Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the fiscal year ended April 30, 20172020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.
Commission File Number 0-1678

 

BUTLER NATIONAL CORPORATION

(Exact name of Registrant as specified in its charter)

Kansas

41-0834293

(State of Incorporation)

(I.R.S. Employer Identification No.)

19920 West 161st Street, Olathe, Kansas 66062
(Address of principal executive office)(Zip Code)

 

Registrant's telephone number, including area code:

 

(913) 780-9595

SecuritiesinSecurities registered pursuant to Section 12(b) of the Act:None

Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneNoneNone

Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value
(Title of Class)

Indicate by check if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

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 12 months, and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files): Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

 

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. (Check one):

 

Large accelerated

filer

Accelerated filer

Non-accelerated

filer (Do not check if a smaller reporting company) 

Smaller Reporting

Company ☒

Emerging Growth

Company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The aggregate market value of the voting stock and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant's most recently completed second fiscal quarter was approximately $9,377,95428,506,324 at October 31, 2016,2019, when the closing price of such stock was $0.18.$0.53.

 

The number of shares outstanding of the registrant's common stock, $0.01 par value, as of July 14, 2017,10, 2020, was 64,543,55074,398,262 shares.

 

DOCUMENTS INCORPORATED BY REFERENCE: NONEPortions of the definitive proxy statement to be filed within 120 days of April 30, 2020, pursuant to Regulation 14A under the Securities Exchange Act of 1934 for the Annual Meeting of Shareholders to be held on October 6, 2020, have been incorporated by reference into Part III of this Form 10-K.

1

 

 

BUTLER NATIONAL CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED APRILApril 30, 20172020

TABLE OF CONTENTS

 

PART I

ITEM 1.

Business

54

ITEM 1A.

Risk Factors

119

ITEM 1B.

Unresolved Staff Comments

15

ITEM 2.

Properties

15

ITEM 3.

Legal Proceedings

15

ITEM 4.

Mine Safety Disclosures

15

 

 

 

PART II

ITEM 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

16

ITEM 6.

Selected Financial Data

17

ITEM 7.

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

17

ITEM 7A.

Quantitative and Qualitative Disclosure About Market Risk

2324

ITEM 8.

Financial Statements and Supplementary Data

24

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

24

ITEM 9A.

Controls and Procedures

24

ITEM 9B.

Other Information

25

 

 

 

PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance

2526

ITEM 11.

Executive Compensation

2926

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

3426

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

3426

ITEM 14.

Principal Accounting Fees and Services

3526

 

 

 

PART IV

ITEM 15.

Exhibits, Financial Statement Schedules

3627

 

Signatures

3829

 

Financial Statements

4030

 

2

 

 

Forward-Looking Statements

 

Statements made in this report, the Annual Report on Form 10-K the Annual Report to Stockholders in which this report is made a part, 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 this Item 1A. Risk Factors 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 this Annual Report on Form 10-K, and the Cautionary Statements filed by us as Exhibit 99 to this form, including the following factors:

 

the impact of general economic trends on the Company's business;extensive regulation across our industries;

sensitivity of demand related to changes in the U.S. dollar to foreign currency exchange rates;evolving government regulations and law;

the deferral or terminationgeographic location of programs or contracts for convenience by customers;our casino;

customer concentration risk;

risks associated with the potential acquisition of land at the Boot Hill Casino;

industrial business cycles;

market acceptance of the Company's Aerospace Products and or other planned products or product enhancements;competition;

increased fuel and energy costs and the downward pressure on demand formarketability restrictions of our aircraft business;common stock;

stock dilution caused by the annual employer match to our 401(k) plan;

the ability to gainpossibility of a reverse-stock split;

executive officers are family members;

non-renewal of certain casino management contracts;

changes in regulations of financial reporting;

fluctuating fuel and maintain regulatory approvalenergy costs;

fixed-price contracts;

development, production, testing and marketing of existing products and services and receive regulatory approval of new businesses and products;

the actions of regulatory, legislative, executive or judicial decisions of the federal, state or local level with regard to our business and the impact of any such actions;

failure to retain/recruit key personnel;

the availabilitystability of government funding to vendors and customers;credit markets;

any delays in receiving components from third party suppliers;cyber-security threats;

the competitive environment;

the bankruptcy or insolvency of one or more key customers or vendors;

new product offerings from competitors;

protection of intellectual property rights;

the ability to service, supply or visit the international market;

acts of terrorism and war and other uncontrollable events;war;

joint venturesinclement weather and other arrangements;natural disasters;

pandemics or other national health crisis;

low priced penny-stock regulations;loss of key personnel;

general governance features;risks associated with international sales;

United Statesfuture acquisitions and other country defense spending cuts;investments;

our estimated effective income tax rates; estimated tax benefits; and meritschange of our tax positioncontrol restrictions;

potential future acquisitions;impairment losses;

changes in laws, including increased tax rates, smoking bans, regulations or accounting standards, third-party relations and approvals, and decisions, disciplines and fines of courts, travel restrictions, regulators and governmental bodies;

the ability to timely and cost-effectively integrate companies that we acquire into our operations;

construction factors, including delays, increased costs of labor and materials, availability of labor and materials, zoning issues, environmental restrictions, soil and water conditions, weather and other hazards, site access matters and building permit issues;

litigation outcomes and judicial and governmental body actions, including gaming legislative action, referenda, regulatory disciplinary actions and fines andextensive taxation;

access to insurance on reasonable terms;

cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations;

as a supplier of military and other equipment to the U.S. Government, we are subject to unusual risks, such as the right of the U.S. Government contractor to terminate contracts for convenience and to conduct audits and investigations of our operations and performance;

our reputation and ability to do business may be impacted by the improper conduct of employees, vendors, agents or business partners;

changes in legislation or government regulations or policies can have a significant impact on our results of operations; and

other factors disclosed from time to time in the Company's filings with the Securities and Exchange Commission.

 

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.

 

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-K. The Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events, circumstances or changes in expectations after the date of this Form 10-K, or to reflect the occurrence of unanticipated events. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A of the Securities Act of 1933, as amended (the "Securities Act") and 21E of the Securities Exchange Act of 1934 as amended (the "Exchange Act").

Investors should also be aware that while the Company, from time to time, communicates with securities analysts; itCompany policy is against its policy to not 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.

 

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3

Table of Contents

 

PART I

 

PART I

Item 1.

BUSINESS

 

General

 

Butler National Corporation (the "Company"(“Butler National” the “Company”, "BNC"“we”, “us”, or "Butler National"“our”) iswas incorporated in 1960. Our companies design, engineer, manufacture, sell, integrate, install, repair, modify, overhaul, service and distribute a Kansas corporation formedbroad 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 single-engine, commercial, regional, business and military aircraft. In addition, our companies provide management services in 1960, with corporate headquarters at 19920 West 161st Street, Olathe, Kansas 66062.

Current Activities - The Company focuses on two primary activities, the gaming industry (“Professional Services and Aerospace Products.

Aerospace Products:

Aerospace Products focuses on two product lines: Aircraft Modifications and Avionics.

Aircraft Modifications principally includes the modification of customer and company owned business-size aircraft from passenger to freighter configuration, addition of radar systems, aerial photography capabilities, 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"Services”).

 

Avionics principallyProducts 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, and professional architectural and engineering services.

Aerospace Products. The Aerospace Products segment includes the manufacture, sale and service of electronic equipment and systems.  We have made significant development investmentssystems and continue to make these investments to address the current Federal Aviation Administration ("FAA") and international system requirements for Automatic Dependent Surveillance - Broadcast ("ADS-B").  ADS-B is a precise satellite-based surveillance system.  ADS-B Out uses GPS technology to determine aircraft location, airspeed and other data, and broadcasts that information to a network of ground stations, that relays the data to air traffic control displays and to nearby aircraft equipped to receive the data via ADS-B In.  Operators of aircraft equipped with ADS-B In may receive weather and traffic position information delivered directly to the cockpit.  We currently have FAA approved Supplemental Type Certificates allowing the installation of four different configurations of ADS-B systems. ADS-B will be required on the majority of all civil aviation aircraft by January 20, 2020.  We are selling and installing ADS-B system solutions at Butler Avionics and Avcon.

In addition to the new ADS-B systems, Avionics includes the design and approval of components to resolve obsolescence issues in airplanes.  Avionics designs and obtains airworthiness approval of parts including autopilot boards and sensors such as gyros and accelerometers. Avionics also includes airborne electronic switching units used in DC-9, DC-10, DC-9/80, MD-80, MD-90, and the KC-10 aircraft, Transient Suppression Devices ("TSDs") for fuel tank protection on Boeing Classic 737 and 747 aircraft, and other Classic aircraft using a capacitance fuel quantity indicating system ("FQIS"), airborne electronics upgrades for classic weapon control systems used on military aircraft and vehicles, and consulting services with airlines and equipment manufacturers regarding fuel system safety requirements. We provide the products through our subsidiary, Butler National Corporation - Tempe, Arizona and the services through Butler National Corporation - Olathe, Kansas ("Avionics", "Classic Aviation Products", "Safety Products", or "Switching Units"). Butler National Corporation - Tempe, Arizona and Avcon Industries are AS 9100 certified.

Butler Avionics, Inc. ("Butler Avionics") sells, installs and repairs 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 received Parts Manufacturing Authority ("PMA") from the Federal Aviation Administration ("FAA") in fiscal 2015 and is currently manufacturing parts. Butler Avionics is also recognized nationwide for its troubleshooting and repair work particularly on autopilot systems.

Professional Services:

Professional Services derives its revenue from (a) professional management services in the gaming industry through Butler National Service Corporation ("BNSC") and BHCMC, LLC ("BHCMC"), and (b) professional architectural, engineering and management support services through BCS Design, Inc. ("BCS").

BCS Design, Inc. provides licensed architectural services. These services include commercial and industrial building design.

Butler National Service Corporation ("BNSC") provides management services to the Boot Hill Casino, a "state owned casino" and to The Stables, an "Indian owned casino".


Assets as of April 30, 2017 and 2016 and Revenue for the years ended April 30, 2017 and 2016.

Assets

 

2017

 

 

2016

 

Professional Services

 

 

 51.1

%

 

 

52.6

%

Aerospace Products

 

 

 48.9

%

 

 

47.4

%

Revenue

 

2017

 

 

2016

 

Professional Services

 

 

 60.9

%

 

 

66.5

%

Aerospace Products

 

 

 39.1

%

 

 

33.5

%

Regulations

Regulation Under Federal Aviation Administration: Aerospace is subject to regulation by the Federal Aviation Administration ("FAA") and equivalent foreign organizations. We manufacture products and parts under FAA Parts Manufacturing Authority (PMA) requiring qualification and traceability of all materials and vendors. We make aircraft modifications pursuant to the authority granted by Supplemental Type Certificates issued by the FAA. We repair aircraft parts pursuant to the authority granted by our FAA Authorized Repair Station. Violations of, or changes to, FAA regulations could be detrimental to our operations.

Licensing and Regulation under Federal Indian Law: Gaming on Indian land is extensively regulated by Federal, State, and Tribal governments and authorities. Regulatory changes could limit or otherwise materially affect the types of gaming that may be conducted on Indian Land. All aspects of our business operations on Indian Lands are subject to approval, regulation, and oversight by the Bureau of Indian Affairs ("BIA"), the Secretary of the United States Department of the Interior ("Secretary"), and the National Indian Gaming Commission ("NIGC"). Our management of Class III gaming operations is also subject to approval of a Class III Gaming Compact between the Indian Tribe and the respective state. Failure to comply with applicable laws or regulations, whether Federal, State or Tribal, could result in, among other things, the termination of any management agreements which would have a material adverse effect on us. We are also required to comply with background checks as specified in Tribal-State Compacts before we can manage gaming operations on Indian land. There can be no assurance that we would continue to be successful in obtaining the necessary regulatory approvals for our gaming operations on a timely basis, or at all.

Licensing and Regulation under State Law: Our present and future stockholders are and will continue to be subject to review by regulatory agencies. Gaming licenses and/or background investigations ("license") are required in connection with our management of a State of Kansas owned Lottery Gaming Facility (a casino). Our management personnel, Butler National and/or the managing subsidiaries, the key personnel of all entities may be required to have a Lottery Gaming Facility gaming license prior to conducting operations. The failure of the Company or the key personnel to obtain or retain a license could have a material adverse effect on the Company or on its ability to obtain or retain these licenses in other jurisdictions. Each such State Gaming Agency has broad discretion in granting, renewing, and revoking licenses. Obtaining such licenses and approvals will be time consuming and cannot be assured.

The State of Kansas owns and operates a state lottery, keno games, and state-owned Lottery Gaming Facilities for the benefit of the State. The Lottery Gaming Facility management contract approval process requires that any entity or person owning directly or indirectly one-half of one percent (0.5%) of the ownership interest of the management company must be found suitable to be an owner by the State of Kansas. The Kansas Supreme Court announced its ruling affirming the constitutionality of the Kansas Expanded Lottery Act (KELA) as the law was enacted. There can be no assurances that other constitutionality challenges will not occur.

As a condition to obtaining and maintaining our various gaming approvals, we must submit reports to the Indian Tribe and the respective federal and state regulatory Agencies (each, an "Agency"). Any person owning or acquiring directly or indirectly 5% or more of the Common Stock of the Company (the "Interest") must be found suitable by one or more of the Agencies or the Indian Tribes. Any Agency has the authority to require a finding of suitability with respect to any stockholder regardless of the percentage of ownership.

If found unsuitable by any Agency or the Indian Tribe, the stockholder must offer all of the Interest in Company stock held by such stockholder to the Company for cash at the current market bid price less a fifteen percent (15%) administrative charge and the Company must purchase such Interest within six months of the offer. The stockholder is required to pay all costs of investigation with respect to a determination of his/her suitability. In addition, regardless of ownership, each member of the Board of Directors and certain officers of the Company are subject to a finding of suitability by any Agency and the Indian Tribe.


Financial Information about Industry Segments

Information with respect to our industry segments are found at Note 10 of Notes to Consolidated Financial Statements for the two year period ended April 30, 2017.

Narrative Description of Business

Aerospace Products

Aerospace Products derives its revenue from system design, engineering, manufacturing, integration, installation, servicing, and repairing products for classic and current production aircraft. These products include JET autopilot service and repairs, Avcon provisions and system integration for special mission equipment installations, Butler Avionics equipment sales and installation, and Butler National electronic controls and safety equipment manufacture and sales. Aerospace customers range in size from owners and operators of small single engine airplanes to owners and operators of large commercial and military aircraft. Aerospace Products are sold to and serviced for customers located in many countries of the world.

Aerospace is the legacy part of the Butler National business. Organized over 57 years ago, this business is based upon design engineering and installation innovationstechnologies to enhance and support products related to airplanes and ground support equipment. These new products included: in the 1960's, aircraft electronic load sharing and system switching equipment, a number of airplane electronic navigation instruments, radios and transponders; in the 1970's, ground based VOR navigation equipment sold worldwide and GPS equipment asaircraft. Additionally, we know it today in civilian use; in the 1980's, special mission modifications to business jets for aerial surveillance and conversion of passenger configurations to cargo; in the 1990's, classic aviation support of aging airplanes with enhanced protection of electrical systems through transient suppression devices (TSD), control electronics for military weapon systems and improved aerodynamic control products (Avcon Fins) allowing stability at higher gross weights for additional special mission applications; in the 2000's, improved accuracy of the airspeed and altimeter systems to allow less vertical separation between flying airplanes (RVSM) and acquisition of the JET autopilot product line to support and replace aged electronic equipment in the classic fleet of Learjet airplanes; and in the 2010's, the acquisition of Butler Avionics to provide additional classic airplane support by retrofit of avionics from the past 40 years to modern state of the art equipment for sale worldwide using FAA supplemental type certification (STC).  Aerospace is preparing for the 2020's through the development and certification of ADS-B systems in support of the FAA "NextGen" update of the Air Traffic Control system in the United States and many other countries.

Aerospace continues to be a focus for new product design and development. Butler National received FAA approvals of a number of products:  Butler National's newly redesigned rate gyroscope for Learjets; the replacement vertical accelerometer safety device that resolves obsolescence as a key component of the legacy Learjet stall warning systems; Butler National's addition of the GARMIN GTN 650/750 Global Position System Navigator with Communication transceiver in the Learjet Model 50 series, 30 series and 20 series, Avcon's new cargo/sensor carrying pod that mounts to the bottom of a King Air aircraft, and the provisions for external stores on a Learjet Model 60 to enable the 60 for consideration as the next Learjet candidate for special mission operations; and noise suppression for Learjet 20 series aircraft. We expect this segment will continue to grow in the future.

Aircraft Modification: Our aircraft modifications are performed by Avcon Industries, Inc. ("Avcon"). Avcon modifies business-type aircraft in Newton, Kansas. Newton is geographically located in the Wichita, Kansas area, the air capital of the world. The modifications include aircraft conversion from passenger to freighter configuration, radar systems, addition of aerial photography capabilities, stability enhancing modifications for Learjets, and other special mission modifications. Avcon offers avionics, aerodynamic, and stability improvement products for selected business jet aircraft.

The Aircraft Modifications business derives its ability to modify aircraft from the authority granted by thealso operate several Federal Aviation Administration ("FAA"(the “FAA”). The FAA grants this authority by issuing a Supplemental Type Certificate ("STC") after a detailed review of the design, engineering, functional documentation, and demonstrated flight evaluation of the modified aircraft. The STC authorizes Avcon to build the required parts and assemblies under FAA Parts Manufacturing Authority ("PMA"), and to make the installations on applicable aircraft.

We own more than 250 STCs. When the STC is applicable to a multiple number of aircraft it is categorized as a Multiple-Use STC. These Multiple-Use STCs are considered a major asset of the Company. Some of the Multiple-Use STCs include Reduced Vertical Separation Minimums (RVSM), Beechcraft Cargo Door, Beechcraft Extended Door, Learjet AVCON FINS, Learjet Extended Tip Fuel Tanks, Learjet Weight Increase Package, Dassault Falcon 20 Cargo Door, ADS-B avionics systems, and many special mission modifications.

We operate FAA Authorized Repair Stations. The focus of our business includes the Learjet model 20, 30, 55 and 60 series,Companies in Aerospace Products concentrate on Learjets, Beechcraft King Air, Cessna turbine engine, Cessna multi-engine piston and Dassault Falcon 20 aircraft. The Repair Stations are a convenience for our customers bringing aircraft to us for modification and maintenance.

Classic Aviation Products: Our mission is to provideSpecifically, the design, distribution and support economicalfor products for older aircraft, often referredor “Classic” aircraft are areas of focus for companies in Aerospace Products.

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

Aerial surveillance products

GARMIN GTN Global Position System Navigator with Communication Transceiver

Aerodynamic enhancement products

J.E.T. autopilot products

Airspeed and altimeter systems

Electrical systems and switching equipment

Avcon Fins

Noise suppression systems

ADS-B (transponder) systems

Rate gyroscopes

Conversion of passenger configurations to cargo

Replacement vertical accelerometers

Cargo/sensor carrying pods and radomes

Provisions for external stores

Electronic navigation instruments, radios and transponders

Attitude heading reference systems

4

Table of Contents

Modifications. The companies in Aerospace Products have authority, pursuant to as "Classic" aircraft. As a result of more than 50 yearsFederal 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 aircraft switching unit business, we recognize the potential to support many aircraft in the last half of their expected service life. The business mission of the company promotes us as a designer and supplier of "Classic Aviation Products". A part of the Classic products are directed to supporting safety of flight for the older aircraft.aviation industry including:

Aerial photograph capabilities

Extended tip fuel tanks

Aerodynamic improvements

Radar systems

Avionics systems

ISR – Intelligence Surveillance Reconaissance

Cargo doors

Special mission modifications

Conversion from passenger to freighter configuration

Stability enhancements

Extended doors

Traffic collision avoidance systems

 

Special Mission Electronics:Electronics. We supply defense-related, commercial off the shelfoff-the-shelf products to various commercial entities and government agencies and subcontractors. We provide our customers the opportunitysubcontractors in order to update or extend the useful life of productsaircraft with older components and technology. These products include Gun Control Units (GCU) for the Apache and Blackhawk helicopters and other weapon products, including the Hangfire Override Modules (HOM) for all Boeing derived Chain-Gun® cannons, and various weapon-related firing controls, cabling, and test equipment. We have upgraded the design of the GCU and expect to expand sales of the Butler National upgraded GCU control systems to maintain the Apache and Blackhawk fleets and other military aircraft.include:

Cabling

HangFire Override Modules

Electronic control systems

Test equipment

Gun Control Units for Apache and Blackhawk helicopters

Gun Control Units for land and sea based military vehicles

 

Aircraft Fuel System Safety:Professional Services. The FAA issuedProfessional Services segment includes the management of a Special Federal Aviation Requirement ("SFAR") No. 88 titled "Fuel Tank System Fault Tolerance Evaluation Requirements" applicable to turbine-powered aircraft certified to carry 30 or more passengers or a certified payload capacity of 7,500 pounds or more. SFAR-88 is now part of the fuel system safety regulations.gaming facility and related dining and entertainment facilities in Dodge City, Kansas. Boot Hill Casino and Resort features approximately 640 slot machines and 20 table games. Companies in Professional Services also provide licensed architectural services, including commercial and industrial building design, and engineering services.

 

We worked with the Original Equipment Manufacturer to design the Butler National Transient Suppression Device ("TSD"). The TSD is approved and certified by the Federal Aviation Administration ("FAA") under STC number ST00846SE and is owned, manufactured, and marketed by us. The TSD is one solution to the requirements of AD 98-20-40 issued by the FAA to protect the aircraft main and/or auxiliary fuel tanks from hazardous energy levels introduced through the wiring of the FQIS.

Professional Services

Professional Services derives its revenue from (a) professional management services in the gaming industry through Boot Hill. Butler National Service Corporation ("BNSC"(“BNSC”), and BHCMC, LLC ("BHCMC"(“BHCMC”), and (b) professional architectural, engineering and management support services through BCS Design, Inc. ("BCS").

In the early 1990's, management determined that more revenue stable business units were needed to sustain the Company. Members of the Board of Directors had contacts with several American Indian tribes and other members of the Board were associated with gaming operatorsa company in Las Vegas. After enactment of the 1988 Indian Gaming Regulatory Act ("IGRA") we reached out to various Indian tribes with land in the area to explore the opportunities for operations under IGRA. This resulted in the "Stables", an Indian owned casino on Modoc Indian land opened in September 1998 developed andProfessional Services, has managed by BNSC. The Stables Management Agreement has been available on the website maintained by the National Indian Gaming Commission ("NIGC"). The Stables Management Agreement was subsequently amended by various amendments dated April 30, 2003 (the "First Amendment"), November 30, 2006 (the "Second Amendment"), October 19, 2009 (the "Third Amendment") and September 22, 2011 (the "Fourth Amendment"). The result of the First Amendment, Second Amendment, Third Amendment and Fourth Amendment is to provide (a) that twenty (20%) of net profits from The Stables are distributed to BNSC, (b) to end per the joint venture agreement the participation of the Miami Indian tribe from the business and (c) to extend the duration of the Stables Management Agreement through September 30, 2018. 

From this experience with IGRA and the success of the Indian gaming industry, we determined that the IGRA model may be applicable for state-owned gaming. We spent Butler National Corporation innovation, legal and market development funds to design and encourage the use of an Indian-owned gaming model in the State of Kansas. From these efforts, Kansas enacted the Kansas Expanded Lottery Act (KELA) in 2007 allowing four state-owned casinos to be developed in Kansas. In 2007, BNSC made application to manage a state-owned casino. In 2008, BNSC was awarded a contract with the state of Kansas for a fifteen year term to manage the Boot Hill Casino and Resort in Dodge City, Kansas (“Boot Hill”) since 2009 pursuant to athe Lottery Gaming Facility Management Contract, (the "Boot Hill Casino Management Contract"). The by and among BNSC, BHCMC and the Kansas Lottery, originally dated December 8, 2009, as subsequently amended (“Boot Hill Casino Management Contract was amended on December 29, 2009 (the "First Amendment to theAgreement”). As required by Kansas law, all games, gaming equipment and gaming operations at Boot Hill Casino Management Contract") to bringare owned and operated by the definition of "Fiscal Year" in line with the fiscal year of BNSC (May 1 to April 30). BHCMC was organized to be the manager of the Boot Hill Casino in Dodge City, Kansas. The casino opened in December 2009.


Kansas Lottery.

 

The Stables. From 1998 until 2018, Butler National Service Corporation, a company in Professional Services and our wholly-owned subsidiary, managed a Modoc Tribe of Oklahoma owned casino known as The Stables Casino in Miami, Oklahoma (“The Stables”) pursuant to the Stables Management Agreement originally dated December 12, 1996 and approved by the NIGC on January 14, 1997 as subsequently amended (the “Stables Agreement”). Under the terms of the Stables Agreement, BNSC received twenty percent (20%) of the net profits from The Stables. The Stables Agreement expired on September 30, 2018, and was not renewed.

On May 1, 2011

Architectural and Engineering Services. Companies in Professional Services provide licensed architectural, including commercial and industrial building design, and engineering services.

