Annual Statements Open main menu

BUTLER NATIONAL CORP - Quarter Report: 2023 July (Form 10-Q)

buks20230731_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 July 31, 2023

 

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.)

 

One Aero Plaza, New Century, Kansas 66031

(Address of principal executive offices)(Zip Code)

 

Registrant's telephone number, including area code: (913) 829-4606

 

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 September 14, 2023 was 68,727,900 shares.

   

 

 

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

 

INDEX

 

PART I. FINANCIAL INFORMATION

 

 

 

PAGE

NO. 

Item 1

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets – July 31, 2023 (unaudited) and April 30, 2023

3

 

 

 

  Condensed Consolidated Statements of Operations - Three Months Ended July 31, 2023 and 2022 4
     
 

Condensed Consolidated Statements of Stockholders' Equity - Three Months Ended July 31, 2023 and 2022

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Three Months Ended July 31, 2023 and 2022

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2

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

15

 

 

 

Item 3

Quantitative and Qualitative Disclosures about Market Risk

23

 

 

 

Item 4

Controls and Procedures

23

 

PART II. OTHER INFORMATION

 

Item 1

Legal Proceedings

23

 

 

 

Item 1A

Risk Factors

23

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

24

 

 

 

Item 3

Defaults Upon Senior Securities

24

 

 

 

Item 4

Mine Safety Disclosures

24

 

 

 

Item 5

Other Information

24

 

 

 

Item 6

Exhibits

24

 

 

 

Signatures

25

 

 

Exhibit Index

26

 

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of July 31, 2023 and April 30, 2023

(in thousands except per share data) 

 

  

July 31, 2023

  

April 30, 2023

 
  

(unaudited)

     

ASSETS

        

CURRENT ASSETS:

        

Cash

 $14,236  $21,997 

Accounts receivable, net

  3,260   3,793 

Inventory, net

  9,047   8,947 

Contract asset

  3,169   1,893 

Prepaid expenses and other current assets

  2,066   3,532 

Total current assets

  31,778   40,162 
         

LEASE RIGHT-TO-USE ASSET, net

  3,033   3,081 
         

PROPERTY, PLANT AND EQUIPMENT, net

  58,335   59,067 
         

SUPPLEMENTAL TYPE CERTIFICATES (net of accumulated amortization of $10,886 at July 31, 2023 and $10,603 at April 30, 2023)

  9,061   8,722 
         

OTHER ASSETS:

        

Other assets (net of accumulated amortization of $12,469 at July 31, 2023 and $12,290 at April 30, 2023)

  1,320   1,401 

Deferred tax asset, net

  1,473   1,473 

Total other assets

  2,793   2,874 

Total assets

 $105,000  $113,906 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        

CURRENT LIABILITIES:

        

Accounts payable

 $4,168  $5,320 

Current maturities of long-term debt

  4,815   4,987 

Current maturities of lease liability

  136   145 

Contract liability

  9,256   6,031 

Gaming facility mandated payment

  1,449   1,730 

Compensation and compensated absences

  1,543   6,722 

Income taxes payable

  493   228 

Other current liabilities

  350   214 

Total current liabilities

  22,210   25,377 
         

LONG-TERM LIABILITIES

        

Long-term debt, net of current maturities

  37,252   38,418 

Lease liability, net of current maturities

  3,322   3,330 

Total long-term liabilities

  40,574   41,748 

Total liabilities

  62,784   67,125 
         

COMMITMENTS AND CONTINGENCIES

          
         

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 79,571,211 shares, and outstanding 68,727,900 shares at July 31, 2023 and issued 80,871,211 shares, and outstanding 76,891,689 shares at April 30, 2023

  795   808 

Capital contributed in excess of par

  13,411   13,647 

Treasury stock at cost, 10,843,311 shares at July 31, 2023 and 3,979,522 shares at April 30, 2023

  (7,173)  (2,138)

Retained earnings

  35,183   34,464 

Total stockholders' equity

  42,216   46,781 

Total liabilities and stockholders' equity

 $105,000  $113,906 

See accompanying notes to condensed consolidated financial statements (unaudited)

 

 

 

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED July 31, 2023 AND 2022 

(in thousands, except per share data)

(unaudited)

 

  

THREE MONTHS ENDED

 
  

July 31,

 
  

2023

  

2022

 

REVENUE:

        

Professional services

 $9,041  $8,962 

Aerospace products

  8,144   6,342 

Total revenues

  17,185   15,304 
         

COSTS AND EXPENSES:

        

Cost of professional Services

  3,946   3,623 

Cost of aerospace products

  7,326   4,827 

Marketing and advertising

  1,278   1,331 

General, administrative and other

  3,498   3,898 

Total costs and expenses

  16,048   13,679 
         

OPERATING INCOME

  1,137   1,625 
         

OTHER INCOME (EXPENSE):

        

Interest expense

  (639)  (723)

Gain on sale of airplanes

  440   - 

Gain on sale of building

  -   69 

Interest income

  47   - 

Total other expense

  (152)  (654)
         

INCOME BEFORE INCOME TAXES

  985   971 
         

PROVISION FOR INCOME TAXES:

        

Provision for income taxes

  266   260 

Deferred income taxes

  -   280 
         

NET INCOME

 $719  $431 
         

BASIC EARNINGS PER COMMON SHARE

 $0.01  $0.01 
         

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION

  75,198,532   76,456,284 
         

DILUTED EARNINGS PER COMMON SHARE

 $0.01  $0.01 
         

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION

  75,198,532   76,456,284 

 

See accompanying notes to condensed consolidated financial statements (unaudited)

 

 

 

 BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE three MONTHS ENDED July 31, 2023 AND 2022 

(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

 

Balance, April 30, 2022

    80,348,572     $ 803     $ 12,160       3,890,426     $ (2,077 )   $ 29,948     $ 40,834  
                                                         

Stock repurchase

    -       -       -       1,639       (2 )     -       (2 )
                                                         

