BUTLER NATIONAL CORPORATION THROUGHOUT THIS ITEM 2 ALL NON TABULAR FINANCIAL RESULTS ARE PRESENTED IN
THOUSANDS OF
Forward-Looking Statements Statements made in this report, other reports and proxy statements filed with theSecurities 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 endedApril 30, 2022 , and elsewhere herein or in other reports filed with theSEC . 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 endedApril 30, 2022 , including the following factors: ? the geographic location of our casino; ? customer concentration risk; ? executive officers are family members; ? industrial business cycles; ? fixed-price contracts; ? development, production, testing and marketing of new products; ? loss of key personnel; ? risks associated with international sales; ? future acquisitions and investments; ? change of control restrictions; ? launching new online gaming or sports wagering channels; ? ability to generate returns on sports wagering operations; ? fraud, theft, and cheating; ? cyber-security threats; ? extensive regulation across our industries; ? evolving government regulations and law; ? changes in regulations of financial reporting; ? the stability of economic markets; ? potential impairment losses; ? marketability restrictions of our common stock; ? the possibility of a reverse-stock split; ? stock dilution caused by the annual employer match to our 401(k) plan; ? market competition; ? acts of terrorism and war; ? inclement weather and natural disasters; ? pandemics or other national health crisis (including COVID-19); ? fluctuating fuel and energy costs; ? rising inflation; ? 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 ofButler National Corporation . 16
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Table of Contents 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 2022 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 severalFederal Aviation Administration (the "FAA") Repair Stations. Companies in Aerospace Products concentrate onLearjet ,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.
Products. The products that the companies within this group design, engineer, manufacture, integrate, install, repair and service include:
? Aerial surveillance products ? GARMIN GTN Global Position
System
Navigator with Communication
Transceiver
? Aerodynamic enhancement products ? J.E.T autopilot products
? Airspeed and altimeter systems ? Electrical systems and switching
equipment
? Avcon Fins ? Noise suppression systems
? ADS-B (transponder) systems ? Rate gyroscopes
? Conversion of passenger ? Replacement vertical accelerometers
configurations to cargo
? Cargo/sensor carrying pods and ? Provisions for external stores
radomes
? 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 photograph capabilities ? 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 Professional Services. The Professional Services segment includes the management of a gaming facility and related dining and entertainment facilities inDodge City, Kansas .Boot Hill Casino and Resort features approximately 500 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") andBHCMC, LLC ("BHCMC"), companies in Professional Services, manageThe Boot Hill Casino and Resort inDodge City, Kansas ("Boot Hill") pursuant to the Lottery Gaming Facility Management Contract, by and among BNSC, BHCMC and theKansas Lottery , as subsequently amended and extended ("Boot Hill Agreement"). As required byKansas law, all games, gaming equipment and gaming operations, including sports wagering, at Boot Hill are owned and operated by theKansas Lottery . InJuly 2022 , theState of Kansas enacted Senate Bill 84 that allows for theKansas Lottery through the four state-owned casinos to use digital or in-person avenues to engage in the business of sports wagering. The law allows BHCMC to partner with up to three platforms for sports wagering. The platform partners provide the sports wagering management service through their sites and brands, paying us a percentage of revenue. BHCMC entered into provider contracts for sports wagering platforms with DraftKings, Golden Nugget Online Gaming LLC, and Bally Corporation. Online sports wagering is currently underway through the DraftKings platform. A permanent onsite DraftKings branded sports book atBoot Hill Casino , opened inFebruary 2023 .
Architectural and Engineering Services. Companies in Professional Services provide licensed architectural, including commercial and industrial building design, and engineering services.
