BUTLER NATIONAL: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)


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THROUGHOUT THIS POINT 2 ALL NON-TABULAR FINANCIAL RESULTS ARE PRESENTED IN THOUSANDS OF we DOLLARS EXCEPT O MILLIONS OF DOLLARS ARE INDICATED.


Forward-Looking Statements



Statements made in this report, other reports and proxy statements filed with
the Securities and Exchange Commission, communications to stockholders, press
releases, and oral statements made by representatives of the Company that are
not historical in nature, or that state the Company or management intentions,
hopes, beliefs, expectations or predictions of the future, may constitute
"forward-looking statements" within the meaning of Section 21E of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking
statements can often be identified by the use of forward-looking terminology,
such as "could," "should," "will," "intended," "continue," "believe," "may,"
"expect," "hope," "anticipate," "goal," "forecast," "plan," "guidance" or
"estimate" or the negative of these words, variations thereof or similar
expressions. Forward-looking statements are not guarantees of future performance
or results. They involve risks, uncertainties, and assumptions. It is important
to note that any such performance and actual results, financial condition or
business, could differ materially from those expressed in such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in Item 1A (Risk Factors) of the Annual
Report on Form 10-K for the fiscal year ended April 30, 2020, and elsewhere
herein or in other reports filed with the SEC. Other unforeseen factors not
identified herein could also have such an effect. We undertake no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes in future operating results,
financial condition or business over time.



The forward-looking statements in this report are only predictions and actual
events or results may differ materially. In evaluating such statements, a number
of risks, uncertainties and other factors could cause actual results,
performance, financial condition, cash flows, prospects and opportunities to
differ materially from those expressed in, or implied by, the forward-looking
statements. These risks, uncertainties and other factors include those set forth
in Item 1A (Risk Factors) of the Annual Report on Form 10-K for the fiscal year
ended April 30, 2020, including the following factors:



  ? extensive regulation across our industries;


  ? evolving government regulations and law;


  ? the geographic location of our casino;


  ? customer concentration risk;

? risks associated with the potential acquisition of land at Boot Hill

    Casino;


  ? industrial business cycles;


  ? market competition;


  ? marketability restrictions of our common stock;


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


  ? the possibility 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 energy costs;


  ? fixed-price contracts;


  ? development, production, testing and marketing of new products;


  ? the stability of credit markets;


  ? cyber-security threats;


  ? acts of terrorism and war;


  ? inclement weather and natural disasters;


  ? pandemics or other national health crisis;
  ? loss of key personnel;


  ? risks associated with international sales;


  ? future acquisitions and investments;


  ? change of control restrictions;


  ? potential impairment losses;


  ? extensive taxation;




Except as expressly required by the federal securities laws, the Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise
after the date of this report. Results of operations in any past period should
not be considered indicative of the results to be expected for future periods.
Fluctuations in operating results may also result in fluctuations in the price
of the Company's common stock.



Investors should also be aware that while the Company, from time to time,
communicates with securities analysts; it is against its policy to disclose any
material non-public information or other confidential commercial information.
Accordingly, shareholders should not assume that the Company agrees with any
statement or report issued by any analyst irrespective of the content of the
statement or report. Furthermore, the Company has a policy against issuing or
confirming financial forecasts or projections issued by others. Thus, to the
extent that reports issued by securities analysts contain any projections,
forecasts or opinions, such reports are not the responsibility of Butler
National Corporation.



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Management Overview



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



We have two separate reporting segments: Aerospace Products and Professional
Services. Aerospace Products and Professional Services do not share the same
customers and suppliers and have substantially distinct businesses. The
Aerospace Products operating segment provides products and services in the
aerospace industry. Companies in Aerospace Products derive their revenue from
system design, engineering, manufacturing, integration, installation, repairing,
overhauling, servicing and distribution of aerostructures, avionics, aircraft
components, accessories, subassemblies and systems. The Professional Services
operating segment provides services in the gaming industry. Professional
Services companies manage a gaming and entertainment facility and provide
architectural and engineering services. These reporting segments operate through
various subsidiaries and affiliates listed in the Company's fiscal year 2020
Annual Report on Form 10-K.



