SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended April 30, 1995
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.[ ]
The aggregate market value of the voting stock held by nonaffiliates
of the Registrant was approximately $19,764,350 at February 9, 1996, when
the average bid and asked prices of such stock was $2.6875.
The number of shares outstanding of the Registrant's Common Stock,
$0.01 par value, as of February 9, 1996, was 8,980,890 shares.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
PART I
Item 1. BUSINESS
General
Butler National Corporation (the "Company" or "BNC") is a Minnesota
corporation formed in 1960, with corporate headquarters at 1546 East Spruce,
Olathe, Kansas 66061.
Current Activities. The Company's current product lines and services
include:
(1) Aircraft Modifications - principally includes the modification of
business-size aircraft from passenger to freighter configuration, conversion
to air ambulance, addition of aerial photography capability, addition of
exterior cargo space and other modifications. The Company provides these
services through its subsidiary Avcon Industries, Inc. ("Aircraft
Modifications" or "Avcon").
(2) Avionics - principally includes the manufacture of airborne radio and
instrument switching units used in DC-9, DC-10, DC- 9/80, MD-80 and the KC-10
aircraft. The Company provides these services through its subsidiary Woodson
Avionics, Inc. ("Switching Units", "Avionics" or "WAI").
(3) Food Distribution Services - principally includes food distribution to
the wholesale, food processing and retailing industries. The Company provides
these services through its subsidiary R F, Inc. ("Food Distribution" or
"RFI").
(4) Gaming - principally includes the business management services to Indian
tribes in connection with the Indian Gaming Act of 1988. The Company
provides these services through its subsidiary Butler National Service
Corporation ("Management Services", "Gaming" or "BNSC").
(5) SCADA Systems and Monitoring Services - principally includes the
monitoring of water and wastewater remote pumping stations through electronic
surveillance for municipalities and the private sector and related repair
services. The Company provides these services through its subsidiary Butler
National Services, Inc. ("Monitoring Services" or "BNS").
(6) Temporary Services - provides temporary employee services for corporate
clients. The Company provides these services through its subsidiary Butler
Temporary Services, Inc. ("Temporary Services" or "BTS").
Assets as of April 30, 1995 and Net Revenues for the year ended April 30,
1995.
<TABLE>
<CAPTION>
Industry Segment Assets Revenue
<S> <C> <C>
Aircraft Modifications 38.1% 14.1%
Avionics 4.2% 1.8%
Food Distribution 26.2% 72.1%
Gaming 23.7% 0.0%
Monitoring Services 3.3% 6.0%
Temporary Services .1% 6.0%
Corporate Office 4.4% 0.0%
</TABLE>
The Company engaged Arthur Andersen LLP to audit the financial statements
included herein for the years ended April 30, 1995, 1994 and 1993. Arthur
Andersen LLP's opinion on the financial statements as of April 30, 1995, 1994
and 1993, is included herein.
<PAGE>
Financial Information about Industry Segments
Information with respect to the Company's industry segments are found at
Note 11 of Notes to Consolidated Financial Statements for the year ended
April 30, 1995, located herein at pages 41 and 42.
Narrative Description of Business
Aircraft Modification. The Company modifies business category aircraft at
Avcon. The modifications include aircraft conversion from passenger to
freighter configuration, conversion to air ambulance, addition of aerial
photography capability, addition of exterior cargo space, and other special
mission modifications. Avcon offers aerodynamic and stability improvement
products for selected business jet aircraft.
Sales of the Aircraft Modifications product line are handled directly
through the Aircraft Modifications Division in Newton, Kansas. Specialty
modifications are quoted individually by job. The Company is geographically
located in the marketplace for the Aircraft Modifications products and it
believes there are three competitors (AAR of Oklahoma, AVTEC, Dee Howard
Company) in the industry in which the Aircraft Modifications Division
participates.
Avionics - Switching Units. The Company has an agreement with McDonnell
Douglas to manufacture and repair airborne switching systems for McDonnell
Douglas and its customers. The Company subcontracts with its wholly owned
subsidiary Woodson Avionics, Inc. in Imboden, Arkansas, for the manufacture
and repair of Switching Units. Switching Units are utilized to switch the
presentation to the flight crew from one radio system to another, from one
navigational system to another and to switch instruments in the aircraft
from one set to another. The Switching Units are designed and manufactured
to meet McDonnell Douglas and FAA requirements. Most McDonnell Douglas
commercial aircraft are equipped with one or more Butler National Switching
Units.
Marketing is accomplished directly between the Company and McDonnell
Douglas. Competition is minimal. However, sales are directly related to
McDonnell Douglas' production of DC-9, DC-10, DC9/80, MD-80, MD-90, MD-11 and
KC-10 tanker aircraft. The current McDonnell Douglas contract has been
extended to 1997.