BHC Investment Company, LC ("BHCI") exercised the option to acquireowns 100% of the Class A Preferred Interest in BHCMC, LLC. BNSC owns 100% of the Class B Preferred Interest. The ownership structure of BHCMC, LLC is now:is:

 

 

Members of

    
 

Board of

 

Equity

 

Income

Membership Interest

 

Members of

Board of Managers

 

Equity Ownership

 

Income (Loss)

Sharing

 

Managers

 

Ownership

 

(Loss) Sharing

Class A

 

3

 

20%

 

40%

 

3

 

20%

 

40%

Class B

 

4

 

80%

 

60%

 

4

 

80%

 

60%

 

Our wholly owned subsidiary, Butler National Service Corporation continues friendly discussions withProprietary Rights

We do not currently hold any patents, franchises or concessions. In our overhaul and repair business, original equipment manufacturers (“OEMs”) of equipment that we maintain for our customers often include language in repair manuals that relate to their equipment, asserting broad claims of proprietary rights to the other membercontents of BHCMC, LLCthe manuals used in our operations. There can be no assurance that OEMs will not try to exploreenforce such claims, including the possible acquisition by Butler National Service Corporationuse of legal proceedings. In the other member's 20% equity interest in BHCMC, LLC.   If and when a definitive agreement is reached,event of such definitive agreement and a press release concerning the acquisition will be issued to describe the terms of the agreement and the intentions of the members.   We have not set a definitive timetable for our discussions andlegal proceedings, there can be no assurancesassurance that such actions against the processCompany will result in any transaction being announced or completed.  At present therebe unsuccessful. However, we believe that our use of OEM manufacture and repair manuals is no disagreement between the memberslawful.

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Table of BHCMC, LLC.   We do not plan to disclose or comment on developments until further disclosure is deemed appropriate.Contents

Seasonality

 

BHCMC, LLC, rents the casino building under the terms of a 25 year lease from BHC Development L.C. ("BHCD"). Butler National Service Corporation continues friendly discussions with BHC Development L.C.Our Aerospace Products businesses are generally not seasonal. We believe that our Professional Services businesses, however, are subject to explore the possible acquisition by Butler National Service Corporation of the casino buildingseasonality based on local weather conditions, agricultural and related land. If and when a definitive agreement is reached, such definitive agreement and press release concerning the acquisition will be issued to describe the terms of the agreementpetroleum prices, employment levels and the intentionstravel habits of visitors in the members. Butler National Corporation, its management, and its subsidiaries have no ownership interest in BHCI or BHCD.

The terms of the agreement between the Kansas Lottery and BNSC/BHCMC required the completion of an addition to the Boot Hill Casino. The Phase II expansion of Boot Hill Casino began in early 2012 and was completed in January 2013. Phase II expansion of the unfinished gaming floor space built during Phase I construction and tenant improvements was funded by tenant improvement leases, gaming machine acquisitions, and casino earnings. The Phase II expansion included the interior finish of 15,000 square feet of casino shell and provided for up to 216 additional gaming machines. Part of the expansion included a breezeway connecting the Boot Hill Casino and the Dodge City special events center (United Wireless Arena). Boot Hill Casino acquired the naming rights to the City of Dodge City and Ford County owned conference center connected to the casino through the breezeway.  The conference center is now known as the Boot Hill Casino and Resort Conference Center. Boot Hill Casino now has approximately 650 gaming machines on the floor. market service area.

 

BCS Design, Inc. ("BCS") provides licensed architectural services. These services include commercialRaw Materials and industrial building design.

Butler National Service Corporation ("BNSC") provides management services to the Boot Hill Casino, a "state-owned casino" and to The Stables, an "Indian owned casino".

Patents and Trademarks: We have no patents, trademarks, licenses, franchises, or concessions that need to be held to do business other than the FAA, PMA, and Repair Station licenses. We maintain certain airframe alteration certificates, commonly referred to as Supplemental Type Certificates ("STC's"), issued to us by the FAA, for the Aircraft Modification and Avionics businesses. The STC, PMA, and Repair Station licenses are not patents or trademarks. The FAA will issue an STC to anyone, provided that the person or entity documents and demonstrates to the FAA that a change to an aircraft configuration does not endanger the safety of flight. The PMA and Repair Station licenses are available to any person or entity, provided that the person or entity maintains the appropriate documentation and follows the appropriate manufacturing, repair and/or service procedures. The FAA requires the aircraft owner to have the STC document in the aircraft log after each modification is complete. 

Seasonality: Our business is generally not seasonal.

Customer Arrangements: Except in isolated situations, no special inventory-storage arrangements, merchandise return and allowance policies, or extended payment practices are involved in our business.Replacement Parts

 

We require depositspurchase raw materials, primarily consisting of sheet and plate aluminum, from various vendors. We also purchase replacement parts, which are utilized in our customers for aircraft modifications.various repair and overhaul operations. We generally collect full payment for services before any modified aircraftbelieve that the availability of raw materials to us is released. Long term projects, such as cargo door modifications and custom modifications projects, require interim payments from the customer.adequate to support our Aerospace Products operations.

 

Governmental Regulations: The Gaming and Aerospace industries are highly regulated and we must maintain our licenses, certifications and pay taxes and fees in the U.S. and other countries to continue our operations. Each of our facilities is subject to extensive regulation under the laws, rules and regulations of the jurisdiction where it is located. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interest in the operations. Violations of laws or regulations in one jurisdiction could result in disciplinary action in other jurisdictions.Backlog

Our businesses are subject to various federal, state and local laws and regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning aircraft modifications, environmental matter, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future or new laws and regulations could be enacted. Material changes, new laws and regulations, or material differences in interpretations by the courts or governmental authorities could adversely affect our operating results.

Backlog: Our backlog as of April 30, 2017 and 2016 was as follows:

Industry Segment

 

 

 

 

 

 

 

 

(in thousands)

 

2017

 

 

2016

 

Aerospace Products

 

$

10,591

 

 

$

7,510

 

Professional Services

 

 

224

 

 

 

94

 

 

 

 

 

 

 

 

 

 

Total backlog

 

$

10,815

 

 

$

7,604

 

 

Our backlog as of April 30, 2020 and 2019 was as follows:

Industry Segment

        
         

(in thousands)

 

2020

  

2019

 

Aerospace Products

 $20,527  $15,961 

Professional Services

  476   200 
         

Total backlog

 $21,003  $16,161 

Our backlog as of July 14, 201710, 2020 totaled $11,433;$19,204; consisting of $11,221$18,757 and $212,$447, respectively, for Aerospace Products and Professional Services. The backlog includes firm pending and contract orders, which may not be completed within the next fiscal year. A portion of this backlog may be delivered after fiscal year 2018.2021. This is standard for the industry in which modifications services and related contracts may take several months or years to complete. Such actions force backlog as additional customers request modifications, but must wait for other projects to be completed. There can be no assurance that all orders will be completed or that some may ever commence.

 

Dependence on Significant Customers

During the fiscal year ending April 30, 2020 we derived 37.3% of our revenue from five customers, and we had two "major customers" (10 percent or more of consolidated revenue) that provided 21.2% and 11.4% of total revenue.

Competition

We compete in the aerospace and casino gaming industries. In the aerospace industry, we compete against peer companies of which some are divisions or subsidiaries of other large companies, in the manufacture of aircraft structures, systems components, subassemblies, detail parts and aircraft modifications. Competition for the repair and overhaul of aviation components comes from three primary sources, some of whom possess greater financial and other resources than we have: OEMs, governmental support depots, and other independent repair and overhaul companies. OEMs also maintain service centers which provide repair and overhaul services for the components they manufacture. Many governments maintain aircraft support depots in their military organizations that maintain and repair the aircraft they operate. Other independent service organizations also compete for the repair and overhaul business. Participants in the aerospace industry compete primarily based on size of business and technical capabilities, quality, turnaround time, capacity and price.

The casino entertainment business is highly competitive. The industry is comprised of a diverse group of competitors that vary considerably in size and geographic diversity, quality of facilities and amenities available, marketing and growth strategies and financial condition. In the Kansas and Oklahoma region, we compete with other casino facilities in the region. We also compete with other non-gaming resorts and vacation destinations, various other entertainment businesses, and other forms of gaming, such as state lotteries, on-track and off-track wagering, video lottery terminals and card parlors.

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Government Regulation and Industry Oversight

The aerospace industry is highly regulated in the United States by the FAA and in other countries by similar agencies. We must be certified by the FAA to design, engineer, test and certify replacement and service parts and components used in specific aircraft models.

We must also satisfy the requirements of our customers that are subject to FAA regulations, and provide these customers with products and repair services that comply with the applicable government regulations. The FAA regulates flight operations and requires that aircraft components meet FAA stringent standards. In addition, the FAA requires that various maintenance routines be performed on aircraft components. We currently satisfy these maintenance standards allowing component repair and overhaul services at our FAA-approved repair stations.

Generally, the FAA only grants licenses for the manufacture or repair of a specific aircraft component, rather than the broader licenses that have been granted in the past. The FAA licensing process may be costly and time-consuming. To obtain an FAA license, an applicant must satisfy all applicable regulations of the FAA governing repair stations. These regulations require that an applicant have experienced personnel, inspection systems, suitable facilities and equipment. In addition, the applicant must demonstrate a need for the license. Because an applicant must procure manufacturing and repair manuals relating to each particular aircraft component in order to obtain a license with respect to that component, the application process may involve substantial time and cost.

Our Professional Services businesses are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning employment, alcoholic beverages, food service, smoking, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results.

Our operations are also subject to a variety of worker and community safety laws. For example, the Occupational Safety and Health Act of 1970, or OSHA, mandates general requirements for safe workplaces for all employees in the United States. We believe that our operations are in material compliance with OSHA's health and safety requirements.

Moreover, the gaming industry is highly regulated and we must maintain our licenses and pay gaming taxes to continue our operations. Each gaming facility is subject to extensive regulation under the laws, rules and regulations where it is located. These laws, rules and regulations generally relate to the responsibility, financial stability, integrity and character of the owners, managers and persons with financial interests in the gaming operations.

Employees:

Other than persons employed by our gaming management subsidiaries there were 86107 full time and 27 part time employees on April 30, 20172020 compared to 79100 full time and 34 part time employees on April 30, 2016.2019. As of July 14, 2017,10, 2020, staffing was 88111 full time and 29 part time employees. Our staffing at Boot Hill Casino on April 30, 20172020 was 180187 full time and 8167 part time employees and 179180 full time employees and 5266 part time employees on April 30, 2016.2019. As of July 14, 201710, 2020 our staffing at Boot Hill Casino was 178179 full time employees and 8464 part time employees.

None of theour employees are subject to any collective bargaining agreements.

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Table of Contents

Executive Officers of the Registrant

 

Financial Information about ForeignOur current executive officers are:

NameAgePosition

Clark D. Stewart

80

President and Chief Executive Officer since 1989.

Craig D. Stewart

46

Vice President since 2013. Previously Craig served as Chief Financial Officer of Butler National Corporation from 2013 to 2017.

Christopher J. Reedy

54

Vice President since 2000 and Secretary since 2005.

Tad M. McMahon

53

Chief Financial Officer since 2017.

Officers are elected by the Board of Directors of Butler National Corporation and Domestic Operations, and Export Sales: International sales are made through authorized installation centers and direct to foreign customers to be completed and included in domestic operations. The sales to our customers outsideserve at the U.S. consisteddiscretion of approximately $7.3 million in the year ended April 30, 2017 and $4.5 million inBoard. All of the year ended April 30, 2016. Sales from international operationsofficers of the Company are subject to changes in domestic and foreign laws, regulations and controls. All sales are made in U.S. dollars.an employment agreement with the Company.

 

Executive OfficersAvailable Information

For more information about us, visit our website at www.butlernational.com. The contents of the Registrant: The following peoplewebsite are executive officersnot part of the registrant:

R. Warren Wagoner, 65 years old, Chairman of the Board of Directors

Clark D. Stewart, 77 years old, President and Chief Executive Officer

Craig D. Stewart, 43 years old, Vice President

Christopher J. Reedy, 51 years old, Vice President and Secretary

Tad M. McMahon, 50 years old, Chief Financial Officer

Available Information and Stock Exchange Information: Our internet address is www.butlernational.com. The contentthis Annual Report on our website is available for informational purposes only. You should not rely upon such content for investment purposes and such content is not incorporated by reference into this Form 10-K.

We make Our electronic filings with the Securities and Exchange Commission ("SEC") (including all Forms 10-K, 10-Q and 8-K, and any amendments to these reports) are available free of charge on or through our Internet website under the heading "Corporate" our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicableimmediately after we electronically file with or furnish such reportsthem to the SecuritiesSEC. These filings may also be read and Exchange Commission. Stockholders may request free copiescopied at the SEC's Public Reference Room which is located at 100 F Street, N.E., Washington, D.C. 20549. Information about the operation of these documents from us by writing to Butler National Corporation, 19920 West 161st Street, Olathe, Kansas 66062 orthe Public Reference Room can be obtained by calling 913-780-9595, or by sendingthe SEC at 1-800-SEC-0330. The SEC maintains an email request to investorrelations@butlernational.com.Internet site that contains reports, proxy and information statements, and other information regarding issuers who file electronically with the SEC at www.sec.gov.

 

Competition: Increased competition, including the entry

8

Table of new competitors, the introduction of new products by new and existing competitors, or price competition, could have a materially adverse effect on the Company. Additionally, because of the rapid rate at which the gaming industry has expanded, and continues to expand, the gaming industry may be at risk of market saturation, both as to specific areas and generally. Overbuilding of gaming facilities by others at particular sites chosen by us may have a material adverse effect on our ability to compete and on our operations.

Regulatory Matters: Our businesses are heavily regulated in most of our markets. We deal with numerous U.S. government agencies and entities, including but not limited to the Federal Aviation Administration ("FAA") and similar government authorities in our international markets.

Aviation: In the U.S., our aircraft products are required to comply with FAA regulations governing production and quality systems, airworthiness and installation approvals, repair procedures and continuing operational safety. Internationally, similar requirements exist for airworthiness, installation and operations approvals. These requirements are generally administered by the national aviation authorities of each country.

Raw Materials: We are highly dependent on the availability of essential materials and parts from our suppliers. The most important raw material required for our aerospace products is aluminum (sheet and plate). Alternative sources generally exist for these raw materials. Our raw material and parts are procured from a number of companies.

Suppliers: We are dependent upon the ability of a number of suppliers to meet performance specifications, quality standards and delivery schedules at our anticipated costs. Failure of suppliers to meet commitments could adversely affect production schedules and program/contract profitability, thereby jeopardizing our ability to fulfill commitments to our customers.

Contents

 

Item 1A.  RISK FACTORS

 

Statements made in this report, the Annual ReportThe following statements on Form 10-K the Annual Report to Stockholders in which this report is made a part, 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-lookingrisk factors contain "forward looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act").amended. 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-lookingForward looking statements are not guarantees of future performance or results. Theyresult and involve risks, uncertainties, and assumptions. It is important to note that any such performanceStockholders should be aware of certain risks, including those described below and elsewhere in this Form 10-K, which could adversely affect the value of their holdings and could cause our actual results financial condition or business, couldto differ materially from those expressedprojected in such forward-lookingany forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Item 1A. Risk Factors 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-lookingforward looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time.

 

Defense SpendingWe face extensive : regulation across our industries, which could have a materially adverse effect on our business and limit the prospect of new shareholders acquiring our shares.Budget

Our Aerospace business is subject to regulation by the Federal Aviation Administration ("FAA").We manufacture products and parts under FAA Parts Manufacturing Authority requiring qualification and traceability of all materials and vendors used by us. We make aircraft modifications pursuant to the authority granted by Supplemental Type Certificates issued by the FAA. We repair aircraft parts pursuant to the authority granted by our FAA Authorized Repair Station. New or more stringent government regulations may be adopted in the future. Relatedcosts of compliance with or liability for violations of existing or future regulations could adversely affect our financial condition, results of operations, liquidity and cash flows.

Gaming licenses and/or background investigations ("license") are required in connection with our management of a State of Kansas owned Lottery Gaming Facility (a casino). Our management personnel, Butler National and/or the managing subsidiaries, the key personnel of all entities may be required to have a state-issued gaming license. Moreover, our present and future stockholders are, and will continue to be, subject to review by regulatory agencies. The failure of the Company or the key personnel to obtain or retain a license could have a material adverse effect on the Company or on its ability to obtain or retain these licenses in other jurisdictions. Each such State Gaming Agency has broad discretion in granting, renewing, and revoking licenses. Obtaining such licenses and approvals will be time consuming and may be unsuccessful or involve considerable expense, which could adversely affect our ability to successfully operate our business.

The State of Kansas has approved state-owned Lottery Gaming Facilities, pari-mutuel dog and/or horse racing for non-Indian organizations. The State of Kansas operates a state lottery, keno games and state-owned Lottery Gaming Facilities for the benefit of the State. The Lottery Gaming Facility management contract approval process requires that any entity or person owning directly or indirectly one-half of one percent (0.5%) of the ownership interest of the management company must be found suitable to be an owner by the State of Kansas.

If found unsuitable by any Agency, the stockholder must offer all of the interest in Company stock held by such stockholder to the Company for cash at the current market bid price less a fifteen percent (15%) administrative charge and the Company must purchase such Interest within six (6) months of the offer. The stockholder is required to pay all costs of investigation with respect to a determination of his/her suitability. In addition, regardless of ownership, each member of the Board of Directors and certain officers of the Company are subject to a finding of suitability by any Agency on a regular basis.

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Table of Contents

We are subject to evolving government regulation and law, which may adversely affect our business.

Gaming management operations are and will be subject to extensive gaming laws and regulations, many of which were recently adopted and have not been the subject of definitive interpretations and are still subject to proposed amendments and regulation. The political and regulatory environment in which the Company is and will be operating, with respect to gaming activities, is dynamic and rapidly changing. Adoption and/or changes in gaming laws and regulations could adversely affect our financial condition, results of operations, liquidity and cash flows. Interference with the execution of the steps defined by the gaming laws and regulations by interested third parties, although not included by the regulations, may interfere with and or significantly slow the approval process.

We may face risks related to the geographic location of our casino.

Boot Hill Casino is located in Dodge City, Kansas. Consequently, a significant portion of our gaming business is subject to the general economic health of the region around Dodge City, Kansas. The economy of Dodge City, Kansas is significantly influenced by the agricultural sector of the national and local economy, which includes both agricultural farming but also meat processing. As a result, changes in the economic climate, weather patterns, and market fluctuations for agricultural and petroleum products could negatively influence our revenues from gaming and have a material adverse effect on our financial condition, results of operations, liquidity and cash flows.

Our Aerospace business is subject to significant customer concentration risk.

During the fiscal year ending April 30, 2020 we derived 37.3% of our revenue from five customers, and we had two "major customers" (10 percent or more of consolidated revenue) that provided 21.2% and 11.4% of total revenue. A loss of business from, or the bankruptcy or insolvency of, one or more of these major customers may have a material adverse effect on our financial condition, results of operations, liquidity and cash flows.

We are attempting to purchase land at Boot Hill Casino and face risks associated with the potential acquisition.

The Company currently leases the Boot Hill Casino building and the land on which it is located (“Real Estate”) under the terms of a twenty-five (25) year lease agreement with BHC Development L.C. Under this lease agreement, the Company holds an option to purchase the Real Estate. The Company continues to explore the possibility of purchasing such Real Estate and is currently considering multiple financing options to fund the acquisition. The potential acquisition runs the risk of being delayed by numerous factors outside of our control. There exists the risk the acquisition of Real Estate may not happen at all. The Company may not be able to obtain the necessary financing to fund the acquisition on favorable terms. After the closing of any such acquisition of Real Estate, the Company may not realize the potential benefits of the purchase and may be obligated to navigate burdensome debt obligations. Both the failure to close the Real Estate acquisition and the possible risks stemming from completing such a transaction, could adversely affect our financial condition, results of operations, liquidity and cash flows.

We operate in a cyclical industry and an economic downturn could negatively impact our operations.

Historically, adverse conditions in the local, regional, national and global economies have negatively affected our operations, and may continue to negatively affect our operations in the future. During periods of economic contraction, our revenues may decrease while some of our costs remain fixed or even increase, resulting in decreased earnings.

The gaming activities that we offer represent discretionary expenditures and participation in such activities may decline during economic downturns, during which consumers generally earn less disposable income. Even an uncertain economic outlook may adversely affect consumer spending in our gaming operations and related facilities, as consumers spend less in anticipation of a potential economic downturn.

Our Aerospace business activities and operations are subject to the general health of the aviation industry, which can be cyclical. During periods of economic expansion, when capital spending normally increases, we generally benefit from greater demand for our aviation products and services. During periods of economic contraction, when capital spending normally decreases, we generally are adversely affected by declining demand for our Aerospace products and services. Aviation industry conditions are impacted by numerous factors over which we have no control, acts implementedincluding political, regulatory, economic and military conditions, environmental concerns, weather conditions and fuel pricing. Any prolonged cyclical downturn could have a material adverse effect on our Aerospace business, and the Company’s financial condition, results of operations, liquidity and cash flows.

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Table of Contents

We operate in competitive markets, and competitive pressures could adversely affect our business.

Increased competition, including the entry of new competitors, the introduction of new products by various governmentsnew and existing competitors or price competition, could adversely affect our financial condition, results of operations, liquidity and cash flows. Additionally, because of the rapid rate at which the gaming industry has expanded, and continues to expand, the gaming industry may be at risk of market saturation, both as to specific areas and generally. Overbuilding of gaming facilities by others at particular sites in competitive markets may have a material adverse effect on our ability to compete and on our operations. Competition for the disposable income dollars from the State of Kansas through the Kansas Lottery operating ilottery and sports betting may have a material adverse effect on our business.

Because our common stock is deemed a low-priced "Penny" stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.

Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Exchange Act, it will be more difficult for investors to liquidate their investment. Until the trading price of the common stock increases so that it no longer qualifies as a “penny stock,” if ever, trading in the common stock is subject to the penny stock rules of the Exchange Act. Those rules require broker-dealers, before effecting transactions in any penny stock, to:

Deliver to the customer, and obtain a written receipt for, a disclosure document;

Disclose certain price information about the stock;

Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;

Send monthly statements to customers with market and price information about the penny stock; and

In some circumstances, approve the purchaser's account under certain standards and deliver written statements to the customer with information specified in the rules.

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.

Our 401(k) profit sharing plan results in new shares being issued each year, which could have a materially adverse effect on our business.

Subject to the annual approval of the Board of Directors, 100% of every pre-tax dollar an employee contributes, up to 6% of the employee’s salary, and a portion of the Company’s profits is matched by the Company. Employees are 100% vested in the Company’s contributions immediately and our matching contribution, as approved by the Board of Directors is paid on an annual basis with common stock of the Company. Competitive retirement plans are a requirement for hiring and retention of employees in the Company’s business segments. The Company’s 401(k) profit sharing plan also encourages employee participation in the 401(k) plan and encourages overall loyalty to the Company. Matching employee contributions with common stock of the Company does lead to a dilution of outstanding common stock, which may result in reduced government fundinga lower trading price of our common stock in the future. Historically the Company has attempted to mitigate this dilutive effect by repurchasing the Company’s outstanding common stock through stock buy-back plans; however, the effectiveness of stock buy-back plans is limited due to volume and timing restrictions found in Rule 10b-18 of the Exchange Act. Stock repurchase plans are also subject to reauthorization by the Board of Directors from time to time and the Company’s available cash flow.

We may conduct a reverse-stock split, which could expose us to certain risks.

The possibility of the Company undergoing a reverse-stock split has been discussed at prior annual meetings as a means to increase the common stock share price. We operate in competitive industries and the Company must consider all strategies to increase our common stock share price for stockholders. A reverse stock-split and subsequent increase in the defense industry.common stock price could elicit a positive market reaction and attract new investors to the Company. There are also risks with a reverse stock-split. The impact of any resulting reductions in defense appropriations, and/or reduction in spendingmarket could react negatively to the consolidation and our common stock could come under renewed selling pressure, which would negatively affect the Company's revenues fortrading price of our avionics defense products in the Aerospace segment.common stock.

 

General Governmental RegulationsWe face risks associated with having executive officers who are family members.

Our executive team is made up of Financial Reportingfour (4) individuals who have extensive industry and general business experience. This includes Clark D. Stewart, President and Chief Executive Officer, and Clark’s son, Craig D. Stewart, Vice President. Companies with multiple family members serving on the same executive team can be predisposed to unique internal conflicts, nepotism and/or strategic family alliances. In light of the family relationship within the executive officers of the Company, certain prospective investors may be unwilling to purchase our common stock, which may have a negative effect on our share price.

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Table of Contents

Changes in governmental regulations of financial reporting: could have a materially adverse effect on our business.

The Company reports information to its stockholders and the general public pursuant to the regulations of various Federal and State Commissions and Agencies. These regulations require conformance by the Company to Generally Accepted Accounting Principles, to pronouncements of the Public Company Accounting Oversight Board ("PCAOB"), and to accounting and reporting directives issued by the commissions and agencies. The political and regulatory environment in which the Company is operatingoperates is dynamic and rapidly changing. Adoptionchanging, and adoption and/or changes in regulations defining accounting procedures or reporting requirements could increase expenditures to report required financial information, which may adversely affect our financial condition, results of operations, liquidity and cash flows.