Aerospace Products. The Aerospace Products segment includes the manufacture,
sale and service of electronic equipment and systems and technologies to enhance
and support products related to aircraft. Additionally, we also operate several
Federal Aviation Administration (the "FAA") Repair Stations. Companies in
Aerospace Products concentrate on Learjet, Beechcraft King Air, Cessna turbine
engine, Cessna multi-engine piston and Dassault Falcon 20 aircraft.
Specifically, the design, distribution and support for products for older
aircraft, or "Classic" aircraft are areas of focus for companies in Aerospace
Products.


Some products. The products that the companies in this group design, design, manufacture, integrate, install, repair and maintain:



? Aerial surveillance products            ? GARMIN GTN Global Position 

System

                                            Navigator with Communication
                                            Transceiver

? Aerodynamic improvement products? JET 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                 ? Replacement vertical accelerometers
  configurations to cargo

? Cargo/sensor carrying pods              ? Provisions for external stores

? Electronic navigation instruments,? Attitude heading reference systems

  radios and transponders




Modifications. The companies in Aerospace Products have authority pursuant to
Federal Aviation Administration Supplemental Type Certificates ("STCs") and
Parts Manufacturer Approval ("PMA"), to build required parts and subassemblies
and to make applicable installations. Companies in Aerospace Products perform
modifications in the aviation industry including:



? Aerial photography skills? Extended tip fuel tanks

? Aerodynamic improvements                ? Radar systems

? Avionics systems                        ? ISR - Intelligence Surveillance
                                            Reconnaissance

? Cargo doors                             ? Special mission modifications

? Conversion from passenger to            ? Stability enhancements
  freighter configuration

? Extended doors                          ? Traffic collision avoidance systems




Special Mission Electronics. We supply defense-related, commercial off-the-shelf
products to various commercial entities and government agencies and
subcontractors in order to update or extend the useful life of aircraft with
older components and technology. These products include:



? Cabling                                 ? HangFire Override Modules

? Electronic control systems              ? Test equipment

? Gun Control Units for Apache and        ? Gun Control Units for land and sea
  Blackhawk helicopters                     based military vehicles




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Professional Services. The Professional Services segment includes the management
of a gaming facility and related dining and entertainment facilities in Dodge
City, Kansas. Boot Hill Casino and Resort features approximately 645 slot
machines and 20 table games. Due to COVID-19, Boot Hill Casino and Resort
currently operates 412 slot machines and 16 table games. Companies in
Professional Services also provide licensed architectural services, including
commercial and industrial building design, and engineering services.



Boot Hill. Butler National Service Corporation ("BNSC"), via BHCMC, LLC
("BHCMC"), a company in Professional Services, has managed The Boot Hill Casino
and Resort in Dodge City, Kansas ("Boot Hill") since 2009 pursuant to the
Lottery Gaming Facility Management Contract, by and among BNSC, BHCMC and the
Kansas Lottery, originally dated December 8, 2009, as subsequently amended
("Boot Hill Agreement"). As required by Kansas law, all games, gaming equipment
and gaming operations at Boot Hill are owned and operated by the Kansas Lottery.



Architectural and engineering services. Professional service firms provide architectural services, including commercial and industrial building design and licensed engineering services.


COVID-19 Overview



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



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


We have also put in place the procedures and support necessary to enable a significant portion of our Olathe headquarters staff 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, 2020, with reduced hours to allow for extra time for
cleaning and sanitizing in accordance with CDC guidelines and a limited number
of games and food offerings. While we have returned to normal hours, we are
continuing to emphasize social distancing throughout the casino. 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
COVID-19 that adversely affects our business.



