

Interest paid

 $1,253 $1,644

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 $-

Notes receivable forgiven as part of purchase of noncontrolling interest in BHCMC, LLC

 $780 $-

Deferred tax asset relating to the purchase of noncontrolling interest in BHCMC, LCC

 $2,344 $-

Purchase of noncontrolling interest - note receivable and other liabilities

 $6,350 $-
         

 

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, 2021. In our opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the three and six months ended October 31, 2021 are not indicative of the results of operations that may be expected for the fiscal year ending April 30, 2022.

 

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.

 

8

 
 

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

 - 1,114 1,114 - 938 938

Asia

 - 675 675 - 2 2

Australia and Other

 - 106 106 - 357 357
  $9,676 $9,417 $19,093 $7,648 $8,324 $15,972
                         

Major Product Lines

                        

Casino Gaming Revenues

 $8,486 $- $8,486 $6,771 $- $6,771

Casino Non-Gaming Revenues

 1,087 - 1,087 784 - 784

Professional Services

 103 - 103 93 - 93

Aircraft Modification

 - 5,910 5,910 - 5,942 5,942

Aircraft Avionics

 - 665 665 - 625 625

Special Mission Electronics

 - 2,842 2,842 - 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

 $- $5,703 $5,703 $- $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

  

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

Europe

 - 1,957 1,957 - 1,828 1,828

Asia

 - 763 763 - 2 2

Australia and Other

 - 153 153 - 1,045 1,045
  $19,401 $17,836 $37,237 $13,001 $15,960 $28,961
                         

Major Product Lines

                        

Casino Gaming Revenues

 $17,074 $- $17,074 $11,570 $- $11,570

Casino Non-Gaming Revenues

 2,163 - 2,163 1,293 - 1,293

Professional Services

 164 - 164 138 - 138

Aircraft Modification

 - 11,692 11,692 - 10,735 10,735

Aircraft Avionics

 - 1,540 1,540 - 1,539 1,539

Special Mission Electronics

 - 4,604 4,604 - 3,686 3,686
  $19,401 $17,836 $37,237 $13,001 $15,960 $28,961
                         

Contract Types / Revenue Recognition Timing

                        

Percentage of completion contracts

 $- $10,978 $10,978 $- $9,560 $9,560

Goods or services transferred at a point of sale

 19,401 6,858 26,259 13,001 6,400 19,401
  $19,401 $17,836 $37,237 $13,001 $15,960 $28,961

 

10

 
 
5. Accounts receivable, net, contract asset and contract liability:

 

Accounts Receivables, net, contract asset and contract liability were as follows (in thousands):

 

  October 31, April 30,
  

2021

 

2021

Accounts Receivable, net

 $3,566 $1,961

Contract Asset

 1,101 421

Contract Liability

 1,245 5,798

 

Accounts receivable, net consist of  $3,566 and $1,961 from customers as of  October 31, 2021 and April 30, 2021, respectively. At October 31, 2021 and April 30, 2021, the allowance for doubtful accounts was $143 and $143, 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 and $421 as of October 31, 2021 and April 30, 2021. Contract assets increased $680 during the six months ended October 31, 2021, primarily due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the six months ended October 31, 2021 for which we have not yet billed our customers. There were no significant impairment losses related to our contract assets during the six months ended October 31, 2021. We expect to bill our customers for the majority of the October 31, 2021 contract assets during fiscal year end 2022.

 

Contract liabilities decreased $4,553 during the six months ended October 31, 2021, primarily due to revenue recognized on these performance obligations in excess of payments received.

 
6. 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 consolidated financial statements. Significant estimates include assumptions about percentage-of-completion, collection of accounts receivable, the valuation, and recognition of stock-based compensation expense, valuation for deferred tax assets and useful life of fixed assets.

 

 

7. Inventories: Inventories are determined on a first-in, first-out basis, valued at 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 October 31, 2021 and April 30, 2021, the estimate of obsolete inventory was $691 and $691 respectively.

 

 

8. Research and Development: We invested in research and development activities. The amount invested in the six months ended October 31, 2021 and 2020 was $1,196 and $1,744 respectively.