Stock awarded to Director

    400,000       4       348       -       -       -       352  
                                                         

Deferred compensation, restricted stock

    (75,000 )     -       132       -       -       -       132  
                                                         

Net Income

    -       -       -       -       -       431       431  
                                                         

Balance, July 31, 2022

    80,673,572     $ 807     $ 12,640       3,892,065     $ (2,079 )   $ 30,379     $ 41,747  

 

   

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

 

Balance, April 30, 2023

    80,871,211     $ 808     $ 13,647       3,979,522     $ (2,138 )   $ 34,464     $ 46,781  
                                                         

Stock repurchase

    -       -       -       6,863,789       (5,035 )     -       (5,035 )
                                                         

Deferred compensation, restricted stock

    (1,300,000 )     (13 )     (236 )     -       -       -       (249 )
                                                         

Net Income

    -       -       -       -       -       719       719  
                                                         

Balance, July 31, 2023

    79,571,211     $ 795     $ 13,411       10,843,311     $ (7,173 )   $ 35,183     $ 42,216  

 

See accompanying notes to condensed consolidated financial statements (unaudited)

 

 

 

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE three MONTHS ENDED July 31, 2023 AND 2022 

(in thousands)

(unaudited) 

 

  

THREE MONTHS ENDED

 
  

July 31,

 
  

2023

  

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES:

        

Net income

 $719  $431 

Adjustments to reconcile net income to net cash provided by (used in) operating activities

        

Depreciation and amortization

  1,423   1,458 

Stock awarded to director

  -   352 

Deferred income tax expense

  -   280 

Gain on sale of airplane

  (440)  - 

Gain on sale of building

  -   (69)

Deferred compensation, restricted stock

  (249)  132 
         

Changes in operating assets and liabilities:

        

Accounts receivable

  533   21 

Inventory

  (100)  (449)

Contract assets

  (1,276)  326 

Prepaid expenses and other assets

  1,466   (241)

Accounts payable

  (1,152)  (37)

Contract liability

  3,225   3,344 

Lease liability

  48   45 

Accrued liabilities

  (5,179)  (372)

Gaming facility mandated payment

  (281)  (308)

Income tax payable

  265   260 

Other liabilities

  136   137 

Net cash provided by (used in) operating activities

  (862)  5,310 
         

CASH FLOWS FROM INVESTING ACTIVITIES:

        

Capital expenditures

  (901)  (1,797)

Proceeds from sale of airplane

  440   - 

Proceeds from sale of building

  -   164 

Net cash used in investing activities

  (461)  (1,633)
         

CASH FLOWS FROM FINANCING ACTIVITIES:

        

Repayments of long-term debt

  (1,338)  (1,302)

Repayments on right-to-use lease liability

  (65)  (64)

Repurchase of common stock

  (5,035)  (2)

Net cash used in financing activities

  (6,438)  (1,368)
         

NET INCREASE (DECREASE) IN CASH

  (7,761)  2,309 
         

CASH, beginning of period

  21,997   12,487 
         

CASH, end of period

 $14,236  $14,796 
         

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

        

Interest paid

 $637  $713 

Income taxes paid

 $-  $- 
         

NON CASH INVESTING AND FINANCING ACTIVITY:

        

Lease right-of-use assets purchased

 $-  $541 

Lease liability for purchase of assets under lease

 $-  $541 

 

See accompanying notes to condensed consolidated financial statements (unaudited)

   

 

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

 

 

1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the annual report on Form 10-K for the fiscal year ended April 30, 2023. In our opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the three months ended July 31, 2023 are not indicative of the results of operations that may be expected for the fiscal year ending April 30, 2024.

 

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. 

 

 

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)

Identify 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)

Determine 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)

Allocate 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.

 

7

 
 

5)

Recognize 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 unless modified with a change order.  Significant payment terms are generally included in these contracts, requiring a 30% to 50% down payment on arrival of the aircraft and include milestone payments throughout the project.  Typically, contracts are less than one year in duration.  Revenue from fixed-priced contracts is recognized on the percentage-of-completion method, measured by the direct labor incurred compared to total estimated direct labor.  Direct labor best represents the progress on a contract.

 

 

Revenue from Aircraft Avionics and Special Mission Electronics are recognized when shipped. Payment for these Avionics products is due within 30 days of the invoice date after shipment.

 

 

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. Effective September 1, 2022, sports wagering became legal in the State of Kansas. The company is currently managing sports wagering through DraftKings sports wagering platform. The Company shares a percentage of the gross sports wagering win with its platform partner. Revenue from Gaming Management and other Corporate/Professional Services is recognized as the service is rendered. Food, beverage, and other revenue is recorded when the service is received and paid.

 

8

 

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 July 31, 2023

  

Three Months Ended July 31, 2022

 
  

Professional Services

  

Aerospace Products

  

Total

  

Professional Services

  

Aerospace Products

  

Total

 

Geographical Markets

                        

North America

 $9,041  $6,951  $15,992  $8,962  $5,997  $14,959 

Europe

  -   952   952   -   183   183 

Other

  -   241   241   -   162   162 
  $9,041  $8,144  $17,185  $8,962  $6,342  $15,304 
                         

Major Product Lines

                        

Casino Gaming Revenue

 $7,198  $-  $7,198  $7,816  $-  $7,816 

Sportsbook Revenue

  701   -   701   -   -   - 

Casino Non-Gaming Revenue

  1,090   -   1,090   1,077   -   1,077 

Professional Services

  52   -   52   69   -   69 

Aircraft Modification

  -   5,483   5,483   -   3,836   3,836 

Aircraft Avionics

  -   744   744   -   715   715 

Special Mission Electronics

  -   1,917   1,917   -   1,791   1,791 
  $9,041  $8,144  $17,185  $8,962  $6,342  $15,304 
                         

Contract Types / Revenue Recognition Timing

                        

Percentage of completion contracts

 $-  $5,213  $5,213  $-  $3,251  $3,251 

Goods or services transferred at a point of sale

  9,041   2,931   11,972   8,962   3,091   12,053 
  $9,041  $8,144  $17,185  $8,962  $6,342  $15,304 

 

9

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

 

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

 

  July 31,  April 30, 
  

2023

  

2023

 

Accounts Receivable, net

 $3,260  $3,793 

Contract Asset

  3,169   1,893 

Contract Liability

  9,256   6,031 

 

Accounts receivable, net consist of $3,260 and $3,793 from customers as of  July 31, 2023 and April 30, 2023, respectively. At July 31, 2023 and April 30, 2023, the allowance for doubtful accounts was $205 and $205, respectively.