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Table of Contents COVID-19 Overview The pandemic caused by COVID-19 has caused volatility in world-wide financial markets since 2020, primarily due to uncertainty with respect to the severity and duration of the pandemic. Although many experts believe the pandemic has ended in 2022, the threat of outbreaks and new variations of the virus continue to affect operations and finances of businesses like ours. We have experienced lower customer headcount, which has been 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. The COVID-19 pandemic has impacted our business operations and financial results and continues to impact us in fiscal 2023. 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. Refer to Item 1A. "Risk Factors" in Form 10-K for the fiscal year endedApril 30, 2022 for a disclosure of risk factors related to COVID-19. As the economy in general slowly recovers, and vaccinations rates in our operating territory improve and new infections decline, we have continued to see improvements in customer headcount. However, the unpredictable nature of the pandemic could again lead to closures, decreased traffic and demand, and increased COVID-19- related operating expenses, for the foreseeable future. While COVID-19 has resulted in, and will continue to bring, significant challenges and uncertainty to our operating environment, we believe that our resilient business model and the strength of our brand and balance sheet position us well to emerge from the pandemic. Results Overview The nine months endedJanuary 31, 2023 revenue increased 2% to$55.1 million compared to$54.0 million in the nine months endedJanuary 31, 2022 . In the nine months endedJanuary 31, 2023 the professional services revenue was$28.3 million compared to$27.5 million in the nine months endedJanuary 31, 2022 , an increase of 3%. In the nine months endedJanuary 31, 2023 the Aerospace Products revenue was$26.8 million compared to$26.6 million in the nine months endedJanuary 31, 2022 , an increase of 1%. The nine months endedJanuary 31, 2023 net income decreased to$5.1 million compared to a net income of$8.7 million in the nine months endedJanuary 31, 2022 . The nine months endedJanuary 31, 2023 , operating income decreased to$9.0 million from an operating income of$13.2 million in the nine months endedJanuary 31, 2022 . RESULTS OF OPERATIONS nine months endedJanuary 31, 2023 COMPARED TO nine months endedJanuary 31, 2022 Nine Months Nine Months Ended January Percent of Ended January Percent of Percent Change (dollars in thousands) 31, 2023 Total Revenue 31, 2022 Total Revenue 2022-2023 Revenue: Professional Services$ 28,280 51 %$ 27,460 51 % 3 % Aerospace Products 26,813 49 % 26,552 49 % 1 % Total revenue 55,093 100 % 54,012 100 % 2 % Costs and expenses: Costs of Professional Services 11,164 20 % 10,078 19 % 11 % Cost of Aerospace Products 18,598 34 % 17,186 32 % 8 % Marketing and advertising 4,023 7 % 3,751 7 % 7 % Employee benefits 1,891 4 % 1,686 3 % 12 % Depreciation and amortization 2,309 4 % 2,106 4 % 10 % General, administrative and other 8,096 15 % 6,038 11 % 34 % Total costs and expenses 46,081 84 % 40,845 76 % 13 % Operating income $ 9,012 16 %$ 13,167 24 % -32 % Revenue: Revenue increased 2% to$55.1 million in the nine months endedJanuary 31, 2023 , compared to$54.0 million in the nine months endedJanuary 31, 2022 . See "Operations by Segment" below for a discussion of the primary reasons for the increase in revenue.
? Professional Services derives its revenue from (a) professional management
services in the gaming industry through
("BNSC") and
engineering and management support services. Revenue from Professional
Services increased 3% for the nine months to
compared to $27.5 million at January 31, 2022 .