BHCMC, LLC, a subsidiary in the professional services segment, received a loan
in the principal amount of $2.0 million (the "SBA Loan") under the Paycheck
Protection Program ("PPP"), which was established under the Coronavirus Aid,
Relief, and Economic Security Act (the "CARES Act"). The intent and purpose of
the PPP is to support 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 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 fourth quarter of fiscal 2020 and continues to impact us in
fiscal 2021. We face numerous uncertainties in estimating the direct and
indirect effects on our present and future business operations, financial
condition, results of operations, and liquidity. Due to several rapidly changing
variables related to the COVID-19 pandemic, we cannot reasonably estimate
future economic trends and the timing of when stability will return.



Results Overview



The nine months ended January 31, 2021 revenue decreased 18% to $43.6 million
compared to $53.3 million in the nine months ended January 31, 2020. In the nine
months ended January 31, 2021 the professional services revenue was
$20.9 million compared to $24.2 million in the nine months ended January 31,
2020, a decrease of 14%. In the nine months ended January 31, 2021 the Aerospace
Products revenue was $22.7 million compared to $29.1 million in the nine months
ended January 31, 2020, a decrease of 22%.



The nine months ended January 31, 2021 net income decreased to $809 compared to
a net income of $5.6 million in the nine months ended January 31, 2020.  The
nine months ended January 31, 2021, operating income decreased to $3.7 million
from an operating income of $10.6 million in the nine months ended January 31,
2020.





RESULTS OF OPERATIONS



nine months ended January 31, 2021 COMPARED TO nine months ended January 31,
2020



                                     Nine Months                          Nine Months
                                    Ended January       Percent of      

Completed in January Percentage change in percentage (dollars in thousands)

                31, 2021        Total Revenue        31, 2020        Total Revenue        2020-2021
Revenue:
Professional Services               $      20,901                 48 %   $      24,186                 45 %              -14 %
Aerospace Products                         22,671                 52 %          29,068                 55 %              -22 %
Total revenue                              43,572                100 %          53,254                100 %              -18 %

Costs and expenses:
Costs of Professional Services             10,313                 24 %          11,886                 22 %              -13 %
Cost of Aerospace Products                 16,504                 38 %          16,839                 32 %               -2 %
Marketing and advertising                   2,723                  6 %           3,122                  6 %              -13 %
Employee benefits                           1,696                  4 %           1,666                  3 %                2 %
Depreciation and amortization               3,664                  8 %           3,832                  7 %               -4 %
General, administrative and other           4,989                 12 %           5,273                 10 %               -5 %
Total costs and expenses                   39,889                 92 %          42,618                 80 %               -6 %
Operating income                    $       3,683                  8 %   $      10,636                 20 %              -65 %


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Revenue:



Revenue decreased 18% to $43.6 million in the nine months ended January 31,
2021, compared to $53.3 million in the nine months ended January 31, 2020. See
"Operations by Segment" below for a discussion of the primary reasons for the
decrease 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 support services in architecture, engineering and management.

Professional services revenue fell 14% for nine months

To $ 20.9 million To January 31, 2021 compared to $ 24.2 million in the

         nine months ended January 31, 2020.




    ?    Aerospace Products derives its revenue by designing, engineering,

manufacture, installation, maintenance and repair of conventional products

and current production aircraft. Aerospace products

revenue decreased by 22% for the nine months to $ 22.7 million in January

31 2021 compared to $ 29.1 million in the nine months ended January 31,

         2020.




Costs and expenses:



Costs and expenses related to Professional Services and Aerospace Products
include the cost of engineering, labor, materials, equipment utilization,
control systems, security and occupancy. Costs and expenses decreased 6% in the
nine months ended January 31, 2021 to $39.9 million compared to $42.6 million in
the nine months ended January 31, 2020. Costs and expenses were 92% of total
revenue in the nine months ended January 31, 2021, as compared to 80% of total
revenue in the nine months ended January 31, 2020.