We face risks related to fluctuating fuel and energy costs.

Our business depends on the use of aircraft fuel for business transportation, freight transportation, and special mission applications. Fluctuations in the global supply of crude oil and the possibility of changes in government policy on aircraft fuel production make it impossible to predict the future availability, price volatility and cost of aircraft fuel. Depending on various global factors that are out of our control, there could be reductions in the production or importation of crude oil and significant increases in the cost of aircraft fuel. This could deter our customers from purchasing fuel and/or inhibit their ability to pass on disproportionate costs to their customers. As a result, the use of business and military aircrafts, the value of aircraft related assets and the revenue related to aircraft equipment and aircraft modifications could decrease. These potential consequences from fluctuating fuel and energy costs could adversely affect our financial condition, results of operations, liquidity and cash flows.

Our gaming business also depends on the use of automotive fuels for travel to our casino locations in agricultural communities. Increased fuel prices could cause our customers to determine that fuel is not available or too expensive to justify travel, which may cause our gaming business to be adversely affected.

We face risks due to our fixed-price contracts.

We sell certain products and services to commercial, government, and defense customers under firm contracts providing for fixed units prices, regardless of costs incurred by us. The costs of producing products or providing services may be adversely affected by increases in the cost of labor, materials, fuel, overhead, and other unknown variants, including manufacturing and other operational inefficiencies and differences between assumptions used by us to price a contract and actual results. Increased costs may result in cost overruns and losses on such contracts, which could adversely affect our financial condition, results of operations, liquidity and cash flows.

Difficulties or delays in the development, production, testing and marketing of products, could adversely affect our business.

Our Aerospace business is subject, in part, to regulatory procedures and administration enacted by and/or administered by the FAA. Accordingly, our business may be adversely affected in the event the Company is unable to comply with such regulations relative to its current products and/or if any new products and/or services to be offered by the Company are not formally approved by such agency. Our proposed aviation modification products depend upon the issuance by the FAA of a Supplemental Type Certificate with related parts manufacturing authority. Such certifications for future aircraft modification products may not be issued within our expected time frames or issued at all, which would have a materiallymaterial adverse effect on our business. Similarly, the loss of one or more of our current licenses or certifications could also have a material adverse effect on the Company. Company’s financial condition, results of operations, liquidity and cash flows.

12

Table of Contents

Our business requires financing and financing is dependent upon the stability of economic markets.

The Company depends upon the financial institutions and capital markets for financing to continue operations and to finance and develop new opportunities.

General Governmental Regulation of Gaming: The approved and proposed gaming management operations are and will be subject to extensive gaming laws and regulations, many of which were recently adopted and have not been the subject of definitive interpretations and are still subject to proposed amendments and regulation. The political and regulatory environment in which the Company is and will be operating, with respect to gaming activities on both non-Indian and Indian land, is dynamic and rapidly changing. Adoption and/or changes in gaming laws and regulations could have a materially adverse effect on the Company. Interference with the execution of the steps defined by the gaming laws and regulations by interested third parties, although not included by the regulations, may interfere with and or significantly slow the approval process.

Fuel and Energy Costs: Our business depends on use of the aircraft for business transportation, freight transportation, and many special mission applications. Should our customers be unable to purchase fuel and energy and/or be unable to pass on disproportionate costs to their customers, the use of business and military aircraft by our customers may be curtailed. The value of the aircraft related assets would decrease and the revenue related to the aircraft equipment and modifications would decrease. These events could have a material adverse effect on our Company. Our gaming business depends on the use of automotive fuels to travel to our locations in agricultural communities. Should our customers determine that fuel is too expensive or not available to travel, our gaming business may be curtailed.

National Economy and FinancingThe status of the national economy and its slow growth outlook could be disproportionately affected by volatility andand/or a disruption of capital and credit markets, and adverse changes in the global economy any of which could negatively impact our financial performance and our ability to access credit financing. The ongoingAs a result, we may not be able to secure credit financing on terms attractive to us and liquidity crisis has restrictedif we are able to secure financing arrangements, the availabilityamount may be insufficient to meet all of capitalour current and has caused capital (if available)future needs to be much higher cost than it has traditionally been.continue operations and finance and develop new opportunities.

 

Adverse conditionsCyber-security threats or other disruptions to our technology infrastructure could harm our business.

Our use of electronic data storage, automated systems and technology gives rise to cyber-security risks. Although we and our third-party providers have preventive systems and processes in place designed to protect against the local, regional, nationalrisk of system failure and global markets have negatively affected our operations, and may continue to negatively affect our operations in the future. During periods of economic contraction, our revenues may decrease while somecyber-attacks, a security breach of our costs remain fixedsystems or even increase, resulting in decreased earnings. The Gamingthose of our third-party providers may cause a disruption of our business or expose us to a loss of information or litigation which could have a material adverse effect on our financial condition, reputation and Aviation activities that we offer represent discretionary expenditures and participation in such activities may decline during economic downturns, during which consumers generally earn less disposable income. Even an uncertain economic outlook may adversely affect consumer spending in our gaming operations and related facilities, as consumers spend less in anticipationresults of a potential economic downturn. Furthermore, other uncertainties, including national and global economic conditions, terrorist attacks or other global events, could adversely affect consumer spending and adversely affect our operations.

 

War, Terrorism and Natural Disasters: Acts of terrorism and war natural disasters and severe weather may negatively impactcoulddisrupt our future profits.business.

 

Terrorist attacks and other acts of war or hostility create many economic and political uncertainties. We cannot predict the extent to which terrorism, security alerts, or war, or hostilities throughout the world will continue to directly or indirectly impact our business and operating results. As a consequenceBecause of the threat of terrorist attacks and other acts of war or hostility in the future, premiums for a variety ofcertain insurance products have increased, and some types of insurance are no longer available. Given current conditions in the global insurance markets, we are substantially uninsured for losses and interruptions caused by terrorist acts and acts of war. If any such event were to affect our properties, weit would likely be adversely impacted.affect our financial condition, results of operations, liquidity and cash flows.

Inclement weather, natural disasters and other conditions could seriously disrupt our business and operations.

Our gaming operations are subject to the weather and other conditions that could disrupt or reduce the number of customers who visit our casino. If weather conditions limit consumer access to our casino or otherwise adversely impact our ability to operate our casino at full capacity, our revenue could suffer, which would adversely affect our financial condition, results of operations, liquidity and cash flows.

We also face risks that the weather and other conditions could adversely affect the local industries in Dodge City, Kansas, where the Boot Hill Casino is located. The local economy in Dodge City is primarily fueled by the agriculture, meat processing and oil and gas industries. In the event the weather and/or other conditions severely disrupt these industries, we could see a reduction in the number of customers who visit our casino, which would adversely affect our financial condition, results in operations, liquidity and cash flows.

 

In addition, natural disasters such as major fires, floods, tornados hurricanes and earthquakes could also adversely impact our business and operating results. Such events could lead to the loss of use of one or more of the facilities for which we provide management services for an extended period of time and disrupt our ability to attract customers to certain of our gaming facilities. If any such event were to affect our properties, we would likely be adversely impacted.

 

In most situations, we have insurance that should provide coverage for portions of any losses from a natural disaster, but it is subject to deductibles and maximum payouts in many cases. Although we may be covered by insurance from a natural disaster, the timing of our receipt of insurance proceeds, if any, is beyond our control.

 

Key PersonnelThe global spread of COVID-19 has impacted our business and is expected to cause further disruptions to our business, financial performance and operating results.

The global spread of COVID-19 in recent months has negatively impacted the global and U.S. economy and created significant volatility and disruption in financial markets. The impact of this pandemic has also created significant uncertainty in the global and U.S. economy and has had, and is expected to continue to have, a material adverse effect on our business, employees, suppliers, and customers.  We have experienced a decrease in the number of patrons at our Boot Hill Casino & Resort since the start of the pandemic, which may continue for the foreseeable future. Additionally, the pandemic has affected the Company's ability to acquire the Boot Hill Casino building and related land. Demand for our aircraft modification business may decrease in correlation to the general health of the U.S. economy. The duration and the magnitude of the impacts of the COVID-19 pandemic cannot be precisely estimated at this time, as they are affected by a number of rapidly changing factors, many of which are outside of our control, which include, among others, state and local regulations, the infection rate among persons in the region surrounding the Boot Hill Casino & Resort, and potential treatment options for those that are sick. The continued impact on our business as a result of the COVID-19 pandemic (directly or indirectly) could materially adversely affect our results of operations, financial condition, and cash flows in the near-term and beyond fiscal 2021.

:The loss of key personnel could adversely affect our business.

Our inability to retain key personnel may be critical to our ability to achieve our objectives. Key personnel are particularly important in maintaining relationships with Indian Tribes and with the operations licensed byrelated to the FAA and the State of Kansas and the NIGC.Kansas. Loss of any such personnel could have a materially adverse effect on the Company.adversely affect our financial condition, results of operations, liquidity and cash flows.

 

Our success depends heavily upon the continued contributions of these key persons, whose knowledge, leadership and technical expertise would be difficult to replace, and on our ability to attract and retain experienced professional staff. WeWhile we currently have an employment agreement with our CEO. IfCEO, Clark D. Stewart, if we were to lose the services of Mr. Stewart or other key persons, our ability to execute our business plan would be harmed and we may be forced to cease operations until such time as we could hire suitable replacements.

 

Competition: Increased competition, including the entry

13

Table of new competitors, the introduction of new products by new and existing competitors, or price competition, could have a materially adverse effect on the Company. Additionally, because of the rapid rate at which the gaming industry has expanded, and continuesContents

We are exposed to expand, the gaming industry may be at risk of market saturation, both as to specific areas and generally. Overbuilding of gaming facilities by others at particular sites chosen by us may have a material adverse effect onrisks associated with our ability to compete and on our operations.international sales.

 

Major Customers: The termination of contracts with major customers or renegotiation of these contracts at less cost-effective terms could have a materially adverse effect on the Company. Irregularities in financial accounting procedures, financial reporting requirements and regulatory reporting requirements could cause major customers to become unstable and be unable to complete business transactions which could have a materially adverse effect on the Company. We had one "major customer" (10 percent or more of consolidated revenue) that provided 10.5% of total sales. During the fiscal year ending April 30, 2017 we derived 25.2 % of our revenue from five customers.

Product Development: Difficulties or delays in the development, production, testing and marketing of products, could have a materially adverse effect. Our Aerospace business is subject, in part, to regulatory procedures and administration enacted by and/or administered by the FAA. Accordingly, our business may be adversely affected in the event the Company is unable to comply with such regulations relative to its current products and/or if any new products and/or services to be offered by the Company are not formally approved by such agency. Our proposed new aviation modification products depend upon the issuance by the FAA of a Supplemental Type Certificate with related parts manufacturing authority and repair station license which may not be issued in the time frames we expect or at all.

International Sales: Our international sales may be subject to local government laws, regulations and procurement policies and practices which may differ from U.S. Federal Government regulation, including regulations related to products being installed on aircraft, exchange controls, as well to varying currency, geo-political and economic risks. We are also are exposed to risks associated with any relationships with foreign representatives, consultants, partners and suppliers for international sales and operations. Our ability to arrange safe travel to visit our international customers may put our ability to sell in the international marketsuch customers at risk. risk, which could adversely affect our financial condition, results of operations, liquidity and cash flows.

 

Adverse Actions: Adverse actions by regulators, stateFuture acquisitions and local governments, customers, competitors, and/or professionals engagedinvestments may expose us to regulate or to serve us may cause project delays and excessive administrative costs that are not controlled by us.certain risks.

 

Administrative Expenditures: Higher service, administrative, additional regulatory requirements, or general expenses occasioned by the need for additional legal, consulting, advertising, marketing, or administrative expenditures may decrease income to be recognized by the Company.

Strategic Acquisitions and Investments:We continually review, evaluate and consider potential investments and acquisitions in pursuing our business strategy. In evaluating such transactions, we are making difficult judgments regarding the value of business opportunities, technologies and other assets, and the risk and cost of potential liabilities. Acquisitions and investments involve certain other risks and uncertainties, including the difficulty in integrating newly-acquired businesses, the challenges in reaching our strategic objectives, and other benefits expected from acquisitions or investments.investments, cost and revenue synergies, and risk that markets do not evolve as anticipated and the targeted opportunity or technology do not prove to be those needed to be successful in those markets. Other risks include the diversion of our attention and resources from our current operations, the potential of impairment of acquired assets and the potential loss of key employees of acquired businesses.

 

Joint Ventures and Other Arrangements: We have entered, and may continueare subject to enter, into joint venture and other arrangements. These activities involve risk and uncertainties, including the riskcertain change of the joint venture or applicable entity failingcontrol restrictions, which could make it more difficult to satisfy its obligations, which may result in certain liabilities to us for guarantees or other commitments. Additional risks involve the challenges in achieving strategic objectives and expected benefits of the business arrangement, including the risk of conflicts arising between us and others and the difficulty of managing and resolving such conflicts and the difficulty of managing or otherwise monitoring such business arrangements.be acquired.

 

Impairment of Intangible Property: We evaluate intangible assets for impairment annually during the fourth quarter and in any interim period in which circumstances arise that indicate our intangible asset may be impaired. Indicators of impairment include, but are not limited to, the loss of significant business and, or significant adverse changes in industry or market conditions. No events occurred during the periods presented that indicated the existence of an impairment with respect to our intangible assets. Preparation of forecasts for use in the long-range plan and the selection of the discount rate involve significant judgments that we base primarily on existing firm orders, expected future orders and general market conditions. Significant changes in these forecasts or the discount rate selected could affect the estimated fair value and could result in an impairment charge in a future period.

Low-Priced Penny Stock: Because our common stock is deemed a low-priced "Penny" stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.

Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in Rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:

Deliver to the customer, and obtain a written receipt for, a disclosure document;

Disclose certain price information about the stock;

Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;

Send monthly statements to customers with market and price information about the penny stock; and

In some circumstances, approve the purchaser's account under certain standards and deliver written statements to the customer with information specified in the rules.

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.

Governance: Some provisions of our Articles of Incorporation and Bylawsour Shareholder Rights Agreement could make it more difficult for a potential acquirer to acquire a majority of our outstanding voting stock. This includes, but is not limited to, provisions that: provide for a classified Board of Directors, prohibit stockholders from taking action by written consent, and restrict the ability of stockholders to call special meetings. We are also subject to provisions of Kansas law K.S.A. 17-6427 that prohibit us from engaging in any business combination with any interested stockholder for a period of three years from the date the person became an interested stockholder, unless certain conditions are met, which could have the effect of delaying or preventing a change of control.

Regulation Under Federal Aviation Administration: Our Aerospace business is subject to regulation by In light of the Federal Aviation Administration ("FAA"). We manufacture products and parts under FAA Parts Manufacturing Authority (PMA) requiring qualification and traceability of all materials and vendors used by us. We make aircraft modifications pursuant to the authority granted by Supplemental Type Certificates issued by the FAA. We repair aircraft parts pursuant to the authority granted by our FAA Authorized Repair Station. Violation or changes to FAA regulations could be detrimental to our operations.

Licensing and Regulation under Federal Indian Law: Gaming on Indian land is extensivelyhighly regulated by Federal, State, and Tribal governments and authorities. Regulatory changes could limit or otherwise materially affect the types of gaming that may be conducted on Indian Land. All aspectsnature of our business operationsand the authority of the regulatory agencies that monitor business to monitor the composition of our shareholders, the Board has consistently believed these restrictions are appropriate. Nonetheless, these restrictions may result in missed opportunities for the Company and could result in a reduced share price of our common stock, which would harm our business.

We may be required in the future to record impairment losses related to assets we currently carry on Indian Landsour balance sheet.

We evaluate intangible assets for impairment annually during the fourth quarter and in any interim period in which circumstances arise that indicate our intangible asset may be impaired. Indicators of impairment include, but are not limited to, the loss of significant business and/or significant adverse changes in industry or market conditions. No events occurred during the periods presented indicated the existence of an impairment with respect to our intangible assets. Preparation of forecasts for use in the long-range plan and the selection of the discount rate involve significant judgments that we base primarily on existing firm orders, expected future orders and general market conditions. Significant changes in these forecasts or the discount rate selected could affect the estimated fair value and could result in an impairment charge in a future period.

We are subject to approval, regulation, and oversight by the Bureau of Indian Affairs ("BIA"), the Secretary of the United States Department of the Interior ("Secretary"), and the National Indian Gaming Commission ("NIGC"). Our management of Class III gaming operations is also subject to approval of a Class III Gaming Compact between the Indian Tribe and the respective state. Failure to comply with applicable laws or regulations, whether Federal, State or Tribal,extensive taxation policies, which could result in, among other things, the termination of any management agreements which would have a material adverse effect on us. We are also required to comply with background checks as specified in Tribal-State Compacts before we can manage gaming operations on Indian land. There can be no assurance that we would continue to be successful in obtaining the necessary regulatory approvals for adversely affect our gaming operations on a timely basis, or at all.business.

 

Licensing and Regulation under State Law: Our present and future stockholders are and will continue to be subject to review by regulatory agencies. Gaming licenses and/or background investigations ("license") are required in connection with our management of a State of Kansas owned Lottery Gaming Facility (a casino). Our management personnel, Butler National and/or the managing subsidiaries, the key personnel of all entities may be required to have a Lottery Gaming Facility gaming license prior to conducting operations. The failure of the Company or the key personnel to obtain or retain a license could have a material adverse effect on the Company or on its ability to obtain or retain these licenses in other jurisdictions. Each such State Gaming Agency has broad discretion in granting, renewing, and revoking licenses. Obtaining such licenses and approvals will be time consuming and may be unsuccessful.

The State of Kansas has approved state-owned Lottery Gaming Facilities, pari-mutuel dog and/or horse racing for non-Indian organizations. The State of Kansas operates a state lottery, keno games and state-owned Lottery Gaming Facilities for the benefit of the State. The Lottery Gaming Facility management contract approval process requires that any entity or person owning directly or indirectly one-half of one percent (0.5%) of the ownership interest of the management company must be found suitable to be an owner by the State of Kansas. The Kansas Supreme Court announced its ruling affirming the constitutionality of the Kansas Expanded Lottery Act (KELA) as the law was enacted, although other constitutionality challenges may occur.

As a condition to obtaining and maintaining our various gaming approvals, we must submit reports to the Indian Tribe and the respective federal and state regulatory Agencies (each, an "Agency"). Any person owning or acquiring directly or indirectly 5% or more of the Common Stock of the Company (the "Interest") must be found suitable by one or more of the agencies or the Indian Tribes. Any Agency has the authority to require a finding of suitability with respect to any stockholder regardless of the percentage of ownership.

If found unsuitable by any Agency or the Indian Tribe, the stockholder must offer all of the Interest in Company stock held by such stockholder to the Company for cash at the current market bid price less a fifteen percent (15%) administrative charge and the Company must purchase such Interest within six months of the offer. The stockholder is required to pay all costs of investigation with respect to a determination of his/her suitability. In addition, regardless of ownership, each member of the Board of Directors and certain officers of the Company are subject to a finding of suitability by any Agency and the Indian Tribe on a regular basis. 

We are Subject to Extensive Taxation Policies, Which may Harm our BusinessThe federal government has, from time to time, considered a federal tax on casino revenues and may consider such a tax in the future. If such an increase were to be enacted, our ability to incur additional indebtedness in the future to finance casino development projects could be materially and adversely affected. In addition, gaming companies are currently subject to significant state and local taxes and fees, in addition to normal federal and state corporate income taxes, and such taxes and fees are subject to increase at any time.

 

Boot Hill Casino, pursuant to its Management Contract with the State of Kansas pays total taxes between 27% and 31% of gross gaming revenue, based on achievement of the following revenue levels: 27% on gross gaming revenue up to $180 million, 29% on amounts from $180 million to $220 million, and 31% on amounts above $220 million in gross gaming revenue. Boot Hill 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 $2.5$1.9 million during fiscal year ended April 30, 2017.2020.

14

Table of Contents

 

Item 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

Item 2.  PROPERTIES

 

Corporate:

 

Our corporate headquarters are located in a 9,000 square foot owned facility for office and storage space at 19920 West 161st Street, in Olathe, Kansas.

 

Aerospace Products (dollars in thousands):

 

Butler National Corporation has an office and manufacturing operations at 4654 South Ash Ave, Tempe, Arizona in a 16,110 square foot owned facility.

 

Butler Avionics, Inc. is located at 280 Gardner Dr., Ste. 3, New Century, Kansas in a 19,500 square foot facility with annual rent of approximately $179.$179.

 

Avcon Industries, Inc. is located at 714 North Oliver Road, Newton, Kansas, in a 47,000 square foot leased facility of hangar and office space at the municipal airport in Newton, Kansas, at an annual rentlease payments of approximately $157.$144. In addition, Avcon leases an additional 12,000 square foot hangar and office space at the municipal airport in Newton, Kansas with minimum annual lease payments of $57.

 

Butler National Aircraft Certification Center is located at One Aero Plaza, New Century, Kansas in a 36,000 square foot facility with hangar space at the New Century Airport in New Century, Kansas. The minimum annual rent is approximately $48.lease payments are $93.

 

Professional Services (dollars in thousands):

 

BHCMC, LLC is located at 4000 W. Comanche in Dodge City, Kansas in a leased 60,000 square feet building known as the Boot Hill Casino facility at an annual rent of $4,793facility. Annual lease payment for this location was $4.9 million in fiscal year ended April 30, 20172020 and $4,745$4.8 million in fiscal year ended April 30, 2016.2019. The lease payment increases 1% per year for calendar years 2019 through 2034.

 

BHCMC, LLC has an administration center located at 2601 N. 14th Avenue in Dodge City, Kansas in a 29,000 square foot owned facility.

BCS Design, Inc. is located at 19930 W. 161st, Olathe, Kansas in a 10,800 square foot owned facility.

 

Management believes our properties have been well maintained, are suitable and adequate for us to operate at present levels, and the current productive capacity. The utilization of these facilities is appropriate for our existing real estate requirements. However, significant increases in customer orders, changes in product lines, and/or future acquisitions may require expansion of our current properties or the addition of new properties.

Item 3.  LEGAL PROCEEDINGS

 

As of July 14, 2017,10, 2020, there are no significant known legal proceedings pending against us. We consider all such unknown proceedings, if any, to be ordinary litigation incident to the character of the business. We believe that the resolution of any claims will not, individually or in the aggregate, have a material adverse effect on the financial position, results of operations, or liquidity of the Company.

 

Item 4.  MINE SAFETY DISCLOSURES.

 

Not applicable.

15

Table of Contents

 

PART II

 

Item 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

COMMON STOCK (BUKS):

 

(a)

Market Information: Our shares are exclusively quoted on OTCQB platform under the symbol "BUKS".

 

 

The range of the high and low bid prices per share of the common stock, for fiscal years 20172020 and 2016,2019, as reported by OTC Markets Group, is set forth below. Such market quotations reflect intra-dealerinter-dealer prices, without retail mark-up, markdownmark-down or commissions, and may not necessarily represent actual transactions.

 

 

Year Ended April 30, 2017

 

Year Ended April 30, 2016

 

 

Year Ended April 30, 2020

  

Year Ended April 30, 2019

 

 

Low

 

High

 

Low

 

High

 

 

Low

  

High

  

Low

  

High

 

First quarter

 

$

0.14

 

$

0.21

 

$

0.16

 

$

0.27

 

 $0.30  $0.42  $0.18  $0.28 

Second quarter

 

$

0.17

 

$

0.22

 

$

0.16

 

$

0.24

 

 $0.34  $0.57  $0.23  $0.32 

Third quarter

 

$

0.16

 

$

0.31

 

$

0.13

 

$

0.20

 

 $0.50  $0.79  $0.24  $0.40 

Fourth quarter

 

$

0.17

 

$

0.48

 

$

0.13

 

$

0.23

 

 $0.35  $0.76  $0.30  $0.42 

 

(b)

Holders: The approximate number of holders of record ofof our common stock, as of July 14, 2017,10, 2020, was 2,800.2,500. The price of the stock as of July 14, 201710, 2020 was approximately $0.32$0.51 per share.

(c)

Dividends: We have not paid any cash dividends on common stock, and the Board of Directors does not expect to declare any cash dividends in the foreseeable future.

 

SECURITIES CONVERTIBLE TO COMMON STOCK:

 

As of July 1410, 2020, 2017 there were no Convertible Preferred shares or Convertible Debenture notes outstanding.

 

Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

 

Period

 

Total Number of
Shares Purchased

 

Average Price Paid per Share

 

Maximum Number (or
Approximate Dollar Value)

of Shares that May Yet be

Purchased under the

Plans or Programs

 

 Total Number of Shares Purchased  Average Price Paid per Share  Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased under the Plans or Programs 

 

(a)

 

(b)

 

(c)

 

            

May 1, 2016 through April 30, 2017

 

0

 

$

0.00

 

$

0.00

 

May 1, 2019 through April 30, 2020

  0  $0.00  $0.00 

 

 

 

 

 

 

 

 

 

 

            

Total

 

 

0

 

$

0.00

 

$

0.00

 

  0  $0.00  $0.00 

 

16

Table of Contents

STOCK REPURCHASE PROGRAM

 

STOCK REPURCHASE PROGRAM

In December 2016, theThe Board of Directors approved a stock purchase program authorizing the repurchase of up to $500$4.0 million of its common stock. The timing and amount of any share repurchases will be determined by Butler National’sNational’s management based on market conditions and other factors. The program is currently authorized through May 1, 2018.2021.

