UNITED STATES SECURITIES AND EXCHANGE COMMISSION |
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---------------------------------- FORM 10-Q ----------------------------------- |
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X |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended July 31, 2010 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from ____________ to _____________ |
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Commission File Number 0-1678 |
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Kansas |
41-0834293 |
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19920 West 161st Street, Olathe, Kansas 66062 |
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Registrant's telephone number, including area code: (913) 780-9595 |
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Former name, former address and former fiscal year if changed since last report: |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes X No __ |
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 __ |
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.:Large accelerated filer Accelerated filer Non-accelerated filer X Smaller reporting company |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): |
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The number of shares outstanding of the Registrant's Common Stock, $0.01 par value, as of September 3, 2010 was 55,962,698 shares. |
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES |
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INDEX |
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Item 1 |
Financial Statements |
PAGE NO. |
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Condensed Consolidated Balance Sheets - July 31, 2010 and April 30, 2010 |
3 |
Condensed Consolidated Statements of Operations - Three Months ended July 31, 2010 and 2009 |
4 |
|
|
Condensed Consolidated Statements of Cash Flows - Three Months ended July 31, 2010 and 2009 |
5 |
|
Notes to Condensed Consolidated Financial Statements |
6-8 |
Item 2 |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
8-14 |
Item 3 |
Quantitative & Qualitative Disclosures about Market Risk |
14 |
Item 4 |
Controls and Procedures |
14-15 |
PART II. OTHER INFORMATION |
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Item 1 |
Legal Proceedings |
16 |
Item 1A |
Risk Factors |
16 |
Item 2 |
Unregistered Sales of Equity Securities and Use of Proceeds |
16 |
Item 3 |
Defaults Upon Senior Securities |
16 |
Item 4 |
(Removed and Reserved) |
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Item 5 |
Other Information |
16 |
Item 6 |
Exhibits |
17 |
Signature |
18 |
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Exhibit Index |
E-1 |
BUTLER NATIONAL CORPORATION |
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07/31/10 |
04/30/10 |
7/31/10 |
04/30/10 |
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(unaudited) |
(audited) |
(unaudited) |
(audited) |
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ASSETS |
LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT ASSETS: |
CURRENT LIABILITIES: |
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Cash |
$ |
5,553,848 |
$ |
8,706,546 |
Bank overdraft payable |
$ |
255,613 |
$ |
257,852 |
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Accounts receivable |
Line of Credit |
175,147 |
69,800 |
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(net of allowance for doubtful accounts of $229,969 at |
2,577,598 |
2,139,835 |
Current maturities of long-term debt and capital lease |
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July 31, 2010 and April 30, 2010) |
obligations |
1,218,502 |
1,488,343 |
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Accounts payable |
810,241 |
712,643 |
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Inventories - |
Customer deposits |
1,537,472 |
826,443 |
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(net of obsolete of $1,244,216 at July 31, 2010 and |
Deposits other |
- |
1,700,000 |
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April 30, 2010) |
Gaming facility mandated payment |
2,339,954 |
1,659,683 |
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Raw materials |
4,720,562 |
4,669,138 |
Accrued liabilities |
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Work in process |
1,565,960 |
1,129,907 |
Compensation and compensated absences |
782,162 |
1,091,973 |
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Finished goods |
1,090,753 |
1,086,276 |
Accrued income tax |
242,419 |
847,419 |
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------------------- |
------------------ |
Other |
236,036 |
299,063 |
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7,377,275 |
6,885,321 |
------------------- |
------------------- |
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Total current liabilities |
7,597,546 |
8,953,219 |
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Prepaid expenses and other current assets |
893,824 |
452,609 |
LONG-TERM DEBT, AND CAPITAL LEASE NET OF |
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------------------- |
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CURRENT MATURITIES: |
4,036,443 |
4,304,999 |
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Total current assets |
16,402,545 |
18,184,311 |
------------------- |
------------------- |
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Total liabilities |
11,633,989 |
13,258,218 |
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PROPERTY, PLANT AND EQUIPMENT: |
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Land and building |
3,142,486 |
3,057,144 |
COMMITMENTS AND CONTINGENCIES |
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Aircraft |
3,774,059 |
3,766,059 |
STOCKHOLDERS' EQUITY: |
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Machinery and equipment |
2,487,497 |
2,372,382 |
Preferred stock, par value $5: |
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Office furniture and fixtures |
823,493 |
823,493 |
Authorized 50,000,000 shares, all classes |
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Leasehold improvements |
4,249 |
4,249 |
Designated Classes A and B 200,000 shares |
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------------------- |
------------------ |
$1,000 Class A, 9.8%, cumulative if earned |