Costs of Professional Services decreased 13% in the nine months ended January
31, 2021 to $10.3 million compared to $11.9 million in the nine months ended
January 31, 2020. Costs were 24% of total revenue in the nine months ended
January 31, 2021, as compared to 22% of total revenue in the nine months ended
January 31, 2020.



Costs of Aerospace Products decreased 2% in the nine months ended January 31,
2021 to $16.5 million compared to $16.8 million for the nine months ended
January 31, 2020. Costs were 38% of total revenue in the nine months ended
January 31, 2021, as compared to 32% of total revenue in the nine months ended
January 31, 2020.



Marketing and advertising expenses decreased by 13% in the nine months ended
January 31, 2021, to $2.7 million compared to $3.1 million in the nine months
ended January 31, 2020. Expenses were 6% of total revenue in the nine months
ended January 31, 2021, as compared to 6% of total revenue in the nine months
ended January 31, 2020. Marketing and advertising expenses include advertising,
sales and marketing labor, gaming development costs, and casino and product
promotions.



Employee benefits expenses as a percent of total revenue was 4% in the nine
months ended January 31, 2021, compared to 3% in the nine months ended January
31, 2020. These expenses increased to $1.7 million in the nine months ended
January 31, 2021, from $1.7 million in the nine months ended January 31, 2020.
These expenses include the employers' share of all federal, state and local
taxes, paid time off for vacation, holidays and illness, employee health and
life insurance programs and employer matching contributions to retirement plans.



Depreciation and amortization expenses as a percent of total revenue was 8% in
the nine months ended January 31, 2021, compared to 7% in the nine months ended
January 31, 2020. These expenses decreased 4% to $3.7 million in the nine months
ended January 31, 2021, from $3.8 million in the nine months ended January 31,
2020. These expenses include depreciation related to owned assets being
depreciated over various useful lives and amortization of intangible items
including the Kansas privilege fee related to the Boot Hill Casino being
expensed over the initial term of the gaming contract with the State of Kansas.
BHCMC, LLC depreciation and amortization expense for the nine months ended
January 31, 2021 was $2.5 million compared to $2.8 million in the nine months
ended January 31, 2020.



General, administrative and other expenses as a percent of total revenue was 12%
in the nine months ended January 31, 2021, compared to 10% in the nine months
ended January 31, 2020. These expenses decreased 5% to $5.0 million in the nine
months ended January 31, 2021, from $5.3 million in the nine months ended
January 31, 2020.



Other income (expense):



Interest expense and other income were ($2.4) million in the nine months ended
January 31, 2021, compared with interest expense and other income of ($2.7)
million in the nine months ended January 31, 2020.  Interest related to
obligations of BHCMC, LLC was ($2.2) million in the nine months ended January
31, 2021 compared to ($3.0) million in the nine months ended January 31, 2020.



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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 information on our operating segments for the nine-month period ended. January 31, 2021 and January 31, 2020:


                                   Nine Months                          Nine Months
                                  Ended January       Percent of      

Completed in January Percentage change in percentage (dollars in thousands)

              31, 2021        Total Revenue        31, 2020        Total Revenue        2020-2021
Professional Services
Revenue
Boot Hill Casino                  $      20,706                 99 %   $      24,010                 99 %              -14 %

Management / Professional

Services                                    195                  1 %             176                  1 %               11 %
Revenue                                  20,901                100 %          24,186                100 %              -14 %

Costs of Professional Services           10,313                 49 %          11,886                 49 %              -13 %
Expenses                                  8,138                 39 %           8,789                 36 %               -7 %
Total costs and expenses                 18,451                 88 %          20,675                 85 %              -11 %
Professional Services operating
income before noncontrolling
interest in BHCMC, LLC            $       2,450                 12 %   $       3,511                 15 %              -30 %




                                       Nine Months                          Nine Months
                                      Ended January       Percent of      

Completed in January Percentage change in percentage (dollars in thousands)

                  31, 2021        Total Revenue        31, 2020        Total Revenue        2020-2021
Aerospace Products
Revenue                               $      22,671                100 %   $      29,068                100 %              -22 %