The table below provides information with respect to common stock purchases by the Company during the year ended April 30, 2017.2020.

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

December 20160$ 0.000$        500 

January 2017

49,920

$ 0.20

49,920

$        490

 
February 20170$ 0.000$        490 
March 20170$ 0.000$        490 

April 2017

80,426

$ 0.27

80,426

$        468

 

Total

130,346

$ 0.25

130,346

  

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

             $500 

Shares purchased in prior periods

  853,537  $0.26   853,537  $281 

Increase in program authorization April 2018 (b)

  -  $-   -  $531 

Quarter ended July 31, 2018 (a)

  25,277  $0.26   25,277  $525 

Quarter ended October 31, 2018 (a)

  480,805  $0.30   480,805  $381 

Quarter ended January 31, 2019 (a)

  186,727  $0.34   186,727  $317 

Quarter ended April 30, 2019 (a)

  580,705  $0.38   580,705  $94 

Increase in program authorization April 2019 (c)

  -  $-   -  $1,569 

Quarter ended July 31, 2019 (a)

  120,821  $0.35   120,821  $1,526 
Increase in program authorization October 2019 (d)  -  $-   -  $3,301 

Quarter ended October 31, 2019 (a)

  206,050  $0.46   206,050  $3,206 

Quarter ended January 31, 2020 (a)

  267,468  $0.70   267,468  $3,019 

Quarter ended April 30, 2020 (a)

  25  $0.41   25  $3,019 

Total

  2,721,415  $0.36   2,721,415     

(a)

49,920These shares of common stock purchased were purchased through a private transaction.transactions

(b)

Board of Directors increased program authorization from $500 to $750

(c)

Board of Directors increased program authorization from $750 to $2.2 million

(d)Board of Directors increased program authorization from $2.2 million to $4.0 million


 

Item 6.  SELECTED FINANCIAL DATA

 

The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition", and with the Consolidated Financial Statements and related Notes included elsewhere in this report.Not applicable.

 

 

Year Ended April 30
(In thousands except per share data)

 

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

Total revenues

 

$

50,619

 

 

$

44,794

 

 

$

47,062

 

 

$

47,271

 

 

$

49,152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

3,500

 

 

$

622

 

 

$

1,319

 

 

$

1,921

 

 

$

1,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Butler National Corporation

 

$

1,534

 

 

$

24

 

 

$

27

 

 

$

112

 

 

$

(148

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.02

 

 

$

0.00

 

 

$

0.00

 

 

$

0.00

 

 

$

0.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected Balance Sheet Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

42,778

 

 

$

42,697

 

 

$

41,598

 

 

$

41,678

 

 

$

43,860

 

Long-term obligations (excluding current maturities)

 

$

3,347

 

 

$

5,218

 

 

$

6,870

 

 

$

6,820

 

 

$

10,155

 

Cash dividends declared per common share

 

 

 None

 

 

None

 

 

None

 

 

None

 

 

None

 

 

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following Management Discussion and Analysis (MD&A) is intended to help the reader understand our results of operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to the consolidated financial statements (Notes).

 

Our fiscal year ends on April 30. Fiscal years 20172020 and 20162019 consisted of 52 weeks and ended on April 30, 20172020 and April 30, 2016,2019, respectively. All references to years in this MD&A represent fiscal years unless otherwise noted.

 

Management Overview

 

Management is focused on increasing long-term shareholder value from increased cash generation, earnings growth, and prudently managing capital expenditures. We plan to do this by continuing to drive increased revenues from product and service innovations, strategic acquisitions, and targeted marketing programs.

 

Our revenues are primarily derived fromWe have two very different business segments;separate reporting segments: Aerospace Products and Professional Services. Aerospace Products and Professional Services do not share the same customers and suppliers and have substantially distinct businesses. The Aerospace Products operating segment provides products and services in the aerospace industry. Companies in Aerospace Products derive their revenue from system design, engineering, manufacturing, integration, installation, repairing, overhauling, servicing and distribution of aerostructures, avionics, aircraft components, accessories, subassemblies and systems. The Professional Services operating segment provides services in the gaming industry. Professional Services companies manage a gaming and entertainment facility and provide architectural and engineering services. These reporting segments operate through various Butler National subsidiaries and affiliates listed on Exhibit 21 ofto this Form 10-K.

 

Aerospace ProductsCOVID-19 Overview:

 

Aerospace Products derives its revenueThe pandemic caused by designing system integration, engineering, manufacturing, installing, servicing,the disease COVID-19 was first reported in Wuhan, China in December 2019 and repairing products for classichas since spread throughout the world. Financial markets have been volatile in 2020, primarily due to uncertainty with respect to the severity and current production aircraft. These products include JET autopilot service and repairs, Avcon provisions and system integration for special mission equipment installations, Butler Avionics equipment sales and installation, and Butler National electronic controls and safety equipment manufacture and sales. Aerospace customers range in size from owners and operators of small single engine airplanes to owners and operators of large commercial and military aircraft. Aerospace Products are sold to and serviced for customers located in many countriesduration of the world.pandemic.

 

Aerospace isThe pandemic has resulted in federal, state and local governments around the legacy partworld implementing increasingly stringent measures to help control the spread of the Butler National business. Organized over 57 years ago, thisvirus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions or bans, business is based upon design engineeringcurtailments, school closures, and installation innovations to enhanceother protective measures.

Our aerospace segment qualified as “essential” under applicable federal guidance and state orders. The facilities have continued operations. We are enforcing social distancing and enhanced health, safety and sanitization measures in accordance with guidelines from the Center for Disease Control (the “CDC”).

We have also implemented necessary procedures and support productsto enable a significant portion of our Olathe headquarters personnel to work remotely.

Our professional services operations at the Boot Hill Casino & Resort was forced to close from March 18, 2020 thru May 21, 2020.  The casino reopened to the public on May 22, with reduced hours to allow for extra time for cleaning and sanitizing in accordance with CDC guidelines and limited number of games and food offerings. We are also continuing to enforce social distancing measures throughout the casinos.  Since reopening the Boot Hill Casino & Resort we have experienced lower customer headcount, which has been partially off-set by a larger net revenue per customer.  We are experiencing, and expect to continue experiencing, lower demand for our professional services and increased costs and other challenges related to airplanes and ground support equipment. These new products included:COVID-19 that adversely affects our business. 

BHCMC, LLC, a subsidiary in the 1960's, aircraft electronic load sharing and system switching equipment,professional services segment, received a number of airplane electronic navigation instruments, radios and transponders;loan in the 1970's, ground based VOR navigation equipment sold worldwideprincipal amount of $2,001,000 (the “SBA Loan”) under the Paycheck Protection Program (“PPP”), which was established under the Coronavirus Aid, Relief, and GPS equipment asEconomic Security Act (the “CARES Act”). The intent and purpose of the PPP is tosupport companies during the COVID-19 pandemic by providing funds for certain specified business expenses, with a focus on payroll. We have used the proceeds from the SBA Loan to maintain our payroll and retain casino staff.  With the assistance of the SBA Loan, we know it today in civilian use;believe we have sufficient liquidity at this time to maintain our business operations during this difficult time.

The COVID-19 pandemic impacted our business operations and financial results beginning in the 1980's, special mission modificationsfourth quarter of fiscal 2020 and continues to business jets for aerial surveillance and conversion of passenger configurationsimpact us in fiscal 2021. Although the financial impact on our overall fiscal 2020 results is limited due to cargo; in the 1990's, classic aviation support of aging airplanes with enhanced protection of electrical systems through transient suppression devices (TSD), control electronics for military weapon systems and improved aerodynamic control products (Avcon Fins) allowing stability at higher gross weights for additional special mission applications; in the 2000's, improved accuracytiming of the airspeedoutbreak, we face numerous uncertainties in estimating the direct and altimeter systemsindirect effects on our present and future business operations, financial condition, results of operations, and liquidity. Due to allow less vertical separation between flying airplanes (RVSM) and acquisition of the JET autopilot product line to support and replace aged electronic equipment in the classic fleet of Learjet airplanes; and in the 2010's, the acquisition of Butler Avionics to provide additional classic airplane support by retrofit of avionics from the past 40 years to modern state of the art equipment for sale worldwide using FAA supplemental type certification (STC).  Aerospace is preparing for the 2020's through the development and certification of ADS-B systems in support of the FAA "NextGen" update of the Air Traffic Control system in the United States and many other countries. 

Aerospace continues to be a focus for new product design and development. Butler National received FAA approvals of a number of products:  Butler National's newly redesigned rate gyroscope for Learjets; the replacement vertical accelerometer safety device that resolves obsolescence as a key component of the legacy Learjet stall warning systems; Butler National's addition of the GARMIN GTN 650/750 Global Position System Navigator with Communication transceiver in the Learjet Model 50 series, 30 series and 20 series, Avcon's new cargo/sensor carrying pod that mounts to the bottom of a King Air Model 90 airplane, and the provisions for external stores on a Learjet Model 60 to enable the 60 for consideration as the next Learjet candidate for special mission operations; and noise suppression for Learjet 20 series aircraft. We expect this segment will continue to grow in the future. To address the three to five year business cyclesseveral rapidly changing variables related to the Aerospace industry,COVID-19 pandemic, we cannot reasonably estimate future economic trends and the timing of when stability will return. Refer to Item 1A. “Risk Factors” for a disclosure of risk factors related to COVID-19.

Results Overview

Our fiscal 2020 revenue increased12% to $65.9 million compared to $58.7 million in fiscal 2019. In fiscal 2020 the Professional Services revenue decreased12%. There was an increase of 41% in the 1990's, we began providing Professional Services to markets outside the Aerospace industry.Products revenue in fiscal 2020.

 

Our fiscal 2020 net income was $3.2 million compared to net income of $5.7 million in fiscal 2019. Earnings per share was $0.06 for fiscal 2020 compared to $0.06 in fiscal 2019. We continue focusing on our margin expansion initiatives, including efficiencies in our implementation and operational processes and controlling general and administrative expenses. The fiscal 2020 operating income was 13%, an increase from 9% in fiscal 2019.

RESULTS OF OPERATIONS

Fiscal 2020 compared to Fiscal 2019

(dollars in thousands)

 

2020

  Percent of Total Revenue  

2019

  Percent of Total Revenue  Percent Change 2019-2020 

Revenue:

                    

Professional Services

 $28,283   43% $32,017   55%  -12%

Aerospace Products

  37,588   57%  26,693   45%  41%
                     

Total revenues

  65,871   100%  58,710   100%  12%
                     

Costs and expenses:

                    

Cost of professional services

  15,516   23%  20,066   34%  -23%

Cost of aerospace products

  22,885   35%  17,230   30%  33%

Marketing and advertising

  4,095   6%  4,167   7%  -2%

Employee benefits

  2,606   4%  2,304   4%  13%

Depreciation and amortization

  5,116   8%  1,846   3%  177%

General, administrative and other

  7,347   11%  7,819   13%  -6%
                     

Total costs and expenses

  57,565   87%  53,432   91%  8%

Operating income

 $8,306   13% $5,278   9%  57%

Revenue:

Professional ServicesRevenueincreased12% to $65.9 million in fiscal 2020, compared to $58.7 million in fiscal 2019. See "Operations by Segment" below for a discussion of the primary reasons for the increase in revenue.

 

Professional Services derives its revenue from (a) professional management services in the gaming industry through Butler National Service Corporation ("BNSC") and BHCMC, LLC ("BHCMC"), and (b) professional architectural, engineering and management support services through BCS Design, Inc. ("BCS"). Revenue from Professional Services decreased12% to $28.3 million in fiscal 2020 compared to $32.0 million in fiscal 2019. The decrease in revenue was caused by the casino being forced to close the last six weeks of the fiscal year due to COVID-19.

Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft. Aerospace Products revenue increased 41% to $37.6 million in fiscal 2020 compared to $26.7 million in fiscal 2019.

 

In the early 1990's, management determined that more revenue stable business units were needed to sustain the Company. Members of the Board of Directors had contacts with several American Indian tribes and other members of the Board were associated with gaming operators in Las Vegas. After enactment of the 1988 Indian Gaming Regulatory Act ("IGRA") we reached out to various Indian tribes with land in the area to explore the opportunities for operations under IGRA. This resulted in the "Stables", an Indian owned casino on Modoc Indian land opened in September 1998 developed and managed by BNSC. The Stables Management Agreement has been available on the website maintained by the National Indian Gaming Commission ("NIGC"). The Stables Management Agreement was subsequently amended by various amendments dated April 30, 2003 (the "First Amendment"), November 30, 2006 (the "Second Amendment"), October 19, 2009 (the "Third Amendment") and September 22, 2011 (the "Fourth Amendment"). The result of the First Amendment, Second Amendment, Third Amendment and Fourth Amendment is to provide that twenty (20%) of net profits from The Stables are distributed to BNSC, to end per the joint venture agreement the participation of the Miami Indian tribe from the business and to extend the duration of the Stables Management Agreement through September 30, 2018.

From this experience with IGRA and the success of the Indian gaming industry, we determined that the IGRA model may be applicable for state-owned gaming. We spent Butler National Corporation innovation, legal and market development funds to design and encourage the use of an Indian-owned gaming model in the State of Kansas. From these efforts, Kansas enacted the Kansas Expanded Lottery Act (KELA) in 2007 allowing four state-owned casinos to be developed in Kansas. In 2007, BNSC made application to manage a state-owned casino. In 2008, BNSC was awarded a fifteen year term to manage the Boot Hill Casino in Dodge City, Kansas pursuant to a Lottery Gaming Facility Management Contract (the "Boot Hill Casino Management Contract"). The Boot Hill Casino Management Contract was amended on December 29, 2009 (the "First Amendment to the Boot Hill Casino Management Contract") to bring the definition of "Fiscal Year" in line with the fiscal year of BNSC (May 1 to April 30). BHCMC was organized to be the manager of the Boot Hill Casino in Dodge City, Kansas. The casino opened in December 2009.

The Phase II expansion of Boot Hill Casino began in early 2012 and was completed in January 2013. Phase II expansion of the unfinished gaming floor space built during Phase I construction and tenant improvements was funded by tenant improvement leases, gaming machine acquisitions, and casino earnings. The Phase II expansion included the interior finish of 15,000 square feet of casino shell and provided for up to 216 additional gaming machines. Part of the expansion included a breezeway connecting the Boot Hill Casino and the Dodge City special events center (United Wireless Arena). Boot Hill Casino acquired the naming rights to the City of Dodge City and Ford County owned conference center connected to the casino through the breezeway.  The conference center is now known as the Boot Hill Casino and Resort Conference Center. Boot Hill Casino now has approximately 650 gaming machines on the floor. 

Results Overview

Our fiscal 2017 revenue increased 13% to $50.6 million compared to $44.8 million in fiscal 2016. In fiscal 2017 the Professional Services revenue increased 4%. There was an increase of 32% in the Aerospace Products revenue in fiscal 2017.

Our fiscal 2017 net income was $1,534 compared to net income of $24 in fiscal 2016. Earnings per share was $0.02 for fiscal 2017 compared to $0.00 in fiscal 2016. We continue focusing on our margin expansion initiatives, including efficiencies in our implementation and operational processes and controlling general and administrative expenses. The fiscal 2017 operating income was 7%, an increase from our margin of 2% in fiscal 2016.

RESULTS OF OPERATIONS

Fiscal 2017 compared to Fiscal 2016

(dollars in thousands)

 

2017

 

 

Percent

of Total

Revenue

 

 

2016

 

 

Percent

of Total

Revenue

 

 

Percent

Change

2016-2017

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Professional Services

 

$

30,849

 

 

 

61

%

 

$

29,784

 

 

 

66

%

 

 

4

%

Aerospace Products

 

 

 19,770

 

 

 

39

%

 

 

15,010

 

 

 

34

%

 

 

32

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

 50,619

 

 

 

100

%

 

 

44,794

 

 

 

100

%

 

 

13

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Professional Services

 

 

 19,126

 

 

 

38

%

 

 

17,872

 

 

 

40

%

 

 

7

%

Cost of Aerospace Products

 

 

 14,547

 

 

 

29

%

 

 

12,173

 

 

 

27

%

 

 

20

%

Marketing and advertising

 

 

 4,276

 

 

 

8

%

 

 

4,562

 

 

 

10

%

 

 

-6

%

Employee benefits

 

 

 1,972

 

 

 

4

%

 

 

1,889

 

 

 

4

%

 

 

4

%

Depreciation and amortization

 

 

 1,985

 

 

 

4

%

 

 

2,174

 

 

 

5

%

 

 

-9

%

General, administrative and other

 

 

 5,213

 

 

 

10

%

 

 

5,502

 

 

 

12

%

 

 

-5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

 

 47,119

 

 

 

93

%

 

 

44,172

 

 

 

98

%

 

 

7

%

Operating income

 

$

3,500

 

 

 

7

%

 

$

622

 

 

 

2

%

 

 

463

%

Revenue:

Revenue increased 13% to $50.6 million in fiscal 2017, compared to $44.8 million in fiscal 2016. See "Operations by Segment" below for a discussion of the primary reasons for the increase in revenue.

Professional Services derives its revenue from (a) professional management services in the gaming industry through Butler National Service Corporation ("BNSC") and BHCMC, LLC ("BHCMC"), and (b) professional architectural, engineering and management support services through BCS Design ("BCS"). Revenue from Professional Services increased 4% to $30.8 million in fiscal 2017 compared to $29.8 million in fiscal 2016.

Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft. Aerospace Products revenue increased 32% to $19.8 million in fiscal 2017 compared to $15.0 million in fiscal 2016.

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 7%8% in fiscal 20172020 to $47.1$57.6 million compared to $44.2$53.4 million in fiscal 2016.2019. Costs and expenses were 93%87% of total revenue in fiscal 2017,2020, compared to 98%91% of total revenue in fiscal 2016.2019.

 

Marketing and advertising expenses as a percent of total revenue was 8%6% in fiscal 2017,2020, as compared to 10%7% in fiscal 2016.2019. These expenses decreased 6%2% to $4.3$4.1 million in fiscal 2017,2020, from $4.6$4.2 million in fiscal 2016.2019. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions.

 

Employee benefits expenses as a percent of total revenue was 4% in fiscal 2017,2020, compared to 4% in fiscal 2016.2019. These expenses increased 4%13% to $2.0$2.6 million in fiscal 2017,2020, from $1.9$2.3 million in fiscal 2016.2019. These expenses include the employers' share of all federal, state and local taxes, paid time off for vacation, holidays and illness, employee health and life insurance programs and employer matching contributions to retirement plans.

 

Depreciation and amortization as a percent of total revenue was 4%8% in fiscal 2017,2020, compared to 5%3% in fiscal 2016.2019. These expenses decreased 9%increased to $2.0$5.1 million in fiscal 2017,2020, from $2.2$1.8 million in fiscal 2016.2019. The adoption of ASU 2016-02 Leases, caused depreciation to increase by $2.8 million in fiscal 2020. These expenses include depreciation related to owned assets being depreciated over various useful lives and amortization of intangible items including the Kansas privilege fee related to the Boot Hill Casino being expensed over the term of the gaming contract with the State of Kansas. BHCMC, LLC depreciation and amortization expense for fiscal 20172020 was $1.4$3.7 million compared to $1.4$1.0 million in fiscal 2016.2019.

 

General, administrative and other expenses as a percent of total revenue was 10%11% in fiscal 2017,2020, compared to 12%13% in fiscal 2016.2019. These expenses decreased 5%6% to $5.2$7.3 million in fiscal 2017,2020, from $5.5$7.8 million in fiscal 2016.2019.

 

Other income (expense):

 

Interest and other expensesincome (expense) were $419($3.7) million in fiscal 20172020 compared with interest and other expensesincome (expense) of $450$1.7 million in fiscal 2016, a decrease2019an increase of $31,$5.5 million, from fiscal 20162019 to fiscal 2017. In2020. The adoption of ASU 2016-02 Leases, caused interest expense to increase $4.2 million in fiscal year 2016, a gain on the sale of an aircraft was recognized in the amount of $732. 2020.

 

Operations by Segment

 

We have two operating segments, Professional Services and Aerospace Products. The Professional Services segment includes revenue contributions and expenditures associated with casino management services and professional architectural, engineering and management support services. Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.

 

The following table presents a summary of our operating segment information for fiscal years 20172020 and 2016:2019:

 

(dollars in thousands)

 

2017

 

Percent of

Revenue

 

 

2016

 

Percent of

Revenue

 

 

Percent

Change

2016-2017

 

 

2020

  Percent of Revenue  

2019

  Percent of Revenue  Percent Change 2019-2020 

Professional Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                    

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

                    

Boot Hill Casino

 

$

30,269

 

98

%

 

$

29,143

 

98

%

 

4

%

 $27,967   99% $31,706   99%  -12%

Management/Professional Services

 

 

 580

 

 

2

%

 

 

641

 

 

2

%

 

 

-10

%

  316   1%  311   1%  2%

Revenue

 

 30,849

 

100

%

 

29,784

 

100

%

 

4

%

  28,283   100%  32,017   100%  -12%

 

 

 

 

 

 

 

 

 

 

 

 

 

                    

Costs of Professional Services

 

 19,126

 

62

%

 

17,872

 

60

%

 

7

%

  15,516   55%  20,066   62%  -23%

Expenses

 

 

 10,101

 

 

33

%

 

 

10,315

 

 

35

%

 

 

-2

%

  11,502   41%  10,471   33%  10%

Total costs and expenses

 

 

 29,227

 

 

95

%

 

 

28,187

 

 

95

%

 

 

4

%

  27,018   96%  30,537   95%  -12%

Professional Services operating income before noncontrolling interest in BHCMC, LLC

 

$

1,622

 

 

5

%

 

$

1,597

 

 

5

%

 

 

2

%

 $1,265   4% $1,480   5%  -15%

 

(dollars in thousands)

 

2017

 

Percent of

Revenue

 

 

2016

 

Percent of

Revenue

 

 

Percent

Change

2016-2017

 

 

2020

  Percent of Revenue  

2019

  Percent of Revenue  Percent Change 2019-2020 

 

 

 

 

 

 

 

 

 

 

 

 

 

                    

Aerospace Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                    

Revenue

 

$

19,770

 

100

%

 

$

15,010

 

100

%

 

32

%

 $37,588   100% $26,693   100%  41%

 

 

 

 

 

 

 

 

 

 

 

 

 

                    

Costs of Aerospace Products

 

 14,547

 

74

%

 

12,173

 

81

%

 

20

%

  22,885   61%  17,230   65%  33%

Expenses

 

 

 3,345

 

 

17

%

 

 

3,812

 

 

25

%

 

 

-12

%

  7,662   20%  5,665   21%  35%

Total costs and expenses

 

 

 17,892

 

 

91

%

 

 

15,985

 

 

106

%

 

 

12

%

  30,547   81%  22,895   86%  33%

 

 

 

 

 

 

 

 

 

 

 

 

 

                    

Aerospace Products operating income (loss)

 

$

1,878

 

 

9

%

 

$

-975

 

 

-6

 

 

 

 

Aerospace Products operating income

 $7,041   19% $3,798   14%  85%

 

 

Professional Services

 

RevenueRevenue from Professional Services increased 4%decreased12% to $30.8$28.3 million in fiscal 20172020 from $29.8$32.0 million in fiscal 2016. The increase in Professional Services revenue was driven primarily by an increased revenue in gaming activities of $861.

In fiscal 2017 Boot Hill Casino received gross receipts for the State of Kansas of $40.2 million compared to $39.3 million in fiscal 2016. Mandated fees, taxes and distributions reduced gross receipts by $13.4 million resulting in gaming revenue of $26.8 million in fiscal 2017 compared to $25.9 million in fiscal 2016, an increase of 3%2019.  Non-gaming revenue at Boot Hill Casino increased to $3.5 million in fiscal 2017 compared to $3.2 million in fiscal 2016.

The remaining management and Professional Services revenue includes professional management services in the gaming industry, and licensed architectural services. Professional Services revenue excluding Boot Hill Casino decreased 10% to $580 in fiscal 2017 compared to $641 in fiscal 2016.

 

In fiscal 2020 Boot Hill Casino received gross receipts for the State of Kansas of $35.9 million compared to $41.6 million in fiscal 2019. Mandated fees, taxes and distributions reduced gross receipts by $11.6 million resulting in gaming revenue of $24.3 million in fiscal 2020 compared to $28.0 million in fiscal 2019, a decrease of 13%.  Non-gaming revenue at Boot Hill Casino remained constant at $3.7 million in fiscal 2020 and fiscal 2019.

The remaining management and Professional Services revenue includes professional management services in the gaming industry, and licensed architectural services. Professional Services revenue excluding Boot Hill Casino increased 2% to $316 in fiscal 2020 compared to $311 in fiscal 2019.

