The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
| 1. | NATURE OF OPERATIONS, ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: |
The accompanying consolidated financial statements include the accounts of Butler National Corporation (BNC) and its wholly-owned active subsidiaries, Avcon Industries, Inc., BCS Design, Inc., Butler National Service Corporation, Butler National Corporation-Tempe, Butler Avionics, Inc., Butler National, Inc., Butler Temporary Services, Inc., Kansas International Corporation, Kansas International DDC, LLC, and BHCMC, LLC (collectively, The Company). These consolidated financial statements and related notes are presented in accordance with generally accepted accounting principles in the United States (“GAAP”), expressed in U.S. dollars. All amounts are in thousands, except share and par values, unless otherwise noted. All significant intercompany balances and transactions have been eliminated in consolidation. The fiscal year end of the Company is April 30.
Avcon Industries, Inc. modifies business category aircraft at its Newton, Kansas facility. Modifications can include passenger-to-freighter configuration, addition of aerial photography capability, ISR modifications, and stability enhancing modifications. Butler Avionics, Inc. sells, installs and repairs avionics equipment (airplane radio equipment and flight control systems). Butler National, Inc. acquires airplanes, principally Learjets, to refurbish and sell. Butler Temporary Services, Inc. processes company payroll. Kansas International Corporation and Kansas International DDC, LLC own property. Butler National Corporation-Tempe is primarily engaged in the manufacture electronic upgrades for classic weapon control systems used by the military. Butler National Service Corporation is a management consulting and administrative services firm providing business planning and financial coordination to Indian tribes interested in owning and operating casinos under the terms of the Indian Gaming Regulatory Act of 1988. BHCMC, LLC provides management services for the Boot Hill Casino under a management agreement with the State of Kansas. BCS Design, Inc. provides professional architectural services.
SIGNIFICANT ACCOUNTING POLICIES:
a) Accounts receivable: Accounts receivable are carried on a gross basis, with no discounting, less the allowance for doubtful accounts. Management estimates the allowance for doubtful accounts based on existing economic conditions, the financial conditions of the customers, and the amount and the age of past due accounts. Receivables are considered past due if full payment is not received by the contractual due date. Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted. Allowance for doubtful accounts are calculated on the historical write-off of doubtful accounts of the individual subsidiaries. Invoices are generally considered a doubtful account if no payment has been made in the past 90 days. We review these policies on a quarterly basis, and based on these reviews, we believe we maintain adequate reserves.
b) 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 collection of accounts receivable, the valuation and recognition of stock-based compensation expense, valuation for deferred tax assets and useful life of fixed assets.
c) Inventories: 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. At April 30, 2022 and 2021, the estimate of obsolete inventory was $240 and $691 respectively.
d) 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. The lives used for the significant items within each property classification range from 3 to 39 years.
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.
e) 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.
f) Other Assets: Our other asset account includes assets of $5,500 related to the Kansas Expanded Lottery Act Management Contract privilege fee, $6,151 of gaming equipment we were required to pay for ownership by the State of Kansas Lottery, and 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 via BHCMC. The renewal will take effect December 15, 2024, and continue until 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. Amortization relating to other assets in the year ended April 30, 2022 and 2021 was $689 and $733, respectively.
