Butler National Corp 10-Q for FY2024 Q1
Butler National Corp (BUKS)
About this 10-Q
Butler National Corp filed this 10-Q on September 14, 2023, covering the quarter ended July 31, 2023 (FY2024 Q1).
Headline figures
Quarter ended July 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $17.19M
- up 12.3% from $15.3M a year earlier
- Net income
- $719K
- up 66.8% from net income of $431K a year earlier
- Diluted EPS
- $0.01
- unchanged from $0.01 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| | 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
BUTLER NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (
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:
(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:
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):
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 | ☐ |
| | ☐ | Smaller reporting company | | |
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| Emerging growth company | |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes
The number of shares outstanding of the Registrant's Common Stock, $0.01 par value, as of September 14, 2023 was
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
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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 | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Contract asset | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| LEASE RIGHT-TO-USE ASSET, net | ||||||||
| PROPERTY, PLANT AND EQUIPMENT, net | ||||||||
| SUPPLEMENTAL TYPE CERTIFICATES (net of accumulated amortization of $ at July 31, 2023 and $ at April 30, 2023) | ||||||||
| OTHER ASSETS: | ||||||||
| Other assets (net of accumulated amortization of $ at July 31, 2023 and $ at April 30, 2023) | ||||||||
| Deferred tax asset, net | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Current maturities of long-term debt | ||||||||
| Current maturities of lease liability | ||||||||
| Contract liability | ||||||||
| Gaming facility mandated payment | ||||||||
| Compensation and compensated absences | ||||||||
| Income taxes payable | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES | ||||||||
| Long-term debt, net of current maturities | ||||||||
| Lease liability, net of current maturities | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS' EQUITY: | ||||||||
| Preferred stock, par value $: Authorized shares, all classes; Designated Classes A and B shares; $ Class A, %, cumulative if earned liquidation and redemption value $, shares issued and outstanding | ||||||||
| $ Class B, %, convertible cumulative, liquidation and redemption value $, shares issued and outstanding | ||||||||
| Common stock, par value $: Authorized shares, issued shares, and outstanding shares at July 31, 2023 and issued shares, and outstanding shares at April 30, 2023 | ||||||||
| Capital contributed in excess of par | ||||||||
| Treasury stock at cost, shares at July 31, 2023 and shares at April 30, 2023 | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
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 | $ | $ | ||||||
| Aerospace products | ||||||||
| Total revenues | ||||||||
| COSTS AND EXPENSES: | ||||||||
| Cost of professional Services | ||||||||
| Cost of aerospace products | ||||||||
| Marketing and advertising | ||||||||
| General, administrative and other | ||||||||
| Total costs and expenses | ||||||||
| OPERATING INCOME | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Gain on sale of airplanes | ||||||||
| Gain on sale of building | ||||||||
| Interest income | ||||||||
| Total other expense | ( | ) | ( | ) | ||||
| INCOME BEFORE INCOME TAXES | ||||||||
| PROVISION FOR INCOME TAXES: | ||||||||
| Provision for income taxes | ||||||||
| Deferred income taxes | ||||||||
| NET INCOME | $ | $ | ||||||
| BASIC EARNINGS PER COMMON SHARE | $ | $ | ||||||
| WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION | ||||||||
| DILUTED EARNINGS PER COMMON SHARE | $ | $ | ||||||
| WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION | ||||||||
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 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||
| Stock repurchase |
( |
) | ( |
) | ||||||||||||||||||||||||
| Stock awarded to Director |
||||||||||||||||||||||||||||
| Deferred compensation, restricted stock |
( |
) | ||||||||||||||||||||||||||
| Net Income |
- | - | ||||||||||||||||||||||||||
| Balance, July 31, 2022 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||
| 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 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||
| Stock repurchase |
( |
) | ( |
) | ||||||||||||||||||||||||
| Deferred compensation, restricted stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| Net Income |
- | - | ||||||||||||||||||||||||||
| Balance, July 31, 2023 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||
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 | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Stock awarded to director | ||||||||
| Deferred income tax expense | ||||||||
| Gain on sale of airplane | ( | ) | ||||||
| Gain on sale of building | ( | ) | ||||||
| Deferred compensation, restricted stock | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Contract assets | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Contract liability | ||||||||
| Lease liability | ||||||||
| Accrued liabilities | ( | ) | ( | ) | ||||
| Gaming facility mandated payment | ( | ) | ( | ) | ||||
| Income tax payable | ||||||||
| Other liabilities | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Proceeds from sale of airplane | ||||||||
| Proceeds from sale of building | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Repayments of long-term debt | ( | ) | ( | ) | ||||
| Repayments on right-to-use lease liability | ( | ) | ( | ) | ||||
| Repurchase of common stock | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| CASH, beginning of period | ||||||||
| CASH, end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| NON CASH INVESTING AND FINANCING ACTIVITY: | ||||||||
| Lease right-of-use assets purchased | $ | $ | ||||||