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10,231,784 |
10,023,327 |
liquidation and redemption value $100, |
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Accumulated depreciation |
(3,728,326) |
(3,483,811) |
no shares issued and outstanding |
- |
- |
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------------------- |
------------------ |
$1,000 Class B, 6%, convertible cumulative, |
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6,503,458 |
6,539,516 |
liquidation and redemption value $1,000 |
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no shares issued and outstanding |
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- |
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- |
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SUPPLEMENTAL TYPE CERTIFICATES: |
1,763,868 |
1,774,057 |
Common stock, par value $.01: |
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(net of amortization of $2,359,518 at July 31, 2010 and |
Authorized 100,000,000 shares |
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$2,349,328 at April 30, 2010) |
issued and outstanding 56,562,698 shares at July 31, 2010 |
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ADVANCES FOR GAMING DEVELOPMENTS: |
547,460 |
547,460 |
and April 30, 2010 |
565,627 |
565,627 |
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(net of reserves of $4,171,531 at July 31, 2010 and |
Common stock, owed but not issued 278,573 shares |
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April 31, 2010) |
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in 2010 and in 2009 |
2,786 |
2,786 |
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OTHER ASSETS: |
Capital contributed in excess of par |
11,458,809 |
11,458,809 |
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Deferred tax asset |
1,309,000 |
1,226,000 |
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Treasury stock at cost, 600,000 shares |
(732,000) |
(732,000) |
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Other assets |
1,303,684 |
1,294,603 |
Minority Interest |
(287) |
874 |
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(net of accumulated amortization of $224,974 at |
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July 31, 2010 and $198,727 at April 30, 2010) |
------------------- |
------------------ |
Retained earnings |
4,901,091 |
5,011,633 |
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Total other assets |
2,612,684 |
2,520,603 |
------------------- |
------------------- |
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Total stockholders' equity |
16,196,026 |
16,307,729 |
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------------------- |
------------------- |
------------------- |
------------------- |
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Total Assets |
$ |
27,830,015 |
$ |
29,565,947 |
Total liabilities and stockholders' equity |
$ |
27,830,015 |
$ |
29,565,947 |
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The accompanying notes are an integral part of these financial statements |
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES |
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(unaudited) |
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THREE MONTHS ENDED |
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July 31, |
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2010 |
2009 |
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REVENUES |
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Aircraft / Modifications |
$ |
2,166,722 |
$ |
2,280,538 |
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Avionics / Defense |
985,305 |
2,273,373 |
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Management / Professional Services |
1,149,424 |
1,514,628 |
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Gaming facility |
5,244,907 |
- |
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-------------- |
-------------- |
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Net Revenue |
9,546,358 |
6,068,539 |
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COST OF SALES |
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Aircraft / Modifications |
1,972,007 |
2,005,435 |
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Avionics / Defense |
383,211 |
1,147,362 |
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Management / Professional Services |
354,623 |
528,585 |
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Gaming facility |
1,583,922 |
- |
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-------------- |
-------------- |
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Total Cost of Sales |
4,293,763 |
3,681,382 |
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-------------- |
-------------- |
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GROSS PROFIT |
5,252,595 |
2,387,157 |
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OPERATING EXPENSES MARKETING, GENERAL & ADMINISTRATIVE |
5,316,413 |
1,685,832 |
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GAIN ON SALE OF LAND |
- |
(496,433) |
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-------------- |
-------------- |
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OPERATING INCOME (LOSS) |
(63,818) |
1,197,758 |
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OTHER INCOME (EXPENSE) |
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Interest expense |
(91,330) |
(120,602) |
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Other |
(38,605) |
9,264 |
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-------------- |
-------------- |
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Other income (expense) |
(129,935) |
(111,338) |
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INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES |
(193,753) |
1,086,420 |
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PROVISION FOR INCOME TAXES |
82,050 |
(368,400) |
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-------------- |
-------------- |
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NET INCOME BEFORE MINORITY INTEREST |
(111,703) |
718,020 |
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MINORITY INTEREST |
1,161 |
- |
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-------------- |
-------------- |
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NET INCOME (LOSS) |