Other assets net values are as follows:
| (dollars in thousands) | | 2022 | | | 2021 | |
| | | | | | | | | |
| Privilege fee | | $ | 5,500 | | | $ | 5,500 | |
| Less amortized costs | | | 4,372 | | | | 3,949 | |
| Privilege fee balance | | $ | 1,128 | | | $ | 1,551 | |
| | | | | | | | | |
| Intangible gaming equipment | | $ | 6,151 | | | $ | 5,927 | |
| Less amortized costs | | | 5,868 | | | | 5,696 | |
| Intangible gaming equipment balance | | $ | 283 | | | $ | 231 | |
| | | | | | | | | |
| JET autopilot intellectual property | | $ | 1,417 | | | $ | 1,417 | |
| Less amortized costs | | | 1,335 | | | | 1,241 | |
| JET autopilot intellectual property balance | | $ | 82 | | | $ | 176 | |
g) 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 seven years. The legal life of an STC is indefinite. We believe we have enough future sales to fully amortize our STC development costs. Amortization relating to STC's in the year ended April 30, 2022 and 2021 was $1,295 and $1,012, respectively. Consultant costs, as shown below, include costs of engineering, legal and aircraft specialists. STC capitalized costs are as follows:
| (dollars in thousands) | | 2022 | | | 2021 | |
| | | | | | | | | |
| Direct labor | | $ | 3,342 | | | $ | 3,387 | |
| Direct materials | | | 5,227 | | | | 4,108 | |
| Consultant costs | | | 3,083 | | | | 2,983 | |
| Overhead | | | 5,702 | | | | 5,774 | |
| | | | 17,354 | | | | 16,252 | |
| Less-amortized costs | | | 9,336 | | | | 8,041 | |
| STC balance | | $ | 8,018 | | | $ | 8,211 | |
h) 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 the separate performance obligations in the contract. The Company is applying the right to invoice practical expedient to recognize revenue. As a result, the entity bypasses the steps of determining the transaction price, allocating that transaction price and determining when to recognize revenue as it will recognize revenue as billed by multiplying the price assigned to the good or service, by the units.
5) Recognition of revenue when, or as, we satisfy a performance obligation
Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Control transfers either over time or at a point in time. Revenue is recognized when control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
Aircraft modifications are performed under fixed-price contracts. Revenue from fixed-priced contracts are recognized on the percentage-of-completion method, measured by the direct labor incurred compared to total estimated direct labor. Using direct labor best represents the progress on a contract.
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.
i) Fair Value Measurements: Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings.
Level 3 - Unobservable inputs that are supported by little or no market activities.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
For certain financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, marketable securities, notes payable, and accounts payable, the carrying amounts approximate fair value. We do not have financial assets and liabilities that are measured at fair value on a recurring basis. Other financial assets and liabilities are carried at cost with fair value disclosed, if required.
We measure certain other instruments, including stock-based compensation awards settled in the stock also at fair value. The determination of fair value involves the use of appropriate valuation methods and relevant inputs into valuation models.
j) Slot Machine Jackpots: If the casino is not required to make payment of the jackpot (i.e. the incremental amount on a progressive machine) due to legal requirements, the jackpot is accrued as the obligation becomes unavoidable. This liability is accrued over the time period in which the incremental progressive jackpot amount is generated with a related reduction in casino revenue. No liability is accrued with respect to the base jackpot.
k) Gaming Facility Mandated Payment: Boothill Casino is contractually obligated to pay its proportionate share of certain expenses incurred by the Kansas Lottery Commission and the Kansas Racing and Gaming Commission, which amounted to $1,968 and $1,868 in the fiscal year ended April 30, 2022 and 2021, respectively.
l) Advanced Payments and Billings in Excess of Costs Incurred: We receive advances, performance-based payments and progress payment from customers which may exceed costs incurred on certain contracts. We classify advance payments and billings in excess of costs incurred, other than those reflected as a reduction of contracts in process, as contract liability in current liabilities.
m) Earnings Per Share: Earnings per common share is based on the weighted average number of common shares outstanding during the year.
The computation of the Company basic and diluted earnings per common share is as follows:
| (in thousands, except share and per share data) | | 2022 | | | 2021 | |
| | | | | | | | | |
| Net income attributable to Butler National Corporation | | $ | 10,368 | | | $ | 1,433 | |
| Weighted average common shares outstanding | | | 75,340,131 | | | | 74,144,957 | |
| Dilutive effect of non-qualified stock option plans | | | - | | | | - | |
| Weighted average common shares outstanding, assuming dilution | | | 75,340,131 | | | | 74,144,957 | |
| Potential common shares if all options were exercised and shares issued | | | 75,340,131 | | | | 74,144,957 | |
| Basic earnings per common share | | $ | 0.14 | | | $ | 0.02 | |
| Diluted earnings per common share | | $ | 0.14 | | | $ | 0.02 | |
n) Stock-based Compensation: The Company accounts for stock-based compensation under ASC 718, "Accounting for Stock-Based Compensation." These standards define a fair value based method of accounting for stock-based compensation. The cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes option-pricing model, whereby compensation cost is the excess of the fair value of the award as determined by the pricing model at the grant date or other measurement date over the amount that must be paid to acquire the stock. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.