 

Contract assets are net of progress payments and performance based payments from our customers totaling $3,169 and $1,893 as of July 31, 2023 and April 30, 2023. Contract assets increased $1,276 during the three months ended July 31, 2023, primarily due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during the three months ended July 31, 2023. There were no significant impairment losses related to our contract assets during the three months ended July 31, 2023. We expect to bill our customers for the majority of the July 31, 2023 contract assets during fiscal year end 2024.

 

Contract liabilities increased $3,225 during the three months ended July 31, 2023, primarily due to payments received in excess of the revenue recognized on these performance obligations.

 

 

6. Inventory

 

Inventories are priced at the lower of cost, determined on a first-in, first-out basis, or net realizable value. Inventories include material, labor and factory overhead required in the production of our products.

 

Inventory obsolescence is examined on a regular basis. When determining our estimate of obsolescence, we consider inventory that has been inactive for five years or longer and the probability of using that inventory in future production. The obsolete inventory generally consists of Falcon and Learjet parts and electrical components. 

 

Inventory is comprised of the following, net of the estimate for obsolete inventory of $275 at July 31, 2023 and $275 at April 30, 2023.

 

  

July 31, 2023

  

April 30, 2023

 

Parts and raw material

 $5,683  $5,704 

Work in process

  3,305   3,194 

Finished goods

  59   49 

Total Inventory, net of allowance

 $9,047  $8,947 

 

 

 

7. Property, Plant and Equipment

 

Property, plant and equipment is comprised of the following:

 

  

July 31, 2023

  

April 30, 2023

 

Land

  $4,751   $4,751 

Building and improvements

  47,867   47,867 

Aircraft

  7,193   8,515 

Machinery and equipment

  5,627   5,547 

Office furniture and fixtures

  14,054   13,881 

Leasehold improvements

  4,032   4,032 
   83,524   84,593 

Accumulated depreciation

  (25,189

)

  (25,526

)

Total property, plant and equipment

 $58,335  $59,067 

 

Property and Related Depreciation: Machinery and equipment are recorded at cost and depreciated over their estimated useful lives. Depreciation is provided on a straight-line basis. 

 

Description

 

Estimated useful life

Building and improvements

 

39 years or the shorter of the estimated useful life of the asset or the underlying lease term

Aircraft

 

5 years

Machinery and equipment

 

5 years

Office furniture and fixtures

 

5 years

Leasehold improvements

 

Shorter of the estimated useful life of the asset or the underlying lease term

 

10

 

Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of assets retired are removed from the accounts and any resulting gains or losses are reflected as income or expense.

 
8. 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. 
 

 

9. Research and Development:

 

We invested in research and development activities. The amount invested in the three months ended July 31, 2023 and 2022 was $828 million and $631, respectively.

 

10. Debt: At  July 31, 2023 , the Company has a line of credit with Kansas State Bank in the form of a promissory note with an interest rate 8.4% totaling $2,000. The unused line at July 31, 2023  was $2,000. There were no advances made on the line of credit during the quarter ended  July 31, 2023. The line of credit is due on demand and is secured by a first and second position on all assets of the Company.

 

One note with Academy Bank, N.A. for $30,274 secured by all of BHCMC's assets and compensation under the State management contract with an interest rate of 5.32% payable over seven years with an initial twenty-year amortization and a balloon payment of $19,250 in December 2027. The second note with Academy Bank, N.A. for $9,424 is secured by all of BHCMC's assets and compensation under the State management contract with an interest rate of 5.75% payable in full over five years. These notes contain a covenant to maintain a debt service coverage ratio of 1.3 to 1.0. These notes also contain a liquidity covenant requiring the Company to maintain an aggregate sum of $1.5 million of unrestricted cash. We are in compliance with these covenants at July 31, 2023.

 

At July 31, 2023, there was a note payable with Bank of America, N.A. with a balance of $907. The interest rate on this note is at SOFR plus 1.75%.  The loan is secured by buildings and improvements having a net book value of $640.  This note matures in March 2029.

 

At July 31, 2023, there is a note payable with Bank of America, N.A. with a balance of $416.  The interest rate on this note is at SOFR plus 1.75%.  This loan is secured by buildings and improvements with a net book value of $691.  This note matures in March 2029.

 

At July 31, 2023, there was a note payable with Patriots Bank with an interest rate of 4.35% totaling $1,007.  This loan is secured by aircraft security agreements with a net book value of $920.  This note matures in March 2029.

 

At July 31, 2023, there is a note payable with an interest rate of 8.13% totaling $39 secured by equipment with a net book value of $39. This note matures in October 2025.

 

We are compliant with the covenants and obligations of each of our notes as of July 31, 2023, and September 14, 2023.

 

11

 

 

 

11. Other Assets:

 

Our other asset account includes assets of $5,500 related to the Kansas Expanded Lottery Act Management Contract privilege fee, $6,744 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 $128. BHCMC expects the $5,500 privilege fee to have a value over the remaining life of the initial Management Contract with the State of Kansas which will end in December 2024. The State of Kansas approved a renewal management contract and an amendment to the current management contract for our Professional Services company BNSC assumed by 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 fully amortized.

 

 

12. Stock Options and Incentive Plans:

 

In November 2016, the shareholders approved and adopted the Butler National Corporation 2016 Equity Incentive Plan. The maximum number of shares of common stock that may be issued under the Plan is 12.5 million.