The Company sells to McDonnell Douglas on terms of 2% 10 days, net 30
days. All payments have been and continue to be within these terms. The
Company has ordinary course of business purchase orders from the commercial
division (Douglas Aircraft Company) for products with scheduled shipment
dates into the year 1997. However, should McDonnell Douglas financially
reorganize or for some other reason not accept shipment against these orders,
the Company could suffer significant loss of revenue.
Food Distribution. RFI is a specialty food distribution business with
contract warehouses in St. Louis and Kansas City, Missouri. RFI serves a
wide range of customers, nationwide, in the wholesale, food processing and
retailing industries. RFI purchases from manufacturers product overruns,
seconds, and merchandise approaching ideal quality date and sales these
products to various wholesalers and retailers. Product items are "center of
the plate items," ie. meat and poultry products. The acquisition
of various products in this very competitive market is dependent upon
successful bidding at a price standpoint. Most products sold on a bid basis
and products compete with all other standard products under regulated method
of distribution. The Company competitively bids various governmental
agencies, school districts, prison systems and others to supply product to
institutions. Purchases are immediate with ten day terms and sales terms are
30 days.
Management Services. BNSC is engaged in the business of providing
management services to Indian Tribes in connection with the Indian Gaming Act
of 1988. The Company has three management agreements in place; however, the
performance of these agreements is contingent upon and subject to various
approvals by the Secretary of Interior, Bureau of Indian Affairs, National
Indian Gaming Commission and the appropriate State if required. Also, the
Company has a signed consulting engagement letter with another tribe to study
and develop a plan for Indian gaming.
<PAGE>
The management services to be provided by the Company will include
consulting and services for the development and plans to manage the facilities
for the Tribes. The Company will provide the necessary funds to construct
the facilities and will be repaid the principal plus interest out of the
profits of the operation. Additionally, the Company will receive a thirty
percent (30%) share of the profits for its management services.
SCADA Systems and Monitoring Services. BNS is engaged in the sale of
monitoring and control equipment as well as the sale of monitoring services
including repairs for water and wastewater remote pumping stations through
electronic surveillance by radio or telephone. BNS contracts with
government and private owners of water and wastewater pumping stations to
provide both monitoring and preventive maintenance services for the customer.
The Company expects a high percentage of BNS business to come from
municipally owned pumping stations. Currently, BNS is soliciting business
in Florida only. While the Company has exposure to competitive forces in the
monitoring and preventive maintenance business, management believes the
competition is limited.
Temporary Services. BTS is engaged in the business of providing managed
temporary personnel to corporate clients. These personnel are provided to
cover personnel shortages on a short and/or long term basis. This service is
being marketed in Kansas, Missouri and Oklahoma. Currently, this Company is
inactive.
Raw Materials. Raw materials relating to all of the Company's products and
services are currently available from several sources except for certain
components used in the manufacture of the Switching Units which have long
lead time components and/or are single sourced.
Patents. There are no patents, trademarks, licenses, franchises, or
concessions held by the Company or which need to be held in order for it to
engage in the businesses in which it engages. However, the Company maintains
certain airframe alteration certificates, commonly referred to as
Supplemental Type Certificates ("STCs"), issued to it by the FAA for its
Aircraft Modification business.
Seasonality. The Company's business is generally not seasonal. Demand
for the Falcon 20 cargo aircraft modifications is related to the seasonal
activity of the automotive industry in the United States because many of
these modified aircraft are used to carry automotive parts to automobile
manufacturing facilities. The peak modification demand occurs in late spring
and early summer. Peak usage of the modified aircraft is from June to
December. Future changes in the automotive industry could result in the
fluctuation of revenues at the Aircraft Modifications Division.
Customer Arrangements. Most of the Company's products are custom-made.
No special inventory storage arrangements, merchandise returns and allowances
policies or extended payment practices are involved in the Company's business
except in isolated situations. The Company is not dependent upon any single
customer except in the case of Switching Units. Switching Units are sold to
McDonnell Douglas and Douglas Aircraft Company customers. The Company has
required deposits from its customers for aircraft production schedule dates.
Backlog. The Company's backlog as of April 30, 1995, 1994, and 1993,
was as follows:
<TABLE>
<CAPTION>
Industry Segment 1995 1994 1993
<S> <C> <C> <C>
Aircraft Modifications 1,470,005 2,432,041 2,549,839
Avionics 206,393 181,216 207,880
Food Distribution 1,850,000 932,478 833,240
Monitoring Services 208,188 238,800 266,006
Temporary Services - 720,406 5,083,000
--------- -------- ---------
$3,734,586 $4,504,941 $8,939,965
</TABLE>
<PAGE>
The Company's backlog as of July 17, 1995, totaled $4,648,591 consisting of
$1,368,439, $188,152, $1,517,000, $1,575,000 and $0, respectively, for
Aircraft Modifications, Avionics, Food Distribution, Monitoring Services and
Temporary Services. The backlog includes firm orders which may not be
completed within the next twelve months. The amount of backlog the Company
expects will not be filled within the next year totals $1,742,000 consisting
of $375,000, $0, $0, $1,367,000, $0.
