SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the
X Securities Exchange Act of 1934
For the quarter ended July 31, 1996
Transition Report Pursuant to Section 13 or 15 (d) of the
Security Exchange Act of 1934
For the quarter ended July 31, 1996.
Commission File Number 0-1678
BUTLER NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Minnesota 41-0834293
(State of incorporation) (I.R.S. Employer Identification No.)
1546 East Spruce Road, Olathe, Kansas 66061
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (913) 780-9595
Former Name, former address and former fiscal year if changed since
last report: Not Applicable.
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 and (2)
has been subject to such filing requirements for the past ninety days:
Yes X No ______
The number of shares outstanding of the Registrant's Common
Stock, $0.01 par value, as of July 31, 1996, was 9,387,890 shares.
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS<FN1>
<CAPTION>
ASSETS 7/31/96 4/30/96
<S> <C> <C>
Current Assets:
Cash $ 700,051 $ 745,647
Accounts receivable, net of allowance for
doubtful accounts of $110,161 2,373,838 1,473,854
Contracts in process 300,622 993,881
Inventories:
Raw materials 605,792 593,994
Work in process 317,656 214,746
Finished goods 357,308 209,070
----------- -----------
1,280,756 1,017,810
Prepaid expenses and other assets 178,823 59,825
----------- -----------
Total current assets 4,834,090 4,291,017
Property, Plant and Equipment:
Building 150,240 150,240
Machinery and equipment 580,509 589,788
Office furniture and fixtures 519,810 384,928
Leasehold improvements 53,318 53,318
----------- -----------
Total cost 1,303,877 1,178,274
Accumulated depreciation (870,525) (856,092)
----------- -----------
433,352 322,182
Other Assets (Note 1):
Deferred costs of Indian Gaming 1,333,883 1,142,023
Aircraft and aircraft parts 2,394,677 2,394,677
Other assets 225,511 111,184
---------- ------------
Total Other Assets 3,954,071 3,647,884
Total assets $9,221,513 $8,261,083
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft payable $171,140 $248,878
Promissory notes payable 444,956 301,434
Current maturities of long-term debt 1,489,236 1,511,040
Accounts payable 1,155,517 1,211,760
Customer Deposits 467,215 526,407
Accrued liabilities -
Compensation and compensated absences 264,755 258,519
Other 20,008 34,026
---------- -----------
Total current liabilities 4,012,827 4,092,064
Long-Term Debt, net of current maturities 53,915 57,057
Convertible Debenture 750,000 -
---------- ------------
Total liabilities 4,816,742 4,149,121
Commitments and contingencies:
Shareholders' equity:
Preferred stock, par value $5:
Authorized, 200,000 shares, all classes
$100 Class A, 9.8%, cumulative if earned,
liquidation and redemption value $100,
issued and outstanding, 20,000 shares 100,000 100,000
Capital contributed in excess of par 1,900,000 1,900,000
Common stock, par value $.01:
Authorized, 40,000,000 shares
Issued 9,280,980 shares April 30, 1996 &
9,387,980 at July 31, 1996, 93,879 92,809
Common stock warrants 8,807 8,707
Capital contributed in excess of par 5,470,672 5,266,731
Note receivable arising from stock
purchase agreement (351,134) (359,027)
Unearned service contracts (260,156) (276,771)
Treasury stock (20,000 preferred &
50,000 common) (2,087,240) (2,087,240)
Retained earnings (deficit) (470,057) (533,247)
(Deficit of $11,938,813 eliminated October 31, 1992)
----------- ------------
Total shareholders' equity 4,404,771 4,111,962
----------- ------------
Total liabilities and
shareholders' equity $9,221,513 $8,261,083
=========== ============
<FN>
<F1> The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME<FN1>
<CAPTION>
THREE MONTHS ENDED
July 31,
1996 1995
<S> <C> <C>
Net sales $5,307,077 $3,854,360
Cost of sales 4,279,148 3,165,754
---------- -----------
Gross profit 1,027,929 688,606
Selling, general and administrative expenses 905,789 620,235
---------- -----------
Operating income 122,140 68,371
Other income (expense):
Interest expense (56,355) (12,797)
Interest income 9,822 3,690
Other (2,717) 5,126
---------- ------------
Other income (expense) (49,250) (3,981)
---------- ------------
Income before taxes 72,890 64,390
Provision for income tax 9,700 -
---------- ------------
Net income $ 63,190 $ 64,390
Net income per primary earnings per share $ .01 $ .01