On April 12, 2019, the Company granted 2.5 million restricted shares to employees. These shares have voting rights at date of grant and become fully vested and nonforfeitable on April 11, 2024. The restricted shares were valued at $0.38 per share, for a total of $950. On March 17, 2020, the Company granted 5.0 million restricted shares to employees. These shares have voting rights at date of grant and become fully vested and non-forfeitable on March 16, 2025. The restricted shares were valued at $0.41 per share, for a total of $2.0 million. The deferred compensation related to these grants will be expensed on the financial statements over the five year vesting period.  

 

In July 2022, the Company granted a board member 400,000 shares under the plan. These shares were fully vested and nonforfeitable on the date of grant. These shares were valued at $0.88 per share, for a total of $352. The compensation related to this grant was expensed in the current period. No other equity awards have been made under the plan.

 

For the three months ended July 31, 2023 the Company expensed $104 and received a net benefit from the forfeiture of shares of $353 for a net benefit of $249.  For the three months ended  July 31, 2022, the Company expensed $484.

 

  

Number of Shares

  

Weighted Average Grant Date Fair Value

 

Total shares issued

  7,900,000  $0.42 

Forfeited, in prior periods

  (100,000) $0.40 

Forfeited, during the year ended April 30, 2023

  (875,000) $0.40 

Forfeited, during the three months ended July 31, 2023

  (1,300,000) $0.40 

Total

  5,625,000  $0.43 

 

 

13. Stock Repurchase Program:

 

In July 2023, the Board of Directors approved an increase in the size of the Company's stock repurchase program from $4 million to $9 million.  The program was established for the purpose of enabling Butler National Corporation (BNC) to flexibly repurchase its own shares in consideration of factors such as opportunities for strategic investment, BNC's financial condition and the price of its common stock as part of improving capital efficiency.  The program is currently authorized through July 31, 2025.

 

The table below provides information with respect to common stock purchases by the Company through July 31, 2023.

 

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

  3,290,426  $0.40   3,290,426  $2,655 

Quarter ended July 31, 2022 (a)

  1,639  $0.84   1,639  $2,653 

Quarter ended October 31, 2022 (a)

  150  $0.70   150  $2,653 

Quarter ended January 31, 2023 (a)

  85,307  $0.68   85,307  $2,595 

Quarter ended April 30, 2023 (a)

  2,000  $0.68   2,000  $2,594 

Increase in program authorization July 2023

  -  $-   -  $7,594 

Quarter ended July 31, 2023 (a)

  6,863,789  $0.73   6,863,789  $2,560 

Total

  10,243,311  $0.63   10,243,311     

 

(a)

These shares of common stock were purchased through a private transaction

 

12

 
 

14. Lease Right-to-Use:

 

We lease hangars and office space with initial lease terms of five, forty-six, and fifty years.

 

  

July 31, 2023

 

Lease right-to-use assets

 $3,781 

Less accumulated depreciation

  748 

Total

 $3,033 

 

Future minimum lease payments for assets under finance leases at July 31, 2023 are as follows:

 

2024

 $252 

2025

  114 

2026

  116 

2027

  119 

2028

  121 

Thereafter

  12,798 

Total minimum lease payments

  13,520 

Less amount representing interest

  10,062 

Present value of net minimum lease payments

  3,458 

Less current maturities of lease liability

  136 

Lease liability, net of current maturities

 $3,322 

 

Finance lease costs at July 31, 2023 and  July 31, 2022 are as follows: 

 

  

July 31, 2023

  

July 31, 2022

 

Finance lease cost:

        

Amortization of right-of-use assets

 $47  $46 

Interest on lease liabilities

  48   45 

Total finance lease cost

 $95  $91 

 

  

July 31, 2023

  

July 31, 2022

 

Weighted average remaining lease term - Financing leases (in years)

  44   45 

Weighted average discount rate - Financing leases

  5.8%  5.0%

 

 

 

 

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, mapping, search and rescue, 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 civilian 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 July 31, 2023

 

Gaming

  

Aircraft Modification

  

Aircraft Avionics

  

Special Mission Electronics

  

Other

  

Total

 

Revenues from customers

 $8,989  $5,483  $744  $1,917  $52  $17,185 

Interest expense

  556   58   -   16   9   639 

Depreciation and amortization

  648   713   3   32   27   1,423 

Operating income (loss)

  2,314   (793)  (86)  721   (1,019)  1,137 

 

Three Months Ended July 31, 2022

 

Gaming

  

Aircraft Modification

  

Aircraft Avionics

  

Special Mission Electronics

  

Other

  

Total

 

Revenues from customers

 $8,893  $3,836  $715  $1,791  $69  $15,304 

Interest expense

  642   66   -   7   8   723 

Depreciation and amortization

  626   740   2   39   51   1,458 

Operating income (loss)

  2,642   54   48   616   (1,735)  1,625 

 

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:

 

  

Three Months Ended July 31, 2023

  

Three Months Ended July 31, 2022

 

Aerospace Products – two customers in the three months ended July 31, 2023, one customer in the three months ended July 31, 2022

  23.8%  11.7%

Professional Services

  -   - 

 

In the three months ended July 31, 2023 the Company derived 33.8% of total revenue from five Aerospace customers. The top customer provided 12.9% of total revenue while the next top four customers ranged from 2.0% to 10.9%.

 

 

 

16. Subsequent Events:

 

The Company evaluated its July 31, 2023 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 consolidated financial statements.