Costs increased 7%decreased23% in fiscal 20172020 to $19.1$15.5 million compared to $17.9$20.1 million in fiscal 2016.2019. Costs were 62%55% of segment total revenue in fiscal 2017,2020, compared to 60%62% of segment total revenue in fiscal 2016.2019. The adoption of ASU 2016-02 Leases, caused $4.9 million of the decrease from a reduction in rent expense in fiscal 2020.

 

Expenses decreased 2%increased 10% in fiscal 20172020 to $10.1$11.5 million compared to $10.3$10.5 million in fiscal 2016.2019. Expenses were 33%41% of segment total revenue in fiscal 2017,2020, compared to 35%33% of segment total revenue in fiscal 2016.2019. The adoption of ASU 2016-02 Leases, caused depreciation to increase by $2.6 million in fiscal 2020.

 

Aerospace Products

 

Revenue increased 32%increased41% to $19.8$37.6 million in fiscal 20172020 compared to $15.0$26.7 million in fiscal 2016.2019. This $10.9 million increase was due to an increase in our aircraft modification business of $4.8 million and an increase in our avionics business of $6.1 million. We have invested in the development of several STCs. These STCs are state of the art avionics and we are aggressively marketing both domestically and internationally.

 

Costs increased 20%33% to $14.5$22.9 million in fiscal 20172020 compared to $12.2$17.2 million in fiscal 2016.2019. Costs were 74%61% of segment total revenue in fiscal 2017,2020, compared to 81%65% of segment total revenue in fiscal 2016.2019.

 

Expenses decreased 12%increased 35% in fiscal 20172020 to $3.3$7.7 million compared to $3.8$5.7 million in fiscal 2016.2019. Expenses were 17%20% of segment total revenue in fiscal 2017,2020, compared to 25%21% of segment total revenue in fiscal 2016.2019.

 

Liquidity and Capital Resources (in thousands)

 

At April 30, 2017,2020, the Company was utilizing promissory notehas a line of credit in the form of a line of creditpromissory note totaling $5.0 million.$5,000. The unused line at April 30, 20172020 was $2.4 million. During$5,000. There were no advances made on the currentline of credit during the year these funds were primarily used for the purchase of inventory and aircraft modification STC development for the modifications and avionics operations.

Theended April 30, 2020. The line of credit is due on demand and is collateralized by a first and second position on all assets of the Company.

 

At April 30, 2017, there were two notes collateralized by aircraft security agreements totaling $458. These notes were used for the purchase and modification of these collateralized aircraft.

There are three notes at a bank totaling $567 for real estate located in Olathe, Kansas and Tempe, Arizona. The due date for these notes is March 2019.

At April 30, 2017,2020, there is one note forwith an interest rate of 6.25% collateralized by an aircraft security agreement totaling $1,706. This note was used to purchase an aircraft. This note matures in January 2023.

At April 30, 2020, there is one note collateralized by equipment with a balance of $98.$42. The interest rate on this note is 4.50%. This note matures in April 2022.

 

One note for $276$224 remains for real estate purchased in Dodge City, Kansas.  The interest rate on this note is 6.25%. This note matures in June 2019.

BHCMC arranged to acquire additional gaming machines for ownership by the Kansas Lottery. The balance of these financed payables is $685. 2024.

 

There is one note with an interest rate of 4.89%at a bank totaling $3.6 million.104. The proceeds were used primarily to pay off obligations with BHCI (a non-controlling owner of BHCMC, LLC). This note matures in May 2020.

At April 30, 2020, there is a note payable collateralized by real estate with a balance of $1,426. The interest rate on this note is at LIBOR plus 1.75%. This note matures in March 2029.

At April 30, 2020, there is a note payable collateralized by real estate with a balance of $654. The interest rate on this note is at LIBOR plus 1.75%. This note matures in March 2029.

In April 2020, the Company received a Paycheck Protection Program loan for $1,283 for the aerospace segment. In May 2020, the Company, based on changes to eligibility guidance, returned these loan proceeds.

 

We are not in default of any of our notes as of April 30, 20172020 or July 14, 2017.10, 2020.

 

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 20172020 and beyond.

 

Our wholly owned subsidiary, Butler National Service Corporation continues friendly discussions with the other member of BHCMC, LLC to explore the possible acquisition by Butler National Service Corporation of the other member's 20% equity interest in BHCMC, LLC.   If and when a definitive agreement is reached, such definitive agreement and a press release concerning the acquisition will be issued to describe the terms of the agreement and the intentions of the members.   We have not set a definitive timetable for our discussions and there can be no assurances that the process will result in any transaction being announced or completed.  At present there is no disagreement between the members of BHCMC, LLC.   We do not plan to disclose or comment on developments until further disclosure is deemed appropriate.

BHCMC, LLC, rents the casino building under the terms of a 25 year lease from BHC Development L.C. ("BHCD"). Butler National Service Corporation continues friendly discussions with BHC Development L.C. to explore the possible acquisition by Butler National Service Corporation of the casino building and related land. If and when a definitive agreement is reached, such definitive agreement and press release concerning the acquisition will be issued to describe the terms of the agreement and the intentions of the members. Butler National Corporation, its management, and its subsidiaries have no ownership interest in BHCI or BHCD.

Analysis and Discussion of Cash Flow

 

During fiscal 20172020 our cash position decreasedincreased by $992.$7.8 million. Net income was $2.3$3.2 million. Cash flows from operating activities provided $6.0$10.0 million. Non-cash activities consisting of depreciation and amortization contributed $3.4$6.4 million, 401(k) stock issues contributed $251, stock issued to directors contributed $25,$676 and deferred compensation contributed $224. Deferred income taxes contributed $179. Accounts receivableand gain on sale of airplanes decreased our cash position by $2.5$260 and $642, respectively. Accounts receivable increased our cash position by $481. Inventories increased our cash position by $270. Accounts payable and customer deposits decreased our cash position by $1.6 million. InventoriesPrepaid expenses and other assets and income tax receivable increased our cash by $53, while gaming facility mandated payments increased our cash by an additional $58. Accrued liabilities, other liabilities and income tax payable increased our cash position by $1.1$1.2 million. Customer deposits, accrued liabilities, and gaming facility mandated payments increased our cash position by $1.4 million. Prepaid expenses decreased our cash by $66, while a decrease in accounts payable decreased our cash by an additional $99.

 

Cash used in investing activities was $3.22.1 million. We invested $176$786 to enhance anpurchase aircraft, $669 towards STCs, $1.1 million on a building,towards STCs, and $1.3 million on equipment purchases.and furnishings. We received $1.1 million in proceeds for the sale of airplanes.

 

Cash used in financing activities was $3.8$195. We increased our debt by $1.5 million. We reduced our debtfinance lease liability by $2.0 million while reducing our line of credit $1.4$1.0 million. We distributed $360 to our non-controlling member.member and purchased company stock of $326. The stock acquired was placed in treasury.

 

Critical Accounting Policies and Estimates:

 

We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amount of revenue and other significant areas involving management judgments and estimates. These significant accounting policies relate to revenue recognition, the use of estimates, long-lived assets, and Supplemental Type Certificates. These policies and our procedures related to these policies are described in detail below and under specific areas within this "Management Discussion and Analysis of Financial Condition and Results of Operations." In addition, Note 1 to the consolidated financial statements expands upon discussion of our accounting policies.

 

Revenue Recognition: Generally, 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 perform aircraftexpect 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-pricefixed-priced contracts are recognized on the percentage-of-completion method, measured by the direct labor and material costs incurred compared to total estimated direct labor costs. Each quarter our management reviews the progress and performance of our significant contracts. Based on this analysis, any adjustment to sales, cost of sales and/or profit is recognized as necessary in the period they are earned. Changes in estimates of contract sales, cost of sales and profits are recognized using a cumulative catch-up, which is recognized in the current period of the cumulative effect of the change on current or prior periods. Revenue for off-the-shelf items and aircraft sales is recognized on the date of sale.labor.

 

Revenue from Avionics products are recognized when shipped. Payment for these Avionics products is due within 30 days of the invoice date after shipment. Revenue from Gaming Management and other Corporate/Professional Services is recognized as the service is rendered and invoiced. Payments for these service invoices are usually received within 30 days.rendered.

 

In regard toRegarding 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 for. paid.

 

Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our consolidated financial statements. Significant estimates include assumptions about collection of accounts receivable, the valuation, and recognition of stock-based compensation expense, valuation for deferred tax assets and useful life of fixed assets.

 

Long-lived Assets: The Company accounts for its long-lived assets in accordance with ASC Topic 360-10, formerly SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." ASC Topic 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value or disposable value.

 

Supplemental Type Certificates: Supplemental Type Certificates (STCs) are authorizations granted by the Federal Aviation Administration (FAA) for specific modification of a certain aircraft. The STC authorizes us to perform modifications, installations, and assemblies on applicable customer-owned aircraft. Costs incurred to obtain STCs are capitalized and subsequently amortized over a seven year life. The legal life of an STC is indefinite.

 

Changing Prices and Inflation

 

We have experienced upward pressure from inflation in fiscal year 2017.2020. From fiscal year 20162019 to fiscal year 20172020 a majority of the increases we experienced were in material costs. This additional cost may not be transferable to our customers resulting in lower income in the future. We anticipate labor rates, fuel costs and possibly interest rates to rise in fiscal 2018years 2021 and 2019.2022.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Contractual Obligations:Obligations

 

Tabular Disclosure of Contractual ObligationsNot applicable.

Payments Due By Period
(Dollars in thousands)

Contractual
Obligations

 

Total

 

 

Less
than 1
Year

 

 

2 Years
FY 201
9

 

 

3 Years
FY 20
20

 

 

4 Years
FY 202
1

 

 

5 Years
FY 202
2

 

 

Thereafter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

5,644

 

 

$

2,297

 

 

$

1,612

 

 

$

1,589

 

 

$

124

 

 

$

22

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating rent obligations

 

 

230

 

 

 

175

 

 

 

40

 

 

 

8

 

 

 

7

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BHCR Facility rent obligations

 

 

93,025

 

 

 

4,841

 

 

 

4,889

 

 

 

4,938

 

 

 

4,987

 

 

 

5,037

 

 

 

68,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Promissory notes

 

 

2,604

 

 

 

2,604

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

101,503

 

 

$

9,917

 

 

$

6,541

 

 

$

6,535

 

 

$

5,118

 

 

$

5,059

 

 

$

68,333

 

 

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Interest Rate SensitivityNot applicable.

The table below provides information about our other financial instruments that are sensitive to changes in interest rates including debt obligations.

For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. Weighted average variable rates are based on implied forward rates based upon the rate at the reporting date.

Expected Maturity Date
(Dollars in thousands)

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

Thereafter

 

 

Total

 

 

Fair
Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note receivable:

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Variable rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average interest rate

 

 

N/A

 

 

 

N/A

 

 

 

N/A

 

 

 

N/A

 

 

 

N/A

 

 

 

N/A

 

 

 

N/A

 

 

 

N/A

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Promissory notes

 

$

2,604

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

2,604

 

 

$

2,604

 

Long-term debt:

 

$

2,297

 

 

$

1,612

 

 

$

1,589

 

 

$

124

 

 

$

22

 

 

$

-

 

 

$

5,644

 

 

$

5.644

 

Variable rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average interest rate

 

 

4.2

%

 

 

5.0

%

 

 

5.1

%

 

 

4.7

%

 

 

4.5

%

 

 

N/A

 

 

 

4.5

%

 

 

4.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Payments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Est. interest payments:

 

$

246

 

 

$

126

 

 

$

48

 

 

$

4

 

 

$

1

 

 

$

-

 

 

$

425

 

 

 

 

 

Scheduled interest payments are calculated on a fixed rate basis, if known, and the remaining interest will be calculated on the average current rate, including imputed interest calculations at 6%. 

 

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The Financial Statements of the Registrant are set forth on pages 4029 through 5344 of this report.

 

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

We had no changes or disagreements with accountants.

 

Item 9A.  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 CommissionSEC 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-K 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-K, 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 April 30, 2017.2020. 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 April 30, 2017.2020.

 

Internal Control Over Financial Reporting

 

Management Report on Internal Control Over Financial Reporting: Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the framework in Internal Control - Integrated Framework issued by ("COSO"). Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of April 30, 2017.2020.

 

Our internal control over financial reporting includes policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Company assets that could have a material effect on the financial statements.

 

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's reportreporting because it is not subject to attestation by the Company registered public accounting firm because Section 989G(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act exempts us,required for a company with a public float of less than $75 million from the requirement that our registered public accounting firm attest to our internal controls. smaller reporting company.

 

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 material changes in the Company internal controls over financial reporting during the three months ended April 30, 20172020 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

 

Item 9B.  OTHER INFORMATION

 

We believe all material information is reported on Form 8-K reports. 

 

PART III

 

Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Qualifications and Skills of Directors: The Company believes that its Board as a whole should encompass a range of talent, skill, diversity, and expertise enabling it to provide sound guidance with respect to the Company's operations and interests. In addition to considering a candidate's background and accomplishments, candidates are reviewedInformation required by this Item 10 will be presented in the contextCompany’s definitive proxy statement for its annual meeting of the current composition of the Board and the evolving needs of our businesses.

The Board of Directors identifies candidates for election to the Board of Directors; reviews their skills, characteristics and experience. The Board of Directors seeks directors with strong reputations and experience in areas relevant to the strategy and operations of the Company's businesses, particularly industries and growth segments that the Company serves, such as avionics, aircraft modifications and gaming. Each of the Company's current Directors has experience in core management skills, such as strategic and financial planning, public company financial reporting, corporate governance, risk management, and leadership development.

The Board of Directors also believes that each of the current Directors has other key attributes that are important to an effective Board: integrity and demonstrated high ethical standards, sound judgment, analytical skills, the ability to engage management and each other in a constructive and collaborative fashion, diversity of origin, background, experience, and thought, and the commitment to devote significant time and energy to service on the Board and its Committees.

Diversity as a Factor in Selection of Board Candidates: The Board does not have a formal policy with respect to diversity. However, the Board believes that it is essential that the Board members represent diverse viewpoints, with a broad array of experiences, professions, skills and backgrounds that, when considered as a group, provide a sufficient mix of perspectives to allow the Board to best fulfill its responsibilities to the long-term interests of the Company's stockholders.

Board's Role in Risk Oversight and Board Leadership Structure: The Board has determined that the positions of Chairman of the Board and Chief Executive Officer shouldshareholders, which will be held on October 6, 2020, and is incorporated herein by different persons. Under our corporate governance principles, the Chairman of the Board is responsible for coordinating the Board's activities, including scheduling of meetings of the full Board, scheduling executive sessions of the non-employee directors and setting relevant items on the agenda (in consultation with the Chief Executive Officer as necessary or appropriate). The Board believes this leadership structure enhances the Board's oversight of Company management, the ability of the Board to carry out its roles and responsibilities on behalf of our stockholders, and our overall corporate governance.

The Board as a whole has responsibility for risk oversight, with reviews of certain areas being conducted by the relevant Board committees. These committees then provide reports to the full Board. The oversight responsibility of the Board and its committees is enabled by management reporting processes that are designed to provide visibility to the Board about the identification, assessment, and management of critical risks. These areas of focus include strategic, operational, financial and reporting, succession and compensation, compliance, and other risks. The Board and its committees oversee risks associated with their respective areas of responsibility, as summarized above. 

The names and ages of the directors, their principal occupations for at least the past five years are set forth below based onreference. Certain information furnished to us by the directors.

Name of
Director, Age and Term

Served
Since

Principal Occupation for Last Five Years and Other Directorships

Clark D. Stewart (77)

Up for re-election at
fiscal year end 2018

1989

President of the Company from September 1, 1989 to present.

R. Warren Wagoner (65)

Up for re-election at
fiscal year end 2018

1986

Chairman of the Board of Directors of the Company since August 30, 1989. Employee chairman until October 2013.

David B. Hayden (71)

Up for re-election at
fiscal year end 2017

1996

Co-owner and President of Kings Avionics, Inc. since 1974 prior to its acquisition in 2010. Director since 1996. Consultant since 2011.

Michael J. Tamburelli (54)

Up for re-election at
fiscal year end 2017

2010

General Manager of the Isle of Capri Kansas City, Missouri 2004-2008, General Manager Boot Hill Casino & Resort 2009-2010, General Manager of Cherokee National Casino, West Siloam Springs, Oklahoma 2010-2011, General Manager Presque Isle Downs, Erie, Pennsylvania 2012-2014. Director of Gaming Operations Apache Casino, Lawton, Oklahoma 2014-2015. Director of Operations St. Jo Frontier Casino 2015 to present. Director since 2010.

Bradley K. Hoffman (43)

Up for re-election at
fiscal year end 2019

2010

Vice President – Corporate Strategy of ISG Technology, Inc. since 2005. Director since 2010.

Theregarding executive officers of Butler National Corporation is included above in Part I of this Form 10-K under the Company are elected each year at the annual meetingcaption “Executive Officers of the BoardRegistrant” pursuant to Instruction 3 to Item 401(b) of Directors held in conjunction with the annual meetingRegulation S-K and General Instruction G(3) of stockholders and at special meetings held during the year. The executive officers are as follows:

Name

Age

Position

Clark D. Stewart

77

President and Chief Executive Officer

Craig D. Stewart

43

Vice President

Christopher J. Reedy

51

Vice President and Secretary

Tad M. McMahon

50

Chief Financial Officer

Clark D. Stewart was President of Tradewind Industries, Inc., a manufacturing company, from 1979 to 1985. From 1986 to 1989, Mr. Stewart was Executive Vice President of RO Corporation. In 1980, Mr. Stewart became President of Tradewind Systems, Inc. He became President of the Company in September 1989.

Craig D. Stewart worked for Accenture, a global management consulting, technology services and outsourcing company, from 1997 to 2003.  Mr. Stewart joined the Company in January 2004 and became Vice President of the Company in 2013. Mr. Stewart is the son of Clark D. Stewart.

Christopher J. Reedy worked for Colantuono & Associates, LLC from 1997 to 2000 in the area of aviation, general business and employment counseling, and from 1995 to 1997 with the Polsinelli, White firm. He was involved in aviation product development and sales with Bendix/King, a division of Allied Signal, Inc. from 1988 through 1993. Mr. Reedy joined the Company in November 2000 as Vice President and became Secretary of the Company in 2005. 

Tad M. McMahon worked in public accounting as an auditor with KPMG, LLP and Grant Thornton, LLP from 1993 to 2000 focusing on manufacturing clients. Mr. McMahon worked in private industry from April 2000 to August 2008 when he joined the Company. Mr. McMahon became Chief Financial Officer in March 2017.

Directorships Held within the Past Five Years:

Current Directorships:

Name

Company

Date(s) of Directorship

Clark D. Stewart

Butler National Corporation

Since 1989

R. Warren Wagoner

Butler National Corporation

Since 1986

David B. Hayden

Butler National Corporation

Since 1996

Michael J. Tamburelli

Butler National Corporation

Since 2010

Bradley K. Hoffman

Butler National Corporation

Since 2010

Past Directorships:

Clark D. Stewart

None

R. Warren Wagoner

None

David B. Hayden

None

Michael J. Tamburelli

None

Bradley K. Hoffman

None

Legal Proceedings Involving a Director or Executive Officer

During the past ten years no director or officer has been convicted in a criminal proceeding or is a named subject of a pending criminal proceeding, exclusive of traffic violations.

No petitions under the Federal bankruptcy laws have been filed by or against any business or property of any director or officer of the Company nor has any bankruptcy petition been filed against a partnership or business association where these persons were general partners or executive officers.

No director or officer has been permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of business, securities or banking activities.

No director or officer been convicted of violating a federal or state securities or commodities law.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers and directors, and persons who own more than 10% of the Company's Common Stock, to file reports of ownership and changes in ownership with the SEC and NASDAQ.  Executive officers, directors and greater-than-10% beneficial owners are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.  Based solely on a review of the copies of such forms furnished to the Company, the Company believes that during fiscal 2017, all its executive officers, directors and greater-than-10% beneficial owners complied with the Section 16(a) filing requirements.

Code of Ethics

The Company has adopted a code of ethics for our executive and senior financial officers, violations of which are required to be reported to the audit committee. The Company will furnish a copy without charge upon written request to the Company at 19920 West 161st Street, Olathe, Kansas 66062, Attn: Secretary or a copy is available on our website at www.butlernational.com/codeofethics.pdf. The Company intends to disclose amendments to or waivers of its code of ethics on Form 8-K. 10-K.


Audit Committee and Audit Committee Financial Expert of the Company

The current members of the Audit Committee are Mr. David B. Hayden (a non-employee consultant), Mr. Bradley K. Hoffman, and Mr. R. Warren Wagoner. Mr. Hoffman and Mr. Wagoner are independent members under the Nasdaq listing standards. The Audit Committee met five times during fiscal year 2017, excluding actions by unanimous written consent.

Each member of the Audit Committee has experience or education in business or financial matters sufficient to provide him or her with a working familiarity with basic finance and accounting matters of the company.

The Audit Committee is primarily concerned with the effectiveness of the Company accounting policies and practices, financial reporting and internal controls. The Audit Committee is authorized (i) to make recommendations to the Board of Directors regarding the engagement of the Company's independent auditors, (ii) to review the plan, scope and results of the annual audit, the independent auditors' letter of comments and management response thereto, (iii) to approve all audit and non-audit services, (iv) to review the Company policies and procedures with respect to internal accounting and financial controls and (v) to review any changes in accounting policy.

Audit Committee Financial Expert

The Company's Board of Directors does not have an "audit committee financial expert," within the meaning of such phrase under applicable regulations of the Securities and Exchange Commission, serving on its audit committee. The Board of Directors believes that all members of its audit committee are financially literate and experienced in business matters, and that one or more members of the audit committee are capable of (i) understanding generally accepted accounting principles ("GAAP") and financial statements, (ii) assessing the general application of GAAP principles in connection with our accounting for estimates, accruals and reserves, (iii) analyzing and evaluating our financial statements, (iv) understanding our internal controls and procedures for financial reporting; and (v) understanding audit committee functions, all of which are attributes of an audit committee financial expert. However, the Board of Directors believes that there is not any audit committee member who has obtained these attributes through the experience specified in the SEC's definition of "audit committee financial expert." Further, like many small companies, it is difficult for the Company to attract and retain Board members who qualify as "audit committee financial experts," and competition for these individuals is significant. The Board believes that its current audit committee is able to fulfill its role under SEC regulations despite not having a designated "audit committee financial expert."

Audit Committee Report

The Audit Committee oversees the Company's financial reporting process on behalf of the Board of Directors and oversees the entire audit function including the selection of independent registered public accounting firm. Management has the primary responsibility for the consolidated financial statements and the financial reporting process including internal control over financial reporting and the Company's legal and regulatory compliance. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited consolidated financial statements for the year ended April 30, 2017 including a discussion of the acceptability and quality of the accounting principles, the reasonableness of significant accounting judgments and critical accounting policies and estimates, the clarity of disclosures in the consolidated financial statements, and management's assessment and report on internal control over financial reporting. The Audit Committee also discussed with the Chief Executive Officer and Chief Financial Officer their respective certifications with respect to the Company's Annual Report on Form 10-K for the year ended April 30, 2017.

The Audit Committee reviewed with the independent registered public accounting firm, who are responsible for expressing an opinion on the conformity of the audited consolidated financial statements with U.S. generally accepted accounting principles, its judgments as to the acceptability and quality of the Company's accounting principles and such other matters as are required to be discussed with the Audit Committee in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) including those matters required to be discussed by Auditing Standard No. 16, Communications with Audit Committees. In addition, the Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent registered public accounting firm's communications with the Audit Committee concerning independence and has discussed those disclosures and other matters relating to independence with the auditors.

The Audit Committee discussed with the Company's independent registered public accounting firm the overall scope and plans for its audit. The Audit Committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of its audits of the Company. 

Members of the Audit Committee rely without independent verification on the information provided to them and on the representations made by management and the independent registered public accounting firm. In reliance on the reviews and discussions with management and with the independent registered public accounting firm referred to above and the receipt of an unqualified opinion from RBSM, LLP dated July 21, 2017 regarding the audited consolidated financial statements of the Company for the year ended April 30, 2017, the Audit Committee recommended to the Board of Directors (and the Board approved) that the audited consolidated financial statements be included in the Annual Report on Form 10-K for the year ended April 30, 2017 for filing with the Securities and Exchange Commission.

The Audit Committee report is submitted by:

David B. Hayden, Bradley K. Hoffman and R. Warren Wagoner

 

Item 11.EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS:

OurInformation required by this Item 11 regarding executive compensation programs are designed to support our business goals and promote both short-term and long-term growth. This section of the Annual Report on Form 10-K explains how our compensation programs are designed and operate in practice with respect to our listed officers. Our listed officers are the CEO, CFO, Chairman of the Board and two Vice Presidents. There are only five executive officers of Butler National Corporation. The "Executive Compensation" section presents compensation earned by the listed officers for fiscal years ending April 30, 2017 and 2016.