o) Income Taxes: The Company utilizes ASC 740, Accounting for Income Taxes. Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred taxes, which arise principally from temporary differences between the period in which certain income and expense items are recognized for financial reporting purposes and the period in which they affect taxable income, are included in the amounts provided for income taxes. Under this method, the computation of deferred tax assets and liabilities give recognition to enacted tax rates in effect in the year the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to amounts that we expect to realize.
p) Cash and Cash Equivalents: Cash and cash equivalents consist primarily of cash and investments in a money market fund. We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. We maintain cash in bank deposit accounts that, at times, may exceed federally insured limits. At April 30, 2022 and 2021, we had $7,835 and $16,883, respectively in bank deposits that exceeded the federally insured limits.
q) Concentration of Credit Risk: We extend credit to customers based on an evaluation of their financial condition and collateral is not required. We perform ongoing credit evaluations of our customers and maintain an allowance for doubtful accounts.
r) Research and Development: We invested in research and development activities. The amount invested in the year ended April 30, 2022 and 2021 was $2,352 and $3,493 respectively.
s) Reclassifications: Certain reclassifications within the financial statement captions have been made to maintain consistency in presentation between years. These reclassifications have no impact on the reported results of operations.
| 2. |
DISAGGREGATION OF REVENUE: |
In the following table, revenue is disaggregated by primary geographical market, major product line, and timing of revenue recognition.
| |
|
Year Ended April 30, 2022 |
|
| |
|
Professional Services |
|
|
Aerospace Products |
|
|
Total |
|
| Geographical Markets |
|
|
|
|
|
|
|
|
|
|
|
|
| North America |
|
$ |
39,147 |
|
|
$ |
29,258 |
|
|
$ |
68,405 |
|
| Europe |
|
|
- |
|
|
|
2,803 |
|
|
|
2,803 |
|
| Asia |
|
|
- |
|
|
|
1,228 |
|
|
|
1,228 |
|
| Australia and Other |
|
|
- |
|
|
|
1,037 |
|
|
|
1,037 |
|
| |
|
$ |
39,147 |
|
|
$ |
34,326 |
|
|
$ |
73,473 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Major Product Lines |
|
|
|
|
|
|
|
|
|
|
|
|
| Casino Gaming Revenues |
|
$ |
34,411 |
|
|
$ |
- |
|
|
$ |
34,411 |
|
| Casino Non-Gaming Revenues |
|
|
4,358 |
|
|
|
- |
|
|
|
4,358 |
|
| Professional Services |
|
|
378 |
|
|
|
- |
|
|
|
378 |
|
| Aircraft Modification |
|
|
- |
|
|
|
21,399 |
|
|
|
21,399 |
|
| Aircraft Avionics |
|
|
- |
|
|
|
2,373 |
|
|
|
2,373 |
|
| Special Mission Electronics |
|
|
- |
|
|
|
10,554 |
|
|
|
10,554 |
|
| |
|
$ |
39,147 |
|
|
$ |
34,326 |
|
|
$ |
73,473 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Contract Types / Revenue Recognition Timing |
|
|
|
|
|
|
|
|
|
|
|
|