Costs of Aerospace Products                  16,504                 73 %          16,839                 58 %               -2 %
Expenses                                      4,934                 22 %           5,104                 17 %               -3 %
Total costs and expenses                     21,438                 95 %          21,943                 75 %               -2 %

Aerospace Products operating income   $       1,233                  5 %   $       7,125                 25 %              -83 %




Professional Services



    ?    Revenue from Professional Services decreased 14% for the nine months
         ended January 31, 2021 to $20.9 million compared to $24.2 million for
         the nine months ended January 31, 2020. The decrease resulted from Boot

Hill Casino & Resort to be forced to close March 18, 2020 until May

21, 2020 due to COVID-19.

During the nine months ended January 31, 2021 Boot Hill Casino has received

gross receipts from Kansas State of $ 27.4 million compared

To $ 30.6 million for the nine months ended January 31, 2020. Mandated

fees, taxes and distributions reduced gross revenue by $ 8.8 million

resulting in gambling revenues of $ 18.6 million for the nine months ended

January 31, 2021, compared to a reduction in gross receipts of $ 9.8

millions resulting in gaming revenue of $ 20.8 million for the nine months

         ended January 31, 2020.  Non-gaming revenue at Boot Hill
         Casino decreased to $2.1 million for the nine months ended January 31,
         2021, compared to $3.2 million for the nine months ended January 31,
         2020.

The remainder of management and professional services revenue includes

professional management services in the gaming industry, and licensed

architectural services. Revenue from Professional Services excluding Boot

Casino de la Colline increased by 11% for $ 195 for the nine months ended January 31,

         2021, compared to $176 for the nine months ended January 31, 2020.




    ?    Costs of Professional Services decreased in the nine months ended
         January 31, 2021 to $10.3 million compared to $11.9 million in the nine

months ended January 31, 2020. Costs represented 49% of total segment revenue

in the nine months ended January 31, 2021, compared to 49% of the segment

         total revenue in the nine months ended January 31, 2020.



? Spending Decreased 7% in the Nine Months Ended January 31, 2021 To $ 8.1

million compared to $ 8.8 million in the nine months ended January 31,

2020. Spend represented 39% of total segment revenue in the nine months

ended January 31, 2021, compared to 36% of total segment sales in

         the nine months ended January 31, 2020.




Aerospace Products



? Turnover decreased by 22% to $ 22.7 million during the nine months ended in January

31 2021, compared to $ 29.1 million in the nine months ended January 31,

2020. The decrease in turnover is mainly due to a decrease in avionics

         business of $7.2 million and an increase in aircraft modification
         business of $816.



    ?    Costs of Aerospace Products decreased by 2% in the nine months ended

January 31, 2021 To $ 16.5 million compared to $ 16.8 million for the nine

months ended January 31, 2020. Costs represented 73% of total segment revenue

in the nine months ended January 31, 2021, compared to 58% of the segment

         total revenue in the nine months ended January 31, 2020.



? Spending Decreased 3% in the Nine Months Ended January 31, 2021 To $ 4.9

million compared to $ 5.1 million in the nine months ended January 31,

2020. Spend represented 22% of total segment revenue in the nine months

ended January 31, 2021, compared to 17% of total segment sales in

         the nine months ended January 31, 2020.




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THIRD QUARTER FISCAL 2021 COMPARED TO THIRD QUARTER 2021


                                    Three Months                         Three Months
                                    Ended January       Percent of      

Completed in January Percentage change in percentage (dollars in thousands)

                31, 2021        Total Revenue        31, 2020        Total Revenue        2020-2021
Revenue:
Professional Services               $       7,901                 54 %   $       7,962                 47 %               -1 %
Aerospace Products                          6,711                 46 %           8,838                 53 %              -24 %
Total revenue                              14,612                100 %          16,800                100 %              -13 %