========== ============
Net income per fully diluted earnings per share .01 .01
========== ============
Shares used in primary
earnings per share calculation 9,432,788 8,661,094
========= ============
Shares used in fully diluted
earnings per share calculation 9,505,144 8,661,094
========= ============
<FN>
<FN1>The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS<FN1>
<CAPTION>
Three Months Ended
July 31,
<S> 1996 1995
<C> <C>
Cash flows from operating activities:
Net income $ 63,190 $ 64,390
Adjustments to reconcile income to
net cash used in operations:
Depreciation 14,433 10,314
Amortization of shares issued for service contracts 16,615 54,530
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (899,984) (416,861)
(Increase) decrease in contracts in process 693,259 140,092
(Increase) decrease in inventories (262,945) (199,222)
(Increase) decrease in prepaid expenses
and other current assets (78,998) (25,298)
(Increase) decrease in other assets (175,169) (71,950)
Increase (decrease) in accounts payable (56,243) 80,434
Increase (decrease) in customer deposits (59,192) (30,669)
Increase (decrease) in accrued liabilities (7,757) (46,301)
---------- ---------
Total adjustments (815,981) (504,931)
---------- ---------
Cash provided by (used in) operations (752,791) (440,541)
---------- ---------
Cash flows from investing activities:
Capital expenditures, net (21,620) (24,896)
---------- ---------
Cash provided by (used in) investing activities (21,620) (24,896)
---------- ---------
Cash flows from financing activities:
Net borrowings under line-of-credit agreement 143,522 89,310
Bank overdraft payable (77,738) 23,641
Repayments of long-term debt and lease obligations (24,973) (976)
Proceeds from Stock Issuances and
Convertible Debenture, Net 688,004 615,198
--------- ---------
Cash provided by (used in) financing activities 728,815 727,173
---------- ---------
Net increase (decrease) in cash (45,596) 261,736
Cash, beginning of period 745,647 212,799
---------- ---------
Cash, end of period $ 700,051 $ 474,535
Supplemental disclosures of cash flow information:
Interest paid $ 49,403 $ 12,358
Income taxes 894 9,500
<FN>
<FN1>The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited 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. In the opinion of the management of the Company, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation have been included. Operating results for the three months
ended July 31, 1996 are not indicative of the results of operations that may
be expected for the year ending April 30, 1997.
For further information, refer to the Consolidated Financial Statements
and Footnotes included in the Registrant's Annual Report on Form 10-K
for the year ended April 30, 1996.
2. On June 26, 1996, the Company completed a private placement in
which the Company issued a 8.0% cumulative convertible debenture due
June 26, 1998 in the amount of $750,000. Interest to be paid at time of
conversion either in cash or kind at the option of the Company. Net
proceeds of the offering were $675,000, after deducting the expenses of
the offering. The proceeds of the offering will be utilized for relocation
of the Woodson Avionics segment and additional aircraft product
development.
3. The Company has capitalized approximately $1,334,000 and $1,150,000
at July 31, 1996 and April 30, 1996, respectively, of costs related to the
anticipated construction of three Indian gaming facilities. These costs are
included in other assets in the accompanying balance sheet. In the
opinion of management, these costs will be recoverable through the
gaming activities or, in event the Company is unsuccessful in establishing
such operations, these costs will be recovered through the liquidation of
the associated assets. These costs include the following:
A prepayment of $242,500 for construction services to be rendered. This
prepayment was funded with 60,000 shares of the Company's common
stock issued in the fiscal year 1994 and an additional 40,000 shares in
fiscal year 1995.
Payments of $87,622 for architectural and engineering services. These
payments were also funded with stock issuances of 29,715 shares in fiscal
year 1995. Payments of $50,000 for equipment. These payments were
funded with stock issuances of 20,000 shares in fiscal year 1994.