| Percentage of completion contracts |
|
$ |
- |
|
|
$ |
19,507 |
|
|
$ |
19,507 |
|
| Goods or services transferred at a point of sale |
|
|
39,147 |
|
|
|
14,819 |
|
|
|
53,966 |
|
| |
|
$ |
39,147 |
|
|
$ |
34,326 |
|
|
$ |
73,473 |
|
| |
|
Year Ended April 30, 2021 |
|
| |
|
Professional Services |
|
|
Aerospace Products |
|
|
Total |
|
| Geographical Markets |
|
|
|
|
|
|
|
|
|
|
|
|
| North America |
|
$ |
30,205 |
|
|
$ |
25,537 |
|
|
$ |
55,742 |
|
| Europe |
|
|
- |
|
|
|
3,427 |
|
|
|
3,427 |
|
| Asia |
|
|
- |
|
|
|
1,332 |
|
|
|
1,332 |
|
| Australia and Other |
|
|
- |
|
|
|
979 |
|
|
|
979 |
|
| |
|
$ |
30,205 |
|
|
$ |
31,275 |
|
|
$ |
61,480 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Major Product Lines |
|
|
|
|
|
|
|
|
|
|
|
|
| Casino Gaming Revenues |
|
$ |
26,811 |
|
|
$ |
- |
|
|
$ |
26,811 |
|
| Casino Non-Gaming Revenues |
|
|
3,140 |
|
|
|
- |
|
|
|
3,140 |
|
| Professional Services |
|
|
254 |
|
|
|
- |
|
|
|
254 |
|
| Aircraft Modification |
|
|
- |
|
|
|
21,750 |
|
|
|
21,750 |
|
| Aircraft Avionics |
|
|
- |
|
|
|
2,583 |
|
|
|
2,583 |
|
| Special Mission Electronics |
|
|
- |
|
|
|
6,942 |
|
|
|
6,942 |
|
| |
|
$ |
30,205 |
|
|
$ |
31,275 |
|
|
$ |
61,480 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Contract Types / Revenue Recognition Timing |
|
|
|
|
|
|
|
|
|
|
|
|
| Percentage of completion contracts |
|
$ |
- |
|
|
$ |
19,280 |
|
|
$ |
19,280 |
|
| Goods or services transferred at a point of sale |
|
|
30,205 |
|
|
|
11,995 |
|
|
|
42,200 |
|
| |
|
$ |
30,205 |
|
|
$ |
31,275 |
|
|
$ |
61,480 |
|
| 3. |
ACCOUNTS RECEIVABLE, NET, CONTRACT ASSET AND CONTRACT LIABILITY: |
Accounts Receivables, net, contract asset and contract liability were as follows (in thousands):
| |
|
2022 |
|
|
2021 |
|
| Accounts Receivable, net |
|
$ |
3,636 |
|
|
$ |
1,961 |
|
| Contract Asset |
|
|
1,470 |
|
|
|
421 |
|
| Contract Liability |
|
|
820 |
|
|
|
5,798 |
|
Accounts Receivables, net consist of $3,636 and $1,961 from customers as of April 30, 2022 and April 30, 2021, respectively. At April 30, 2022, and 2021, the allowance for doubtful accounts was $205 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 $1,470 and $421 as of April 30, 2022 and 2021. Contract assets increased $1,049 during 2022, primarily due to the recognition of revenue related to the satisfaction or partial satisfaction of performance obligations during 2022 for which we have not yet billed our customers. There were no significant impairment losses related to our contract assets during 2022 and 2021. We expect to bill our customers for the majority of the April 30, 2022 contract assets during fiscal year end 2023.
Contract liabilities decreased $4,978 during 2022, primarily due to payments received in excess of revenue recognized on these performance obligations. During 2022, we recognized $5,798 of our contract liabilities at April 30, 2021 as revenue. During 2021, we recognized $2,189 of our contract liabilities at April 30, 2020 as revenue.