 

 

9. Debt: At October 31, 2021, the Company was utilizing a promissory note in the form of a line of credit totaling $2,000. The unused line at October 31, 2021 was $2,000. The interest rate on this promissory note is 3.65%. The line of credit is due on demand and is collateralized by the first and second positions on all assets of the Company.

 

At  October 31, 2021, there was one note collateralized by all of BHCMC's assets and compensation due under the State Management contract with a balance of $33,254 (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 collateralized by all of BHCMC's assets and compensation due under the State Management contract with a balance of $13,810 (net of unamortized deferred finance costs of $140). The interest rate on this note is 5.83%. This note matures in October 2026.

 

At October 31, 2021, there was one note with an interest rate of 6.25% collateralized by aircraft security agreements totaling $841. This note was used for the purchase and modifications of collateralized aircraft. This note matures in January 2023.

 

At October 31, 2021, there is one note totaling $191 collateralized by real estate in Dodge City, Kansas. The interest rate on this note is 6.25%. This note matures in June 2024.

 

At October 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, 2021, there is a note payable collateralized by real estate with a balance of $1,187. The interest rate on this note is at LIBOR plus 1.75%. This note matures in March 2029.

 

At October 31, 2021, there is a note payable collateralized by real estate with a balance of $544. The interest rate on this note is at LIBOR plus 1.75%. This note matures in March 2029.

 

11

 

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 October 31, 2021.

 

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 2021 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 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. 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. No other equity awards have been made under the plan.

 

For the six months ended October 31, 2021 and October 31, 2020, the Company expensed $297 and $300, respectively.

 

 

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.

 

The table below provides information with respect to common stock purchases by the Company through October 31, 2021.

 

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

Shares purchased in prior periods

 2,933,415 $0.37 2,933,415 $2,911

Quarter ended October 31, 2020 (a)

 152,915 $0.50 152,915 $2,835

Quarter ended January 31, 2021 (a)

 - $- - $2,835

Quarter ended April 30, 2021 (a)

 17,303 $0.65 17,303 $2,823

Quarter ended July 31, 2021 (a)

 - $- - $2,823

Quarter ended October 31, 2021 (a)

 6,290 $0.62 6,290 $2,819

Total

 3,109,923 $0.38 3,109,923    

 

(a)

These shares of common stock were purchased through a private transaction

 

12

 
 

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 two, five, and fifty years.

 

  

October 31, 2021

Lease right-to-use assets

 $3,099

Less accumulated depreciation

 531

Total

 $2,568

 

Future minimum lease payments for assets under capital leases at October 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

 

 

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 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 million loan executed  December 22, 2020 with Academy to acquire the casino land and buildings. The other $35 million loan executed in connection with the casino land acquisition in 2020 was unchanged by the Transaction. As a result,  approximately $13.8 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

 

 

13

 

 

 

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

 

Revenues from customers

 $9,573  $5,910  $665  $2,842  $103  $19,093 

Interest expense

  576   53   -   5   6   640 

Depreciation and amortization

  574   44   1   37   49   705 

Operating income (loss)

  3,075   1,245   (114)  1,485   (948)  4,743 

 

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   -   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 - 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

Revenues from customers

 $12,863 $10,735 $1,539 $3,686 $138 $28,961

Interest expense

 1,484 132 - 14 23 1,653

Depreciation and amortization

 1,882 93 3 65 75 2,118

Operating income (loss)

 1,011 1,387 102 1,119 (1,804) 1,815

 

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

Aerospace Products – two customers in the six months ended October 31, 2021, no customers in the six months ended October 31, 2020

 23.3% -

Professional Services

 - -

 

In the six months ended October 31, 2021 the Company derived 34.4% of total revenue from five Aerospace customers. The top customer provided 12.4% of total revenue while the next top four customers ranged from 2.6% to 10.9%.

 

14

 

 

 
16. COVID- 19 Overview:

 

The pandemic caused by the disease COVID-19 was 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 pandemic resulted in federal, state and local governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions or bans, business curtailments, school closures, and other protective measures.

 

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.  

 

The COVID-19 pandemic impacted our business operations and financial results beginning in the fourth quarter of fiscal 2020 and continues to impact us. 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.

 

As schools, businesses and the economy in general have slowly reopened, 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 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:

 

The Company evaluated its October 31, 2021 financial statements for subsequent events through the filing date of this report. The Company is not aware of any subsequent events that would require recognition or disclosure in the financial statements.