Costs and expenses:
Costs of Professional Services              3,485                 24 %           4,030                 24 %              -14 %
Cost of Aerospace Products                  4,717                 32 %           5,307                 31 %              -11 %
Marketing and advertising                     877                  6 %             983                  6 %              -11 %
Employee benefits                             546                  4 %             592                  4 %               -8 %
Depreciation and amortization               1,020                  7 %           1,316                  8 %              -22 %
General, administrative and other           2,099                 14 %           1,684                 10 %               25 %
Total costs and expenses                   12,744                 87 %          13,912                 83 %               -8 %
Operating income                    $       1,868                 13 %   $       2,888                 17 %              -35 %




Revenue:



Revenue decreased 13% to $14.6 million in the three months ended January 31,
2021, compared to $16.8 million in the three months ended January 31, 2020. See
"Operations by Segment" below for a discussion of the primary reasons for the
decrease in revenue.


? Professional services derive their income (a) from professional management

services in the gaming industry through National Butler Service Company

(“BNSC”) and BHCMC, LLC (“BHCMC”), and (b) professional architects,

engineering and management support services. Professional turnover

Services decreased by 1% for the three months to $ 7.9 million To January 31, 2021

    compared to $8.0 million at January 31, 2020.




  ? Aerospace Products derives its revenue by designing, engineering,

the manufacture, installation, maintenance and repair of conventional products and

current production aircraft. Aerospace Products revenue decreased 24% for the

three months at $ 6.7 million To January 31, 2021 compared to $ 8.8 million To

    January 31, 2020.




Costs and expenses:



Costs and expenses related to Professional Services and Aerospace Products
include the cost of engineering, labor, materials, equipment utilization,
control systems, security and occupancy. Costs and expenses decreased 8% in the
three months ended January 31, 2021 to $12.7 million compared to $13.9 million
in the three months ended January 31, 2020. Costs and expenses were 87% of total
revenue in the three months ended January 31, 2021, as compared to 83% of total
revenue in the three months ended January 31, 2020.



Costs of Professional Services decreased 14% in the three months ended January
31, 2021 to $3.5 million compared to $4.0 million in the three months ended
January 31, 2020. Costs were 24% of total revenue in the three months ended
January 31, 2021, as compared to 24% of total revenue in the three months ended
January 31, 2020.



Costs of Aerospace Products decreased 11% in the three months ended January 31,
2021 to $4.7 million compared to $5.3 million for the three months ended January
31, 2020. Costs were 32% of total revenue in the three months ended January 31,
2021, as compared to 31% of total revenue in the three months ended January 31,
2020.



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Marketing and advertising expenses decreased 11% in the three months ended
January 31, 2021, to $877 compared to $1.0 million in the three months ended
January 31, 2020. Expenses were 6% of total revenue in the three months ended
January 31, 2021, as compared to 6% of total revenue in the three months ended
January 31, 2020. Marketing and advertising expenses include advertising, sales
and marketing labor, gaming development costs, and casino and product
promotions.



Employee benefits expenses as a percent of total revenue was 4% in the three
months ended January 31, 2021, compared to 4% in the three months ended January
31, 2020. These expenses decreased 8% to $546 in the three months ended January
31, 2021, from $592 in the three months ended January 31, 2020. These expenses
include the employers' share of all federal, state and local taxes, paid time
off for vacation, holidays and illness, employee health and life insurance
programs and employer matching contributions to retirement plans.



Depreciation and amortization expenses as a percent of total revenue was 7% in
the three months ended January 31, 2021, compared to 8% in the three months
ended January 31, 2020. These expenses decreased 22% to $1.0 million in the
three months ended January 31, 2021 from $1.3 million in the three months ended
January 31, 2020. These expenses include depreciation related to owned assets
being depreciated over various useful lives and amortization of intangible items
including the Kansas privilege fee related to the Boot Hill Casino being
expensed over the initial term of the gaming contract with the State of Kansas.
BHCMC, LLC depreciation and amortization expense for the three months ended
January 31, 2021 was $615 compared to $935 in the three months ended January 31,
2020.