Principal amounts of debt at April 30, 2022 and 2021, consist of the following (in thousands):
| Promissory Notes |
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
|
|
| Bank line of credit, available LOC $2.0 million interest at 3.65% due on demand, collateralized by a first and second position on all assets of the Company. |
|
|
- |
|
|
|
- |
|
| |
|
$ |
- |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
| Long-Term Debt |
|
|
|
|
|
|
|
|
| Note payable, interest at 6.25% due January 2023, collateralized by an Aircraft Security Agreement. |
|
|
534 |
|
|
|
1,138 |
|
| |
|
|
|
|
|
|
|
|
| Note payable, interest at 6.25%, due June 2024, collateralized by real estate. |
|
|
181 |
|
|
|
202 |
|
| |
|
|
|
|
|
|
|
|
| Note payable, interest at 4.5%, paid off in 2022. |
|
|
- |
|
|
|
21 |
|
| |
|
|
|
|
|
|
|
|
| Note payable, interest at SOFR plus 1.75% due March 2029, collateralized by real estate. |
|
|
1,106 |
|
|
|
1,267 |
|
| |
|
|
|
|
|
|
|
|
| Note payable, interest at SOFR plus 1.75% due March 2029 collateralized by real estate. |
|
|
507 |
|
|
|
581 |
|
| |
|
|
|
|
|
|
|
|
| Note payable, interest at 5.32%, this note matures in December 2027, with a balloon payment of $19,250, collateralized by all of BHCMC's assets and compensation due under the State Management Contract. |
|
|
32,667 |
|
|
|
34,417 |
|
| |
|
|
|
|
|
|
|
|
| Note payable, interest at 5.75%, this note matures October 2026, collateralized by all of BHCMC's assets and compensation due under the State Management Contract. |
|
|
12,721 |
|
|
|
6,533 |
|
| |
|
|
|
|
|
|
|
|
| Note payable, interest at 4.35%, due March 2029, collateralized by Aircraft Security Agreements |
|
|
1,197 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Note payable, interest at 8.13%, due October 2025, collateralized by equipment |
|
|
52 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Paycheck Protection Program loan, interest at 1%, this loan was received for the professional services segment. In June 2021, the Company received notice of forgiveness from the Small Business Administration. |
|
|
- |
|
|
|
2,001 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
48,965 |
|
|
|
46,160 |
|
| Less: Origination fees |
|
|
389 |
|
|
|
372 |
|
| |
|
|
48,576 |
|
|
|
45,788 |
|
| Less: Current maturities |
|
|
5,165 |
|
|
|
5,972 |
|
| |
|
$ |
43,411 |
|
|
$ |
39,816 |
|
Maturities of long-term debt are as follows:
| Year Ending April 30 |
|
Amount |
|
| 2023 |
|
$ |
5,242 |
|
| 2024 |
|
|
4,874 |
|
| 2025 |
|
|
5,047 |
|
| 2026 |
|
|
5,228 |
|
| 2027 |
|
|
3,790 |
|
| Thereafter |
|
|
24,784 |
|
| |
|
$ |
48,965 |
|
Financial and Other Covenants
We are in compliance with our covenants at April 30, 2022.
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 the casino as well as hangar and office space with initial lease terms of two, five, and fifty years.
| | | April 30, 2022 | | | April 30, 2021 | |
| Finance lease right-of-use assets | | $ | 3,240 | | | $ | 3,099 | |
| Less accumulated depreciation | | | 512 | | | | 436 | |
| Total | | $ | 2,728 | | | $ | 2,663 | |
Future minimum lease payments for assets under capital leases at April 30, 2022 are as follows:
| 2023 | | $ | 259 | |
| 2024 | | | 263 | |
| 2025 | | | 139 | |
| 2026 | | | 116 | |
| 2027 | | | 118 | |
| Thereafter | | | 7,721 | |
| Total minimum lease payments | | | 8,616 | |
| Less amount representing interest | | | 5,611 | |
| Present value of net minimum lease payments | | | 3,005 | |
| Less current maturities of finance lease liability | | | 106 | |
| Finance lease liability, net of current maturities | | $ | 2,899 | |
| | | April 30, 2022 | | | April 30, 2021 | |
| Finance lease cost: | | | | | | | | |
| Amortization of right-of-use assets | | $ | 181 | | | $ | 225 | |
| Interest on lease liabilities | | | 148 | | | | 158 | |
| Total finance lease cost | | $ | 329 | | | $ | 383 | |
| | | | | | | | | |
| | | April 30, 2022 | | | April 30, 2021 | |
| Weighted average remaining lease term - Financing leases | | 45 years | | | 44 years | |
| Weighted average discount rate - Financing leases | | | 5 | % | | | 5 | % |
| 6. | 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 of April 30, 2022, approximately $12.7 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 | |
| 7. |
Boot Hill Casino Building and Land Purchase: |
On December 19, 2020, we completed the purchase of our Boot Hill Casino located in Dodge City, Kansas, for a purchase price of $41,250, and was funded with two secured bank long-term loans totaling $42,000. We incurred direct financing costs of approximately $400. Prior to our purchase, we were leasing the property under an operating lease. We had recorded a right-of-use asset and the related lease liability upon the adoption ASC 842, Leases, on May 1, 2019. Pursuant to ASC 805-50, Asset Acquisition, the cost was allocated to land, building and improvements, based on the relative fair values. Furthermore, pursuant to ASC 842-20-40-2, Leases – Purchase of Underlying Asset, the difference between the purchase price and the carrying amount of the lease liability immediately before the purchase was recorded by us as the lessee as an adjustment of approximately $2,628 to the carrying amount of the assets.