Employees. The Company employed 54 people on April 30, 1995, compared to
920 people on April 30, 1994, and 898 people on April 30, 1993. The decrease
in the number of employees is due to the inactive status of the Temporary
Services segment. As of July 17, 1995, the Company employed 66 people.
None of the Company's employees are subject to any collective bargaining
agreements.
Financial Information about Foreign and Domestic Operations, and Export
Sales.
Information with respect to Domestic Operations may be found at Note 11 of
Notes to Consolidated Financial Statements for the year ended April 30, 1995,
located herein at pages 41 and 42. There are no significant foreign
operations.
<PAGE>
PART II
Item 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with
Management's Discussion and Analysis of Results of Operations and Financial
Condition and the Consolidated Financial Statements and related Notes
included elsewhere in the report.
<TABLE>
<CAPTION>
Year Ended April 30
(In thousands except per share data)
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Sales $13,156 $17,713 $16,854 $12,497 $ 6,862
Income (Loss) from
Continuing Operations $ (895) $ 271 $ 800 $ 340 $ (83)
Extraordinary Items<FN1> 0 0 0 0 171
Net Income (Loss) $ (895) $ 271 $ 800 $ 340 $ 88
Per Share Income
(Loss) from Continuing
Operations $ (.11) $ .04 $ .12 $ (.07) $ (.02)
Extraordinary Items .00 .00 .00 .00 .04
Net Income (Loss) $ (.11) $ .04 $ .12 $ .07 $ (.02)
Selected Balance
Sheet Information
Total Assets $4,263 $5,024 $2,645 $2,312 $ 2,510
Long-term Obligations $ 81 $ 108 $ 355 $ 394 $ 469
Cash dividends declared
per common share None None None None None
<FN>
<FN1>The extraordinary items represent credits from debt restructuring (1991).
</FN>
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Fiscal 1995 compared to fiscal 1994
The Company's sales for fiscal 1995 were $13,155,982, a decrease of 25.7%
from fiscal 1994 sales of $17,713,098. Discussion of specific changes by
operation follows.
Food Distribution: Revenues from the Food Distribution business segment
increased 43.5% from $6,610,746 in fiscal 1994 to $9,487,964 in fiscal 1995
due to the increasing customer base. Revenue increase is due to increased
product sales. This increase was achieved through the Company's continued
commitment to customer service and top-quality products. The increase in
sales resulted in a 22.9% increase in gross profit to $1,087,891 in fiscal
year 1995 from $885,114 in fiscal year 1994. Operating income was relatively
the same with $471,277 in fiscal year 1994 and $461,200 in fiscal year 1995.
This division was acquired on April 24, 1994, prior to January 1, 1994 the
Company was organized as a sole proprietorship, during this time all
distributions to the Company's shareholder were treated as capital
transactions which had no impact on operating income. Beginning January 1,
1994, when the Company began operations as a C corporation, officer
distributions were treated as salary expense which caused as increase in
selling, general and administrative expenses in fiscal year 1994. However,
this only accounted for a portion of the officer's salary in 1994. In fiscal
year 1995 a full years salary was included in sales, general and
administrative expense thereby reducing the Company operating income in
comparison to fiscal year 1994 when only four (4) months of the officers
salary was expensed through sales, general and administrative expense.
<PAGE>
Aircraft Modification: Sales from the Aircraft Modifications business
segment decreased 3.6% from $1,913,619 in fiscal 1994 to $1,845,609 in fiscal
1995. This segment earned an operating income of $133,924 in 1995 compared
to income of $316,933 in 1994. Product sales and prices were relatively
stable between fiscal years. The decrease in the operating income is due to
increased personnel costs at this division and increased research and
development on new modifications. This segment has hired additional
management personnel, in an effort to increase the introduction of the new
products and services.
Switching Units: Sales from the Avionics Switching Unit business segment
decreased 26.5% from $324,234 in fiscal 1994 to $238,162 in fiscal 1995.
Sales to the major OEM customer declined 26.6% and sales for aircraft repair
and refurbishment declined 26.4% from fiscal 1994 to fiscal 1995. Decrease
in revenue is due to a decrease in product sales. Operating profits decreased
from $22,031 in fiscal 1994 to $4,443 in fiscal 1995. The Company believes
the decrease in revenue to be a continuing trend, however, the decrease in
revenue is due to a decrease in product sales and should level off in the
coming year. This segments revenue is directly related to the production
volume of its major customer, McDonnell Douglas. As long as McDonnell
Douglas continues to reduce its production, the volume of switching units
will decrease.
SCADA Systems and Monitoring Services: Revenue from Monitoring Services
increased from $671,910 in fiscal 1994 to $790,317 in fiscal 1995, an
increase of 17.6%. During fiscal 1995, the Company was able to maintain a
relatively level volume of long-term contracts with municipalities. The
Company's contracts with its two largest customers have been renewed for
fiscal 1996. An operating profit of $156,614 in Monitoring Services was
recorded in fiscal 1995 compared to fiscal 1994 operating profit of $100,792.