$ |
(110,542) |
$ |
718,020 |
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======== |
======== |
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BASIC EARNINGS PER COMMON SHARE |
$ |
.00 |
$ |
.01 |
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========= |
========= |
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Shares used in per share calculation |
55,962,698 |
55,089,857 |
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========= |
========== |
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DILUTED EARNINGS PER COMMON SHARE |
$ |
N/A |
$ |
.01 |
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========= |
========= |
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Shares used in per share calculation |
N/A |
55,194,160 |
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========= |
========= |
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The accompanying notes are an integral part of these financial statements. |
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES |
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(unaudited) |
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THREE MONTHS ENDED |
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July 31, |
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2010 |
2009 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income (loss) |
$ |
(111,703) |
$ |
718,020 |
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Adjustments to reconcile net income (loss) to net cash provided by |
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(used in) operations - |
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Depreciation and amortization |
285,311 |
78,508 |
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Amortization (Supplemental Type Certificates) |
10,190 |
11,422 |
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(Gain) Loss on sale of fixed asset |
43,450 |
- |
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Gain on sale of land |
- |
(496,433) |
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Changes in assets and liabilities - |
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Accounts receivable |
(437,763) |
(901,048) |
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Inventories |
(491,954) |
672,942 |
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Prepaid expenses and other current assets |
(559,545) |
115,792 |
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Accounts payable |
95,358 |
219,625 |
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Customer deposits |
711,029 |
(771,304) |
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Deposits other |
(1,700,000) |
- |
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Accrued liabilities |
(949,148) |
274,666 |
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Gaming facility mandated payment |
680,271 |
- |
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Other liabilities |
(28,687) |
- |
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-------------- |
-------------- |
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Cash provided by (used in) operating activities |
(2,453,191) |
(77,810) |
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-------------- |
-------------- |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Capital expenditures |
(305,457) |
(441,270) |
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Proceeds from sale of land/other assets |
39,000 |
2,000,000 |
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-------------- |
------------- |
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Cash provided by (used in) investing activities |
(266,457) |
1,558,730 |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Borrowings under line of credit, net |
105,347 |
(342,568) |
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Borrowings of promissory notes, long-term debt and capital lease obligations |
- |
375,000 |
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Repayments of promissory notes, long-term debt and capital lease obligations |
(538,397) |
(2,008,500) |
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-------------- |
-------------- |
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Cash provided by (used in) financing activities |
(433,050) |
(1,976,068) |
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-------------- |
-------------- |
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NET INCREASE (DECREASE) IN CASH |
(3,152,698) |
(495,148) |
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CASH, beginning of period |
8,706,546 |
1,978,038 |
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-------------- |
-------------- |
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CASH, end of period |
$ |
5,553,848 |
$ |
1,482,890 |
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======== |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
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Interest paid |
$ |
91,749 |
$ |
123,027 |
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Income taxes paid |
605,000 |
100,000 |
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The accompanying notes are an integral part of these financial statements. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(unaudited) |
1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of Regulation S-X and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the annual report on Form 10-K dated April 30, 2010. In our opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the three months ended July 31, 2010 are not indicative of the results of operations that may be expected for the year ending April 30, 2011. |
2. Recent Accounting Pronouncements: The Financial Accounting Standards Board ("FASB") issued ASC subtopic 855-10 (formerly SFAS 165 "Subsequent Events"), incorporating guidance on subsequent events into authoritative accounting literature and clarifying the time following the balance sheet date which management reviewed for events and transactions that may require disclosure in the financial statements. Butler National Corporation (the "Company") has adopted this standard. The standard increased our disclosure by requiring disclosure reviewing subsequent events. ASC 855-10 is included in the "Subsequent Events" accounting guidance.