General, administrative and other expenses as a percent of total revenue was
14% in the three months ended January 31, 2021, compared to 10% in the three
months ended January 31, 2020. These expenses increased 25% to $2.1 million in
the three months ended January 31, 2021, from $1.7 million in the three months
ended January 31, 2020.



Other expense:



Interest expense was $758 in the three months ended January 31, 2021, compared
with interest expense of $1.1 million in the three months ended January 31,
2020. Interest related to obligations of BHCMC, LLC was $679 in the three months
ended January 31, 2021 compared to $1.0 million in the three months ended
January 31, 2020.



Operations by Segment



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



The following table presents a summary of our segment information for the three months ended. January 31, 2021 and January 31, 2020:


                                   Three Months                          Three Months
                                  Ended January        Percent of      

Completed in January Percentage change in percentage (dollars in thousands)

               31, 2021        Total Revenue         31, 2020        Total Revenue        2020-2021
Professional Services
Revenue
Boot Hill Casino                  $        7,843                 99 %   $        7,898                 99 %               -1 %
Management/Professional
Services                                      58                  1 %               64                  1 %               -9 %
Revenue                                    7,901                100 %            7,962                100 %               -1 %

Costs of Professional Services             3,485                 44 %            4,030                 51 %              -14 %
Expenses                                   2,692                 34 %            2,861                 36 %               -6 %
Total costs and expenses                   6,177                 78 %            6,891                 87 %              -10 %
Professional Services operating
income (loss) before
noncontrolling interest in
BHCMC, LLC                        $        1,724                 22 %   $        1,071                 13 %               61 %




                                       Three Months                          Three Months
                                      Ended January        Percent of      

Completed in January Percentage change in percentage (dollars in thousands)

                   31, 2021        Total Revenue         31, 2020        Total Revenue        2020-2021
Aerospace Products
Revenue                               $        6,711                100 %   $        8,838                100 %              -24 %

Costs of Aerospace Products                    4,717                 70 %            5,307                 60 %              -11 %
Expenses                                       1,850                 28 %            1,714                 19 %                8 %
Total costs and expenses                       6,567                 98 %            7,021                 79 %               -6 %

Aerospace Products operating income   $          144                  2 %   $        1,817                 21 %              -92 %




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  Table of Contents



Professional Services


? Professional Services revenue decreased 1% for the three months ended

January 31, 2021 To $ 7.9 million compared to $ 8.0 million for the three months

ended January 31, 2020. The decrease is attributable to less than Boot Hill Casino &

Visits to resort guests due to COVID-19.

During the three months ended January 31, 2021 Boot Hill Casino gross receipt

received for the Kansas State of $ 10.3 million compared to $ 10.1 million

for the three months ended January 31, 2020. Mandatory fees, taxes and

distributions reduced gross receipts by $ 3.3 million resulting in a game

income from $ 7.0 million for the three months ended January 31, 2021, compared

to a reduction in gross revenue of $ 3.3 million resulting in gaming revenue

of $ 6.8 million for the three months ended January 31, 2020. No game

income to Boot Hill Casino decreased to $ 842 for the three months ended

January 31, 2021, compared to $ 1.1 million for the three months ending in January

    31, 2020.

    The remaining management and Professional Services revenue includes
    professional management services in the gaming industry, and licensed

architectural services. Revenue from Professional Services excluding Boot Hill

    Casino decreased 9% to $58 for the three months ended January 31, 2021,
    compared to $64 for the three months ended January 31, 2020.



? Professional services costs fell 14% in the quarter ended in January

31 2021 to $ 3.5 million compared to $ 4.0 million during the three months ended

January 31, 2020. Costs represented 44% of total segment revenue in the three months

ended January 31, 2021, compared to 51% of total segment sales in the

    three months ended January 31, 2020.