 

14

  

 

 

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, 2023, 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, 2023, including the following factors:

 

  customer concentration risk;
 

dependence on government spending;
 

industry specific business cycles;

 

regulatory hurdles in the launch of new products;

 

loss of key personnel;

 

the geographic location of our casino;

 

fixed-price contracts;

 

international sales;

 

future acquisitions;

 

supply chain and labor issues;

  cyber security threats;
  fraud, theft and cheating at our casino;
  dependence on third-party platforms to offer sports wagering;
 

outside factors influence the profitability of sports wagering;

 

change of control restrictions;

  significant and expensive governmental regulation across our industries;
 

failure by the corporation or its stockholders to maintain applicable gaming licenses;

 

evolving political and legislative initiatives in gaming;

 

extensive and increasing taxation of gaming revenues;

 

changes in regulations of financial reporting;

 

the stability of economic markets;

 

potential impairment losses;

 

marketability restrictions of our common stock;

 

stock dilution;

  the possibility of a reverse-stock split;
 

market competition by larger competitors;

 

acts of terrorism and war;

  inclement weather and natural disasters; and
 

rising inflation.

 

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.

   

 

General

 

Butler National Corporation (“Butler National” the “Company”, “we”, “us”, or “our”) was incorporated in 1960. Our companies design, engineer, manufacture, sell, integrate, install, repair, modify, overhaul, service and distribute a broad portfolio of aerostructures, aircraft components, avionics, accessories, subassemblies and systems (“Aerospace Products”). We serve a broad, worldwide spectrum of the aviation industry, including owners and operators, of private, commercial, regional, business and government aircraft.

 

In addition, our companies provide management services in the gaming industry, which includes owning the land and building for the Boot Hill Casino and Resort in Dodge City, Kansas (“Professional Services”).

 

Products and Services

 

The Company has two operating segments for financial reporting purposes: (a) Aerospace Products, whose companies’ revenues are derived from system design, engineering, manufacturing, sale, distribution, integration, installation, repairing, modifying, overhauling and servicing of aerostructures, avionics, aircraft components, accessories, subassemblies and systems; and (b) Professional Services, whose companies provide professional management services in the gaming industry, sports wagering, and professional architectural services.

 

Aerospace Products. The Aerospace Products segment includes the manufacture, sale and service of structural modifications, electronic equipment, and systems and technologies enhancing aircraft. Additionally, we operate Federal Aviation Administration (the “FAA”) Repair Stations. Companies in Aerospace Products concentrate on Learjets, Beechcraft King Air, and Cessna turboprop aircraft.

 

Products. The aviation-related products that the companies within this group design, engineer, manufacture, integrate, install, repair and service include:

 

Aerial mapping, search and rescue, and surveillance products

GARMIN GTN Global Position System Navigator with Communication Transceiver

       

Aerodynamic enhancement products

J.E.T. autopilot products

       

Standby instrument systems

Electrical systems and switching equipment

       

Avcon stability enhancing fins

Rate gyroscopes

       

ADS-B (transponder) systems

Replacement vertical accelerometers

       

Cargo/sensor carrying pods and radomes

Provisions to allow carrying of external stores

       

Electronic navigation instruments, radios and transponders

Attitude and 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

       

Extended nose and wing tip bays

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

 

 

 

16

Table of Contents

 

Professional Services. The Professional Services segment includes the management of a gaming and related dining and entertainment facility in Dodge City, Kansas. Boot Hill Casino and Resort features approximately 500 slot machines, 16 table games and a sportsbook. A Company in Professional Services also provide licensed architectural services, including commercial and industrial building design services.

 

Boot Hill. Butler National Service Corporation (“BNSC”), and BHCMC, LLC (“BHCMC”), companies in Professional Services, manage The Boot Hill Casino and Resort in Dodge City, Kansas (“Boot Hill”) pursuant to the Lottery Gaming Facility Management Contract, by and among BNSC, BHCMC and the Kansas Lottery, as subsequently amended (“Boot Hill Agreement”). As required by Kansas law, all games, gaming equipment and gaming operations, including sports wagering, at Boot Hill are owned and operated by the Kansas Lottery. On September 1, 2022, sports wagering became legal in the State of Kansas.  The Company entered into a provider contract with DraftKings for interactive/mobile sports wagering.  In addition to an online platform, the Company also features a DraftKings branded sports book at Boot Hill that opened on February 28, 2023.

 

Architectural Services. A Company in Professional Services provides licensed architectural, including commercial and industrial building design.  The Company is in the process of winding down its architectural business.

 

 

 

 

Results Overview

 

The three months ended July 31, 2023 revenue increased 12% to $17.2 million compared to $15.3 million in the three months ended July 31, 2022. In the three months ended July 31, 2023 the professional services revenue was $9.0 million compared to $9.0 million in the three months ended July 31, 2022, an increase of 1%. In the three months ended July 31, 2023 the Aerospace Products revenue was $8.1 million compared to $6.3 million in the three months ended July 31, 2022, an increase of 28%.

 

The three months ended July 31, 2023 net income increased to $719 compared to a net income of $431 in the three months ended July 31, 2022.  The three months ended July 31, 2023, operating income decreased to $1.1 million from an operating income of $1.6 million in the three months ended July 31, 2022.

 

RESULTS OF OPERATIONS

 

three months ended July 31, 2023 COMPARED TO three months ended July 31, 2022

 

(dollars in thousands)

 

Three Months Ended July 31, 2023

   

Percent of Total Revenue

   

Three Months Ended July 31, 2022

   

Percent of Total Revenue

   

Percent Change 2022-2023

 

Revenue:

                                       

Professional Services

  $ 9,041       53 %   $ 8,962       59 %     1 %

Aerospace Products

    8,144       47 %     6,342       41 %     28 %

Total revenue

    17,185       100 %     15,304       100 %     12 %
                                         

Costs and expenses:

                                       

Costs of Professional Services

    3,946       23 %     3,623       24 %     9 %

Cost of Aerospace Products

    7,326       43 %     4,827       31 %     52 %

Marketing and advertising

    1,278       7 %     1,331       9 %     -4 %

General, administrative and other

    3,498       20 %     3,898       25 %     -10 %

Total costs and expenses

    16,048       93 %     13,679       89 %     17 %

Operating income

  $ 1,137       7 %   $ 1,625       11 %     -30 %

 

Revenue:

 

Revenue increased 12% to $17.2 million in the three months ended July 31, 2023, compared to $15.3 million in the three months ended July 31, 2022. 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, and management support services. Revenue from Professional Services increased 1% for the three months to $9.0 million at July 31, 2023 compared to $9.0 million at July 31, 2022. The new sports wagering platform brought in $701 of revenue that did not exist in first quarter of fiscal year 2023.  Furthermore, casino gaming revenue decreased $618 due to a decrease in patron spend per visit.  We believe this was primarily due to increased inflation and drought conditions in our primary market area causing a decrease in discretionary spending.