In April 2009, the FASB issued ASC subtopic 820-10 (formerly Staff Position No. FAS 157-4, Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly"). ASC subtopic 820-10 provides guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability has significantly decreased. FSP 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. In addition, FSP 157-4 requires disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques. The Company determined that adoption of FSP 157-4 did not have a material impact on its results of operations and financial position. In July 2006, the FASB issued ASC subtopic 740-10 (formerly Interpretation No. ("FIN") 48, "Accounting for Uncertainty in Income Taxes"). ASC subtopic 740-10 sets forth a recognition threshold and valuation method to recognize and measure an income tax position taken, or expected to be taken, in a tax return. The evaluation is based on a two-step approach. The first step requires an entity to evaluate whether the tax position would "more likely than not," based upon its technical merits, be sustained upon examination by the appropriate taxing authority. The second step requires the tax position to be measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement. In addition, previously recognized benefits from tax positions that no longer meet the new criteria would no longer be recognized. The application of this Interpretation will be considered a change in accounting principle with the cumulative effect of the change recorded to the opening balance of retained earnings in the period of adoption. Adoption of this new standard did not have a material impact on our financial position, results of operations or cash flows. In April 2008, the FASB issued ASC 815-40 (formerly Emerging Issues Task Force ("EITF") 07-05, "Determining whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock"). ASC 815-40 applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity's own common stock. ASC 815-40 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The adoption of this pronouncement did not have a material impact on its financial position, results of operations or cash flows. In June 2009, the FASB issued ASC 105 Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards Codification TM (the "Codification") has become the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with Generally Accepted Accounting Principles ("GAAP"). All existing accounting standard documents are superseded by the Codification and any accounting literature not included in the Codification will not be authoritative. Rules and interpretive releases of the SEC issued under the authority of federal securities laws, however, will continue to be the source of authoritative generally accepted accounting principles for SEC registrants. Effective September 30, 2009, all references made to GAAP in our consolidated financial statements will include references to the new Codification. The Codification does not change or alter existing GAAP and, therefore, did not have an impact on our financial position, results of operations or cash flows. In June 2009, the FASB issued changes to the consolidation guidance applicable to a variable interest entity ("VIE"). FASB ASC Topic 810, "Consolidation," which amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis will include, among other things, consideration of who has the power to direct the activities of the entity that most significantly impact the entity's economic performance and who has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE. FASB ASC topic 810 also requires enhanced disclosures about an enterprise's involvement with a VIE. Topic 810 is effective as of the beginning of interim and annual reporting periods that begin after November 15, 2009. This did not have an impact on the Company's financial position, results of operations or cash flows. In June 2009, the FASB issued Financial Accounting Standards Codification No. 860 - Transfers and Servicing ("FASB ASC No. 860"). FASB ASC No. 860 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement, if any, in transferred financial assets. FASB ASC No. 860 is effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The adoption of FASB ASC No. 860 did not have an impact on the Company's financial statements. International Financial Reporting Standards: In November 2008, the Securities and Exchange Commission ("SEC") issued for comment a proposed roadmap regarding potential use of financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. Under the proposed roadmap, the Company would be required to prepare financial statements in accordance with IFRS in fiscal year 2014, including comparative information also prepared under IFRS for fiscal 2013 and 2012. The Company is currently assessing the potential impact of IFRS on its financial statements and will continue to follow the proposed roadmap for future developments. |
Advances for Gaming Developments: We have advanced funds for the establishment of gaming. These funds were capitalized based on the costs associated with the acquisition, development, and construction of real estate and real estate-related projects to be capitalized as part of those projects. Our advances represent costs to be reimbursed upon approval of gaming in several locations. We have agreements in place which require payments to be made to us for the respective projects upon opening of Indian gaming facilities. Once gaming facilities have gained proper approvals, we plan to enter into a note receivable arrangement with the Tribe to secure reimbursement of advanced funds for that particular project. We have advanced and invested a total of $4,718,991 at July 31, 2010 and at April 30, 2010 in gaming developments. We have reserves of $4,171,531, at July 31, 2010 and at April 30, 2010. We believe it is necessary to establish reserves against the advances because all of the proposed casinos involve legal and government approvals. The reserve amount is an estimate of the value we would receive if a casino was not opened and we were forced to liquidate the assets that we have acquired with our advances. These assets were intended to be used with casinos and consist of the purchase of land and land improvements related to the development of gaming facilities. We believe that these tracts could be developed and sold for residential and commercial use to recover our advances if the gaming enterprises do not open. |