Cash payments of approximately $82,000, $172,000, $65,000 and $57,000
in fiscal 1997, 1996, 1995, and 1994, respectively, for architectural,
engineering and construction services.
Cash Advances to the Tribes of $190,000 in fiscal 1995 which the Tribes
used for the acquisition of land.
Acquisition of land by the Company in the amount of $82,000 in fiscal
year 1997 and $225,000 in fiscal 1994.
4. The Company had an employment agreement with an individual which
the Company terminated in April 1995. This individual filed a lawsuit
against the Company, the President of the Company and various corporate
subsidiaries alleging the Company wrongfully terminated the individual's
employment in breach of the contract. The suit was filed in October,
1995, in State Court in Johnson County, Kansas. The individual dismissed
the claim in Johnson County, Kansas and refiled in Federal District Court.
The individual has asserted a claim for damages in excess of $1,400,000.
The individual had proposed a settlement offer for $500,000, but has
withdrawn the settlement offer. It is management's position that the
Company will defend the claim vigorously and in that pursuit the
Company has asserted a counterclaim against the individual for negligence
in the performance of the individual's professional duties.
5. On May 1, 1996, the Company acquired certain assets of Woodson
Electronics, Inc. (WEI). The Company received a portion of WEI's
operating rights and assets in exchange for 80,000 shares of stock with a
fair market value of $160,000. The Company also entered into a Non-
Exclusive Consulting, Non-Disclosure and Non-Compete Agreement with
Thomas E. Woodson, which provides for the issuance of 20,000 shares of
the Company's common stock and $36,000 to be paid out over 24 months.
WEI is engaged in the business of designing, manufacturing, improving,
marketing, maintaining, and providing, directly and with the assistance of
others, data acquisition, alarm monitoring and reporting products and
services related to such products. WEI supplies the monitoring products to
Butler National Services, Inc. During the first quarter of fiscal 1997, the
Company relocated its Woodson Avionics
<PAGE>
business segment, along with the newly acquired operating rights and
assets of WEI to Phoenix, Arizona.
6. During fiscal 1996, the President and CEO, Clark D. Stewart, exercised
his option to purchase 400,000 shares of the Company's common stock
under the terms of the 1989 Nonqualified Stock Option Plan through a
loan by the Company. The shares were purchased at prices ranging from
$.70 to $1.00 per share. The largest aggregate amount of indebtedness
outstanding was $367,000 during fiscal 1996. The amount outstanding at
July 31, 1996, is $338,634. Interest is charged at the applicable federal
rate and the loan is being amortized over five years.
7. After completing a three year program of restructuring the Company's
operation on October 31, 1992, by using quasi reorganization accounting,
the Company was able to adjust the accumulated deficit to a zero balance
thereby affording the Company a "fresh start". No assets or liabilities
required adjustment in this process. The amount of accumulated deficit
and capital contributed in excess of par removed as of October 31, 1992,
was $11,938,813.
8. Income per common and common equivalent share are based on the
weighted average number of common shares outstanding during the
quarters ended July 31, 1996 and 1995. Stock options are included in
1996 and 1995 as common stock equivalents because they are dilutive.
The Convertible debenture is included in 1996 as a common stock
equivalent since the debenture is dilutive. Shares used in the per share
computations are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
1996 1995
<S> <C> <C>
Common shares outstanding beginning of period 9,280,890 8,231,015
Cumulative increase in weighted average
due to Common Stock Equivalent 51,920 231,089
Cumulative increase in weighted average
due to Convertible Debenture 72,356 -
Cumulative increase in weighted average
due to issues per bank agreement - 189,337
Cumulative increase in weighted average
due to issues per acquisition and
consulting agreements 98,913 -
Cumulative increase in weighted average
due to issues per Nonqualified
Stock Option Plans 1,065 9,653
--------- ---------
Weighted average shares, end of period 9,505,144 8,661,094
========= =========
</TABLE>
9. The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of". This standard provides a framework for
evaluating the realizability of the Company's investments in long-lived
assets. The Company adopted this standard beginning May 1, 1996. This
standard did not have a material impact on its results of operations or
financial position, nor does the Company anticipate that it will in the
future. The Financial Accounting Standards Board also issued SFAS No.