The increased profit resulted from special jobs completed in addition to the
long term contracts with the municipalities. Revenue increased due to the
introduction of new products and services. The Company was able to secure
performance bonds during the first quarter of fiscal 1995. This division has
since bid on certain jobs requiring performance bonds and completed two
special jobs, with revenue totaling approximately $125,000.
Temporary Services: This operation provides temporary employee services for
corporate clients. Sales from Temporary Services decreased 90.35% from
$8,192,589 in fiscal 1994 to $790,317 in fiscal 1995. During the year ended
April 30, 1995, the related gross profit was $25,754, compared to $242,912 in
fiscal 1994, and the contribution to consolidated net operating profit (loss)
by this business segment was ($59,021) compared to an income of $75 in fiscal
1994.
As of June 3, 1994, the Company no longer provided temporary services to its
largest customer (WH of KC). The Company's customer sold the Wendy's stores
in the Kansas City area to Wendy's International. Wendy's International did
not wish to contract with the Company to provide temporary services. This
represents a loss in revenue of approximately 56 percent of the Company's
consolidated revenue, but only 13 percent of the Company's consolidated gross
profit. This segment became inactive during fiscal 1995. 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. See Note 9 to the financial statements for
further discussion of this change.
Management Services: The Company has a management agreement with the Miami
Tribe of Oklahoma to provide management services in connection with the
Indian Gaming Regulatory Act. The Miami Tribe requested a compact for Class
III Indian gaming on Indian land known as the Maria Christiana Miami Reserve
No. 35 located in Miami County, Kansas, on July 9, 1992. The State of
Kansas has approved three Kansas Gaming Compacts for Indian gaming within the
boundaries of the State. Two compacts were signed by the Governor of Kansas,
approved by the Legislature on April 29, 1995, and approved by the Secretary
of the Interior pursuant to the Indian Gaming Regulatory Act ("the IGRA").
A third compact was signed by the Governor, approved by the Legislative
Coordinating Council ("LCC") and forwarded to the Secretary of the Interior
for approval. A fourth was signed by the Governor and is pending approval
by the LLC. The four Indian tribes which have signed Compacts with the State
of Kansas are not Tribes which have management agreements with the Company.
<PAGE>
The Miami Tribe's 1992 compact is 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. This case has
been stayed pending an appeal to the United States Supreme Court of the
Tenth Circuit Court's determination, relating to two of the tribes whose
compacts have now been approved, that the State is bound to negotiate with
the Indian tribes with Indian land within the boundaries of the State.
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 National
Indian Gaming Commission ("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 no established jurisdiction over the Miami
lands in Kansas. This is 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 concerns about the conclusions reached
based upon the analysis of the case.
The Miami Tribe has indicated that it will challenge this opinion if it
remains the opinion of the BIA in Federal Court to prove and protect the
sovereignty of the Miami Tribe and other Indian tribes relating to their
lands. The ultimate approval of Butler's management agreement with the Miami
Tribe depends upon the successful challenge by the Miami Tribe of the
Associate Solicitor's opinion. Even though the Company believes that it and
the tribe are in compliance with all regulations, there is no assurance that
the management agreement will be approved.
The Company incurred $560,000 in general and administrative expenses in the
current fiscal year associated with its continued efforts to explore service
opportunities related to the Indian Gaming Act of 1988. Additionally, the
Company amortized $142,751 and $85,176 in fiscal years 1995 and 1994,
respectively, related to shares issued for services rendered to the Company
in that regard.
The Company has invested $978,000 in land, land improvements and
professional design fees related to the development of three Indian Gaming
facilities. Included in this investment is 228 acres of land. The Kansas
land (160 acres) is located adjacent to the Linn Valley Lakes resort and
residential development in Linn County, Kansas. The Company believes that
the Kansas 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 $978,000 investment.
Selling, general and administrative (SG&A) expenses increased $837,484
(47.6%) in fiscal year 1995. These expenses were $2,596,823 or 19.7% of
revenue in fiscal 1995 and $1,759,339 or 9.9% of revenue in fiscal 1994.
SG&A expenses related to the new company, RFI, were $608,412 in fiscal 1995
and $413,837 in fiscal 1994. The increase in SG&A related to RFI between
years is due to the increase in sales personnel. SG&A expenses related to
the Company, excluding RFI, were $1,988,411 in fiscal 1995 compared to
$1,345,502 in fiscal 1994. The increase of approximately $600,000 is
directly related to the Company's continued effort to explore opportunities
in connection with the Indian Gaming Act of 1988.
Other income (expense) expenses increased due to the writedown of the land
and building in Overton, Nebraska. This facility became idle in 1994. The
Company was unable to complete the negotiated sale of the land and building
therefore the Company reduced the value of the asset by $157,200 in order to
record the asset at its estimated net realizable value.
<PAGE>
Fiscal 1994 compared to fiscal 1993
The Company's sales for fiscal 1994 were $17,713,098, an increase of 5.1%
from fiscal 1993 sales of $16,854,082. Discussion of specific changes by
operation follows.