 

 

Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft. Aerospace Products revenue increased 28% for the three months to $8.1 million at July 31, 2023 compared to $6.3 million at July 31, 2022. The increase in revenue is mainly due to an increase in the aircraft modification business of $1.7 million.  The development of new STC's and our marketing efforts for them in both domestic and international markets support this increase.

 

 

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  17% to $16.0 million in the three months ended July 31, 2023 compared to $13.7 million in the three months ended July 31, 2022. Costs and expenses were 93% of total revenue in the three months ended July 31, 2023, as compared to 89% of total revenue in the three months ended July 31, 2022.  The increase is primarily due to an increase in material and labor costs.

 

Costs of Professional Services increased 9% in the three months ended July 31, 2023 to $3.9 million compared to $3.6 million in the three months ended July 31, 2022. Costs were 23% of total revenue in the three months ended July 31, 2023, as compared to 24% of total revenue in the three months ended July 31, 2022.  The increase is directly related to an increase in labor costs.

 

Costs of Aerospace Products increased 52% in the three months ended July 31, 2023 to $7.3 million compared to $4.8 million for the three months ended July 31, 2022. Costs were 43% of total revenue in the three months ended July 31, 2023, as compared to 31% of total revenue in the three months ended July 31, 2022.  The increase is directly related to an increase in material and labor costs.

 

Marketing and advertising expenses decreased 4% in the three months ended July 31, 2023, to $1.3 million compared to $1.3 million in the three months ended July 31, 2022. Expenses were 7% of total revenue in the three months ended July 31, 2023, as compared to 9% of total revenue in the three months ended July 31, 2022. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions.

 

General, administrative and other expenses as a percent of total revenue was 20% in the three months ended July 31, 2023, compared to 25% in the three months ended July 31, 2022. These expenses decreased 10% to $3.5 million in the three months ended July 31, 2023, from $3.9 million in the three months ended July 31, 2022. The decrease is primarily due to the stock award of $352 and cash compensation of $140 awarded to a board member expensed in July of 2022.

 

Other expense:

 

Interest expense was $639 in the three months ended July 31, 2023, compared with interest expense of $723 in the three months ended July 31, 2022. 

 

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 July 31, 2023 and July 31, 2022:

 

(dollars in thousands)

 

Three Months Ended July 31, 2023

   

Percent of Total Revenue

   

Three Months Ended July 31, 2022

   

Percent of Total Revenue

   

Percent Change 2022-2023

 

Professional Services

                                       

Revenue

                                       

Boot Hill Casino

  $ 8,989       99 %   $ 8,893       99 %     1 %

Management/Professional Services

    52       1 %     69       1 %     -25 %

Revenue

    9,041       100 %     8,962       100 %     1 %
                                         

Costs of Professional Services

    3,946       44 %     3,623       41 %     9 %

Expenses

    3,343       37 %     3,328       37 %     0 %

Total costs and expenses

    7,289       81 %     6,951       78 %     5 %

Professional Services operating income

  $ 1,752       19 %   $ 2,011       22 %     -13 %

 

(dollars in thousands)

 

Three Months Ended July 31, 2023

   

Percent of Total Revenue

   

Three Months Ended July 31, 2022

   

Percent of Total Revenue

   

Percent Change 2022-2023

 

Aerospace Products

                                       

Revenue

  $ 8,144       100 %   $ 6,342       100 %     28 %
                                         

Costs of Aerospace Products

    7,326       90 %     4,827       76 %     52 %

Expenses

    1,433       18 %     1,901       30 %     -25 %

Total costs and expenses

    8,759       108 %     6,728       106 %     30 %
                                         

Aerospace Products operating (loss)

  $ (615 )     -8 %   $ (386 )     -6 %     59 %

 

 

Professional Services

 

 

Revenue from Professional Services increased 1% for the three months ended July 31, 2023 to $9.0 million compared to $9.0 million for the three months ended July 31, 2022.

In the three months ended July 31, 2023 Boot Hill Casino received gross receipts for the State of Kansas of $12.2 million compared to $12.2 million for the three months ended July 31, 2022. Mandated fees, taxes and distributions reduced gross receipts by $3.7 million resulting in gaming revenue of $8.5 million for the three months ended July 31, 2023, compared to a reduction to gross receipts of $3.8 million resulting in gaming revenue of $8.4 million for the three months ended July 31, 2022. Sportsbook revenue was $701 in the three months ended July 31, 2023 compared to $0 in the three months ended July 31, 2022. Non-gaming revenue at Boot Hill Casino remained constant at $1.1 million for the three months ended July 31, 2023, compared to $1.1 million for the three months ended July 31, 2022.

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 remained constant at $52 for the three months ended July 31, 2023, compared to $69 for the three months ended July 31, 2022.

 

 

Costs of Professional Services increased 9% in the three months ended July 31, 2023 to $3.9 million compared to $3.6 million in the three months ended July 31, 2022. Costs were 44% of segment total revenue in the three months ended July 31, 2023, as compared to 41% of segment total revenue in the three months ended July 31, 2022.  The increase is directly related to an increase in labor costs.

  

 

Expenses remained constant in the three months ended July 31, 2023 to $3.3 million compared to $3.3 million in the three months ended July 31, 2022. Expenses were 37% of segment total revenue in the three months ended July 31, 2023, as compared to 37% of segment total revenue in the three months ended July 31, 2022.