123, "Accounting for Stock Based Compensation". Under the new
standard, the Company must either change its method of computing the
compensation expense associated with the issuance of stock options or
make pro forma disclosures based on the new computation method. At
this time, the Company anticipates adopting the standard by making the
pro forma disclosures.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview: First quarter consolidated sales increased $1,452,717 or 37.7%
from $3,854,360 for the three months ended July 31, 1995 to $5,307,077
for the three months ended July 31, 1996. Increased sales occurred in the
Food Distribution division (47.9%), Switching unit division (52.78%) and
Monitoring Services division (11.35%). Aircraft Modifications division
sales decreased 18.77% and the Temporary Services segment did not
recognize any revenue in the first quarter of fiscal 1997. The Company
recorded a profit of $63,190 in the current quarter compared to a $64,390
profit in the comparable period of the prior year.
Food Distribution (R F, Inc.): Revenues from the Food Distribution
business segment increased 47.9% from $3,152,039 in the prior quarter to
$4,663,132 in the current year. Revenue continues to increase due to an
increasing customer base and additional sales personnel resulting in
increased product sales. Contribution to earnings increased from $152,271
in the quarter ending July 31, 1995, to $415,000 in the quarter ending July
31, 1996. The gross margin increased due to a change in the mix of
products sold. The Company expects this division to continue see
increases in revenue throughout fiscal year 1997.
Aircraft Modifications (Avcon Industries, Inc.): Sales at Avcon Industries,
Inc. decreased $92,176 (18.77%) from $491,050 in the first quarter of the
prior year to $398,874 in the quarter ending July 31, 1996. Additionally,
gross profit decreased from $209,326 in the quarter ending July 31, 1995
to $108,434 in the quarter ending July 31, 1996. This segment has
maintained a relatively stable sales volume. The Company does price each
job specifically and depending on the type of modifications performed
each quarter, the range of sales will vary, along with the gross margin.
This segment is continuing to work on the development of new products
and expects to see an increase in sales and gross margin in the coming
quarters of fiscal 1997.
Switching Units (Woodson Avionics, Inc.): Switching unit sales were
$36,184 in the three months ended July 31, 1996 versus $23,683 in the
comparable period of the preceding year, a increase of 52.78%. Earnings
for the three months ended July 31, 1996 were a loss of $33,375 compared
to a loss of $12,471 for the three months ended July 31, 1995. A portion
of the loss relates to expenses incurred due to the relocation of the facility
to Phoenix, Arizona, however the Company expects these expenses to be
more than offset by the increase in revenue due to a closer location to the
major customer, McDonnell Douglas, and the increased marketability of
the new location. The increase in sales is due to a more stable volume in
the current contracts with McDonnell Douglas. The Company believes the
sales volume will remain relatively stable for the next few years and
believes the relocation will allow this segment to expand and serve
additional customers.
SCADA Systems and Monitoring Services (Butler National Services, Inc.):
Sales for the three months ended July 31, 1996 were $208,887 compared
to sales of $187,588 for the comparable period of the prior year an
increase of 11.35%. Gross profit for the three months ended July 31,
1996 were $91,621 compared to $60,438 for the three months ended July
31, 1995. This segment was awarded the contracts with four additional
municipalities to provide, install and maintain Telemetry Systems to be
performed totalling approximately $500,000 during fiscal 1997.
Additionally, each of the contracts allow for the continued maintenance of
the systems which are renewable on an annual basis. This new business is
in addition to the relatively level volume of sales to its current customers.
The Company believes that with the acquisition of WEI's operating rights
and assets, this segment will continue to develop and expand its customer
base.
Temporary Services (Butler Temporary Services, Inc.): This segment did
not recognize any revenue in the first quarter of fiscal 1997. If and when
the Company is able to open Indian gaming facilities, management expects
that a majority of the personnel in the various Indian gaming enterprises
will be staffed by Temporary Services.
Management Services (Butler National Services Corporation):
-General-
The Company received no revenue and incurred $110,000 and $125,000
in general and administrative expenses in the current quarter associated
with its continued efforts to explore service opportunities related to the
Indian Gaming Act of 1988. Additionally, the Company amortized
$17,000 and $55,000 in the first quarter of 1996 and 1995,
<PAGE>
respectively, related to shares issued for services rendered to the Company
in that regard.