Food Distribution: Revenues from the Food Distribution business segment
increased 15.79% from $5,709,087 in fiscal 1993 to $6,610,746 in fiscal 1994
due to the increasing customer base. This increase was achieved through the
Company's continued commitment to customer service and top-quality products.
The increase in sales resulted in a 21.52% increase in gross profit to
$885,114 in fiscal year 1994 from $691,472 in fiscal year 1993. Operating
income fell from $565,764 in fiscal year 1993 to $471,277 in fiscal year 1994
due to a change in how the Company's president and former sole-proprietor was
compensated. The Company was organized as a sole-proprietorship through
December 31, 1993, during which time all distributions to the Company's
shareholders were treated as capital transactions which had no impact on
operating income. Beginning January 1, 1994, when the Company began
operations as a C-corporation, officer distributions were treated as salary
expense which caused the increase in selling, general and administrative
expenses in fiscal year 1994. This division was acquired on April 21, 1994,
therefore it was not managed by the Company in fiscal years 1993 and 1992.
Aircraft Modification: Sales from the Aircraft Modifications business
segment decreased 8.2% from $2,084,116 in fiscal 1993 to $1,913,619 in fiscal
1994. Due to the relatively stable sales volume this segment maintained an
operating income of $316,933 in 1994 compared to income of $309,617 in 1993.
The decrease in revenue is due to lower prices to secure long term multiple
orders on Falcon door modifications. This decline does not represent a
trend. However operating income increased due to higher margins recognized
by lowering the labor hours associated with each modification.
Switching Units: Sales from the Avionics Switching Unit business segment
decreased 44.1% from $579,420 in fiscal 1993 to $324,234 in fiscal 1994.
Sales to the major OEM customer declined 17.5% and sales for aircraft repair
and refurbishment declined 64.5% from fiscal 1993 to fiscal 1994.
Decreased repair and refurbishment sales are related to a major overseas sale
in fiscal 1993. Operating profits decreased from $222,992 in fiscal 1993 to
$22,031 in fiscal 1994. The Avionics group moved from Overton, Nebraska to
Imboden, Arkansas during fiscal 1994. Operating expenses include direct
moving and training expenses of $33,796. The Company believes the decrease
in revenue to be a continuing trend.
SCADA Systems and Monitoring Services: Revenue from Monitoring Services
decreased from $856,161 in fiscal 1993 to $671,910 in fiscal 1994, a decrease
of 21.5%. During fiscal 1994 the Company was able to maintain a relatively
level volume of long-term contracts with municipalities. During fiscal 1993,
the Company completed the second phase of the Cooper City job. The revenue
from this job was approximately $175,000. Both of the contracts with the
Company's two largest customers have been renewed for fiscal 1995. An
operating profit of $100,792 in Monitoring Services was recorded in fiscal
1994 compared to fiscal 1993 operating profit of $170,461. The decreased
profit resulted from the lack of any special jobs (such as the Cooper City
job) other than the long term contracts with the municipalities. The Company
does not expect the decrease in revenue to be a trend. The Company was able
to secure performance bonds during the first quarter of fiscal 1995. This
division has since bid on certain jobs requiring performance bonds. This
division has secured two special jobs, with revenue totaling approximately
$125,000, since obtaining the bid bonds.
Temporary Services: This operation provides temporary employee services
for corporate clients. Sales from Temporary Services increased 7.4% from
$7,625,298 in fiscal 1993 to $8,192,589 in fiscal 1994. During the year
ended April 30, 1994, the related gross profit was $242,912, compared to
$232,045 in fiscal 1993, and the contribution to consolidated net operating
profit by this business segment was $75 compared to an income of $28,089 in
fiscal 1993. Temporary Services reflects the continued long-term move toward
the services business started by the Company in the late 1980's.
<PAGE>
As of June 3, 1994, the Company no longer provides temporary services to
its largest customer. This represents a loss in revenue of approximately 44
percent of the Company's consolidated revenue, but only 12 percent of the
Company's consolidated gross profit. It is anticipated that this division
will be almost completely inactive in fiscal 1995. 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 which should make it a valuable contributor in the future.
See Note 10 to the financial statements for further discussion of this change.
Management Services: The Company has three management agreements in place;
however, the performance of these agreements is contingent upon and subject
to various approvals by the Secretary of Interior, Bureau of Indian Affairs,
National Indian Gaming Commission and the appropriate State, if required.
Also, the Company has signed a consulting engagement letter with another tribe
to study and develop a plan for Indian gaming. The Company and the Indian
tribes have had several meetings to discuss the status of the approvals
necessary to begin performance under the management agreements.
Representatives of the Company and the tribes have met with various
government officials in an attempt to move the agreements toward approval.
Even though the Company believes that it and the tribes are in compliance
with all regulations, there is no assurance that the management agreements
will be approved. The Company incurred $42,300 in general and administrative
expenses in the current fiscal year associated with its continued efforts to
]explore service opportunities related to the Indian Gaming Act of 1988.