? Aerospace Products derives its revenue by designing, engineering,manufacturing, installing, servicing and repairing products for classic and
current production aircraft. Aerospace Products revenue increased 1% for the
nine months to
January 31, 2022 . 18
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Table of Contents Costs and expenses: Costs and expenses related to Professional Services and Aerospace Products include the cost of engineering, labor, materials, equipment utilization, control systems, security and occupancy. Costs and expenses increased 13% to$46.1 million in the nine months endedJanuary 31, 2023 compared to$40.8 million in the nine months endedJanuary 31, 2022 . Costs and expenses were 84% of total revenue in the nine months endedJanuary 31, 2023 , as compared to 76% of total revenue in the nine months endedJanuary 31, 2022 . The increase is primarily due to an increase in material and labor costs, a stock award of$352 and cash compensation of$140 awarded to a board member, and a$1.3 million severance accrual relating to the termination of an executive officer. Costs of Professional Services increased 11% in the nine months endedJanuary 31, 2023 to$11.2 million compared to$10.1 million in the nine months endedJanuary 31, 2022 . Costs were 20% of total revenue in the nine months endedJanuary 31, 2023 , as compared to 19% of total revenue in the nine months endedJanuary 31, 2022 . The increase is directly related to an increase in labor costs. Costs of Aerospace Products increased 8% in the nine months endedJanuary 31, 2023 to$18.6 million compared to$17.2 million for the nine months endedJanuary 31, 2022 . Costs were 34% of total revenue in the nine months endedJanuary 31, 2023 , as compared to 32% of total revenue in the nine months endedJanuary 31, 2022 . The increase is directly related to an increase in material and labor costs. Marketing and advertising expenses increased 7% in the nine months endedJanuary 31, 2023 , to$4.0 million compared to$3.8 million in the nine months endedJanuary 31, 2022 . Expenses were 7% of total revenue in the nine months endedJanuary 31, 2023 , as compared to 7% of total revenue in the nine months endedJanuary 31, 2022 . 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 endedJanuary 31, 2023 , compared to 3% in the nine months endedJanuary 31, 2022 . These expenses increased 12% to$1.9 million in the nine months endedJanuary 31, 2023 , from$1.7 million in the nine months endedJanuary 31, 2022 . 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 4% in the nine months endedJanuary 31, 2023 , compared to 4% in the nine months endedJanuary 31, 2022 . These expenses increased 10% to$2.3 million in the nine months endedJanuary 31, 2023 from$2.1 million in the nine months endedJanuary 31, 2022 . These expenses include depreciation related to owned assets being depreciated over various useful lives and amortization of intangible items including theKansas privilege fee related to theBoot Hill Casino being expensed over the initial term of the gaming contract with theState of Kansas .BHCMC, LLC depreciation and amortization expense for the nine months endedJanuary 31, 2023 was$1.9 million compared to$1.7 million in the nine months endedJanuary 31, 2022 . General, administrative and other expenses as a percent of total revenue was 15% in the nine months endedJanuary 31, 2023 , compared to 11% in the nine months endedJanuary 31, 2022 . These expenses increased 34% to$8.1 million in the nine months endedJanuary 31, 2023 , from$6.0 million in the nine months endedJanuary 31, 2022 . The increase is primarily due to the stock award of$352 and cash compensation of$140 awarded to a board member and a severance accrual related to the termination of an executive officer in the amount of$1.3 million .
Other expense:
Interest expense was$2.1 million in the nine months endedJanuary 31, 2023 , compared with interest expense of$2.0 million in the nine months endedJanuary 31, 2022 . Interest related to obligations ofBHCMC, LLC was$1.9 million in the nine months endedJanuary 31, 2023 compared to$1.8 million in the nine months endedJanuary 31, 2022 . Operations by Segment We have two operating segments, Professional Services and Aerospace Products. The Professional Services segment includes revenue contributions and expenditures associated with casino management services and professional architectural, engineering and management support services. Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.
The following table presents a summary of our operating segment information for
the nine months ended
Nine Months Nine Months
Ended January Percent of Ended January Percent of Percent Change
(dollars in thousands) 31, 2023 Total Revenue 31, 2022 Total Revenue 2022-2023
Professional Services
Revenue
Boot Hill Casino $ 28,014 99 % $ 27,194 99 % 3 %
Management/Professional
Services 266 1 % 266 1 % 0 %
Revenue 28,280 100 % 27,460 100 % 3 %
Costs of Professional
Services 11,164 40 % 10,078 36 % 11 %
Expenses 10,590 37 % 9,794 36 % 8 %
Total costs and expenses 21,754 77 % 19,872 72 % 9 %
Professional Services
operating income $ 6,526 23 % $ 7,588 28 % -14 %
Nine Months Nine Months
Ended January Percent of Ended January Percent of Percent Change
(dollars in thousands) 31, 2023 Total Revenue 31, 2022 Total Revenue 2022-2023
Aerospace Products
Revenue $ 26,813 100 % $ 26,552 100 % 1 %
Costs of Aerospace Products 18,598 70 % 17,186 65 % 8 %
Expenses 5,729 21 % 3,787 14 % 51 %
Total costs and expenses 24,327 91 % 20,973 79 % 16 %
Aerospace Products
operating income $ 2,486 9 % $ 5,579 21 % -55 %
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Table of Contents Professional Services
? Revenue from Professional Services increased 3% for the nine months ended
months ended
In the nine months ended
receipts for the
for the nine months ended
distributions reduced gross receipts by
revenue of
to a reduction to gross receipts of
of
revenue was
to
31, 2022.