 

Aerospace Products

 

 

Revenue increased 28% to $8.1 million in the three months ended July 31, 2023, compared to $6.3 million in the three months ended July 31, 2022.  The increase in revenue is mainly due to an increase in the aircraft modification business of $1.7 million.  The development of new STC's and our marketing efforts for them in both domestic and international markets support this increase.

 

 

Costs of Aerospace Products increased 52% in the three months ended July 31, 2023 to $7.3 million compared to $4.8 million for the three months ended July 31, 2022.  Costs were 90% of segment total revenue in the three months ended July 31, 2023, as compared to 76% of segment total revenue in the three months ended July 31, 2022. The increase is directly related to the increase in material and labor costs.

 

 

Expenses decreased 25% in the three months ended July 31, 2023 to $1.4 million compared to $1.9 million in the three months ended July 31, 2022.  Expenses were 18% of segment total revenue in the three months ended July 31, 2023, as compared to 30% of segment total revenue in the three months ended July 31, 2022. The decrease is primarily due to the stock award of $352 and cash compensation of $140 awarded to a board member expensed in July 2022.

 

Employees

 

Other than persons employed by our gaming subsidiaries there were 102 full time and 4 part time employees on July 31, 2023, compared to 113 full time and 5 part time employees on July 31, 2022. As of September 8, 2023 staffing is 105 full time and 3 part time employees. Our staffing at Boot Hill Casino & Resort on July 31, 2023 was 203 full time and 55 part time employees compared to 194 full time and 57 part time employees on July 31, 2022. At September 8, 2023 there are 193 full time and 56 part time employees. None of the employees are subject to any collective bargaining agreements.

 

 

Liquidity and Capital Resources

 

Overview

 

Butler National is a holding company. Our ability to fund our obligations depends on existing cash on hand, cash flow from our subsidiaries and our ability to raise capital. Our primary sources of liquidity and capital resources have been cash on hand, cash flow from operations, borrowings under our lines of credit and notes payable (as further described below) and proceeds from the issuance of debt and equity securities. We assess liquidity in terms of the ability to generate cash or obtain financing in order to fund operating, investing and debt service requirements. Our primary ongoing cash requirements include the funding of operations, capital expenditures, acquisitions and other investments in line with our business strategy and debt repayment obligations and interest payments. Our strategy has been to maintain moderate leverage and substantial capital resources in order to take advantage of opportunities, to invest in our businesses and develop new streams of income that may be profitable. As such, we have continued to invest in developing and marketing new STCs and growing our established sports wagering platform. 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 2024 and beyond.

 

Operating Activities

 

During the three months ended July 31, 2023 our cash position decreased by $7.8 million. Net income was $719  for the three months ended July 31, 2023. Cash flows used in operating activities was $862 for the three months ended July 31, 2023. Non-cash activities consisting of depreciation and amortization provided $1.4 million, gain on sale of airplane used $440 and deferred compensation used $249. Contract assets decreased our cash position by $1.3 million. Contract liability increased our cash position by $3.2 million. Inventories decreased our cash position by $100. Accounts receivable increased our cash position by $533. Gaming facility mandated payments decreased our cash position by $281. Prepaid expenses and other assets increased our cash by $1.5 million. A decrease in accounts payable and accrued liabilities and an increase in lease liabilities and other current liabilities decreased our cash by $6.2 million.  Income tax payable increased our cash position by $265.

 

Investing Activities

 

Cash used in investing activities was $461 million for the three months ended July 31, 2023. We invested $622 towards STCs, and $279 on equipment and furnishings. We received $440 in proceeds from the sale of airplanes. 

 

Financing Activities

 

Cash used by financing activities was $6.4 million for the three months ended July 31, 2023. We made repayments on our debt of $1.3 million. We made repayments on lease right-to-use of $65. We purchased company stock of $5.0 million. The stock acquired was placed in treasury.

 

Capital Expenditures

The Company anticipates capital expenditures in fiscal year 2024 to be approximately $7.0 million, consisting of $2.0 million on STC's and $5.0 million on equipment. We anticipate our cash balance will be sufficient to cover cash requirements through the current fiscal year.

 

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 from Contracts with Customers Aerospace Contracts

 

Methodology

 

We recognize revenue and profit based upon either (1) the percent completion method, in which sales and profit are recorded based upon the ratio of labor costs incurred to date to estimated total labor costs to complete the performance obligation, or (2) the point-in-time method, in which sales are recognized at the time control is transferred to the customer. For aerospace contracts that involve airplane modifications based on customer specific requirements, we generally recognize revenue and income using the percent completion method because of continuous transfer of control to the customer. Revenue is generally recognized using the percent completion method based on the extent of progress towards completion of the performance obligation, which allows for recognition of revenue as work on a contract progresses. Our general contract term is between one to twelve months. 

 

Management performs detailed quarterly reviews of all of our significant long-term contracts. Based upon these reviews, we record the effects of adjustments in profit estimates each period. If at any time management determines that in the case of a particular contract total costs will exceed total contract revenue, we record a provision for the entire anticipated contract loss at that time.

 

Judgment and Uncertainties

 

The percent completion revenue recognition model requires that we estimate future revenues and costs over the life of a contract. Revenues are estimated based upon the original contract price, with consideration being given to exercised contract options, change orders and, in some cases, projected customer requirements. Contract costs may be incurred over a period of several months, and the estimation of these costs requires significant judgment based upon the acquired knowledge and experience of program managers, engineers and financial professionals. Estimated costs are based primarily on anticipated purchase contract terms, historical performance trends, business base and other economic projections.

 

 

Effect if Actual Results Differ From Assumptions

 

While we do not believe there is a reasonable likelihood there will be a material change in estimates or assumptions used to calculate our revenue contracts and costs, estimating the percentage of work complete on certain programs is a complex task. As a result, changes to these estimates could have a significant impact on our results of operations. These products and services are an important element in our continuing strategy to increase operating efficiencies and profitability as well as broaden our business base. Management continues to monitor and update program cost estimates quarterly for these contracts. A significant change in an estimate on one or more of these contracts could have a material effect on our financial position and results of operations.