Additionally, the Company amortized $85,176 related to shares issued for
services rendered to the Company in that regard.
Selling, general and administrative (SG&A) expenses increased $473,700
(36.8%) in fiscal year 1994. These expenses were $1,759,339 or 9.9% of
revenue in fiscal 1994 and $1,285,639 or 7.6% of revenue in fiscal 1993.
SG&A expenses related to the new company, RFI, were $413,837 in fiscal 1994
and $125,708 in fiscal 1993. The increase in SG&A related to RFI between
years is due to the salary of the President being included in SG&A, whereas
in fiscal 1993, since the Company was operated as a sole proprietorship, no
salary was paid, rather distributions were taken by the proprietor. See
Note 10 to the financial statements. SG&A expenses related to the Company,
excluding RFI, were $1,345,502 in fiscal 1994 compared to $1,159,931 in
fiscal 1993. The increase in SG&A expenses is due to the company's continued
effort to explore opportunities in connection with the Indian Gaming Act of
1988.
Liquidity and Capital Resources
Borrowed funds have been used primarily for working capital. Bank debt
related to the company's operating line was $362,495 at April 30, 1995,
$405,351 at April 30, 1994, and $396,886 at April 30, 1993.
The Company's unused line of credit at April 30, 1995 was $137,505. As of
July 17, 1995, the Company's unused line of credit was $99,001. The Company's
line of credit is $500,000. The interest rate on the Company's line of
credit is prime plus two, as of July 17, 1995, the interest rate is 11.0%.
The Company plans to continue using the promissory notes payable due in
August 1995 as working capital. The Company believes the extensions will
continue and does not anticipate the repayment of these notes in fiscal 1996.
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
<PAGE>
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 shares of stock at
a value $219,668 for professional services to be provided in the future.
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 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. 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 five (5) additional
sales personnel at various locations in fiscal 1995.
The Company has entered into a letter of intent to purchase the operating
rights and assets of Woodson Electronics, Inc. If the transaction is
consummated under the terms of the letter of intent, the Company anticipates
a purchase price of approximately 100,000 shares of the Company's common
stock, $.01 par value, and cash payments totalling approximately $34,000,
over a period of two (2) years. This transaction is expected to be finalized
in fiscal 1996.
The Company does not, as of April 30, 1995, have any material commitments
for other capital expenditures.
The Company had an employment agreement with an individual in which the
Company terminated the relationship in April 1995. Although a lawsuit has
not been filed, the individual has asserted a significant claim for damages,
and has proposed a settlement offer for $500,000. It is management's opinion
that the Company will defend the claim vigorously.
From a longer term perspective, 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.
Analysis of Cash Flow
During 1995, the Company's cash position decreased by $1,223,454. A
majority of the negative cash flow from operations in fiscal 1995 is due to
the increase in other assets attributable to the investment of approximately
$600,000 in cash in land, land development costs and equipment associated
with Indian Gaming and the increase in other assets related to an aircraft,
with a value of approximately $425,000, which the Company is currently
refurbishing at their Aircraft Modifications facility which is classified as
other assets rather than inventory since the Company currently has not
finalized their plans as far as the utilization of the aircraft, as to
whether the aircraft will be available for sale or retained for company use.
<PAGE>
Operating Activities: The majority of the increase in inventory relates to
the aircraft modification division. The Company exchanged a Lear 24, which
it had refurbished, with a book value of approximately $250,000 for
replacement and repair parts for various Lear jets, (Lear parts). The
aircraft had been classified in other assets in fiscal 1994. (See Note 1)
The Company is currently positioning itself to perform additional
modifications of Lear aircraft.
The majority of the decrease in accrued liabilities of approximately
$350,000 relates to the decrease in accrued compensation related to Butler
Temporary Services. As of June 3, 1994, the Company no longer provided
employees to the Wendy's stores. The related decrease in accounts receivable
is more than offset by the increase in accounts receivable for the Food
Distribution segment. The accounts receivable related to the Food
Distribution segment went from approximately $400,000 in fiscal 1994 to
$800,000 in fiscal 1995. This is directly related to the increased revenue
from the increased customer base and sales call activity.
Investing Activities: The Company received approximately $300,000 from the
maturity of a certificate of deposit. The proceeds were used to pay off the
note payable of the same amount shown in financing activities.
Financing Activities: During fiscal year 1995, the Company received proceeds
from the exercise of employee stock options of approximately $180,000.
Employees exercised 169,500 options to purchase shares of stock in fiscal
1995.
Subsequent to April 30, 1995, the Company completed an off-shore private
placement of its securities pursuant to Regulation S promulgated under the
Securities Act of 1933, as amended. The Company sold 259,985 shares of
common stock at $2.50 per share, $.01 par value per share. The gross
proceeds from this offering were approximately $650,000. The net cash
proceeds were approximately $570,000.