The Compensation Committee of the Board of Directors determines the compensation for Butler National executive officers. Our executive officers have the broadest job responsibilities and policy-making authoritywill be presented in the company. The Compensation Committee reviewsCompany’s definitive proxy statement for its annual meeting of shareholders, which will be held on October 6, 2020, and determines all components of executive officer compensation, including making individual compensation decisions and reviewing and revising the executive officer compensation plans, programs, and guidelines as appropriate. The Compensation Committee also consults with management regarding non-executive employee compensation programs.

Our Compensation Philosophy

The core element of our overall compensation philosophy is the alignment of pay and performance. Total compensation varies with individual performance and Butler National's performance in achieving financial and non-financial objectives. Our equity plans are designed to ensure that executive compensation is aligned with the long-term interests of our stockholders. The Compensation Committee and our management believe that compensation should help to recruit, retain, and motivate the employees that the company will depend on for current and future success. The Compensation Committee and our management also believe that the proportion of "at risk" compensation (variable cash compensation and equity) should rise as an employee's level of responsibility increases. This philosophy is reflected in the following key design priorities that govern compensation decisions:

-

pay for performance

-

employee recruitment, retention, and motivation

-

cost management

-

egalitarian treatment of employees

-

alignment with stockholders' interests

-

continued focus on corporate governance

Each element of compensation reflects one or more of these design priorities. In most cases, our employees, including our executive officers, except Mr. Stewart, are employed at will, without employment agreements, severance payment arrangements (except as requiredincorporated herein by local law), or payment arrangements that would be triggered by a "change in control" of Butler National. Retirement plan programs are broad-based; Butler National does not provide special retirement plans or benefits solely for executive officers. reference.

Total compensation for the majority of our employees including executive officers, includes two or more of the following components:

-

base salary

-

annual and semiannual incentive cash payments

-

equity grants

-

employee stock purchase plan

-

retirement benefits

-

health and welfare benefits

The Compensation Committee and management continue to believe that a similar method of compensating all employees with cash, equity and retirement benefits supports a culture of fairness, collaboration, and egalitarianism.

The Company provides its shareholders with the opportunity to cast an advisory vote on executive compensation on the Notice of Annual Meeting of Shareholders. The Company believes that it is appropriate to seek the views of the shareholders on the design and effectiveness of the Company's executive compensation program. As an advisory vote the proposal is not binding upon the Company. However, the Compensation Committee values the opinions expressed by shareholders and consider the outcome of the vote when making compensation decisions for named executive officers.

Determining Executive Compensation

The Compensation Committee reviews and determines the compensation for Butler National executive officers. The Compensation Committee process for determining compensation includes a review of Butler National executive compensation and practices, and an analysis, for each Butler National executive officer, of all elements of compensation. In conducting an annual performance review and determining appropriate compensation levels, the Compensation Committee meets and deliberates outside the presence of the executive officers. In determining base salary, the Compensation Committee reviews company and individual performance information.

In designing the compensation programs and determining compensation levels for the Butler National executive officers, including the CEO, the Compensation Committee was assisted by an independent compensation consultant and independent legal counsel (other than Butler National's in-house counsel and Butler National's general external legal counsel). The Compensation Committee engaged CBIZ Human Capital Services ("CBIZ") to serve as its independent advisor and compensation consultant. The Chairman of the Compensation Committee worked directly with CBIZ to determine the scope of the work needed to assist the Compensation Committee in its review and decision-making processes. The engagement included confirmation of compensation philosophy, provision of benchmark comparative data for executive officers with respect to base salary, total cash compensation (including annual cash incentive payments), long-term equity incentives, review of current employment arrangements, benefits, perquisites and incentive plan design of short term and long term incentives. CBIZ provides no other consultation or services to Butler National or management. 

Base Salary

The Compensation Committee establishes executive officers' base salaries at levels that it believes are reasonable for comparable positions. When the Compensation Committee determines the executive officers' base salaries during the first quarter of the year, the Compensation Committee takes into account each officer's role and level of responsibility at the company. In general, executive officers with the highest level and amount of responsibility have received the highest base salaries. The Compensation Committee met in February 2017. They considered the current economic conditions and determined any compensation changes to be made in fiscal 2018.

PAY COMPONENT

BRIEF DESCRIPTION

Base salary

Described in detail in separate paragraph above titled Base Salary.

Annual and semiannual incentive cash payments

Paid as discretionary cash bonuses to individual employees for outstanding performance of a task.

Equity grants/option awards

No Option Awards have been granted since 2011. Option Awards are granted by the Compensation Committee to align management objective toward improved earnings and retention of the management team.

Employee stock purchase plan

Any employee may purchase the Company stock at the fair market value at the date of purchase without broker or issue fees. The stock is restricted and not considered a stock reward. We have the 1981 Employee Stock Purchase plan. No shares have been purchased under this plan since 1988.

Retirement benefits

We pay the required federal and state retirement contributions, the required unemployment contributions and match the employee's contribution to their account in the Butler National Corporation 401(k) plan according to the parameters set forth in the plan.

Health and welfare benefits

Employees electing to participate in the various insurance plans offered by the Company receive a payment for a share of the health, dental, vision and life insurance costs for the employee.

Grant Date Fair Value of Stock Option Awards

At April 30, 2017, we had no outstanding stock options.  There were 7,262,064 outstanding stock options that were issued on December 31, 2010, all of which expired on December 31, 2015.  No options were granted to any named executive officer in the last fiscal year.

Material Adverse Effect of Compensation Policies and Procedures

The Compensation Committee regularly reviews the Company's compensation policies and practices, including the risks created by the Company's compensation plans. In addition, the Company also conducted a review of its compensation plans and related risks to the Company. The Company reviewed its analysis with the Compensation Committee, and the Compensation Committee concluded that the compensation plans reflected the appropriate compensation goals and philosophies. Based on this review and analysis, the Company has concluded that any risks arising from its employee compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

Performance Measures and Decision-Making Process for Fiscal Year 2017

The Compensation Committee set base salaries for executive officers for fiscal 2017 in February 2016.

The performance measures used by the Compensation Committee in determining executive compensation for fiscal year 2017 were:

-

the absolute one-year and multi-year company performance as measured by market share, revenue growth, profit from operations and total shareholder return;

-

one-year and multi-year performance on the same measures as compared with competitors in the comparator group; and

-

Company progress toward its strategic goals.

To make its decisions on executive compensation, the Compensation Committee reviewed in detail each of the performance measures above and reviewed compensation market data. The Compensation Committee also reviewed the total compensation and benefits of the executive officers and considered the impact that their retirement, or termination under various other scenarios, would have on their compensation and benefits.

The CEO provided the entire Board of Directors with an assessment of his own performance with respect to the performance measures listed above, which the Board considered in its assessment of his performance for fiscal year 2016. The CEO reviewed the performance of the other executive officers (except the Chairman) with the Compensation Committee and made recommendations regarding the components of their compensation.

Before making its compensation decisions, the Compensation Committee discussed levels of compensation for the Chairman, the CEO and the other executive officers with the full Board of Directors in an executive session.

Determination of CEO and Executive Officer Compensation

In fiscal year 2016, Butler National Corporation did reach projected levels of revenue, profit from operations, operating margin and operating cash flow.

With regard to progress toward strategic goals, BNC improved its products and technology positions and strengthened its relationships with customers.

Taking into account Company performance, both absolute and relative to competition and the executive officers' contribution to that performance, the Compensation Committee set its targeted compensation levels so as to be commensurate with that relative performance. The Compensation Committee made the following determinations for fiscal year 2017 with respect to each component of compensation for the CEO and his existing contract and the other executive officers:

Base Salary - In keeping with its strategy, the Compensation Committee base salary decisions for fiscal year 2017 were generally intended to provide salaries somewhat lower than the median level of salaries for similarly situated executives of the comparator companies.

Long-Term Compensation - The Compensation Committee granted no equity compensation.

Compensation of the Chairman

The SEC rules require disclosure of the employee-chairman compensation. Beginning October 2013, Mr. Wagoner served only as Chairman. In making the determinations, the Compensation Committee considered his role as Chairman, his contribution to the Company performance and strategic direction, and the compensation of comparator companies. 

Executive Compensation

SUMMARY

The following table below sets forth certain compensation information concerning the Chief Executive Officer and our three additional most highly compensated executive officers for the fiscal years ended April 30, 2017 and 2016. Our listed officers are the CEO, CFO, and two Vice Presidents. There are only five executive officers of Butler National Corporation. The "Executive Compensation" section presents compensation earned by the listed officers for fiscal years ending April 30, 2017 and 2016:

Summary Compensation Table

(dollars in thousands)

Name
and Principal
Position

 

Year

 

Salary
($)

 

 

Bonus
($)

 

 

Stock
Awards
($)

 

 

Option Awards and
Stock
Appreciation
Rights
($)

 

 

Non-Equity
Incentive
Plan Compensation
($)

 

 

Change in Pension Value and Nonqualified
Deferred
Compensation
Earnings($)

 

 

All Other
Compensation
($)(1)

 

 

Total ($)(2)

 

Clark D. Stewart, CEO

 

2017

 

 

498

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

40

 

 

 

538

 

President and Director

 

2016

 

 

469

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

52

 

 

 

521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Craig D. Stewart

 

2017

 

 

250

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

45

 

 

 

295

 

Vice President

 

2016

 

 

249

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

43

 

 

 

292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Christopher J. Reedy

 

2017

 

 

255

 

 

 

15

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

26

 

 

 

296

 

Vice President and

 

2016

 

 

256

 

 

 

15

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

24

 

 

 

295

 

Secretary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                   

Tad M. McMahon

 

2017

 

 

200

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

35

 

 

 

235

 

Chief Financial Officer

 

2016

 

 

199

 

 

 

15

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

---

 

 

 

29

 

 

 

243

 

All Other Compensation (dollars in thousands):

Name

 

Year

 

Airplane and
Automobile
Usage
($)

 

 

Health
Benefits
($)

 

 

Memberships
($)

 

 

Matching
Contributions
to 401(k) (3)
($)

 

Clark D. Stewart

 

2017

 

 

7

 

 

 

12

 

 

 

5

 

 

 

16

 

Craig D. Stewart

 

2017

 

 

---

 

 

 

21

 

 

 

9

 

 

 

15

 

Christopher J. Reedy

 

2017

 

 

---

 

 

 

7

 

 

 

3

 

 

 

16

 

Tad M. McMahon

 

2017

 

 

---

 

 

 

19

 

 

 

4

 

 

 

12

 

(1)

Includes the amounts in the "All Other Compensation" table.

(2)

All benefits are provided for in the tables, summaries, and footnotes above. We did not participate in any of the following transactions and such items are therefore not reported in table format: Equity Award Table, Pension Benefit Table, and Nonqualified Deferred Compensation Table.

(3)

Includes catch-up contribution made by the employee and matched by the Company.

OPTION GRANTS, EXERCISES AND HOLDINGS

At April 30, 2017, we had no outstanding stock options.  There were 7,262,064 outstanding stock options that were issued on December 31, 2010, all of which expired on December 31, 2015.

COMPENSATION OF DIRECTORS

Each non-officer director is entitled to a director's fee of $5 per quarter. The Chairman receives an additional $5 per quarter.


Director Compensation Table

(dollars in thousands)

Name of Director

 

Fees Earned or

Paid in Cash

 

 

Option

Awards

 

 

All Other

Compensation

 

 

Total

 

R. Warren Wagoner

 

$

30

 

 

$

--

 

 

$

10

 

 

$

40

 

David B. Hayden

 

 

15

 

 

 

--

 

 

 

5

 

 

 

20

 

Michael J. Tamburelli

 

 

15

 

 

 

--

 

 

 

5

 

 

 

20

 

Bradley K. Hoffman

 

 

15

 

 

 

--

 

 

 

5

 

 

 

20

 

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS

On April 30, 2001, the Company extended the Employment Agreement through August 31, 2006 with Clark D. Stewart under the terms of which Mr. Stewart was employed as the President and Chief Executive Officer of the Company. On February 24, 2009 the Company extended the Employment Agreement with Mr. Stewart with the terms as currently provided including annual increases of 5% through December 31, 2022. In the event Mr. Stewart is terminated from employment with the Company other than "for cause," Mr. Stewart shall receive as severance pay an amount equal to the unpaid salary for the remainder of the term of the Employment Agreement. Mr. Stewart is also granted an automobile allowance of six hundred dollars per month which is reported by us as Salary Expense and to Mr. Stewart as Wages. Under the terms of the Employment Agreement with Mr. Stewart, the Company is obligated to pay company related expenses and salary. Included in accrued liabilities are $389 and $301 as of April 30, 2017, and 2016 respectively for amounts owed to our CEO for accrued compensation.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors is comprised of Mr. Wagoner, Chairman of the Board, Mr. Tamburelli, Board member and Mr. Hoffman, Board member. None of the Committee members served as an officer or employee of the Company or a subsidiary of the Company. None of our executive officers currently serves, or served during fiscal 2017, on the compensation committee or board of directors of any other entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

In the normal course of business, we purchased business system components of $0 and $3 from ISG, the employer of Bradley Hoffman, a director of Butler National Corporation during fiscal 2017 and 2016 respectively.

We paid consulting fees of $135 and $135 to David Hayden, a director of Butler National Corporation in fiscal year ended April 30, 2017 and 2016 respectively.

Included in accrued liabilities are $389 and $301 as of April 30, 2017, and 2016 respectively for amounts owed to our CEO for accrued compensation.

In fiscal 2017, there were three related-person transactions under the relevant standards: Butler National employed the brother (Wayne Stewart), son (Craig Stewart) and son-in-law (Jeff Shinkle) of Clark D. Stewart, an executive officer, as an engineer, Vice President, and an architect. Compensation for these related-persons was calculated in the same manner as the Summary Compensation table resulting in compensation of $225, $295 and $188, respectively, for fiscal 2017, and $225, $292 and $188, respectively, for fiscal 2016.

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. 


 

Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth, with respect to the Companyprovides information about our common stock (the only class of voting securities), the only persons known tothat may be beneficial owners of more than five percent (5%) of any class of the Company voting securities as of July 14, 2017.

Name and Address of Beneficial Owner

 

Amount and Nature of
Beneficial Ownership (1)

 

 

Percent
of Class

 

Clark D. Stewart

 

 

3,641,624

 

 

 

5.6

%

19920 West 161st Street

 

 

 

 

 

 

 

 

Olathe, Kansas 66062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R. Warren Wagoner

 

 

4,140,897

 

 

 

6.3

%

19920 West 161st Street

 

 

 

 

 

 

 

 

Olathe, Kansas 66062

 

 

 

 

 

 

 

 

         

Joseph P. Daly

(

2)

6,572,000

   

10.1

%

497 Circle Freeway

        

Cincinnati, OH 45246

        

(1)

Unless otherwise indicated by footnote, nature of beneficial ownership of securities is direct, and beneficial ownership as shown in the table arises from sole voting power and sole investment power. The beneficial ownership includes the shares held in the Butler National 401(k) Profit Sharing Plan for the benefit of the individual.

(2)

The number of shares is from Mr. Daly’s Form 4 filing on April 11, 2017.

The following table sets forthissued under our equity compensation plan as of April 30, 2017, with respect to the Company common stock (the only class of voting securities), (i) shares beneficially owned by all directors and named executive officers of the Company, and (ii) total shares beneficially owned by directors and officers as a group, as of April 30, 2017.2020.

Name of Beneficial Owner

 

Amount and Nature of
Beneficial Ownership (1)

 

 

Percent
of Class

 

Clark D. Stewart

 

 

3,641,624

 

 

 

5.6

%

R. Warren Wagoner

 

 

4,140,897

 

 

 

6.3

%

Craig D. Stewart

 

 

1,482,077

 

 

 

2.3

%

Christopher J. Reedy

 

 

1,177,986

 

 

 

1.8

%

Tad M. McMahon

  

472,992

   

0.7

%

David B. Hayden

 

 

1,381,177

 

 

 

2.1

%

Bradley K. Hoffman

 

 

23,952

 

 

 

0.0

%

Michael J. Tamburelli

 

 

23,952

 

 

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Directors and Executive Officers as a Group (8 persons)

 

 

12,344,657

 

 

 

18.9

%

 

(1)Plan Category

Unless otherwise indicatedSecurities to be issued upon exercise of outstanding options and rights

Weighted average exercise price per share

Securities available for future issuance

Equity compensation plans approved by footnote, nature of beneficial ownership of securities is direct and beneficial ownership as shown in the table arises from sole voting power and sole investment power.security holders

-

-

5,000,000

Equity compensation plans not approved by security holders

-

-

-

Total

-

-

5,000,000

In November 2016, the shareholders approved and adopted the Butler National Corporation 2016 Equity Incentive Plan. No equity awards have been made under the plan. 

Item 13.

Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

R. Warren Wagoner, Michael J. Tamburelli,Information required by this Item 13 regarding certain relationships, related party transactions and Bradley K. Hoffman are independent Directors under the Nasdaq listing standards.

In the normal course of business, we purchased business system components of $0 and $3 from ISG, the employer of Bradley Hoffman, a director of Butler National Corporation during fiscal 2017 and 2016 respectively.

We paid consulting fees of $135 and $135 to David Hayden, a director of Butler National Corporation in fiscal year ended April 30, 2017 and 2016 respectively.

Included in accrued liabilities are $389 and $301 as of April 30, 2017, and 2016 respectively for amounts owed to our CEO for accrued compensation.

In fiscal 2017, there were three related-person transactions under the relevant standards: Butler National employed the brother (Wayne Stewart), son (Craig Stewart) and son-in-law (Jeff Shinkle) of Clark D. Stewart, an executive officer, as an engineer, Vice President, and an architect. Compensation for these related-persons was calculatedindependence will be presented in the same manner as the Summary Compensation table resulting in compensationCompany’s definitive proxy statement for its annual meeting of $225, $295shareholders, which will be held on October 6, 2020, and $188, respectively, for fiscal 2017, and $225, $292 and $188, respectively, for fiscal 2016.

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 forthis incorporated herein by our Compensation Committee.reference.

 

Item 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Fee Type

 

Fiscal 2017

 

 

Fiscal 2016

 

Audit fees (a)

 

$

131

 

 

$

136

 

Audit related fees (b)

 

 

 14

 

 

 

-

 

Tax fees (c)

 

 

 -

 

 

 

-

 

All other fees (d)

 

 

 -

 

 

 

-

 

Total

 

$

145

 

 

$

136

 

(a)

Includes fees billed for professional services rendered in connection with the audit of the annual financial statements and for the review of the quarterly financial statements.

(b)

Includes fees billed for professional services rendered in connection with assurance and other activities not explicitly related to the audit of Company financial statements, including the audits of Company employee benefit plans, contract compliance reviews and accounting research.

(c)

Includes fees billed for domestic tax compliance and tax audits, corporate-wide tax planning and executive tax consulting and return preparation.

(d)

Includes fees billed for financial systems design and implementation services.

The Audit Committee has adopted a policy requiring pre-approvalInformation required by the Audit Committee of allthis Item 14 regarding accounting fees and services (audit and non-audit) towill be provided to the Company by its independent auditor. In accordance with that policy, the Audit Committee has given its approval for the provision of audit services by RBSM, LLP for fiscal 2018. Each year stockholders are asked to affirm the selection of the auditor by a vote requestedpresented in the proxy.

The Audit Committee has approved 100%Company’s definitive proxy statement for its annual meeting of the fees listed in the above table. stockholders, which will be held on October 6, 2020, and is incorporated herein by reference.

 

 

PART IV

 

Item 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)

Documents Filed Asas Part of Form 10-K Report.

 

(1)

Financial Statements:

 

 

 

Description

 

 

Page No.

 

Report of Independent Registered Public Accounting FirmsFirm

 

3930

 

Consolidated Balance Sheets as of April 30, 20172020 and 20162019

 

4031

 

Consolidated Statements of Operations for the years ended April 30, 20172020 and 20162019

 

4132

 

Consolidated Statements of Stockholders' Equity for the years ended April 30, 20172020 and 20162019

 

4233

 

Consolidated Statements of Cash Flows for the years ended April 30, 20172020 and 20162019

 

4334

 

Notes to Consolidated Financial Statements

 

4435

 

All other financial statements and schedules not listed have been omitted because the required information is inapplicable or the information is presented in the financial statements or related notes.

 

(2)

Exhibits Index:

 

 

No.

 

Description

 

 

3.1

Articles of Incorporation, as amended and restated, are incorporated by reference to Exhibit 3.1A of our Form DEF 14A filed on December 26, 2001.2001 (File No. 000-01678).

 

 

3.2

Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form 10-Q for the period ended January 31, 2013 filed on March 12, 2013.2013 (File No. 000-01678).

 

 

4.1

The Shareholder Rights Agreement between Butler National Corporation and UMB Bank, N.A. as Rights Agent, dated August 2, 2011, incorporated by reference to Exhibit 4.1 of the Company's registration statement on Form 8-A dated August 2, 2011, and as refiled as Exhibit 4.1 to the Company's Form 10-Q for the period ended October 31, 2016.2016 (File No. 000-01678).

 

 

 

 

10.1

Employment Agreement between the CompanyButler National Corporation and Clark D. Stewart dated March 17, 1994, as amended March 8, 2011.February 4, 2020, incorporated by reference to Exhibit 10.1 of our Form 8-K, dated February 4, 2020 (File No. 000-01678).*

 

 

 

10.2Employment Agreement between Butler National Corporation and Christopher J. Reedy dated February 4, 2020, incorporated by reference to Exhibit 10.2 of our Form 8-K, dated February 4, 2020 (File No. 000-01678).*
10.3Employment Agreement between Butler National Corporation and Craig D. Stewart dated February 4, 2020, incorporated by reference to Exhibit 10.3 of our Form 8-K, dated February 4, 2020 (File No. 000-01678).*
10.4Employment Agreement between Butler National Corporation and Tad M. McMahon dated February 4, 2020, incorporated by reference to Exhibit 10.4 of our Form 8-K, dated February 4, 2020 (File No. 000-01678).*

10.210.5

Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated December 12, 1996, incorporated by reference to Exhibit 10.1 of our Form 10-Q for the period ended OctoberJuly 31, 2012.2012 (File No. 000-01678).

 

 

 

 

10.310.6

First Amendment to the Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated April 30, 2003, incorporated by reference to Exhibit 10.2 of our Form 10-Q for the period ended OctoberJuly 31, 2012.2012 (File No. 000-01678).

 

 

 

 

10.410.7

Second Amendment to the Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated November 30, 2006, incorporated by reference to Exhibit 10.3 of our Form 10-Q for the period ended OctoberJuly 31, 2012.2012 (File No. 000-01678).

 

 

 

 

10.510.8

Third Amendment to the Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated October 19, 2009, incorporated by reference to Exhibit 10.4 or our Form 10-Q for the period ended OctoberJuly 31, 2012.2012 (File No. 000-01678).

 

 

 

 

10.610.9

Fourth Amendment to the Management Agreement between BNSC and the Modoc Tribe of Oklahoma, dated September 22, 2011, incorporated by reference to Exhibit 10.5 of our Form 10-Q for the period ended OctoberJuly 31, 2012.2012 (File No. 000-01678).

 

 

 

 

10.710.10

Lottery Gaming Facility Management Contract between the State of Kansas and Butler National Service Corporation, approved by the Kansas Racing and Gaming Commission on December 8, 2008, incorporated by reference to Exhibit 10.6 of our Form 10-Q for the period ended OctoberJuly 31, 2012.2012 (File No. 000-01678).

 

10.11

10.8

First Amendment to the Lottery Gaming Facility Management Contract between the State of Kansas and Butler National Service Corporation, dated December 29, 2009, incorporated by reference to Exhibit 10.7 of our Form 10-Q for the period ended OctoberJuly 31, 2012.2012 (File No. 000-01678).

 

 

 

10.12Renewal of Lottery Gaming Facility Management Contract between the State of Kansas, BNSC, and BHCMC effective December 15, 2019, incorporated by reference to Exhibit 10.1 of our Form 8-K dated December 9, 2019 (File No. 000-01678).
10.13Third Amendment to the Lottery Gaming Facility Management Contract between the State of Kansas, BNSC, and BHCMC effective December 15, 2019, incorporated by reference to Exhibit 10.1 of our Form 8-K dated December 9, 2019 (File No. 000-01678).
10.14Written Consent for Renewal of the Lottery Gaming Facility Management Contract between the State of Kansas, BNSC and BHCMC effective December 15, 2019, incorporated by reference to Exhibit 10.3 of our Form 8-K dated December 9, 2019 (File No. 000-01678).

10.910.15

Lease between BHCMC, LLC as tenant and BHC Investment Company, L.C. as landlord, dated May 1, 2011 and amended via addendum dated January 1, 2012, incorporated by reference to Exhibit 10.8 of our Form 10-Q for the period ended OctoberJuly 31, 2012.2012 (File No. 000-01678).

 

 

 

 

10.1010.16

Lease between BHCMC, LLC as tenant and BHC Investment Company, L.C. as landlord, dated August 24, 2012, incorporated by reference to Exhibit 10.9 of our Form 10-Q for the period ended OctoberJuly 31, 2012.2012 (File No. 000-01678).

 

 

 

 

10.1110.17

Lease between Butler National Service Corporation and BHC Development, L.C., dated April 30, 2009, incorporated by reference to Exhibit 10.1 of our Form 10-Q for the period ended January 31, 2013.2013 (File No. 000-01678).