The Company has invested $1,334,000 in land, land improvements and
professional design fees related to the development of Indian Gaming
facilities. Included in this investment is 160 acres of land, located
adjacent to the Linn Valley Lakes resort and residential development in
Linn County, Kansas. The Company believes that this tract could be
developed and sold for residential and commercial use other than Indian
gaming if the gaming enterprise does not open. Additional improvements
including access roads, water and sewer services, etc. are planned for this
land. After these improvements, the land may be sold in small tracts.
This may allow the Company to recover the majority, if not all, of the
$1,334,000 investment.
-Princess Maria Casino-
The Company has a management agreement with the Miami Tribe to
provide management services to the Miami Tribe. The Miami Tribe
requested a compact with the State of Kansas for Class III Indian full-
casino Indian gaming on Indian land known as the Maria Christiana Miami
Reserve No. 35 located in Miami County, Kansas, on July 9, 1992.
The Miami Tribe's 1992 compact was the subject of a lawsuit filed in
February 1993, in the Federal District Court by the Miami Tribe alleging
the failure to negotiate a compact in good faith by the State of Kansas.
The Court dismissed the Miami Tribe's failure to negotiate a compact suit
against the State of Kansas as a result of the United States Supreme
Court's ruling in Seminole v. State of Florida. The Supreme Court ruled
that the provisions of the IGRA did not allow an Indian tribe to compel a
state by litigation to negotiate a compact.
In February, 1993, former Kansas Governor Finney requested a
determination of the suitability of the Miami Indian land for Indian
Gaming under the IGRA from the Bureau of Indian Affairs (the "BIA").
In May, 1994, the NIGC again requested the same determination. Finally,
in May, 1995, an Associate Solicitor within the BIA issued an opinion
letter stating the Miami Tribe has not established jurisdiction over the
Miami land in Kansas. This was the first definitive statement received
from the central office of the BIA in three years. The latest opinion is
contrary to a September, 1994, opinion of the Tulsa Field Solicitor, in an
Indian probate stating that the Miami Tribe has jurisdiction over the
Miami Indian land in Kansas. On July 11, 1995, the U.S. Department of
Justice issued a letter to the Associate Solicitor expressing concern about
the conclusions reached based upon the analysis of the case.
The Miami Tribe has challenged this opinion in Federal Court to prove
and protect the sovereignty of the Miami Tribe and other Indian tribes
relating to their lands. On April 16, 1996, the Court ruled that the Miami
Tribe did not have jurisdiction because the BIA had not approved the
Tribal membership of the Princess Maria heirs at the time the management
agreement was submitted, therefore, the Court ordered that the NIGC's
determination that Reserve No. 35 is not "Indian land" pursuant to IGRA
is affirmed. However, the Court noted in its ruling that nothing precludes
the Tribe from resubmitting its management agreement to the NIGC along
with evidence of the current owners' consent and the newly adopted tribal
amendment. On February 22, 1996, the BIA approved the Miami Tribe's
constitution and the membership of the heirs. On June 16, 1996, the Tribe
resubmitted the management agreement. No response has yet been
received by the NIGC. Although the Court noted that the Tribe could
resubmit the management agreement, the Court did not pass on whether or
not a new submission will obtain approval. Therefore, even though the
Company and the Tribe believe the re-submission is in compliance with all
laws and regulations, there is no assurance that the management agreement
will be approved.
-Stables Bingo and Off-Track Betting-
Additionally, the Company has a signed Management Agreement with the
Miami and Modoc Tribes. A class III Indian Gaming Compact for a
joint-venture by the Miami and Modoc Tribes, both of Oklahoma, has
been approved by the State of Oklahoma and by the Assistant Secretary,
Indian Affairs for the U.S. Department of the Interior. The Compact was
published in the Federal Register on February 6, 1996, and is therefore,
deemed effective. The Compact authorizes Class III (Off-Track Betting
"OTB") along with Class II (high stakes bingo) at a site within the City of
Miami, Oklahoma.