| Purchase price of casino building and related land |
|
$ |
41,250 |
|
| |
|
|
|
|
| Note payable, collaterialized by all of BHCMC's assets and compensation due under the State Management Contract. The interest rate is 5.32%. This note matures in December 2027, with a balloon payment of $19,250. |
|
$ |
35,000 |
|
| Note payable, collaterialized by all of BHCMC's assets and compensation due under the State Management Contract. This loan has subsequently been amended as part of the purchase of noncotrolling interest (See Footnote 6). |
|
$ |
7,000 |
|
| Total |
|
$ |
42,000 |
|
| |
|
|
|
|
| Lease right-to-use asset |
|
$ |
41,250 |
|
| Accumulated depreciation |
|
$ |
(4,169 |
) |
| Net |
|
$ |
37,081 |
|
| |
|
|
|
|
| Lease liability |
|
$ |
39,709 |
|
Deferred taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provision of the enacted tax laws. Significant components of the Company's deferred tax liabilities and assets as of April 30, 2022 and 2021 are as follows (in thousands):
| | | April 30, 2022 | | | April 30, 2021 | |
| Deferred tax liabilities: | | | | | | | | |
| Depreciation and amortization | | $ | - | | | $ | (643 | ) |
| Deferred compensation, restricted stock | | | (358 | ) | | | (521 | ) |
| Total deferred tax liabilities | | | (358 | ) | | | (1,164 | ) |
| | | | | | | | | |
| Deferred tax assets: | | | | | | | | |
| Depreciation and amortization | | $ | 1,365 | | | $ | - | |
| Accounts receivable allowance | | | 55 | | | | 39 | |
| Inventory and other allowances | | | 65 | | | | 187 | |
| Lease right-to-use | | | 472 | | | | 451 | |
| Vacation accruals | | | 60 | | | | 37 | |
| Jackpot reserves | | | 111 | | | | 50 | |
| Total deferred tax assets | | | 2,128 | | | | 764 | |
| Less valuation allowance | | | - | | | | - | |
| Net deferred tax asset (liability) | | $ | 1,770 | | | $ | (400 | ) |
The reconciliation of the federal statutory income tax rate to the effective tax rate is as follows:
| | | April 30, 2022 | | | April 30, 2021 | |
| Statutory federal income tax rate expense, net of noncontrolling interest | | | 21.00 | % | | | 21.00 | % |
| State income tax, net of federal benefits | | | 5.38 | % | | | 5.59 | % |
| Permanent tax | | | -1.12 | % | | | 5.36 | % |
| Other | | | -1.25 | % | | | -15.00 | % |
| | | | 24.01 | % | | | 16.95 | % |
| | | | | | | | | |
| Income tax expense: | | | | | | | | |
| Deferred income tax (benefit) | | $ | 174 | | | $ | (225 | ) |
| Current income tax | | | 3,102 | | | | 536 | |
| Total income tax expense | | $ | 3,276 | | | $ | 311 | |
Current income tax expense of $3,102 and $536 are comprised of $2,279 and $328 in federal income tax and $823 and $208 in state income tax for the years ended April 30, 2022 and 2021, respectively.