 

 

 

 

10.1210.18

Legal Description Lot 1 in future replat of Mariah Center, incorporated by reference to Exhibit 10.2 of our Form 10-Q for the period ended January 31, 2013.2013 (File No. 000-01678).

 

 

 

 

10.1310.19

Legal Description Lot 2 in a future replat of Mariah Center, incorporated by reference to Exhibit 10.3 of our Form 10-Q for the period ended January 31, 2013.2013 (File No. 000-01678).

 

 

 

 

10.1410.20

Bill of Sale dated April 30, 2013, by and among Butler National Services, Inc. and Beadle Enterprises LLC, incorporated by reference to Exhibit 10.1 of our Form 8-K filed on May 2, 2013.2013 (File No. 000-01678).

 

 

 

 

10.1510.21

Promissory Note dated April 29, 2015, by and among BHCMC, L.L.C. and KS StateBank, incorporated by reference to Exhibit 10.23 of our Form 10-K filed on July 29, 2015.2015 (File No. 000-01678).

 

 

 

 

10.16

10.22

Butler National Corporation 2016 Equity Incentive Plan, incorporated by reference to Exhibit A of the Company's Definitive Proxy Statement filed September 29, 2016.2016 (File No. 000-01678).

10.23Form of Registered Stock Agreement under the Butler National Corporation 2016 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 of our Form 8-K filed on April 17, 2019 (File No. 000-01678).
10.24Promissory Note dated February 27, 2019, by Butler National, Inc. and First Source Bank.  
   

14

Standards of Business Conduct and Ethics, incorporated by reference to Exhibit 14 of the Company's Form 10-K for the year ended April 30, 2008.2008 (File No. 000-01678).

 

 

 

 

21

List of Subsidiaries.

 

 

 

 

23.1

Consent of Independent Registered Public Accountants RBSM LLP.

 

31.1

Certificate furnished pursuant to 18 U.S.C 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2

Certificate furnished pursuant to 18 U.S.C 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

32.1

Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

32.2

Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

99

Cautionary Statement for Purpose of the "Safe Harbor" Provisions of the Private Securities Reform Act of 1995.

 

101

The following financial information from the Company's Annual Report on Form 10-K for the year ended April 30, 2017,2020, formatted in XBRL (eXtensible Business Reporting Language) includes; (i) Consolidated Balance Sheets as of April 30, 20172020 and 2016;2019; (ii) Consolidated Statements of Operations for the years ended April 30, 20172020 and 2016;2019; (iii) Consolidated Statements of Stockholders' Equity for the years ended April 30, 20172020 and 2016;2019; (iv) Consolidated Statements of Cash Flows for the years ended April 30, 20172020 and 2016,2019, and (v) the Notes to Consolidated Financial Statements, with detail tagging.

 

 

Relates to management contract, compensatory plan or arrangement.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

July 21, 201717, 2020

 

BUTLER NATIONAL CORPORATION

 

/s/ Clark D. Stewart


Clark D. Stewart, President


and Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated:

 

Signature

Title

Date

 

 

 

/s/ Clark D. Stewart

President, Chief Executive Officer and Director

July 21, 201717, 2020

Clark D. Stewart 

(Principal Executive Officer)

 

 

 

 

/s/ Tad M. McMahon

Chief Financial Officer

July 21, 201717, 2020

Tad M. McMahon

(Principal Financial Officer and Principal Accounting Officer)

 

 

 

 

/s/ R. Warren Wagoner

Chairman of the Board and Director

July 21, 201717, 2020

R. Warren Wagoner

 

 

 

 

 

/s/ David B. Hayden

Director

July 21, 201717, 2020

David B. Hayden

 

 

 

 

 

/s/ Michael J. Tamburelli

Director

July 21, 201717, 2020

Michael J. Tamburelli

 

 

 

 

 

/s/ Bradley K. Hoffman

Director

July 21, 201717, 2020

Bradley K. Hoffman

 

 

/s/ Craig D. StewartPresident - Aerospace and DirectorJuly 17, 2020
Craig D. Stewart
/s/ John M. EdgarDirectorJuly 17, 2020
John M. Edgar

 

 

Report of Independent Registered Public Accounting FirmREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

StockholdersTo the stockholders and Directorsthe board of directors of

Butler National Corporation and Subsidiaries

Olathe, Kansas

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Butler National Corporation (the "Company"and Subsidiaries (collectively, the “Company”) as of April 30, 20172020 and 20162019, and the related consolidated statements of operations, stockholders'changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended April 30, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2017. 2020, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principles

As discussed in the notes to the consolidated financial statements, the Company adopted ASU No. 2016-02, Leases (Topic 842), as amended, effective May 1, 2019.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated balance sheets of Butler National Corporation as of April 30, 2017 and 2016 and the consolidated results of its operations, stockholders' equity, and cash flows for the two years in the period ended April 30, 2017 in conformity with accounting principles generally accepted in the United States of America.

/s/ RBSM LLP

We have served as the Company’s auditor since 2015.

New York, NY

July 21, 201717, 2020

 

 

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF April 30, 2012020 and 20197 AND 2016

(in thousands, except per share data)

 

 

April 30, 2017

 

 

April 30, 2016

 

 

April 30, 2020

  

April 30, 2019

 

ASSETS

 

 

 

 

 

 

        

CURRENT ASSETS:

 

 

 

 

 

 

        

Cash

 

$

6,389

 

 

$

7,381

 

 $16,793  $9,014 

Accounts receivable, net of allowance for doubtful accounts

 

4,095

 

 

1,574

 

  2,784   3,265 

Asset held for sale, net of accumulated depreciation

  -   447 

Income tax receivable

  -   27 

Inventories

 

 

 

 

 

 

        

Parts and raw materials

 

 5,644

 

 

6,339

 

  6,892   7,370 

Work in process

 

1,174

 

 

1,349

 

  1,661   1,441 

Finished goods

 

 

39

 

 

 

275

 

  62   74 

Total inventory, net of allowance

 

 6,857

 

 

7,963

 

  8,615   8,885 

Prepaid expenses and other current assets

 

 

 994

 

 

 

873

 

  1,620   1,646 

Total current assets

 

 

 18,335

 

 

 

17,791

 

  29,812   23,284 

 

 

 

 

 

 

        

PROPERTY, PLANT AND EQUIPMENT:

 

 

 

 

 

 

        
Finance lease right-to-use assets  44,349   1,699 

Land and building

 

 5,132

 

 

4,081

 

  5,805   5,765 

Aircraft

 

 5,888

 

 

5,712

 

  8,511   8,467 

Machinery and equipment

 

 3,639

 

 

3,630

 

  4,093   4,085 

Office furniture and fixtures

 

 6,497

 

 

5,637

 

  8,533   7,477 

Leasehold improvements

 

 

 4,032

 

 

 

4,032

 

  4,032   4,032 

 

 25,188

 

 

23,092

 

  75,323   31,525 

Accumulated depreciation

 

 

 (14,506

 

 

(13,218

)

  (20,577)  (16,714)

Total property, plant and equipment

 

 

 10,682

 

 

 

9,874

 

  54,746   14,811 

 

 

 

 

 

 

        

SUPPLEMENTAL TYPE CERTIFICATES (net of accumulated amortization of $4,345 at April 30, 2017 and $3,549 at April 30, 2016)

 

 

6,354

 

 

 

6,481

 

SUPPLEMENTAL TYPE CERTIFICATES (net of accumulated amortization of $7,029 at April 30, 2020 and $6,054 at April 30, 2019)

  6,483   6,407 

 

 

 

 

 

 

        

OTHER ASSETS:

 

 

 

 

 

 

        

Deferred tax asset

 

 925

 

 

1,104

 

  331   295 

Other assets (net of accumulated amortization of $6,904 at April 30, 2017 and $5,579 at April 30, 2016)

 

 

 6,482

 

 

 

7,447

 

Other assets (net of accumulated amortization of $10,153 at April 30, 2020 and $9,370 at April 30, 2019)

  3,546   4,105 

Total other assets

 

 

 7,407

 

 

 

8,551

 

  3,877   4,400 

Total assets

 

$

42,778

 

 

$

42,697

 

 $94,918  $48,902 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

        

CURRENT LIABILITIES:

 

 

 

 

 

 

        

Promissory notes

 

$

2,604

 

 

$

3,988

 

Current maturities of long-term debt

 

 2,297

 

 

2,464

 

 $2,228  $1,899 

Current maturities of finance lease liability

  1,163   8 

Accounts payable

 

 1,919

 

 

2,018

 

  962   1,774 

Customer deposits

 

 892

 

 

258

 

  1,994   2,758 

Gaming facility mandated payment

 

 1,227

 

 

1,206

 

  1,338   1,280 

Compensation and compensated absences

 

 1,478

 

 

1,322

 

  2,571   1,664 

Deferred tax liability, current

  191   236 

Income tax payable

 

589

  

-

   206   - 

Other current liabilities

 

 

 129

 

 

 

125

 

  274   230 

Total current liabilities

 

 11,135

 

 

11,381

 

  10,927   9,849 

 

 

 

 

 

 

        

LONG-TERM DEBT, NET OF CURRENT MATURITIES:

 

 

 3,347

 

 

 

5,218

 

Long-term debt, net of current maturities

  3,211   2,076 

Finance lease liability, net of current maturities

  42,211   1,689 

Deferred tax liability

  765   944 

Total long-term liabilities

  46,187   4,709 

Total liabilities

 

 

 14,482

 

 

 

16,599

 

  57,114   14,558 

 

 

 

 

 

 

        

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

        

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

        

Butler National Corporation's stockholders' equity

 

 

 

 

 

 

        

Preferred stock, par value $5:

 

 

 

 

 

 

Authorized 50,000,000 shares, all classes

 

 

 

 

 

 

Designated Classes A and B 200,000 shares

 

 

 

 

 

 

$100 Class A, 9.8%, cumulative if earned liquidation and redemption value $100, no shares issued and outstanding

 

-

 

 

-

 

Preferred stock, par value $5: Authorized 50,000,000 shares, all classes Designated Classes A and B 200,000 shares $100 Class A, 9.8%, cumulative if earned liquidation and redemption value $100, no shares issued and outstanding

  -   - 

$1,000 Class B, 6%, convertible cumulative, liquidation and redemption value $1,000, no shares issued and outstanding

 

-

 

 

-

 

  -   - 

Common stock, par value $.01: authorized 100,000,000 shares issued 65,273,896 shares, and outstanding 64,543,550 shares at April 30, 2017 and issued 64,066,873 shares, and outstanding 63,466,873 shares at April 30, 2016

 

652

 

 

640

 

Common stock, par value $.01: authorized 100,000,000 shares issued 77,719,677 shares, and outstanding 74,398,262 shares at April 30, 2020 and issued 71,008,122 shares, and outstanding 68,281,071 shares at April 30, 2019

  777   710 

Capital contributed in excess of par

 

 13,980

 

 

13,716

 

  15,600   14,767 

Treasury stock at cost, 730,346 shares at April 30, 2017 and 600,000 shares at April 30, 2016

 

 (764

 

(732

)

Treasury stock at cost, 3,321,415 shares at April 30, 2020 and 2,727,051 shares at April 30, 2019

  (1,713)  (1,387)

Retained earnings

 

 

 9,719

 

 

 

8,185

 

  18,147   13,913 

Total Butler National Corporation's stockholders' equity

 

 23,587

 

 

21,809

 

  32,811   28,003 

Noncontrolling interest in BHCMC, LLC

 

 

 4,709

 

 

 

4,289

 

  4,993   6,341 

Total stockholders' equity

 

 

 28,296

 

 

 

26,098

 

  37,804   34,344 

Total liabilities and stockholders' equity

 

$

42,778

 

 

$

42,697

 

 $94,918  $48,902 

The accompanying notes are an integral part of these consolidated financial statements

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED April 30, 2020 and 2019

(in thousands, except per share data)

  

2020

  

2019

 

REVENUES:

        

Professional services

 $28,283  $32,017 

Aerospace products

  37,588   26,693 

Total revenues

  65,871   58,710 
         

COSTS AND EXPENSES:

        

Cost of professional services

  15,516   20,066 

Cost of aerospace products

  22,885   17,230 

Marketing and advertising

  4,095   4,167 

Employee benefits

  2,606   2,304 

Depreciation and amortization

  5,116   1,846 

General, administrative and other

  7,347   7,819 

Total costs and expenses

  57,565   53,432 
         

OPERATING INCOME

  8,306   5,278 
         

OTHER INCOME (EXPENSE):

        

Interest expense

  (4,368)  (248)

Gain on sale of airplanes

  642   - 

Refund of sales/use tax

  -   1,995 

Total other income (expense)

  (3,726)  1,747 
         

INCOME BEFORE INCOME TAXES

  4,580   7,025 
         

PROVISION (BENEFIT) FOR INCOME TAXES

        

Provision for income taxes

  1,594   297 

Deferred income tax (benefit)

  (260)  1,078 

NET INCOME

  3,246   5,650 
         

Net (income) loss attributable to noncontrolling interest in BHCMC, LLC

  988   (1,797)

NET INCOME ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION

 $4,234  $3,853 
         

BASIC EARNINGS PER COMMON SHARE ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION

 $.06  $.06 
         

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION

  68,622,527   64,511,608 
         

DILUTED EARNINGS PER COMMON SHARE ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION

 $.06  $.06 
         

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION

  68,622,527   64,511,608 

 

The accompanying notes are an integral part of these consolidated financial statements 

 

 

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED April 30, 2017 AND 2016

(in thousands, except per share data)

 

 

2017

 

 

2016

 

REVENUES:

 

 

 

 

 

 

 

 

Professional services

 

$

30,849

 

 

$

29,784

 

Aerospace products

 

 

 19,770

 

 

 

15,010

 

Total revenues

 

 

 50,619

 

 

 

44,794

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

Cost of professional services

 

 

 19,126

 

 

 

17,872

 

Cost of aerospace products

 

 

 14,547

 

 

 

12,173

 

Marketing and advertising

 

 

 4,276

 

 

 

4,562

 

Employee benefits

 

 

 1,972

 

 

 

1,889

 

Depreciation and amortization

 

 

 1,985

 

 

 

2,174

 

General, administrative and other

 

 

 5,213

 

 

 

5,502

 

Total costs and expenses

 

 

 47,119

 

 

 

44,172

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

 3,500

 

 

 

622

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

Interest expense

 

 

 (403

 

 

(471

)

Other income (expense), net

 

 

 (16

 

 

21

 

Gain on sale and disposal of assets

 

 

 1

 

 

 

736

 

Total other income (expense)

 

 

 (418

 

 

286

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

 3,082

 

 

 

908

 

 

 

 

 

 

 

 

 

 

PROVISION FOR INCOME TAXES

 

 

 

 

 

 

 

 

Provision for income taxes

  

589

   

-

 

Deferred income tax

 

 

 179

 

 

 

93

 

NET INCOME

 

 

 2,314

 

 

 

815

 

         

Net income attributable to noncontrolling interest in BHCMC, LLC

 

 

 (780

)

 

 

(791

)

NET INCOME ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION

 

$

1,534

 

 

$

24

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER COMMON SHARE ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION

 

$

.02

 

 

$

.00

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION

 

 

 63,455,883

 

 

 

62,263,404

 

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS PER COMMON SHARE ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION

 

$

.02

 

 

$

.00

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION

 

 

63,455,883

 

 

 

62,263,404

 

The accompanying notes are an integral part of these consolidated financial statements 


BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED April 30, 2017 AND 20162020 and 2019

(dollars in thousands)

 

 

  

Shares of Common Stock

  

Common Stock

  

Capital Contributed in Excess of Par

  

Shares of Treasury Stock

  

Treasury Stock at Cost

  

Retained Earnings

  

Total S/H Equity BNC

  

Non controlling Interest in BHCMC

  

Total S/H Equity

 

Balance, April 30, 2015

  62,860,098  $628  $13,487   600,000  $(732) $8,161  $21,544  $3,858  $25,402 
                                     

Issuance of stock benefit plan

  1,206,775   12   229   -   -   -   241   -   241 
                                     

BHCMC distribution noncontrolling members

  -   -   -   -   -   -   -   (360)  (360)
                                     

Net Income

  -   -   -   -   -   24   24   791   815 
                                     

Balance, April 30, 2016

  64,066,873   640   13,716   600,000   (732)  8,185   21,809   4,289   26,098 
                                     

Issuance of stock benefit plan

  1,087,264   11   240   -   -   -   251   -   251 
                                     

Stock issued as director fees

  119,759   1   24   -   -   -   25   -   25 
                                     

Stock repurchase

  -   -   -   130,346   (32)  -   (32)  -   (32)
                                     

BHCMC distribution noncontrolling members

  -   -   -   -   -   -   -   (360)  (360)
                                     

Net Income

  -   -   -   -   -   1,534   1,534   780   2,314 
                                     

Balance, April 30, 2017

  65,273,896  $652  $13,980   730,346  $(764) $9,719  $23,587  $4,709  $28,296 

The accompanying notes are an integral part of these consolidated financial statements. 

  Shares of Common Stock  Common Stock  Capital Contributed in Excess of Par  Shares of Treasury Stock  Treasury Stock at Cost  

Retained Earnings

  Total Stock-holders’ Equity BNC  Non controlling Interest in BHCMC  Total Stock-holders’ Equity 

Balance, April 30, 2018

  66,196,854  $662  $14,231   1,453,537  $(951) $10,060  $24,002  $5,264  $29,266 
                                     

Issuance of stock benefit plan

  2,311,268   23   561   -   -   -   584   -   584 
                                     

Stock repurchase

  -   -   -   1,273,514   (436)  -   (436)  -   (436)
                                     
Restricted stock issued  2,500,000   25   925   -   -   -   950   -   950 
                                     
Deferred compensation, restricted stock  -   -   (950)  -   -   -   (950)  -   (950)
                                     

BHCMC distribution noncontrolling members

  -   -   -   -   -   -   -   (720)  (720)
                                     

Net Income

  -   -   -   -   -   3,853   3,853   1,797   5,650 
                                     

Balance, April 30, 2019

  71,008,122   710   14,767   2,727,051   (1,387)  13,913   28,003   6,341   34,344 
                                     

Issuance of stock benefit plan

  1,711,555   17   659   -   -   -   676   -   676 
                                     

Stock repurchase

  -   -   -   594,364   (326)  -   (326)  -   (326)
                                     

Restricted stock issued

  5,000,000   50   1,990   -   -   -   2,040   -   2,040 
                                     

Deferred compensation, restricted stock

  -   -   (1,816)  -   -   -   (1,816)  -   (1,816)
                                     
BHCMC distribution noncontrolling members  -   -   -   -   -   -   -   (360)  (360)
                                     

Net Income

  -   -   -   -   -   4,234   4,234   (988)  3,246 
                                     

Balance, April 30, 2020

  77,719,677  $777  $15,600   3,321,415  $(1,713) $18,147  $32,811  $4,993  $37,804 

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED April 30, 2017 AND 2016

(dollars in thousands)

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

2,314

 

 

$

815

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 3,409

 

 

 

3,761

 

Stock issued for benefit plan

 

 

 251

 

 

 

241

 

Stock issued to directors

  

25

   

-

 

Gain and loss on disposal of assets

 

 

 (1

 

 

(736

)

Deferred income tax expense

 

 

 179

 

 

 

93

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 (2,521

 

 

(630

)

Inventories

 

 

 1106

 

 

 

(926

)

Prepaid expenses and other assets

 

 

 (66

 

 

274

 

Accounts payable

 

 

 (99

 

 

144

 

Customer deposits

 

 

 634

 

 

 

(579

)

Accrued liabilities

 

 

 745

 

 

 

28

 

Gaming facility mandated payment

 

 

 21

 

 

 

(93

)

Other liabilities

 

 

 4

 

 

 

25

 

Net cash provided by operating activities

 

 

 6,001

 

 

 

2,417

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 (3,180

 

 

(2,757

)

Proceeds from sale and disposal of assets

 

 

1

 

 

 

1,008

 

Net cash used in investing activities

 

 

 (3,179

 

 

(1,749

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Borrowings promissory notes, net

 

 

 (1,384

 

 

2,478

 

Borrowings of long-term debt

 

 

 513

 

 

 

941

 

Repayments of long-term debt

 

 

 (2,551

 

 

(2,541

)

Repurchase of common stock

  

(32

)

  

-

 

Distribution to noncontrolling member

 

 

 (360

 

 

(360

)

Net cash provided by (used in ) financing activities

 

 

 (3,814

 

 

518

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

 

 (992

 

 

1,186

 

 

 

 

 

 

 

 

 

 

CASH, beginning of year

 

 

 7,381

 

 

 

6,195

 

 

 

 

 

 

 

 

 

 

CASH, end of year

 

$

6,389

 

 

$

7,381

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Interest paid

 

$

405

 

 

$

471

 

Income taxes paid

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

NON CASH INVESTING AND FINANCING ACTIVITY

 

 

 

 

 

 

 

 

None

 

$

-

 

 

$

-

 

 

The accompanying notes are an integral part of these consolidated financial statements. 

 

 

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED April 30, 2020 and 2019

(dollars in thousands)

  

2020

  

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

        

Net income

 $3,246  $5,650 

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

        

Depreciation and amortization

  6,357   3,376 

Stock issued for benefit plan

  676   584 

Deferred income tax expense (benefit)

  (260)  1,078 
Gain on sale of airplanes  (642)  - 
Deferred compensation, restricted stock  224   - 
         

Changes in operating assets and liabilities

        

Accounts receivable

  481   (158)

Income tax receivable

  27   192 

Inventories

  270   (1,766)

Prepaid expenses and other assets

  26   (668)

Accounts payable

  (812)  (441)

Customer deposits

  (764)  1,362 

Accrued liabilities

  907   225 

Gaming facility mandated payment

  58   61 
Income tax payable  206   - 

Other liabilities

  44   68 

Net cash provided by operating activities

  10,044   9,563 
         

CASH FLOWS FROM INVESTING ACTIVITIES

        

Capital expenditures

  (3,165)  (4,985)
Proceeds from sale of airplanes  1,095   - 

Net cash used in investing activities

  (2,070)  (4,985)
         

CASH FLOWS FROM FINANCING ACTIVITIES

        

Repayments of promissory notes, net

  -   (2,387)

Borrowings of long-term debt

  3,383   2,325 

Repayments of long-term debt

  (1,919)  (1,699)
Reduction of finance lease liability  (973)  - 

Repurchase of common stock

  (326)  (436)

Distribution to noncontrolling member

  (360)  (720)

Net cash used in financing activities

  (195)  (2,917)
         

NET INCREASE IN CASH

  7,779   1,661 
         

CASH, beginning of year

  9,014   7,353 
         

CASH, end of year

 $16,793  $9,014 
         

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

        

Interest paid

 $4,365  $251 

Income taxes paid

 $1,360  $105 
         

NON CASH INVESTING AND FINANCING ACTIVITY

        

Issuance of restricted stock to employees

 $2,040  $950 

Capital asset and lease obligation additions

  42,650   1,699 
  $44,690  $2,649 

The accompanying notes are an integral part of these consolidated financial statements. 

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

1.

NATURE OF OPERATIONS, ORGANIZATIONANDORGANIZATION 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., AVT Corporation, BCS Design, Inc., Butler National Services, 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, Wild West Heritage Foundation, Inc., and a majority owned subsidiary, 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 of airborne switching units used in Boeing McDonnell Douglas aircraft, electronic upgrades for classic weapon control systems used by the military and transient suppression devices for Boeing Classic aircraft.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 is majority-owned and 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. At April 30, 20172020 and 2016,2019, the allowance for doubtful accounts was $112$143 and $81$143, respectively.

 

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 market.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, 20172020 and 2016,2019, the estimate of obsolete inventory was $1,177$685 and $1,161$718 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.

During fiscal 2016 the Company sold one aircraft.  Proceeds from the sale totaled $959.  The company realized a gain of $732 on the sale.

 

e)

Long-Lived Assets: The Company accounts for its long-lived assets in accordance with ASC Topic 360-10, formerly SFAS No. 144 "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, $5,012$5,868 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 $1,457.$914.  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.  There is no assuranceThe State of Kansas approved a renewal management contract and an amendment to the Management Contract renewal.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.