The Company will consult with the development of and plans to manage
the joint-venture for the tribes. The proposed facility is planned to be
approximately 22,000 square-feet and to be located directly south of the
Modoc Tribal Headquarters building in Miami. It is currently intended the
complex will contain off-track betting windows, a bingo hall, and a
restaurant. The Company's Management Agreement requires the approval
of the NIGC. The
<PAGE>
Management Agreement was filed in September, 1994, with the NIGC and
rejected pending approval of this Compact. On January 25, 1996, the
Management Agreement was resubmitted and currently is being reviewed
by the NIGC. Under the Management Agreement as submitted, the
Company, as manager, is to receive a 30% share of the profits and
reimbursement of the development costs. Therefore, even though the
Company and the Tribes believe the re-submission will be in compliance
with all laws and regulations, there is no assurance that the management
agreement will be approved.
-Shawnee Reserve No. 206-
Since 1992, the Company has maintained a business relationship with
approximately seventy Indian and Non-Indian heirs (the "Owners") of the
Newton McNeer Shawnee Reserve No. 206 ("Shawnee Reserve No. 206").
This relationship includes assistance with the defense of the property
against adverse possession by one family member in exchange for being
named the manager for any Indian gaming enterprises that may be
established on the land. As a result of the Company's assistance, the
Owners are in the process of becoming the undisputed beneficial owners
of approximately 72 acres of the Shawnee Reserve No. 206 as ordered by
the United States District Court for the District of Kansas. The Company
has purchased options for an additional 17 acres contiguous to the Indian
land.
Shawnee Reserve No. 206 has been a part of the Shawnee Reservation in
Kansas Territory since 1831 and was reserved as Indian land and not a
part of the State of Kansas when Kansas became a state in 1861. Within
the boundaries of Johnson County, Kansas and the Kansas City metro area,
the Indian land is located on west 83rd Street approximately 25 road miles
southwest from downtown Kansas City, Missouri.
In addition, the Company maintains a relationship and agreement to
manage the proposed establishment as a part of the Owners' desire to
work with the Shawnee Tribe of Oklahoma. The Shawnee Tribe of
Oklahoma is not a federally recognized tribe. The tribe, sometimes known
as the Loyal Shawnee Tribe, is a tribe organized by a 1960 federal
resolution operating within and as a part of the federal recognition of the
Cherokee Nation of Oklahoma. The Indian Owners of Shawnee Reserve
No. 206 have federal Indian membership cards showing them as Cherokee-
Shawnee members of the Cherokee Nation of Oklahoma. The Shawnee
and the Cherokee are currently working to reaffirm the Shawnee's
jurisdiction over the Indian land.
The Company believes that there is a significant opportunity for Indian
gaming on the Shawnee Reserve No. 206. However, none of the above
agreements have been approved by the BIA or the Cherokee Nation or any
other regulatory authority. There can be no assurance that these or future
agreements will be approved and that any Indian gaming will ever be
established on the Shawnee Reserve or that the Company will be the
Management Company.
-Modoc Bingo-
The Company has a management agreement with the Modoc Tribe, to
construct and operate an Indian gaming facility on Modoc Reservation
lands in Eastern Oklahoma. The Management Agreement was filed with
the NIGC on June 7, 1994, for review and approval. No approval has yet
been received by the NIGC.
-Other Gaming-
The Company is currently reviewing other potential Indian gaming
opportunities with other tribes. These discussions are in the early stages
of negotiation and there can be no assurance that these gaming
opportunities will be successful.
The various management agreements have not yet been approved by the
various governing agencies and therefore are not filed as exhibits to the
document.
COSTS AND EXPENSES
The consolidated gross profit percentage is 19.37% for the three months
ended July 31, 1996 and 17.86% for the three months ended July 31,
1995.
Operating expenses (selling, general and administrative) in the three
months ended July 31, 1996 were $905,789 or 17.07% of sales compared
to $620,235 or 16.1% of sales for the three months ended July 31, 1995,
an increase of $285,554 or 46%. The majority of the increased expenses
directly relate to the increased revenue and the related
<PAGE>
increase in sales staff commissions and selling expenses at the Food
Distribution division.
Interest expense for the three months ended July 31, 1996 increased
$43,558 from $12,797 in the first quarter of the prior year to $56,355.