Changing Prices and Inflation
The Company did not experience any significant pressure from inflation in
1995.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of the Registrant are set forth on pages 24
through 42 of this report.
<PAGE>
PART III.
Item 11. EXECUTIVE COMPENSATION
SUMMARY
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the other most highly compensated
executive officers of the Company whose salary and bonus exceeded $100,000
(determined as of the end of the last fiscal year) for the fiscal years
ended April 30, 1995, 1994 and 1993:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Rest. Secur.
Name and Other Stock Under LTIP Other
Principal Salary Bonus Comp. Awards Options Payouts Comp.
Position Year ($) ($) ($) ($) (#)<FN1> ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Clark D.
Stewart,
President
and CEO,
Director 95 195,590 - - - 100,000 - -
94 166,185 - - - 970,000 - -
93 158,348 - - - - - -
Marvin J.
Eisenbath,
President,
R. F., Inc. 95 307,469 - - - - - -
<FN2> 94 6,923 - - - - - -
93 N/A N/A N/A N/A N/A N/A N/A
Brenda
Brainard
Shadwick,
Indian Affairs
counsel<FN3> 95 133,709 - - 24,999 - - -
94 N/A N/A N/A N/A N/A N/A N/A
93 N/A N/A N/A N/A N/A N/A N/A
<FN>
<FN1>Represents options granted pursuant to the Company's 1989 Nonqualified
Stock Option Plan (100,000) in 1995 and 1993 Nonqualified Stock Option Plan
(20,000) and 1993 Nonqualified Stock Option Plan II (950,000) in 1994.
<FN2>Mr. Eisenbath, president of RFI, became an executive officer of the
Company on April 22, 1994.
<FN3>Ms. Shadwick, Indian Affairs counsel, employed July 5, 1994 to April
17, 1995. Ms. Shadwick was issued 8,333 shares of common stock with a value
of $24,999 on June 24, 1994. Ms. Shadwick received these shares on her
termination date.
</FN>
</TABLE>
<PAGE>
OPTION GRANTS, EXERCISES AND HOLDINGS
The following table provides further information concerning grants of
stock options pursuant to the 1989 Nonqualified Stock Option Plan during the
fiscal 1995 year to the named executive officers:
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Individual Grants
Potential realizable
value as assumed
# % of Total annual rates of
sec. option stock price app.
under. granted to exercise for option term
options employ in price
Name Granted(#) Fiscal YR ($/Sh) Ex. Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Clark D.
Stewart,
CEO<FN1> 100,000 57.9% 2.3125 9/08/99 162,889 259,374
Marvin J.
Eisenbath -0- N/A N/A N/A N/A N/A
Brenda
Brainard
Shadwick -0- N/A N/A N/A N/A N/A
<FN>
<FN1> Except in the event of death or retirement for disability, if Mr.
Stewart ceases to be employed by the Company, his option shall
terminate immediately. Upon death or retirement for disability, Mr.
Stewart (or his representative) shall have three months or one
year, respectively, following the date of death or retirement, as the
case may be, in which to exercise such options. The option
granted for 100,000 shares of Common Stock was granted on January 3,
1995 from the 1989 Stock Option Plan. All such options
are immediately exercisable.
</FN>
</TABLE>
The following table provides information with respect to the named
executive officers concerning options exercised and unexercised options held
as of the end of the Company's last fiscal year:
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<CAPTION>
# of Sec. Value of Unex.
Under. Unex. In-the-$ Opts
Opts. at FY-End
FY-End(#) ($)<FN1>
Name Shares Acquired Value Exercisable/ Exercisable/
on Exercise(#) Realized($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Clark D. Stewart,
CEO 100,000 60,000 1,470,000/0 2,883,750/0
Marvin J. Eisenbath N/A N/A N/A N/A
Brenda Brainard
Shadwick N/A N/A N/A N/A
<FN>
<FN1> Based on the price of the Company's common stock at the close of
business on Friday, April 28, 1995 and the exercise price of the
options.
</FN>
</TABLE>
COMPENSATION OF DIRECTORS
Each non-officer director is entitled to a director's fee of $100 for
meetings of the Board of Directors which he attends. Officer-directors are
not entitled to receive fees for attendance at meetings.
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is comprised of Mr.
Wagoner, Mr. Stewart, Mr. Griffith and Mr. Logan. Mr. Stewart is the
President and Chief Executive Officer of the Company and Mr. Griffith is the
Secretary of the Company.
During the fiscal 1995, the consulting firm of Griffith & Associates was
paid for business consulting services rendered to the Company in the
approximate amount of $130,000. William A. Griffith, who is a director for
the Company, is a principal at Griffith & Associates. It is anticipated that
Griffith & Associates will continue to provide services for the Company.