| Lease liability for purchase of assets under lease | $ | $ | ||||||
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 |
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| 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. |
| 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 |
|
| 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. |
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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Europe | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Major Product Lines | ||||||||||||||||||||||||
| Casino Gaming Revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Sportsbook Revenue | ||||||||||||||||||||||||
| Casino Non-Gaming Revenue | ||||||||||||||||||||||||
| Professional Services | ||||||||||||||||||||||||
| Aircraft Modification | ||||||||||||||||||||||||
| Aircraft Avionics | ||||||||||||||||||||||||
| Special Mission Electronics | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Contract Types / Revenue Recognition Timing | ||||||||||||||||||||||||
| Percentage of completion contracts | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Goods or services transferred at a point of sale | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
Accounts Receivables, net, contract asset and contract liability were as follows (in thousands):
| July 31, | April 30, | |||||||
| 2023 | 2023 | |||||||
| Accounts Receivable, net | $ | $ | ||||||
| Contract Asset | ||||||||
| Contract Liability | ||||||||
Accounts receivable, net consist of $
Contract assets are net of progress payments and performance based payments from our customers totaling $
Contract liabilities increased $
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 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 $
| July 31, 2023 | April 30, 2023 | |||||||
| Parts and raw material | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total Inventory, net of allowance | $ | $ | ||||||
7. Property, Plant and Equipment
Property, plant and equipment is comprised of the following:
| July 31, 2023 | April 30, 2023 | |||||||
| Land | $ | $ | ||||||
| Building and improvements | ||||||||
| Aircraft | ||||||||
| Machinery and equipment | ||||||||
| Office furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property, plant and equipment | $ | $ | ||||||
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 |
| |
| Aircraft |
| |
| Machinery and equipment |
| |
| Office furniture and fixtures |
| |
| Leasehold improvements | Shorter of the estimated useful life of the asset or the underlying lease term |
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.
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 $
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
One note with Academy Bank, N.A. for $
At July 31, 2023, there was a note payable with Bank of America, N.A. with a balance of $
At July 31, 2023, there is a note payable with Bank of America, N.A. with a balance of $
At July 31, 2023, there was a note payable with Patriots Bank with an interest rate of
At July 31, 2023, there is a note payable with an interest rate of
We are compliant with the covenants and obligations of each of our notes as of July 31, 2023, and September 14, 2023.
11. Other Assets:
Our other asset account includes assets of $
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
On April 12, 2019, the Company granted
In July 2022, the Company granted a board member
For the three months ended July 31, 2023 the Company expensed $
| Number of Shares | Weighted Average Grant Date Fair Value | |||||||
| Total shares issued | $ | |||||||
| Forfeited, in prior periods | ( | ) | $ | |||||
| Forfeited, during the year ended April 30, 2023 | ( | ) | $ | |||||
| Forfeited, during the three months ended July 31, 2023 | ( | ) | $ | |||||
| Total | $ | |||||||
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 $
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 | $ | $ | ||||||||||||||
| Quarter ended July 31, 2022 (a) | $ | $ | ||||||||||||||
| Quarter ended October 31, 2022 (a) | $ | $ | ||||||||||||||
| Quarter ended January 31, 2023 (a) | $ | $ | ||||||||||||||
| Quarter ended April 30, 2023 (a) | $ | $ | ||||||||||||||
| Increase in program authorization July 2023 | - | $ | - | - | $ | |||||||||||
| Quarter ended July 31, 2023 (a) | $ | $ | ||||||||||||||
| Total | $ | |||||||||||||||
| (a) | These shares of common stock were purchased through a private transaction |
14. Lease Right-to-Use:
We lease hangars and office space with initial lease terms of , -six, and years.
| July 31, 2023 | ||||
| Lease right-to-use assets | $ | |||
| Less accumulated depreciation | ||||
| Total | $ | |||
Future minimum lease payments for assets under finance leases at July 31, 2023 are as follows:
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total minimum lease payments | ||||
| Less amount representing interest | ||||
| Present value of net minimum lease payments | ||||
| Less current maturities of lease liability | ||||
| Lease liability, net of current maturities | $ |
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 | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Total finance lease cost | $ | $ | ||||||
| July 31, 2023 | July 31, 2022 | |||||||
| Weighted average remaining lease term - Financing leases (in years) | ||||||||
| Weighted average discount rate - Financing leases | % | % | ||||||
15. Segment Reporting and Sales by Major Customer:
Industry Segmentation
Current Activities - The Company focuses on 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Three Months Ended July 31, 2022 | Gaming | Aircraft Modification | Aircraft Avionics | Special Mission Electronics | Other | Total | ||||||||||||||||||
| Revenues from customers | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Operating income (loss) | ( | ) | ||||||||||||||||||||||
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 – customers in the three months ended July 31, 2023, customer in the three months ended July 31, 2022 | % | % | ||||||
| Professional Services | ||||||||
In the three months ended July 31, 2023 the Company derived
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.