4. Net Income (Loss) Per Share: The Company adopted ASC 260 (Formerly Statement of Financial Accounting Standards No. 128) that requires the reporting of both basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with ASC 260, any anti-dilutive effects on net earnings (loss) per share are excluded. |
5. Research and Development: We invested in research and development activities. The amount invested in the three months ended July 31, 2010 and 2009 was approximately $419,000 and $495,000 respectively. |
6. Borrowings: At July 31, 2010, the Company had one line of credit totaling $1,000,000. The unused line at July 31, 2010 was $824,853. During the current year these funds were primarily used for the purchase of inventory for the modifications and avionics operations. One note with a balance of $854,352 is collateralized by the first and second position on all assets of the company. This was used as capital for our daily business operations in 2006. There are several other notes collateralized by automobiles and equipment totaling an additional $141,257. |
7. Asset Allocation: During the quarter ending October 31, 2009 the aircraft inventory was reallocated as a long term asset. In review of the current economic conditions and its relationship to the current retail and wholesale aircraft markets we have reallocated our aircraft inventory as long term assets beginning August 1, 2009. Depreciation is calculated over the life of five years. |
8. Subsequent Events: On August 18, 2010, the Company issued 193,750 shares of Company common stock to Humanity Worldwide, LLC ("Humanity"). These shares were issued in consideration for Humanity's marketing and consulting services related to increasing public awareness and shareholder interest in the Company. |
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
REFERENCE TO EXHIBIT 99 OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K |
RESULTS OF OPERATIONS |
FIRST QUARTER FISCAL 2011 COMPARED TO FIRST QUARTER FISCAL 2010 Our revenue for the three months ended July 31, 2010 was $9,546,358, an increase of 57.3% from the three months ended July 31, 2009 with revenue of $6,068,539. Our operating loss for the three months ended July 31, 2010 was $63,818, compared to a profit of $1,197,758 for the three months ended July 31, 2009. Approximately $496,000 of the operating profit in 2009 can be attributed to the sale of land in Dodge City, Kansas. Other Income (Expense): Interest expense decreased from $120,602 in the three months ended July 31, 2009 to $91,329 for the three months ended July 31, 2010. The decrease in interest was a result of reducing our overall debt from the previous year by approximately $2,400,000. |
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 2011 and beyond. Obligations related to the Gaming Facility in Dodge City, Kansas (the Boot Hill Casino and Resort) are the rent payments by our subsidiary BHCMC, L.L.C. ("BHCMC") for the agreement for the turn-key casino. Butler National Service Corporation ("BNSC") and BHC Investment Company, L.C. ("BHCI") jointly own BHCMC. BHCMC is currently owned 99.6% by BNSC and 0.4% by BHCI. BHCI has the option to purchase an additional 39.6% of BHCMC to complete the ownership at 60% BNSC and 40% BHCI. BHCI ownership is subject to background investigation by the Kansas Gaming and Racing Commission. BHC Investment Company, L.C. (BHCI) is not a related party. We do not own nor do our officers or directors have ownership in BHCI. The Gaming Facility known as Boot Hill Casino and Resort was constructed and equipped by BHC Development, L.C., an unrelated real estate development company. BHC Development, L.C. rents the facility to BHCMC, LLC. The terms of the agreement between the Kansas Lottery and BNSC/BHCMC require the completion of an addition to the Boot Hill Casino and Resort that is planned to open in late 2012. We may need additional funding to complete this expansion.
Cash used in investing activities was $266,457. We invested approximately $85,000 towards the purchase of 20 acres in Dodge City. We purchased used and new machinery and equipment of $115,155 for the Aircraft Modification facilities. We purchased a more efficient aircraft and sold a less efficient aircraft for the net use in cash of $8,000. 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.
Bank Overdraft Payable: Our cash management program results in checks outstanding in excess of bank balances in the general disbursement account. When checks are presented to the bank for payment, cash deposits in amounts sufficient to fund the checks are made from funds provided under the terms of our promissory notes agreement. Financial Instruments: The carrying value of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, accrued expenses, and accrued employee costs approximate fair value because of the short-term maturity of these instruments. Fair values are based on quoted market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of perceived risk. Based upon borrowing rates currently available, the carrying value of notes payable long-term debt and capital lease obligations approximate fair value. 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 current liabilities.