The remaining management and Professional Services revenue includes
professional management services in the gaming industry, and licensedarchitectural services. Professional Services revenue excluding Boot Hill
Casino remained constant at
compared to $266 for the nine months ended January 31, 2022 .
? Costs of Professional Services increased 11% in the nine months ended January
31, 2023 to
ended
nine months ended
increase in labor costs.
? Expenses increased 8% in the nine months ended January 31, 2023 to2022. Expenses were 37% of segment total revenue in the nine months ended
months ended January 31, 2022 .
Aerospace Products
? Revenue increased 1% to
2023, compared to
? Costs of Aerospace Products increased 8% in the nine months ended
2023 to
ended
nine months ended
increase in material and labor costs.
? Expenses increased 51% in the nine months ended January 31, 2023 to2022. Expenses were 21% of segment total revenue in the nine months ended
months ended
award of
severance accrual related to the termination of an executive officer of
million.
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Table of Contents
THIRD QUARTER FISCAL 2023 COMPARED TO THIRD QUARTER FISCAL 2022
Three Months Three Months
Ended January Percent of Ended January Percent of Percent Change
(dollars in thousands) 31, 2023 Total Revenue 31, 2022 Total Revenue 2022-2023
Revenue:
Professional Services $ 9,574 47 % $ 8,902 51 % 8 %
Aerospace Products 10,890 53 % 8,716 49 % 25 %
Total revenue 20,464 100 % 17,618 100 % 16 %
Costs and expenses:
Costs of Professional
Services 3,789 19 % 3,298 19 % 15 %
Cost of Aerospace Products 7,189 35 % 5,247 30 % 37 %
Marketing and advertising 1,324 6 % 1,325 7 % 0 %
Employee benefits 642 3 % 565 3 % 14 %
Depreciation and
amortization 782 4 % 699 4 % 12 %
General, administrative and
other 3,353 16 % 2,082 12 % 61 %
Total costs and expenses 17,079 83 % 13,216 75 % 29 %
Operating income $ 3,385 17 % $ 4,402 25 % -23 %
Revenue:
Revenue increased 16% to $20.5 million in the three months ended January 31,
2023 , compared to $17.6 million in the three months ended January 31, 2022 . 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
("BNSC") and
engineering and management support services. Revenue from Professional
Services increased 8% for the three months to
compared to
book revenue of
million.
? Aerospace Products derives its revenue by designing, engineering,manufacturing, installing, servicing and repairing products for classic and
current production aircraft. Aerospace Products revenue increased 25% for the
three months to
January 31, 2022 . The increase in revenue is primarily due to a$1.8 million increase in aircraft modification business and a$200 increase in special mission electronics. 21
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Table of Contents Costs and expenses: Costs and expenses related to Professional Services and Aerospace Products include the cost of engineering, labor, materials, equipment utilization, control systems, security and occupancy. Costs and expenses increased 29% in the three months endedJanuary 31, 2023 at$17.1 million compared to$13.2 million in the three months endedJanuary 31, 2022 . Costs and expenses were 83% of total revenue in the three months endedJanuary 31, 2023 , as compared to 75% of total revenue in the three months endedJanuary 31, 2022 . The increase is primarily due to an increase in material and labor costs, and a$1.3 million severance accrual related to the termination of an executive officer. Costs of Professional Services increased 15% in the three months endedJanuary 31, 2023 to$3.8 million compared to$3.3 million in the three months endedJanuary 31, 2022 . Costs were 19% of total revenue in the three months endedJanuary 31, 2023 , as compared to 19% of total revenue in the three months endedJanuary 31, 2022 . The increase is directly related to an increase in labor costs. Costs of Aerospace Products increased 37% in the three months endedJanuary 31, 2023 to$7.2 million compared to$5.2 million for the three months endedJanuary 31, 2022 . Costs were 35% of total revenue in the three months endedJanuary 31, 2023 , as compared to 30% of total revenue in the three months endedJanuary 31, 2022 . The increase is directly related to an increase in material and labor costs. Marketing and advertising expenses remained constant in the three months endedJanuary 31, 2023 , to$1.3 million compared to$1.3 million in the three months endedJanuary 31, 2022 . Expenses were 6% of total revenue in the three months endedJanuary 31, 2023 , as compared to 7% of total revenue in the three months endedJanuary 31, 2022 . 