 

15

 
 

 

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, 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, 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;

 

cyber-security threats;

 

extensive regulation across our industries;

  evolving government regulations and law;
 

changes in regulations of financial reporting;

 

the stability of credit markets;

 

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;

 

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 2021 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

 

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 645 slot machines and 20 table games. Due to COVID-19, Boot Hill Casino and Resort currently operates 520 slot machines and 16 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”), via BHCMC, LLC (“BHCMC”), a company in Professional Services, has managed 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 at Boot Hill are owned and operated by the Kansas Lottery.

 

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 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 pandemic resulted in federal, state and local governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions or bans, business curtailments, school closures, and other protective measures.

 

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.  

 

The COVID-19 pandemic impacted our business operations and financial results beginning in the fourth quarter of fiscal 2020 and continues to impact us. 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.

 

As schools, businesses and the economy in general have slowly reopened, 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 six months ended October 31, 2021 revenue increased 29% to $37.2 million compared to $29.0 million in the six months ended October 31, 2020. In the six months ended October 31, 2021 the professional services revenue was $19.4 million compared to $13.0 million in the six months ended October 31, 2020, an increase of 49%. In the six months ended October 31, 2021 the Aerospace Products revenue was $17.8 million compared to $16.0 million in the six months ended October 31, 2020, an increase of 12%.

 

The six months ended October 31, 2021 net income increased to $6.1 million compared to a net income of $306 in the six months ended October 31, 2020.  The six months ended October 31, 2021, operating income increased to $8.8 million from an operating income of $1.8 million in the six months ended October 31, 2020.

 

RESULTS OF OPERATIONS

 

SIX MONTHS ENDED OCTOBER 31, 2021 COMPARED TO SIX MONTHS ENDED 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

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 %

 

 

Revenue:

 

Revenue increased 29% to $37.2 million in the six months ended October 31, 2021, compared to $29.0 million in the six months ended October 31, 2020. See "Operations by Segment" below for a discussion of the primary reasons for the increase 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 increased 49% for the six months to $19.4 million at October 31, 2021 compared to $13.0 million at October 31, 2020.

 

 

Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft. Aerospace Products revenue increased 12% for the six months to $17.8 million at October 31, 2021 compared to $16.0 million at October 31, 2020.

 

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% in the six months ended October 31, 2021 to $28.5 million compared to $27.1 million in the six months ended October 31, 2020. Costs and expenses were 76% of total revenue in the six months ended October 31, 2021, as compared to 94% of total revenue in the six months ended October 31, 2020.

 

Costs of Professional Services increased 11% in the six months ended October 31, 2021 to $7.6 million compared to $6.8 million in the six months ended October 31, 2020. Costs were 20% of total revenue in the six months ended October 31, 2021, as compared to 24% of total revenue in the six months ended October 31, 2020.

 

Costs of Aerospace Products increased 1% in the six months ended October 31, 2021 to $11.9 million compared to $11.8 million for the six months ended October 31, 2020. Costs were 32% of total revenue in the six months ended October 31, 2021, as compared to 41% of total revenue in the six months ended October 31, 2020.

 

Marketing and advertising expenses increased 34% in the six months ended October 31, 2021, to $2.5 million compared to $1.8 million in the six months ended October 31, 2020. Expenses were 6% of total revenue in the six months ended October 31, 2021, as compared to 6% of total revenue in the six 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 six months ended October 31, 2021, compared to 4% in the six months ended October 31, 2020. These expenses decreased 3% to $1.1 million in the six months ended October 31, 2021, from $1.2 million in the six 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 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

 

 

Revenue from Professional Services increased 49% for the six months ended October 31, 2021 to $19.4 million compared to $13.0 million for the six months ended October 31, 2020.

In the six months ended October 31, 2021 Boot Hill Casino received gross receipts for the State of Kansas of $25.0 million compared to $17.1 million for the six months ended October 31, 2020. Mandated fees, taxes and distributions reduced gross receipts by $7.9 million resulting in gaming revenue of $17.1 million for the six months ended October 31, 2021, compared to a reduction to gross receipts of $5.5 million resulting in gaming revenue of $11.6 million for the six months ended October 31, 2020.  Non-gaming revenue at Boot Hill Casino increased to $2.2 million for the six months ended October 31, 2021, compared to $1.3 million for the six months ended October 31, 2020.