The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on its financial condition, results of operations or cashflow. Therefore, no reserve for uncertain income tax position, interest or penalties, have been recorded.
The Company files income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. The Company is no longer subject to U.S. Federal tax examinations for tax years beginning on May 1, 2018 and prior. There are no current tax examinations.
Common Stock Transactions
During the year ended April 30, 2022, we issued 1,328,190 shares valued at $807 as the contribution to the Company 401(k) profit sharing plan.
During the year ended April 30, 2021, we issued 1,400,705 shares valued at $721 as the contribution to the Company 401(k) profit sharing plan.
| 10. | 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 non-forfeitable 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. During the year ended April 30, 2022, 50,000 shares were forfeited. During the year ended April 30, 2021, 50,000 shares were forfeited. At April 30, 2022, total compensation cost related to nonvested awards not recognized is $1,551, and the weighted average period over which it is expected to be recognized is 3.5 years.
For the year ended April 30, 2022 and 2021, the Company expensed $585 and $592, respectively.
| | | Number of Shares | | | Weighted Average Grant Date Fair Value | |
| Outstanding at April 30, 2020 | | | 7,500,000 | | | $ | 0.40 | |
| Forfeited during the year ended April 30, 2021 | | | (50,000 | ) | | $ | 0.40 | |
| Forfeited during the year ended April 30, 2022 | | | (50,000 | ) | | $ | 0.40 | |
| Total | | | 7,400,000 | | | $ | 0.40 | |
| 11. |
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, 2023.
The table below provides information with respect to common stock purchases by the Company during the year ended April 30, 2022.
| 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 |
|
| Program authorization |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,000 |
|
| Shares purchased in prior periods |
|
|
2,721,415 |
|
|
$ |
0.36 |
|
|
|
2,721,415 |
|
|
$ |
3,019 |
|
| Quarter ended July 31, 2020 (a) |
|
|
212,000 |
|
|
$ |
0.51 |
|
|
|
212,000 |
|
|
$ |
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 |
|
| Quarter ended January 31, 2022 (a) |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
2,819 |
|
| Quarter ended April 30, 2022 (a) |
|
|
180,503 |
|
|
$ |
0.91 |
|
|
|
180,503 |
|
|
$ |
2,655 |
|
| Total |
|
|
3,290,426 |
|
|
$ |
0.41 |
|
|
|
3,290,426 |
|
|
|
|
|
| |
(a) |
These shares of common stock purchased were purchased through private transactions |
| 12. |
COMMITMENTS AND CONTINGENCIES: |
Litigation:
From time to time we may be a defendant and/or plaintiff in various other legal proceedings arising in the normal course of our business. We are currently not a party to any material legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, we are not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Furthermore, as of July 15, 2022, our management is not aware of any proceedings to which any of our directors, officers, or affiliates, or any associate of any such director, officer, affiliate, or security holder is a party averse to our company or has a material interest averse to us.
| 13. | RELATED-PARTY TRANSACTIONS: |
The Company paid consulting fees of $135 and $135 to David Hayden, a director of Butler National Corporation in fiscal year ended April 30, 2022 and 2021 respectively.
The Company paid Edgar Law Firm, LLC, owned by John M. Edgar, a director of Butler National Corporation $214 and $129 in fiscal year ended April 30, 2022 and 2021 respectively.
Included in accrued liabilities are $482 and $659 as of April 30, 2022 and 2021 respectively for amounts owed to our CEO for accrued compensation.
In fiscal 2022, there were three related-person transactions under the relevant standards: Butler National employed the brother (Wayne Stewart as an engineer), son (Craig Stewart as a Vice President) and son-in-law (Jeff Shinkle as an architect) of Clark D. Stewart, an executive officer. Compensation for these related-persons was calculated in the same manner as the Summary Compensation table shown in the most recent Proxy Statement resulting in compensation of $292, $484 and $247, respectively, for fiscal 2022 and $353, $503 and $255, respectively, for fiscal 2021.