The Company continues to use its line of credit to maintain operations
however, the line has not been increased. The Company acquired a Lear
35 during fiscal 1996 for debt of $1,500,000, the majority of the increase
in interest expense relates to this acquisition and the related debt.
Other income(expense) is expense of $2,717 in the quarter ended July 31,
1996 versus income of $5,126 in the quarter ended July 31, 1995.
The Company employed 58 at July 31, 1996, and 67 at July 31, 1995.
EARNINGS
The Company recorded a profit of $63,190 in the three months ended
July 31, 1996. This is comparable to a profit of $64,390 in the three
months ended July 31, 1995. Income per share is $.007 and income per
share is $.007 for the three months ending July 31, 1996 and July 31,
1995, respectively.
CAPITAL RESOURCES
The Company had no material commitment for capital expenditures as of
July 31, 1996.
LIQUIDITY
Borrowed funds have been used primarily for working capital. Bank debt
is $444,956 at July 31, 1996, and was $451,805 at July 31, 1995. The
Company's unused line of credit was approximately $55,044 as of July 31,
1996 and approximately $48,195 as of July 31, 1995. The interest rate on
the Company's line of credit is prime plus two, as of August 25, 1996, the
interest rate is 10.25%.
The Company plans to continue using the promissory notes payable due
in August, 1996, as working capital. The promissory notes payable
maturities have been extended to November, 1996. The Company believes
the extensions will continue and does not anticipate the repayment of these
notes in fiscal 1997. The extensions of the promissory notes payable is
consistent with prior years. If the Bank were to demand repayment of the
notes payable, the Company currently does not have enough cash to pay
off the notes without materially adversely affecting the financial condition
of the Company.
Prior to 1991, the Company incurred significant operating losses, which
resulted in reduced working capital, cash flow problems, and a net capital
deficiency. Accordingly, the Company began a process of voluntarily
reorganizing and financially restructuring its financial position. As a
result, the Company was successful in settling substantially all past due
liabilities from vendors and governmental taxing authorities on satisfactory
terms. The Company recorded income from the Favorable settlement of
liabilities of $234,603 in fiscal 1992, $78,842 in fiscal 1993 and $71,230
in fiscal 1995. This income relates to the write off of vendor payables
which had been accrued for in prior years at amounts greater than the
actual cost of settlement. During fiscal 1991, many of these vendors
accepted a portion of the debt owed in stock and a portion to be paid off
over a three year period. During fiscal 1993, many of these same vendors
forgave the remaining payments due to the significant increase in the value
of the stock received and the fact that the Company was continuing to
restructure and incurring cash flow problems. During fiscal 1995, the
Company wrote off the rest of the vendor payables related to prior to 1989
which were not settled by the restructuring.
The Company continued in fiscal 1995 to issue stock at fair market value
for various legal, marketing and consulting services, in lieu of cash
payments. During fiscal 1995, the Company issued 95,000 share of stock
at a value of $219,668 for professional services to be provided in the
future.
The Company did not issue shares for professional services to be
provided in the future in fiscal 1996. The Company issued 20,000 shares
for consulting services related to the acquisition of the operating rights and
assets of
WEI in fiscal 1997. See Note 5.
The Company acquired RFI on April 21, 1994. The Company exchanged
650,000 shares of the Company's common stock for 100% of the issued
and outstanding shares of RFI. At the date of acquisition, RFI's total
assets
<PAGE>
were $565,605, consisting of cash of approximately $200,000, accounts
receivable of approximately $280,000, and inventory of approximately
$60,000. RFI's liabilities included approximately $260,000 of vendor
payables, and $115,000 of accrued payroll and payroll taxes.
The Company does not expect nor has it incurred any substantial costs
associated with integrating RFI's operations. However, the Company
incurred approximately $60,000 in legal, accounting and other professional
fees associated with the merger. The Company expects that the majority
of RFI's operations will continue to operate as it did under previous
management. The Company does plan to expand the customer base of
RFI, by hiring additional sales personnel in various locations. The
additional costs of personnel should be more than offset by the additional
contribution margin recognized. The Company hired seven (7) additional
sales personnel at various locations in fiscal 1995 and fiscal 1996.