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 3% in the three months endedJanuary 31, 2023 , compared to 3% in the three months endedJanuary 31, 2022 . These expenses increased 14% to$642 in the three months endedJanuary 31, 2023 , from$565 in the three months endedJanuary 31, 2022 . 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 4% in the three months endedJanuary 31, 2023 , compared to 4% in the three months endedJanuary 31, 2022 . These expenses increased 12% to$782 in the three months endedJanuary 31, 2023 from$699 in the three months endedJanuary 31, 2022 . These expenses include depreciation related to owned assets being depreciated over various useful lives and amortization of intangible items including theKansas privilege fee related to theBoot Hill Casino being expensed over the initial term of the gaming contract with theState of Kansas .BHCMC, LLC depreciation and amortization expense for the three months endedJanuary 31, 2023 was$632 compared to$561 in the three months endedJanuary 31, 2022 . General, administrative and other expenses as a percent of total revenue was 16% in the three months endedJanuary 31, 2023 , compared to 12% in the three months endedJanuary 31, 2022 . These expenses increased 61% to$3.4 million in the three months endedJanuary 31, 2023 , from$2.1 million in the three months endedJanuary 31, 2022 . The increase is primarily due to a severance accrual related to the termination of an executive officer of$1.3 million .
Other expense:
Interest expense was$677 in the three months endedJanuary 31, 2023 , compared with interest expense of$725 in the three months endedJanuary 31, 2022 . Interest related to obligations ofBHCMC, LLC was$590 in the three months endedJanuary 31, 2023 compared to$665 in the three months endedJanuary 31, 2022 . Operations by Segment We have two operating segments, Professional Services and Aerospace Products. The Professional Services segment includes revenue contributions and expenditures associated with casino management services and professional architectural, engineering and management support services. Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.
The following table presents a summary of our operating segment information for
the three months ended
Three Months Three Months
Ended January Percent of Ended January Percent of Percent Change (dollars in thousands)
31, 2023 Total Revenue 31, 2022 Total Revenue 2022-2023
Professional Services
Revenue
Boot Hill Casino $ 9,472 99 % $ 8,800 99 % 8 %
Management/Professional
Services 102 1 % 102 1 % 0 %
Revenue 9,574 100 % 8,902 100 % 8 %
Costs of Professional
Services 3,789 39 % 3,298 37 % 15 %
Expenses 3,523 37 % 3,375 38 % 4 %
Total costs and expenses 7,312 76 % 6,673 75 % 10 %
Professional Services
operating income $ 2,262 24 % $ 2,229 25 % 1 %
Three Months Three Months
Ended January Percent of Ended January Percent of Percent Change
(dollars in thousands) 31, 2023 Total Revenue 31, 2022 Total Revenue 2022-2023
Aerospace Products
Revenue $ 10,890 100 % $ 8,716 100 % 25 %
Costs of Aerospace Products 7,189 66 % 5,247 60 % 37 %
Expenses 2,578 24 % 1,296 15 % 99 %
Total costs and expenses 9,767 90 % 6,543 75 % 49 %
Aerospace Products
operating income (loss) $ 1,123 10 % $ 2,173 25 % -48 %
22--------------------------------------------------------------------------------
Table of Contents Professional Services
? Revenue from Professional Services increased 8% for the three months ended
ended
million, and a decrease in casino gaming revenue of
In the three months ended
receipts for the
for the three months ended
distributions reduced gross receipts by
revenue of
to a reduction to gross receipts of
of
revenue was
to
31, 2022.
The remaining management and Professional Services revenue includes
professional management services in the gaming industry, and licensedarchitectural services. Professional Services revenue excluding Boot Hill
Casino remained constant at
compared to $102 for the three months ended January 31, 2022 .
? Costs of Professional Services increased 15% in the three months ended January
31, 2023 to
ended
three months ended
increase in labor costs.