The remaining management and Professional Services revenue includes professional management services in the gaming industry, and licensed architectural services.  Professional Services revenue excluding Boot Hill Casino increased 19% to $164 for the six months ended October 31, 2021, compared to $138 for the six months ended October 31, 2020.

 

 

Costs of Professional Services increased 11% in the six months ended October 31, 2021 to $7.6 million compared to $6.8 million in the six months ended October 31, 2020. Costs were 39% of segment total revenue in the six months ended October 31, 2021, as compared to 52% of segment total revenue in the six months ended October 31, 2020.

  

 

Expenses increased 19% in the six months ended October 31, 2021 to $6.5 million compared to $5.4 million in the six months ended October 31, 2020. Expenses were 33% of segment total revenue in the six months ended October 31, 2021, as compared to 42% of segment total revenue in the six months ended October 31, 2020.

 

Aerospace Products

 

 

Revenue increased 12% to $17.8 million in the six months ended October 31, 2021, compared to $16.0 million in the six months ended October 31, 2020. The increase in revenue is primarily due to an increase in special mission electronics business of $918 and an increase in aircraft modification business of $957.  

 

 

Costs of Aerospace Products increased 1% in the six months ended October 31, 2021 to $11.9 million compared to $11.8 million for the six months ended October 31, 2020.  Costs were 67% of segment total revenue in the six months ended October 31, 2021, as compared to 74% of segment total revenue in the six months ended October 31, 2020.

 

 

Expenses decreased 19% in the six months ended October 31, 2021 to $2.5 million compared to $3.1 million in the six months ended October 31, 2020.  Expenses were 14% of segment total revenue in the six months ended October 31, 2021, as compared to 19% of segment total revenue in the six months ended October 31, 2020.

 

 

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 million in the three months ended October 31, 2021, 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.

 

 

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 increased 27% for the three months to $9.7 million at October 31, 2021 compared to $7.6 million at October 31, 2020.

 

 

Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft. Aerospace Products revenue increased 13% for the three months to $9.4 million at October 31, 2021 compared to $8.3 million at October 31, 2020.

 

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 October 31, 2021, compared to 7% in the three months ended October 31, 2020. These expenses decreased 34% to $705 in the three months ended October 31, 2021 from $1.1 million in the three 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 three months ended October 31, 2021 was $575 compared to $954 in the three months ended October 31, 2020.

 

General, administrative and other expenses as a percent of total revenue was 10% in the three months ended October 31, 2021, compared to 10% in the three months ended October 31, 2020. These expenses increased 23% to $2.0 million in the three months ended October 31, 2021, from $1.6 million in the three months ended October 31, 2020.

 

Other expense:

 

Interest expense was $640 in the three months ended October 31, 2021, compared with interest expense of $1.1 million in the three months ended October 31, 2020. Interest related to obligations of BHCMC, LLC was $576 in the three months ended October 31, 2021 compared to $1.0 million in the three 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 three months ended October 31, 2021 and October 31, 2020:

 

(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

Professional Services

                                       

Revenue

                                       

Boot Hill Casino

  $ 9,573   99 %   $ 7,555   99 %   27 %

Management/Professional Services

  103   1 %   93   1 %   11 %

Revenue

  9,676   100 %   7,648   100 %   27 %
                                         

Costs of Professional Services

  3,877   40 %   3,418   45 %   13 %

Expenses

  3,433   36 %   2,714   35 %   26 %

Total costs and expenses

  7,310   76 %   6,132   80 %   19 %

Professional Services operating income before former noncontrolling interest in BHCMC, LLC

  $ 2,366   24 %   $ 1,516   20 %   56 %

 

(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

Aerospace Products

                                       

Revenue

  $ 9,417   100 %   $ 8,324   100 %   13 %
                                         

Costs of Aerospace Products

  5,927   63 %   6,687   80 %   -11 %

Expenses

  1,113   12 %   1,466   18 %   -24 %

Total costs and expenses

  7,040   75 %   8,153   98 %   -14 %
                                         

Aerospace Products operating income

  $ 2,377   25 %   $ 171   2 %   1290 %

 

 

Professional Services

 

 

Revenue from Professional Services increased 27% for the three months ended October 31, 2021 to $9.7 million compared to $7.6 million for the three months ended October 31, 2020.