 

 

 

Other assets net values are as follows:

 

(dollars in thousands)

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

Privilege fee

 

$

5,500

 

 

$

5,500

 

Less amortized costs

 

 

 2,256

 

 

 

1,833

 

Privilege fee balance

 

$

3,244

 

 

$

3,667

 

 

 

 

 

 

 

 

 

 

Intangible gaming equipment

 

$

5,012

 

 

$

4,576

 

Less amortized costs

 

 

 3,782

 

 

 

2,974

 

Intangible gaming equipment balance

 

$

1,230

 

 

$

1,602

 

 

 

 

 

 

 

 

 

 

JET autopilot intellectual property

 

$

1,417

 

 

$

1,417

 

Less amortized costs

 

 

 866

 

 

 

772

 

JET autopilot balance

 

$

551

 

 

$

645

 

(dollars in thousands)

 

2020

  

2019

 
         

Privilege fee

 $5,500  $5,500 

Less amortized costs

  3,526   3,103 

Privilege fee balance

 $1,974  $2,397 
         

Intangible gaming equipment

 $5,868  $5,646 

Less amortized costs

  5,480   5,214 

Intangible gaming equipment balance

 $388  $432 
         

JET autopilot intellectual property

 $1,417  $1,417 

Less amortized costs

  1,147   1,053 

JET autopilot intellectual property balance

 $270  $364 

  

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. Consultant costs, as shown below, include costs of engineering, legal and aircraft specialists. STC capitalized costs are as follows:

 

(dollars in thousands)

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

Direct labor

 

$

2,199

 

 

$

2,044

 

Direct materials

 

 

 2,866

 

 

 

2,638

 

Consultant costs

 

 

 1,922

 

 

 

1,922

 

Overhead

 

 

 3,712

 

 

 

3,426

 

 

 

 

 10,699

 

 

 

10,030

 

Less-amortized costs

 

 

 4,345

 

 

 

3,549

 

STC balance

 

$

6,354

 

 

$

6,481

 

(dollars in thousands)

 

2020

  

2019

 
         

Direct labor

 $2,830  $2,670 

Direct materials

  3,961   3,345 

Consultant costs

  1,922   1,922 

Overhead

  4,799   4,524 
   13,512   12,461 

Less-amortized costs

  7,029   6,054 

STC balance

 $6,483  $6,407 

 

h)

Revenue Recognition: Generally,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 perform aircraftexpect 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-pricefixed-priced contracts are recognized on the percentage-of-completion method, measured by the direct labor incurred compared to total estimated direct labor and material costs. Each quarter our management reviews the progress and performance of our significant contracts. Based on this analysis, any adjustment to sales, cost of sales and/or profit is recognized as necessary in the period they are earned. Changes in estimates of contract sales, cost of sales and profits are recognized using a cumulative catch-up, which is recognized in the current period of the cumulative effect of the change on current or prior periods. Revenue for off-the-shelf items and aircraft sales is recognized on the date of sale.labor.

 

Revenue from product sales isAvionics 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 and invoiced. Payments for these service invoices are usually received within 30 days.rendered.

 

In regard toRegarding 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 for.paid.

 

i)

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.

 

j)

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 customer deposits in current liabilities.

  

k)

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 per share data)

 

2017

 

2016

 

(in thousands, except share and per share data)

 

2020

  

2019

 

 

 

 

 

 

        

Net income attributable to Butler National Corporation

 

$

1,534

 

$

24

 

 $4,234  $3,853 

Weighted average common shares outstanding

 

 63,455,883

 

62,263,404

 

  68,622,527   64,511,608 

Dilutive effect of non-qualified stock option plans

 

 -

 

-

 

  -   - 

Weighted average common shares outstanding, assuming dilution

 

 63,455,883

 

62,263,404

 

  68,622,527   64,511,608 

Potential common shares if all options were exercised and shares issued

 

 63,455,883

 

62,263,404

 

  68,622,527   64,511,608 

Basic earnings per common share

 

$

0.02

 

$

0.00

 

 $0.06  $0.06 

Diluted earnings per common share

 

$

0.02

 

$

0.00

 

 $0.06  $0.06 

 

l)

Stock-based Compensation: The Company accounts for stock-based compensation under ASC Topic 505-50, formerly SFAS No. 123R, "Share-Based Payment" and SFAS No. 148,ASC 718, "Accounting for Stock-Based Compensation - Transition and Disclosure - An amendment to SFAS No. 123." These standards define a fair value based method of accounting for stock-based compensation. In accordance with SFAS Nos. 123R and 148, theThe 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.

 

m)

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.

 

n)

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, 20172020 and 2016,2019, we had $2,312$12,509 and $3,546,$5,365, respectively in bank deposits that exceeded the federally insured limits.

 

o)

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.

 

p)

Research and Development: We invested in research and development activities. The amount invested in the year ended April 30, 20172020 and 20162019 was $1,479$2,404 and $1,838$1,888 respectively.

 

q)

Recent Accounting Pronouncements: We do

On May 1, 2019 the Company adopted ASU 2016-02, Leases (Topic 842) using the modified retrospective optional transition method. Thus, the standard was applied starting May 1, 2019  and prior periods were not believe there are anyrestated.  ASU 2016-02 requires that 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 on the balance sheet. See Note 3 for additional information.  

There were other updates recently issued, most of which represented technical corrections to the accounting standards that haveliterature or application to specific industries and are not yet been adopted that willexpected to have a material impact on the Company'sCompany’s financial statements.position, results of operations or cash flows.

 

r)

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.

DEBT:

 

Principal amounts of debt at April 30, 20172020 and 2016,2019, consist of the following (in thousands):

 

Promissory Notes

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

Bank line of credit, available LOC $5.0 million interest at 3.4% due on demand, collateralized by a first and second position on all assets of the Company.

 

 

2,604

 

 

 

3,988

 

 

 

$

2,604

 

 

$

3,988

 

 

 

 

 

 

 

 

 

 

Long-Term Debt

 

 

 

 

 

 

 

 

Note payable, interest at 6% paid off in 2017.

 

 

 -

 

 

 

81

 

 

 

 

 

 

 

 

 

 

Note payable, interest at 6.25% due September 2017 collateralized by Aircraft Security Agreements.

 

 

 46

 

 

 

150

 

 

 

 

 

 

 

 

 

 

Note payable, interest at 5.75% due January 2020 collateralized by Aircraft Security Agreements.

 

 

 412

 

 

 

547

 

 

 

 

 

 

 

 

 

 

Note payable, interest at bank prime (3.36 % at April 30, 2017) due August 2019, collateralized by real estate.

 

 

 128

 

 

 

192

 

 

 

 

 

 

 

 

 

 

Note payable, interest at bank prime (3.36% at April 30, 2017) due March 2019, collateralized by real estate.

 

 

 132

 

 

 

198

 

 

 

 

 

 

 

 

 

 

Note payable, interest at bank prime (2.68% at April 30, 2017) due March 2019, collateralized by real estate.

 

 

 307

 

 

 

468

 

 

 

 

 

 

 

 

 

 

Note payable, interest at 6.25%, due June 2019, collateralized by real estate.

 

 

 276

 

 

 

291

 

 

 

 

 

 

 

 

 

 

Note payable, interest at 4.89% due May 2020, collateralized by all of BNSC's assets and compensation due under the State Management contract.

 

 

 3,560

 

 

 

4,602

 

         

Notes payable, interest at 4.5%, due April 2022, collateralized by equipment.

  

98

   

-

 

 

 

 

 

 

 

 

 

 

Obligations of BHCMC, LLC due December 2017 and March 2018.

 

 

 685

 

 

 

1,150

 

 

 

 

 

 

 

 

 

 

Other notes payable, paid off in 2017.

 

 

 -

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 5,644

 

 

 

7,682

 

Less: Current maturities

 

 

 2,297

 

 

 

2,464

 

 

 

$

3,347

 

 

$

5,218

 

Promissory Notes

 

2020

  

2019

 
         

Bank line of credit, available LOC $5.0 million interest at 3.4% due on demand, collateralized by a first and second position on all assets of the Company.

  -   - 
  $-  $- 
         

Long-Term Debt

        

Note payable, interest at 5.75% paid off in 2020.

 $-  $119 
         

Note payable, interest at 6.25% due January 2023, collateralized by an Aircraft Security Agreement.

  1,706   2,239 
         

Note payable, interest at 6.25%, due June 2024, collateralized by real estate.

  224   241 
         

Note payable, interest at 4.89% due May 2020, collateralized by all of BNSC's assets and compensation due under the State Management contract.

  104   1,313 
         

Notes payable, interest at 4.5%, due April 2022, collateralized by equipment.

  42   63 
         

Note payable, interest at Libor plus 1.75% due March 2029, collateralized by real estate.

  1,426   - 
         

Note payable, interest at Libor plus 1.75% due March 2029 collateralized by real estate.

  654   - 
         

Paycheck Protetction Program loans, these loan advances were received for the aerospace segment. In May 2020 the Company returned these loan proceeds.

  1,283   - 
         
   5,439   3,975 

Less: Current maturities

  2,228   1,899 
  $3,211  $2,076 

  

Maturities of long-term debt are as follows:

 

Year Ending April 30

 

Amount

 

2018

 

$

2,297

 

2019

 

 

1,612

 

2020

 

 

1,589

 

2021

 

 

124

 

2022

 

 

22

 

Thereafter

 

 

-

 

 

 

$

5,644

 

Year Ending April 30

 

Amount

 

2021

 $2,228 

2022

  881 

2023

  790 

2024

  257 

2025

  259 

Thereafter

  1,024 
  $5,439 

3.

FINANCED LEASE RIGHT-TO-USE:

 

On May 1, 2019, the Company adopted ASU 2016-02 Leases – Topic 842. ASU 2016-02 requires that on the balance sheet a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.

We lease the casino as well as hangar and office space with initial lease terms of two, five, twenty-five and fifty years.

  

April 30, 2020

  

April 30, 2019

 

Finance lease right-of-use assets

 $44,349  $1,699 

Less accumulated depreciation

  2,844   11 

Total

 $41,505  $1,688 

Future minimum lease payments for assets under capital leases at April 30, 2020 are as follows:

2021

 $5,236 

2022

  5,242 

2023

  5,287 

2024

  5,341 

2025

  5,267 

Thereafter

  59,618 

Total minimum lease payments

  85,991 

Less amount representing interest

  42,617 

Present value of net minimum lease payments

  43,374 

Less current maturities of finance lease liability

  1,163 

Finance lease liability, net of current maturities

 $42,211 

The adoption of ASU 2016-02 had a negative impact on our financial statements for the year ended April 30, 2020. The impact is summarized below.

Increase in depreciation

 $2,833 

Increase in interest expense

  4,167 

Decrease in rent expense

  (5,150)

Decrease in net income for the year ended April 30, 2020

 $1,850 

Financial and Other Covenants

We are in compliance with our covenants at April 30, 2017.


2020. 

 

3.4.

INCOME TAXES:

 

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, 20172020 and 20162019 are as follows (in thousands):

 

 

 

April 30, 2017

 

 

April 30, 2016

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Depreciation

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Depreciation

 

 

 309

 

 

 

80

 

Accounts receivable allowance

 

 

 43

 

 

 

31

 

Inventory and other allowances

 

 

 467

 

 

 

859

 

Vacation accruals

 

 

 106

 

 

 

93

 

NOL carryforward

 

 

 -

 

 

 

41

 

Total gross deferred tax assets

 

 

 925

 

 

 

1,104

 

Less valuation allowance

 

 

 -

 

 

 

-

 

Net deferred tax assets

 

$

925

 

 

$

1,104

 

  

April 30, 2020

  

April 30, 2019

 

Deferred tax liabilities:

        

Depreciation and amortization

 $(760) $(923)

Deferred compensation, restricted stock

  (196)  (257)

Total deferred tax liabilities

  (956)  (1,180)
         

Deferred tax assets:

        

Accounts receivable allowance

  39   39 

Inventory and other allowances

  185   194 

Vacation accruals

  65   25 

Jackpot reserves

  42   37 

Total deferred tax assets

  331   295 

Less valuation allowance

  -   - 

Net deferred tax liability

 $(625) $(885)

 

The reconciliation of the federal statutory income tax rate to the effective tax rate is as follows:

 

 

 

April 30, 2017

 

 

April 30, 2016

 

Statutory federal income tax rate (benefit) expense, net of noncontrolling interest

 

 

 34.00

%

 

 

34.00

%

State income tax net of federal benefits

 

 

 1.93

%

 

 

0.00

%

Permanent tax

 

 

 1.70

%

 

 

30.70

%

Other

 

 

(4.30

)%

 

 

14.75

%

 

 

 

 33.33

%

 

 

79.45

%

 

 

 

 

 

 

 

 

 

Income tax expense:

 

 

 

 

 

 

 

 

Deferred income tax

 

$

179

 

 

$

93

 

Current income tax

 

 

 589

 

 

 

-

 

Total income tax expense

 

$

768

 

 

$

93

 

  

April 30, 2020

  

April 30, 2019

 

Statutory federal income tax rate expense, net of noncontrolling interest

  21.00%  21.00%

State income tax, net of federal benefits

  5.10%  1.90%

Permanent tax

  1.46%  1.93%

Other

  -3.60%  1.46%
   23.96%  26.29%
         

Income tax expense:

        

Deferred income tax (benefit)

 $(260) $1,078 

Current income tax

  1,594   297 

Total income tax expense

 $1,334  $1,375 

 

Current income tax expense (benefit) of $589$1,594 and $0$297 are comprised of $550$1,151 and $0$170 in federal income tax and $39$443 and $0$127 in state income tax for the years ended April 30, 20172020 and 2016,2019, 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, 20122015 and prior. There are no current tax examinations.

 

4.5.

STOCKHOLDERS' EQUITY:

 

Common Stock Transactions

 

During the year ended April 30, 2017,2020, we issued 1,087,2641,711,555 shares valued at $251$676 as the matchcontribution to the Company 401(k) profit sharing plan.

 

During the year ended April 30, 2016,2019, we issued 1,206,7752,311,268 shares valued at $241$584 as the matchcontribution to the Company 401(k) profit sharing plan.

 

5.6.

STOCK OPTIONS AND INCENTIVE PLANS

At April 30, 2017 we had no outstanding stock options.  There were 7,262,064 outstanding stock options that were issued on December 31, 2010, all of which expired on December 31, 2015.

  

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.

 

For the year ended April 30, 2020 and 2019, the Company expensed $224 and $0, respectively.

6.7.

STOCK REPURCHASE PROGRAM:

 

In December 2016, theThe Board of Directors approved a stock purchase program authorizing the repurchase of up to $500$4,000 of its common stock. The timing and amount of any share repurchases will be determined by Butler National’sNational’s management based on market conditions and other factors. The program is currently authorized through May 1, 2018.2021.

 

The table below provides information with respect to common stock purchases by the Company during the year ended April 30, 2017.2020.

 

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

 
December 2016  0  $0.00   0  $500 

January 2017

  49,920  $0.20   49,920  $490 

April 2017

  80,426  $0.27   80,426  $468 

Total

  130,346  $0.25   130,346     

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

             $500 

Shares purchased in prior periods

  853,537  $0.26   853,537  $281 

Increase in program authorization April 2018 (b)

  -  $-   -  $531 

Quarter ended July 31, 2018 (a)

  25,277  $0.26   25,277  $525 

Quarter ended October 31, 2018 (a)

  480,805  $0.30   480,805  $381 

Quarter ended January 31, 2019 (a)

  186,727  $0.34   186,727  $317 

Quarter ended April 30, 2019 (a)

  580,705  $0.38   580,705  $94 

Increase in program authorization April 2019 (c)

  -  $-   -  $1,569 

Quarter ended July 31, 2019 (a)

  120,821  $0.35   120,821  $1,526 
Increase in program authorization October 2019 (d)  -  $-   -  $3,301 

Quarter ended October 31, 2019 (a)

  206,050  $0.46   206,050  $3,206 

Quarter ended January 31, 2020 (a)

  267,468  $0.70   267,468  $3,019 

Quarter ended April 30, 2020 (a)

  25  $0.41   25  $3,019 

Total

  2,721,415  $0.36   2,721,415     

 

(a)

49,920These shares of common stock purchased were purchased through a private transactiontransactions

(b)

Board of Directors increased program authorization from $500 to $750

(c)

Board of Directors increased program authorization from $750 to $2,225

(d)Board of Directors increased program authorization from $2,225 to $4,000

 

7.8.

COMMITMENTS AND CONTINGENCIES:

Lease and Rent Commitments (in thousands).

We lease and rent space with initial terms of (3) years, (5) years, ten (10) years, and twenty five (25) years. Total rental expense incurred for the years ended April 30, 2017 and 2016 was $5,180 and $5,117 respectively.

Minimum lease and rent agreement commitments under noncancellable operating leases and rental agreements for the next five (5) years are as follows:

Year Ending April 30

 

Amount

 

2018

 

$

5,016

 

2019

 

 

4,929

 

2020

 

 

4,946

 

2021

 

 

4,995

 

2022

 

 

5,037

 

 

 

$

24,923

 

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 the date,July 17, 2020, 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. 

 

8.9.

RELATED-PARTY TRANSACTIONS:

In the normal course of business we purchased business system components of $0 and $3 from ISG, the employer of Bradley Hoffman, a director of Butler National Corporation during fiscal 2017 and 2016 respectively.

 

We paid consulting fees of $135 and $135 to David Hayden, a director of Butler National Corporation in fiscal year ended April 30, 20172020 and 20162019 respectively.

 

Included in accrued liabilities are $389$748 and $301$623 as of April 30, 20172020 and 20162019 respectively for amounts owed to our CEO for accrued compensation.

 

Included in other assets at April 30, 20172020 and 20162019 is $780 owed to us by the noncontrolling company of BHCMC, LLC for costs incurred on their behalf.

 

In fiscal 2017,2020, there were three related-person transactions under the relevant standards: Butler National employed the brother (Wayne Stewart), son (Craig Stewart) and son-in-law (Jeff Shinkle) of Clark D. Stewart, an executive officer, as an engineer, Vice President, and an architect. 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 $225, $295$533, $743 and $188,$282, respectively, for fiscal 20172020 and $225, $292,$370, $475 and $188,$237, respectively, for fiscal 2016.2019.

 

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.

 

9.10.

401(k) SAVINGSPROFIT 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%6 percent of the employee's salary.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 the market price of the stock contributed in 20172020 and 20162019 was approximately $251$676 and $241$584 respectively. 

 

10.11.

REFUND OF SALES/USE TAX:

On December 29, 2017, BHCMC, received a ruling from the Kansas Supreme Court in the Matter of the Appeal of BHCMC, LLC d/b/a Boot Hill Casino & Resort, concerning the request for refund for sales/use taxes paid for slot machines owned by the Kansas Lottery. The Kansas Department of Revenue appealed from a Board of Tax Appeals summary decision granting a compensating use tax refund to BHCMC. The Kansas Supreme Court addressed “whether such a tax can be imposed on Boot Hill (BHCMC) for electronic gaming machines it does not—and, under the law and its management agreement with Kansas Lottery, cannot—own”. The Court ruled that “Boot Hill did not exercise a right or power incident to ownership of personal property in order to be subject to a compensating use tax for that property.” Because BHCMC has not exercised such a power or right, the Court affirmed Board of Tax Appeals' refund decision and the ruling of the Kansas Court of Appeals panel decision. Management makes no assurances related to collection of, or the timeliness of, any actions realizing any direct monetary effects, if any, of the ruling. Therefore, the Company accounted for these sales tax refunds as other income when payment was received from the State of Kansas. The amount of refunds received from the State in 2020 and 2019 amounted to $0 and $1,995, respectively. No additional claim or refunds is anticipated.

12.

INDUSTRY SEGMENTATION 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").

 

Avionics principally includes the manufacture, sale, and service of airborne electronic switching units used in DC-9, DC-10, DC-9/80, MD-80, MD-90, and the KC-10 aircraft, Transient Suppression Devices (TSDs) for fuel tank protection on Boeing Classic 737 and 747 aircraft, and other Classic aircraft using a capacitance fuel quantity indicating system ("FQIS"), airborne electronics upgrades for classic weapon control systems used on military aircraft and vehicles, and consulting services with airlines and equipment manufacturers regarding fuel system safety requirements.vehicles. We provide the products through our subsidiary, Butler National Corporation - Tempe, Arizona and the services through Butler National Corporation - Olathe, Kansas ("Avionics", "Classic Aviation Products", "Safety Products", or "Switching Units").

 

Butler Avionics sells, installs and repairs 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.

 

Butler National Service Corporation ("BNSC") provides management services to the Boot Hill Casino, a "state-owned casino" and to The Stables, an "Indian-owned casino". 

 

Year ended April 30, 2017

 

Professional

Services

 

Aerospace

Products

 

Consolidated

 

Year Ended April 30, 2020

 Professional Services  Aerospace Products  

Consolidated

 

Total revenues

 

$

30,849

 

$

19,770

 

$

50,619

 

 $28,283  $37,588  $65,871 

Depreciation and amortization

 

 1,423

 

 562

 

 1,985

 

  3,740   1,376   5,116 

Operating income

 

 1,622

 

 1,878

 

 3,500

 

  1,265   7,041   8,306 

Capital expenditures, net

 

2,296

 

 884

 

 3,180

 

  1,269   1,896   3,165 

Interest expense

 

-

 

-

 

(403

  -   -   (4,368)

Other income (expense)

 

-

 

-

 

 (16

Gain on sale of airplanes

  -   -   642 

Income before taxes

 

-

 

-

 

3,082

 

  -   -   4,580 

Income tax expense

 

-

 

-

 

 768

 

  -   -   1,334 

Net income attributable to Butler National Corporation

 

-

 

-

 

 1,534

 

  -   -   4,234 

Identifiable assets, net

 

21,863

 

20,915

 

 42,778

 

  59,114   35,804   94,918 

 

 

Year ended April 30, 2016

 

Professional

Services

 

 

Aerospace

Products

 

 

Consolidated

 

Total revenues

 

$

29,784

 

 

$

15,010

 

 

$

44,794

 

Depreciation and amortization

 

 

1,390

 

 

 

784

 

 

 

2,174

 

Operating income (loss)

 

 

1,597

 

 

 

(975

)

 

 

622

 

Capital expenditures, net

 

 

1,183

 

 

 

1,574

 

 

 

2,757

 

Interest expense

 

 

-

 

 

 

-

 

 

 

(471

)

Other income (expense)

 

 

-

 

 

 

-

 

 

 

21

 

Income before taxes

 

 

-

 

 

 

-

 

 

 

908

 

Income tax expense

 

 

-

 

 

 

-

 

 

 

93

 

Net income attributable to Butler National Corporation

 

 

-

 

 

 

-

 

 

 

24

 

Identifiable assets, net

 

 

22,462

 

 

 

20,235

 

 

 

42,697

 

Year Ended April 30, 2019

 Professional Services  Aerospace Products  

Consolidated

 

Total revenues

 $32,017  $26,693  $58,710 

Depreciation and amortization

  1,068   778   1,846 

Operating income

  1,480   3,798   5,278 

Capital expenditures, net

  1,023   3,962   4,985 

Interest expense

  -   -   (248)

Other income (expense)

  -   -   1,995 

Income before taxes

  -   -   7,025 

Income tax expense

  -   -   1,375 

Net income attributable to Butler National Corporation

  -   -   3,853 

Identifiable assets, net

  22,432   26,470   48,902 

 

 

Major Customers: Revenue from major customers (10 percent or more of consolidated revenue) were as follows:

 

  

2017

  

2016

 

Aerospace Products – one customer

  10.5%  N/A * 

Professional Services

  N/A *   N/A * 

*Revenue represented less than 10% of consolidated revenue.

  

2020

  

2019

 

Aerospace Products – two customers in 2020, one customer in 2019

  32.6%  15.1%

Professional Services

  -   - 

 

In fiscal 20172020 the Company derived 25.2%37.3% of total salesrevenue from five Aerospace customers. The top customer provided 10.5%21.2% of total salesrevenue while the next top four customers ranged from 0.9%1.3% to 9.2%11.4%

 

11.13.

FAIR VALUE MEASUREMENTS:

 

The Company adopted ASC Topic 820-10 at the beginning of 2009 to measure the fair value of certain of its financial assets required to be measured on a recurring basis. The adoption of ASC Topic 820-10 did not impact the Company's financial condition or results of operations. ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:

 

Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

 

Level 2 - Valuations based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

 

Level 3 - Valuations based on inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability.

 

The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis as of April 30, 20172020 (in thousands):

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Promissory notes

 

$

-

 

 

$

-

 

 

$

2,604

 

 

$

2,604

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 5,644

 

 

 

 5,644

 

 

 

$

-

 

 

$

-

 

 

$

8,248

 

 

$

8,248

 

  

Level 1

  

Level 2

  

Level 3

  

Fair Value

 

Long-term debt

 $-  $-  $5,439  $5,439 
  $-  $-  $5,439  $5,439 

 

The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis as of April 30, 20162019 (in thousands):

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Promissory notes

 

$

-

 

 

$

-

 

 

$

3,988

 

 

$

3,988

 

Long-term debt

 

 

-

 

 

 

-

 

 

 

7,682

 

 

 

7,682

 

 

 

$

-

 

 

$

-

 

 

$

11,670

 

 

$

11,670

 

 

  

Level 1

  

Level 2

  

Level 3

  

Fair Value

 

Long-term debt

 $-  $-  $3,975  $3,975 
  $-  $-  $3,975  $3,975 

12.14.

SUBSEQUENT EVENTS:

In April, 2020, the Company received two Paycheck Protection Program loans relating to the aerospace segment totaling $1,283. In May 2020, the Company, based on changes to eligibility guidance, returned these loan proceeds.

In May 2020, the Company received a Paycheck Protection Program loan relating to the professional service segment, specifically the casino operations, for $2,001. The Boot Hill Casino and Resort was forced to close for approximately two months. The proceeds of this loan were used to continue paying employees of the casino.

 

The Company evaluated its April 30, 20172020 consolidated financial statements for subsequent events through July 21, 2017,17, 2020, 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. 

45