? Expenses increased 4% in the three months ended January 31, 2023 to2022. Expenses were 37% of segment total revenue in the three months ended
months ended January 31, 2022 .
Aerospace Products
? Revenue increased 25% to
2023, compared to
The increase in revenue is primarily due to an increase in the aircraft
modification business of
electronics of $200 .
? Costs of Aerospace Products increased 37% in the three months ended January
31, 2023 to
ended
three months ended
increase in material and labor costs.
? Expenses increased 99% in the three months ended January 31, 2023 to2022. Expenses were 24% of segment total revenue in the three months ended
months ended
accrual related to the termination of an executive officer of
Employees Other than persons employed by our gaming subsidiaries there were 109 full time and 3 part time employees onJanuary 31, 2023 , compared to 110 full time and 6 part time employees onJanuary 31, 2022 . As ofMarch 10, 2023 staffing is 109 full time and 3 part time employees. Our staffing atBoot Hill Casino & Resort onJanuary 31, 2023 was 204 full time and 58 part time employees compared to 165 full time and 54 part time employees onJanuary 31, 2022 . AtMarch 10, 2023 there are 207 full time and 62 part time employees. None of the employees are subject to any collective bargaining agreements. 23
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Table of Contents
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 2023 and beyond. Please see footnote 9 to the Company's financial statements regarding "Debt" for additional details concerning our liquidity and capital resources.
Analysis and Discussion of Cash Flow
During the nine months endedJanuary 31, 2023 our cash position increased by$4.7 million . Net income was$5.1 million for the nine months endedJanuary 31, 2023 . Cash flows provided by operating activities was$13.0 million for the nine months endedJanuary 31, 2023 . Non-cash activities consisting of depreciation and amortization provided$4.3 million , while deferred compensation provided$229 , gain on the sale of a building used$69 , deferred income tax expense provided$280 , and stock awarded to director provided$352 . Contract assets decreased our cash position by$1.3 . Contract liability increased our cash position by$4.0 million . Inventories decreased our cash position by$503 . Accounts receivable decreased our cash position by$1,118 . Gaming facility mandated payments decreased our cash position by$257 . Prepaid expenses and other assets decreased our cash by$2.5 million . An increase in accounts payable, an increase in accrued liabilities and lease liabilities, and an increase in other current liabilities increased our cash by$5.4 million . Income tax payable decreased our cash position by$933 . Cash used in investing activities was$4.1 million for the nine months endedJanuary 31, 2023 . We invested$1.5 million towards STCs, and$2.0 million on equipment and furnishings,$79 on airplane upgrades, and$534 on the construction of new hangers. We received$164 in proceeds from the sale of a building. Cash used by financing activities was$4.2 million for the nine months endedJanuary 31, 2023 . We made repayments on our debt of$3.9 million . We made repayments on lease right-to-use of$194 . We purchased company stock of$60 . The stock acquired was placed in treasury.
Critical Accounting Policies and Estimates
We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amount of revenue and other significant areas involving management judgments and estimates. These significant accounting policies relate to revenue recognition, the use of estimates, long-lived assets, and Supplemental Type Certificates. These policies and our procedures related to these policies are described in detail below and under specific areas within this "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Revenue Recognition: See footnote 3 to the condensed consolidated financial statements.
Lease Right-to-Use: The Company accounts for Lease Right-to-use in accordance with ASU 2016-02 "Leases". ASU 2016-02 requires that on the balance sheet, a lease should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing the Company's right to use the underlying asset for the lease term. Estimates are used to determine the useful life, impairment if any, and the discount rate. The useful life was determined based on the lease term, there is no impairment at this time and the discount rate used to calculate the lease liability was the Company's incremental borrowing rate. See footnote 13 to the condensed consolidated financial statements for additional information regarding specific lease calculations. 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 (STCs) are
authorizations granted by the
Changing Prices and Inflation
We have experienced upward pressure from inflation in fiscal year 2023. From
fiscal year 2022 to fiscal year 2023 most of the increases we experienced were
in material and labor costs. This additional cost may not be transferable to our
customers resulting in lower income in the future. We anticipate fuel costs and
possibly interest rates to rise in fiscal 2023 and 2024.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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