The Company is planning a retail market test under its registered trade
name, Valu Foods, of the products being distributed by RFI. Two or more
test stores are planned in smaller communities. Capital to finance this
planned test marketing of approximately $500,000 may be required during
fiscal 1997.
The Company completed the acquisition of the operating rights and assets
of Woodson Electronics, Inc. The Company received a portion of WEI's
operating rights and assets in exchange for 80,000 shares of stock with a
fair market value of $160,000. The Company also entered into a Non-
Exclusive Consulting, Non-Disclosure and Non-Compete Agreement with
Thomas E. Woodson, which provides for the issuance of 20,000 shares of
the Company's common stock and $36,000 to be paid out over 24 months.
WEI is engaged in the business of designing, manufacturing, improving,
marketing, maintaining, and providing, directly and with the assistance of
others, data acquisition, alarm monitoring and reporting products and
services related to such products. WEI supplies the monitoring products to
Butler National Services, Inc. During the first quarter of fiscal 1997, the
Company relocated its Woodson Avionics business segment, along with
the newly acquired operating rights and assets of WEI to Phoenix,
Arizona.
During fiscal 1996, the President and CEO, Clark D. Stewart, exercised
his option to purchase 400,000 shares of the Company's common stock
under the terms of the 1989 Nonqualified Stock Option Plan through a
loan by the Company. The shares were purchased at prices ranging from
$.70 to $1.00 per share. The largest aggregate amount of indebtedness
outstanding was $367,000 during fiscal 1996. The amount outstanding at
July 31, 1996, is $338,634. Interest is charged at the applicable federal
rate and the loan is being amortized over five years.
On June 26, 1996, the Company completed a private placement in which
the Company issued a 8.0% cumulative convertible debenture due June 26,
1998 in the amount of $750,000. Interest to be paid at time of conversion
either in cash or kind at the option of the Company. Net proceeds of the
offering were $675,000, after deducting the expenses of the offering. The
proceeds of the offering will be utilized for relocation of the Woodson
Avionics segment and additional aircraft product development.
The Company had an employment agreement with an individual which
the Company terminated in April 1995. This individual filed a lawsuit
against the Company, the President of the Company and various corporate
subsidiaries alleging the Company wrongfully terminated the individual's
employment in breach of the contract. The suit was filed in October,
1995, in State Court in Johnson County, Kansas. The individual dismissed
the claim in Johnson County, Kansas and refiled in Federal District Court.
The individual has asserted a claim for damages in excess of $1,400,000.
The individual had proposed a settlement offer for $500,000, but has
withdrawn the settlement offer. It is management's position that the
Company will defend the claim vigorously and in that pursuit the
Company has asserted a counterclaim against the individual for negligence
in the performance of the individual's professional duties.
Depending upon the development schedules, the Company, through
BNSC, will need additional funds to complete its currently planned Indian
gaming opportunities. The Company will use current cash available and
these additional funds for the start up and construction of gaming facilities.
The Company anticipates initially obtaining these funds from two sources:
internally generated working capital from non-gaming operations and the
proceeds from an anticipated private placement of the Company's common
stock. After a few gaming facilities become operational, the gaming
operations will generate additional working capital for the start up and
construction of other additional gaming facilities. The Company expects
that its start up and construction financing of gaming facilities will be
replaced by other financial lenders, long term financing through debt issue,
or equity issues.
<PAGE>
PART II.
OTHER INFORMATION
Responses to items 1 through 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
Item 6. Exhibits and reports on Form 8-K.
(A) Exhibits.
3.1 Articles of Incorporation, as amended, are incorporated
by reference to Exhibit 3.1 of the Company's Form 10-K
for the year ended April 30, 1988.
3.2 Bylaws, as amended, are incorporated by reference to
exhibit 3.2 of the Company's Form 10-K for the year
ended April 30, 1999.
(B) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
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.
BUTLER NATIONAL CORPORATION
(Registrant)
September 12, 1996 Clark D. Stewart
Date Clark D. Stewart, (President
and Chief Executive Officer)
September 12, 1996 Stephanie S. Ruskey
Date Stephanie S. Ruskey,
(Vice President and Chief
Financial Officer)
<PAGE>
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