The policies and procedures for payment of goods and services for related transactions follow our normal course of business standards and require the necessary review and approval process as outlined in our Policies and Procedures manual and as set forth by our Compensation Committee.
| 14. |
401(k) PROFIT SHARING PLAN: |
We have a defined contribution plan authorized under Section 401(k) of the Internal Revenue Code. All benefits-eligible employees with at least thirty days of service are eligible to participate in the plan; however, there are only two entry dates per calendar year. The Plan may match subject to the annual approval of the Board of Directors, 100 percent of every pre-tax dollar an employee contributes up to 6 percent of the employee's salary, and a portion of the Company’s profits. Employees are 100 percent vested in the employer's contributions immediately. Our matching contribution, as approved by the Board of Directors was paid in common stock of the Company. The contribution amount was valued at a weekly weighted average market price of the stock contributed in 2022 and 2021 and was approximately $807 and $721 respectively.
| 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 from passenger to freighter configuration, radar systems, addition of aerial photography capabilities, ISR modifications, and stability enhancing modifications for Learjet, Beechcraft, Cessna, and Dassault Falcon aircraft along with other specialized 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 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 to 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.
| Year Ended April 30, 2022 |
|
Gaming |
|
|
Aircraft Modification |
|
|
Aircraft Avionics |
|
|
Special Mission Electronics |
|
|
Other |
|
|
Total |
|
| Revenues from customers |
|
$ |
38,769 |
|
|
$ |
21,399 |
|
|
$ |
2,373 |
|
|
$ |
10,554 |
|
|
$ |
378 |
|
|
$ |
73,473 |
|
| Interest expense |
|
|
2,440 |
|
|
|
215 |
|
|
|
- |
|
|
|
23 |
|
|
|
11 |
|
|
|
2,689 |
|
| Depreciation and amortization |
|
|
2,283 |
|
|
|
181 |
|
|
|
5 |
|
|
|
161 |
|
|
|
185 |
|
|
|
2,815 |
|
| Year Ended April 30, 2021 |
|
Gaming |
|
|
Aircraft Modification |
|
|
Aircraft Avionics |
|
|
Special Mission Electronics |
|
|
Other |
|
|
Total |
|
| Revenues from customers |
|
$ |
29,951 |
|
|
$ |
21,750 |
|
|
$ |
2,583 |
|
|
$ |
6,942 |
|
|
$ |
254 |
|
|
$ |
61,480 |
|
| Interest expense |
|
|
2,847 |
|
|
|
251 |
|
|
|
- |
|
|
|
27 |
|
|
|
13 |
|
|
|
3,138 |
|
| Depreciation and amortization |
|
|
3,060 |
|
|
|
191 |
|
|
|
7 |
|
|
|
135 |
|
|
|
149 |
|
|
|
3,542 |
|
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:
| |
|
2022 |
|
|
2021 |
|
| Aerospace Products – two customers in 2022, one customer in 2021 |
|
|
25.0 |
% |
|
|
10.6 |
% |
| Professional Services |
|
|
- |
|
|
|
- |
|
In fiscal 2022 the Company derived 34.1% of total revenue from five Aerospace customers. The top customer provided 14.3% of total revenue while the next top four customers ranged from 2.7% to 10.7%. At April 30, 2022, we had one customer that accounted for 44.8% of our accounts receivable.
In June 2022, board member John M. Edgar was awarded 400,000 shares of Butler National Corporation stock as an "other stock-based award" pursuant to the Corporation's 2016 Equity Incentive Plan and $140,000 in cash compensation. The award is for future Board of Directors work related to future financing and public relations. The award is to be paid three business days after the filing of this 10-K.
The Company evaluated its April 30, 2022 consolidated financial statements for subsequent events through July 15, 2022, the filing date of this report. The Company is not aware of any other subsequent events that would require recognition or disclosure in the consolidated financial statements.