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; | |
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dependence on government spending; | |
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industry specific business cycles; |
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regulatory hurdles in the launch of new products; |
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loss of key personnel; |
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the geographic location of our casino; |
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fixed-price contracts; |
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international sales; |
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future acquisitions; |
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supply chain and labor issues; |
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| ● | cyber security threats; | |
| ● | fraud, theft and cheating at our casino; | |
| ● | dependence on third-party platforms to offer sports wagering; | |
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outside factors influence the profitability of sports wagering; |
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change of control restrictions; |
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| ● | significant and expensive governmental regulation across our industries; | |
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failure by the corporation or its stockholders to maintain applicable gaming licenses; |
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evolving political and legislative initiatives in gaming; |
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extensive and increasing taxation of gaming revenues; |
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changes in regulations of financial reporting; |
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the stability of economic markets; |
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potential impairment losses; |
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marketability restrictions of our common stock; |
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stock dilution; |
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| ● | the possibility of a reverse-stock split; | |
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market competition by larger competitors; |
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acts of terrorism and war; |
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| ● | inclement weather and natural disasters; and | |
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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 |
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GARMIN GTN Global Position System Navigator with Communication Transceiver |
| ● |
Aerodynamic enhancement products |
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J.E.T. autopilot products |
| ● |
Standby instrument systems |
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Electrical systems and switching equipment |
| ● |
Avcon stability enhancing fins |
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Rate gyroscopes |
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ADS-B (transponder) systems |
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Replacement vertical accelerometers |
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Cargo/sensor carrying pods and radomes |
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Provisions to allow carrying of external stores |
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Electronic navigation instruments, radios and transponders |
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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 |
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Extended tip fuel tanks |
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Aerodynamic improvements |
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Radar systems |
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Avionics systems |
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ISR – Intelligence Surveillance Reconnaissance |
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Cargo doors |
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Special mission modifications |
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Extended nose and wing tip bays |
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Stability enhancements |
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Extended doors |
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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 |
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HangFire Override Modules |
| ● |
Electronic control systems |
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Test equipment |
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Gun Control Units for Apache and Blackhawk helicopters |
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Gun Control Units for land and sea based military vehicles |
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 |
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| Professional Services |
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| Revenue |
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| 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 |
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| Aerospace Products |
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| 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. |
| ● |
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.
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LEGAL PROCEEDINGS. |
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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. |
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RISK FACTORS. |
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Smaller reporting companies are not required to provide the information required by this item. |
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
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| 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. |
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DEFAULTS UPON SENIOR SECURITIES. |
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None. |
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MINE SAFETY DISCLOSURES. |
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Not applicable. |
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OTHER INFORMATION. |
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None. |
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EXHIBITS. |
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3.1 |
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| 3.2 | Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form 10-Q filed on March 14, 2013. | |
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| 4.1 |
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| 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. | |
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31.1 |
Certificate of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a). |
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31.2 |
Certificate of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a). |
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32.1 |
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32.2 |
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101 |
The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended 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) | |
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.
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BUTLER NATIONAL CORPORATION |
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(Registrant) |
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| September 14, 2023 | /s/ Christopher J. Reedy |
| Date |
Christopher J. Reedy |
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(President and Chief Executive Officer) |
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| September 14, 2023 | /s/ Tad M. McMahon |
| Date |
Tad M. McMahon |
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(Chief Financial Officer and Secretary) |
Exhibit 31.1
CERTIFICATIONS
I, Christoph J. Reedy, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q ended July 31, 2023 of Butler National Corporation. |
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2. |
Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. |
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Date: September 14, 2023 |
/s/Christopher J. Reedy |
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Christopher J. Reedy |
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President and Chief Executive Officer |
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Exhibit 31.2
CERTIFICATIONS
I, Tad M. McMahon, certify that:
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I have reviewed this quarterly report on Form 10-Q ended July 31, 2023 of Butler National Corporation. |
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2. |
Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. |
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Date: September 14, 2023 |
/s/ Tad M. McMahon |
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Tad M. McMahon |
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Chief Financial Officer and Secretary |
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Butler National Corporation (the "Company") on Form 10-Q for the period ending July 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher J. Reedy, Chief Executive Officer of the Company, certify, (to the best of my knowledge), pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002 that;
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/s/Christopher J. Reedy |
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Christopher J. Reedy |
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President and Chief Executive Officer |
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Butler National Corporation |
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September 14, 2023
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"A signed original of this written statement required by Section 906 has been provided to Butler National Corporation and will be retained by Butler National Corporation and furnished to the Securities and Exchange Commission or its staff upon request."
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Butler National Corporation (the "Company") on Form 10-Q for the period ending July 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Tad M. McMahon, Chief Financial Officer of the Company, certify, (to the best of my knowledge), pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002 that;
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/s/ Tad M. McMahon |
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Tad M. McMahon |
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Chief Financial Officer and Secretary |
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Butler National Corporation |
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September 14, 2023
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"A signed original of this written statement required by Section 906 has been provided to Butler National Corporation and will be retained by Butler National Corporation and furnished to the Securities and Exchange Commission or its staff upon request."