 

Inventory Valuation

 

Methodology

 

We have four types of inventory (a) raw materials, (b) contracts in process, (c) other work in process and (d) finished goods. Raw material includes certain general stock materials but primarily relates to purchases that were made in anticipation of specific programs that have not been started as of the balance sheet date. Raw materials are stated at the lower of the cost of the inventory or its fair market value. Contracts in process, other work in process and finished goods are valued at production cost comprised of material, labor and overhead. Contracts in process, other work in process and finished goods are reported at the lower of cost or net realizable value.

 

Judgment and Uncertainties

 

The process for evaluating inventory obsolescence or market value often requires the Company to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be sold in the normal course of business. We adjust our inventory by the difference between the estimated market value and the actual cost of our inventory to arrive at net realizable value. Changes in estimates of future sales volume may necessitate future write-downs of inventory value.

 

Effect if Actual Results Differ From Assumptions

 

Management reviews the inventory balance on an annual basis to determine whether any additional write-downs are necessary. Following the write-down of the inventory as discussed above, we believe this inventory is stated at net realizable value at April 30 2023, although an unanticipated lack of demand for aircraft or spare parts in the future could result in additional write-downs of the inventory value. Overall, management believes that our inventory is appropriately valued at April 30, 2023.

 

Long-lived Assets

 

Methodology

 

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 the recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. 

 

Judgment and Uncertainties

 

In years that management performs a qualitative assessment we consider the following qualitative factors: general economic conditions in the markets served by the segment, relevant industry-specific performance statistics, and forecasted results of operations.

 

For the quantitative impairment tests, management estimated the fair value of the long-lived asset group using an income methodology based on management's estimates of forecasted undiscounted cash flows over the estimated life of the assets. Changes in these estimates and assumptions could materially affect the results of our impairment testing.

 

An impairment loss is recognized for any excess of the carrying amount of the estimated undiscounted cash flows over the remaining life of the assets. No impairment charges were recorded in the fiscal year ended April 30, 2023.

 

Effect if Actual Results Differ From Assumptions

 

As with all assumptions, there is an inherent level of uncertainty and actual results, to the extent they differ from those assumptions, could have a material impact on fair value. For example, a reduction in customer demand would impact our assumed growth rate resulting in a reduced fair value. Potential events or circumstances could have a negative effect on the estimated fair value. The loss of a major customer or program could have a significant impact on the future cash flows associated with a long-lived asset group. We do not currently believe there to be a reasonable likelihood that actual results will vary materially from estimates and assumptions used to test our long-lived assets for impairment losses. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to additional impairment charges that could be material.

    

Changing Prices and Inflation

  

We have experienced upward pressure from inflation in fiscal year 2024. From fiscal year 2023 to fiscal year 2024 most of the increases we experienced were in material and labor 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 2024 and 2025.

  

 

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 July 31, 2023. 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 July 31, 2023.

  

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 three months ended July 31, 2023 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 July 31, 2023, 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.

 

 

Smaller reporting companies are not required to provide the information required by this item.

 

 

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 first quarter of fiscal 2024.

 

Period

  Total Number of Shares Purchased (a)     Average Price Paid per Share     Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs     Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs  

May 1, 2023 - May 31, 2023

    -     $ -       -     $ 2,594,000  

June 1, 2023 - June 30, 2023

    -     $ -       -     $ 2,594,000  

Increase in program authorization July 2023

    -     $ -       -     $ 7,594,000  

July 1, 2023 - July 31, 2023

    6,863,789     $ 0.73       6,863,789     $ 2,560,000  

Total

    6,863,789     $ 0.73       6,863,789          

 

(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 in the second quarter of fiscal 2020. In July 2023, the Board of Directors approved an increase in the size of the Company's stock repurchase program from $4,000,000 to $9,000,000. 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 July 31, 2025.

 

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 Separation and Mutual Release Agreement dated July 20, 2023 among the Company, Clark Stewart, and the other directors and executive officers of Butler National Corporation, incorporated by reference to Exhibit 10.1 of our Form 8-K filed on July 26, 2023. 
     
  10.2 Separation and Mutual Release Agreement dated July 20, 2023 among the Company, Craig Stewart, and the other directors and executive officers of Butler National Corporation, incorporated by reference to Exhibit 10.2 of our Form 8-K filed on July 26. 2023.
     

 

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 July 31, 2023, formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of July 31, 2023 and April 30, 2023, (ii) Condensed Consolidated Statements of Operations for the three months ended July 31, 2023 and 2022, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three months ended July 31, 2023 and 2022, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended July 31, 2023 and 2022 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 July 31, 2023, 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)

 

 

September 14, 2023

/s/ Christopher J. Reedy

Date

Christopher J. Reedy

 

(President and Chief Executive Officer)

 

 

September 14, 2023

/s/ Tad M. McMahon

Date

Tad M. McMahon

 

(Chief Financial Officer and Secretary)  

   

 

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 Separation and Mutual Release Agreement dated July 20, 2023 among the Company, Clark Stewart, and the other directors and executive officers of Butler National Corporation, incorporated by reference to Exhibit 10.1 of our Form 8-K filed on July 26, 2023.  
     
10.2 Separation and Mutual Release Agreement dated July 20, 2023 among the Company, Craig Stewart, and the other directors and executive officers of Butler National Corporation, incorporated by reference to Exhibit 10.2 of our Form 8-K filed on July 26, 2023.  
     

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 July 31, 2023, formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of July 31, 2023 and April 30, 2023, (ii) Condensed Consolidated Statements of Operations for the three months ended July 31, 2023 and 2022, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three months ended July 31, 2023 and 2023, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended July 31, 2023 and 2023, 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 July 31, 2023, formatted in Inline XBRL (included as Exhibit 101)  
     

 

26