In the three months ended October 31, 2021 Boot Hill Casino received gross receipts for the State of Kansas of $12.4 million compared to $9.8 million for the three months ended October 31, 2020. Mandated fees, taxes and distributions reduced gross receipts by $3.9 million resulting in gaming revenue of $8.5 million for the three months ended October 31, 2021, compared to a reduction to gross receipts of $3.0 million resulting in gaming revenue of $6.8 million for the three months ended October 31, 2020.  Non-gaming revenue at Boot Hill Casino increased to $1.1 million for the three months ended October 31, 2021, compared to $784 for the three months ended October 31, 2020.

The remaining management and Professional Services revenue includes professional management services in the gaming industry, and licensed architectural services.  Professional Services revenue excluding Boot Hill Casino increased 11% to $103 for the three months ended October 31, 2021, compared to $93 for 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 40% of segment total revenue in the three months ended October 31, 2021, as compared to 45% of segment total revenue in the three months ended October 31, 2020.

  

 

Expenses increased 26% in the three months ended October 31, 2021 to $3.4 million compared to $2.7 million in the three months ended October 31, 2020. Expenses were 36% of segment total revenue in the three months ended October 31, 2021, as compared to 35% of segment total revenue in the three months ended October 31, 2020.

 

Aerospace Products

 

 

Revenue increased 13% to $9.4 million in the three months ended October 31, 2021, compared to $8.3 million in the three months ended October 31, 2020. The increase in revenue is primarily due to an increase in special mission electronics business of $1.1 million.  

 

 

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 63% of segment total revenue in the three months ended October 31, 2021, as compared to 80% of segment total revenue in the three months ended October 31, 2020.

 

 

Expenses decreased 24% in the three months ended October 31, 2021 to $1.1 million compared to $1.5 million in the three months ended October 31, 2020.  Expenses were 12% of segment total revenue in the three months ended October 31, 2021, as compared to 18% of segment total revenue in the three months ended October 31, 2020.

 

Employees

 

Other than persons employed by our gaming subsidiaries there were 115 full time and 4 part time employees on October 31, 2021, compared to 111 full time and 5 part time employees on October 31, 2020. As of December 10, 2021, staffing is 112 full time and 5 part time employees. Our staffing at Boot Hill Casino & Resort on October 31, 2021 was 172 full time and 48 part time employees compared to 166 full time and 66 part time employees on October 31, 2020. At December 10, 2021 there are 174 full time and 50 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 2022 and beyond.

 

Analysis and Discussion of Cash Flow

 

During the six months ended October 31, 2021 our cash position decreased by $9.1 million. Net income was $7.9 million for the six months ended October 31, 2021. Cash flows provided by operating activities was $3.7 million for the six months ended October 31, 2021. Non-cash activities consisting of depreciation and amortization provided $2.6 million, while deferred compensation provided $297, gain on the sale of an airplane provided $75, and forgiveness of debt used $2.0 million. Contract assets decreased our cash position by $680. Contract liability 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. Prepaid expenses and other assets decreased our cash by $296. An increase in accounts payable, a decrease in accrued expenses, and an increase in other current liabilities increased our cash by $993. Income tax payable increased our cash position by $710. A decrease in lease liability decreased our cash position by $57.

  

Cash used in investing activities was $3.3 million for the six months ended October 31, 2021. We invested $467 towards STCs, and $888 on equipment and furnishings and $2.0 million on the construction of new hangers. We received $75 in proceeds from the sale of an airplane.

  

Cash used by financing activities was $9.5 million for the six months ended October 31, 2021. We made repayments on our debt of $1.9 million. We used $7.7 million to purchase the noncontrolling interest of BHCMC, LLC. We purchased company stock of $4. The stock acquired was placed in treasury.

 

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. From fiscal year 2021 to fiscal year 2022 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 2022 and 2023.

  

 

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 October 31, 2021. 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 October 31, 2021.