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. 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. 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.
Evaluation of disclosure controls and procedures: Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. In connection with the preparation of this Form 10-Q, our Chief Executive Officer and our Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of July 31, 2010. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of July 31, 2010. 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 as of July 31, 2010 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting. |
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PART II. |
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Item 1. |
LEGAL PROCEEDINGS. A lawsuit was filed in the United States District Court for the District of Kansas by the State of Kansas against us, the United States, the Business Committee members of the Miami Tribe and others on October 14, 1999, challenging the determination by the National Indian Gaming Commission ("NIGC") that the Miami Princess Maria Reserve No. 35 is Indian land for the purposes of gaming under the Indian Gaming Regulatory Act. The question in the case has been remanded to the NIGC for further review. The NIGC has not made a further determination on the question. The Miami Tribe expects to eventually receive a favorable determination. We cannot reliably predict the outcome of the case. Butler National filed a lawsuit in the United States District Court for the Eastern District of Texas against General Electric in May 2008 and others related to the overhaul of two CJ-610 aircraft jet engines. The lawsuit was settled. Butler National Service Corporation and BHCMC, LLC filed a lawsuit on September 4, 2009 in the United States District Court for the District of Kansas against Larry J. Woolf and Navegante, Inc. a Las Vegas based consulting firm for damages for failing to perform and defective performance related to a written and executed consulting agreement. In October of 2009, Navegante filed a lawsuit with the District Court against Butler National Service Corporation, seeking damages for breach of an alleged oral agreement to provide management services. Navegante has alleged damages in excess of $75,000. Butler National Service Corporation denies the Navegante allegations and is vigorously defending the matter. Butler National Service Corporation is pursuing the recovery of its damages for breaches of contract. As of July 31, 2010, there are no other significant known legal proceedings pending against us. We consider all such unknown proceedings, if any, to be ordinary litigation incident to the character of the business. We believe that the resolution of any claims will not, individually or in the aggregate, have a material adverse effect on the financial position, results of operations, or liquidity of the Company. |
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Item 1A . |
RISK FACTORS. There are no material changes to the risk factors disclosed under Item 1A of our Form 10-K for year ended April 30, 2010. |
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Item 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. The issuance of stock by the Company to Humanity is exempt from registration pursuant to Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended. Humanity has represented to the Company and the Company believes that Humanity is an "accredited investor" as defined in Rule 501(a) of Regulation D. |
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Item 3. |
DEFAULTS UPON SENIOR SECURITIES. None. |
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Item 4. |
(REMOVED AND RESERVED) |
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Item 5. |
OTHER INFORMATION. None. |
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Item 6. |
EXHIBITS. |
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3.1 |
Articles of Incorporation, as amended and restated are incorporated by reference to Exhibit 3.1 of our Form DEF 14A filed on December 26, 2001. |
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3.2 |
Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form DEF 14A filed on December 15, 2003. |
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31.1 |
Certificate of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a). |
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31.2 |
Certificate of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a). |
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32.1 |
Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 |
Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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99 |
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995, are incorporated by reference to Exhibit 99 of the Form 10-K for the fiscal year ended April 30, 2010. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. |
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BUTLER NATIONAL CORPORATION |
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September 10, 2010 |
/s/ Clark D. Stewart Clark D. Stewart (President and Chief Executive Officer) |
September 10, 2010 |
/s/ Angela D. Shinabargar Angela D. Shinabargar (Chief Financial Officer) |
Exhibit Index |
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Exhibit Number |
Description of Exhibit |
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3.1 |
Articles of Incorporation, as amended and restated are incorporated by reference to Exhibit 3.1 of our Form DEF 14A filed on December 26, 2001. |
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3.2 |
Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form DEF 14A filed on December 15, 2003. |
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31.1 |
Certificate of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a). |
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31.2 |
Certificate of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a). |
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32.1 |
Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 |
Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted to |
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99 |
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995, are incorporated by reference to Exhibit 99 of the Form 10-K for the fiscal year ended April 30, 2010. |