  ? Expenses decreased 6% in the three months ended January 31, 2021 to

$ 2.7 million compared to $ 2.9 million during the three months ended January 31,

2020. Spending represented 34% of total segment revenue for the three months ended

January 31, 2021, compared to 36% of total segment sales in the three

    months ended January 31, 2020.




Aerospace Products



? Turnover decreased by 24% to $ 6.7 million during the three months ended January 31,

2021, compared to $ 8.8 million during the three months ended January 31, 2020. The

decrease in revenue is mainly due to a decrease in avionics activities of

    $1.6 million and a decrease in aircraft modification business of $508.



? Aerospace product costs fell 11% in the quarter ended in January

31 2021 to $ 4.7 million compared to $ 5.3 million for the three months ended

January 31, 2020. Costs represented 70% of total segment revenue over the three months

ended January 31, 2021, compared to 60% of total segment sales in the

    three months ended January 31, 2020.




  ? Expenses increased 8% in the three months ended January 31, 2021 to

$ 1.9 million compared to $ 1.7 million during the three months ended January 31,

2020. Spending represented 28% of total segment revenue in the three months ended

January 31, 2021, compared to 19% of total segment sales in the three

    months ended January 31, 2020.




Employees



Other than persons employed by our gaming subsidiaries there were 115 full time
and 5 part time employees on January 31, 2021, compared to 106 full time and
5 part time employees on January 31, 2020. As of March 12, 2021, staffing is
115 full time and 5 part time employees. Our staffing at Boot Hill Casino &
Resort on January 31, 2021 was 172 full time and 54 part time employees compared
to 200 full time and 66 part time employees on January 31, 2020. At March 12,
2021 there are 171 full time and 57 part time employees. None of the employees
are subject to any collective bargaining agreements.



Liquidity and capital resources



We believe that our current banks will provide the necessary capital for our
business operations. However, we continue to maintain contact with other banks
that have an interest in funding our working capital needs to continue our
growth in operations in fiscal 2021 and beyond.



The ownership structure of BHCMC, LLC is now:


                      Members of
                       Board of     Equity         Income
Membership Interest    Managers    Ownership   (Loss) Sharing
Class A                   3           20%           40%
Class B                   4           80%           60%




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.



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Contents

Analysis and discussion of cash flow



During the nine months ended January 31, 2021 our cash position increased by
$1.4 million. Net income was $980 for the nine months ended January 31, 2021.
Cash flows provided by operating activities was $6.9 million for the nine months
ended January 31, 2021. Non-cash activities consisting of depreciation and
amortization provided $4.6 million, while deferred compensation provided $449.
Customer deposits increased our cash position by $2.3 million. We reduced our
lease liability by $659. Inventories decreased our cash position by $382.
Accounts receivable decreased our cash position by $198. Gaming facility
mandated payments decreased our cash position by $292. Prepaid expenses and
other assets decreased our cash by $116. An increase in accounts payable, a
decrease in accrued expenses, and an increase in other current liabilities
increased our cash by $349. Income tax payable decreased our cash position by
$85.



Cash used in investing activities was $5.4 million for the nine months ended
January 31, 2021. We invested $627 to purchase aircraft, $2.1 million towards
STCs, and $2.6 million on equipment and furnishings.



Cash used by financing activities was $107 for the nine months ended January 31,
2021. We increased our debt by $2.5 million. We made repayments on our debt of
$2.3 million. We purchased company stock of $185. The stock was acquired and
placed in treasury.


Critical accounting conventions and estimates



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



Revenue recognition: See note 3 of the condensed consolidated financial statements.

Lease-use right: See note 11 of the condensed consolidated financial statements.



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



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



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


Changing Prices and Inflation



We have experienced upward pressure from inflation in fiscal year 2021. From
fiscal year 2020 to fiscal year 2021 most of the increases we experienced were
in material costs. This additional cost may not be transferable to our customers
resulting in lower income in the future. We anticipate fuel costs and possibly
interest rates to rise in fiscal 2021 and 2022.



Off-balance sheet provisions

We do not have off-balance sheet arrangements.

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