  

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 six months ended October 31, 2021 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

    

 

 

PART II.  OTHER INFORMATION

 

Item 1.

 

LEGAL PROCEEDINGS.

 

 

As of October 31, 2021, there are no significant known legal proceedings pending against us. We consider all such unknown proceedings, if any, to be ordinary litigation incident to the character of the business. We believe that the resolution of any claims will not, individually or in the aggregate, have a material adverse effect on the financial position, results of operations, or liquidity of the Company.

 

 

 

Item 1A.

 

RISK FACTORS.

 

 

There are no other material changes to the risk factors disclosed under Item 1A of our Form 10-K for the fiscal year ended April 30, 2021.

 

 

 

Item 2.

 

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 second quarter of fiscal 2022.

 

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        

 

(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, 2022.

 

Item 3.

 

DEFAULTS UPON SENIOR SECURITIES.

 

 

None.

 

 

 

Item 4.

 

MINE SAFETY DISCLOSURES.

 

 

Not applicable.

 

 

 

Item 5.

 

OTHER INFORMATION.

 

 

None.

 

 

 

Item 6.

 

EXHIBITS.

 

 

 

 

3.1

Articles of Incorporation, as amended and restated are incorporated by reference to Exhibit 3.1 of our Form DEF 14A filed on December 26, 2001.

     
  3.2 Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form 10-Q filed on March 14, 2013.

 

 

 

 

4.1

Rights Agreement, dated August 2, 2011, by and between Butler National Corporation and UMB Bank, N.A., as Rights Agent, incorporated by reference to Exhibit 4.1 of our 10-Q filed on December 13, 2016.

     
  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 Sale and Purchase Agreement for Preferred Membership Interest Unity in BHCMC, L.L.C., dated September 13, 2021, incorporated by reference to Exhibit 10.1 of our Form 8-K filed on October 20, 2021.
     
  10.2 Loan Modification Agreement dated October 18, 2021 between BHCMC, L.L.C. and Academy Bank N.A., incorporated by reference to Exhibit 10.2 of our Form 8-K filed on October 20, 2021.
     

 

31.1

Certificate of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a).

 

 

 

 

31.2

Certificate of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).

 

 

 

 

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.

 

 

 

 

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.

 

 

 

 

101

The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended October 31, 2021, formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of October 31, 2021 and April 30, 2021, (ii) Condensed Consolidated Statements of Operations for the three and six months ended October 31, 2021 and 2020, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the six months ended October 31, 2021 and 2020, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended October 31, 2021 and 2020, and (v) the Notes to Consolidated Financial Statements, with detail tagging.
     
  104 The cover page from the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2021, formatted in Inline XBRL (included as Exhibit 101)

    

 

SIGNATURES

  

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)

 

 

December 14, 2021

/s/ Clark D. Stewart

Date

Clark D. Stewart

 

(President and Chief Executive Officer)

 

 

December 14, 2021

/s/ Tad M. McMahon

Date

Tad M. McMahon

 

(Chief Financial Officer)  

   

 

Exhibit Index

  

Exhibit

Number

Description of Exhibit

3.1

Articles of Incorporation, as amended and restated are incorporated by reference to Exhibit 3.1 of our Form DEF 14A filed on December 26, 2001.

 

 

3.2

Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form 10-Q filed on March 14, 2013.

 

 

4.1

Rights Agreement, dated August 2, 2011, by and between Butler National Corporation and UMB Bank, N.A., as Rights Agent, incorporated by reference to Exhibit 4.1 of our 10-Q filed on December 13, 2016.

   
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 Loan Agreement dated December 17, 2020 by BHCMC, L.L.C., BHCRE LLC, and Academy Bank, N.A.
   

31.1

Certificate of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a).

 

 

31.2

Certificate of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).

 

 

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.

 

 

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.

 

 

101

The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended October 31, 2021, formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of October 31, 2021 and April 30, 2021, (ii) Condensed Consolidated Statements of Operations for the three and six months ended October 31, 2021 and 2020, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the six months ended October 31, 2021 and 2020, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended October 31, 2021 and 2020, and (v) the Notes to Consolidated Financial Statements, with detail tagging.
   
104 The cover page from the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2021, formatted in Inline XBRL (included as Exhibit 101)

 

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