During the past fiscal year, sales to Wendy's Hamburgers of Kansas City,
Inc. ("WH of KC, Inc.") accounted for approximately 6% of the net sales of
the Company ($790,000). William E. Logan, who is a director for the Company,
is Vice President and Treasurer of WH of KC, Inc. Mr. Logan sold the WH of KC,
Inc. restaurants as of June 3, 1994. The Company no longer provided temporary
services subsequent to June 3, 1994.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
On March 17, 1994, the Company entered into a five-year employment
agreement with Clark D. Stewart under the terms of which Mr. Stewart was
employed as the President and Chief Executive Officer of the Company at an
initial minimum annual salary of $198,000 and a minimum salary of $208,000,
$218,500, $229,500 and $241,000, respectively, in years two through five.
In the event Mr. Stewart is terminated from employment with the Company other
than "for cause," Mr. Stewart shall receive as severance pay an amount equal
to the unpaid salary for the remainder of the term of the employment agreement.
Mr. Stewart was also granted an automobile allowance of $600 per month.
On April 22, 1994, the Company entered into a five-year employment
agreement with Marvin J. Eisenbath under the terms of which Mr. Eisenbath was
employed at an annual salary of $300,000 plus an annual incentive bonus based
on the net profits of the food distribution division. This incentive
arrangement is consistent with the incentive arrangements made with the
Company's other division managers. In the event Mr. Eisenbath is terminated
from employment with the Company other than "for cause," Mr. Eisenbath shall
receive as severance pay an amount equal to the unpaid salary for the
remainder of the term of the employment agreement.
On June 6, 1994, the Company entered into a five-year employment
agreement with Brenda Brainard Shadwick under the terms of which Ms. Shadwick
was employed at an annual salary of $150,000 plus additional compensation to
be issued in stock options or warrants having fair market value of $25,000.
The contract provided that in the event Ms. Shadwick was terminated from
employment with the Company other than "for cause," Ms. Shadwick would
receive as severance pay an amount equal to the unpaid salary for the
remainder of the term of the employment agreement.
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 11, Executive Compensation pages 17-19.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed As Part of Form 10-K Report.
(1) Financial Statements:
Description Page No.
Report of Independent Accountants 27
Consolidated Balance Sheet as of April 30, 1995 and 1994 28
Consolidated Statements of Operations for
the years ended April 30, 1995, 1994 and 1993 29
Consolidated Statements of Shareholders' Equity
for the years ended April 30, 1995, 1994 and 1993 30-32
Consolidated Statements of Cash Flows for
the years ended April 30, 1995, 1994 and 1993 33
Notes to Consolidated Financial Statements 34-43
(2) Financial Statement Schedules:
Schedule Description Page No.
II. Valuation and Qualifying Accounts and Reserves
for the years ended April 30, 1995, 1994 and
1993 44
All other financial statements and schedules not listed have been omitted
because the required information is inapplicable or the information is
presented in the financial statements or related notes.
(3)Exhibits Index Page No.
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, 1989
4.1 Certificate of Rights and Preferences of $100 *
Class A Preferred Shares of the Company, are
incorporated by reference to Exhibit 4.1 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.
<PAGE>
10.1 1989 Nonqualified Stock Option Plan is *
incorporated by reference to the Company's
Form 8-K filed on September 1, 1989
10.2 Nonqualified Stock Option Agreement dated *
September 8, 1989 between the Company
and Clark D. Stewart is incorporated by
reference to the Company's Form 8-K filed
on September 1, 1989
10.3 Agreement dated March 10, 1989 between *
the Company and Woodson Electronics, Inc.
is incorporated by reference to the Company's
Form 10-K for the fiscal year ended
April 30, 1989
10.4 Agreement of Stockholder to Sell Stock dated *
January 1, 1992, is incorporated by reference
to the Company's Form 8-K filed on
January 15, 1992
10.5 Private Placement of Common Stock pursuant *
to Regulation D, dated December 15, 1993, is
incorporated by reference to the Company's
Form 8-K filed on January 24, 1994
10.6 Stock Acquisition Agreement of RFI dated *
April 21, 1994, is incorporated by reference to
the Company's Form 8-K filed on July 21, 1994
10.7 Employment Agreement between the Company *
and Brenda Lee Shadwick dated July 6, 1994, are
incorporated by reference to Exhibit 10.7 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.**
10.8 Employment Agreement between the Company *
and Clark D. Stewart dated March 17, 1994, are
incorporated by reference to Exhibit 10.8 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.**
10.9 Employment Agreement among the Company, *
R.F., Inc. and Marvin J. Eisenbath dated
April 22, 1994, are incorporated by reference
to Exhibit 10.9 of the Company's Form 10-K/A,
as amended, for the year ended April 30, 1994.**
<PAGE>
10.10 Real Estate Contract for Deed and Escrow *
Agreement between Wade Farms, Inc. and
the Company, are incorporated by reference
to Exhibit 10.10 of the Company's Form 10-K/A,
as amended, for the year ended April 30, 1994.
10.11 1993 Nonqualified Stock Option Plan, are *
incorporated by reference to Exhibit 10.11 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.
10.12 1993 Nonqualified Stock Option Plan II, are *
incorporated by reference to Exhibit 10.12 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.
10.13 Industrial State Bank principal amount of *
$500,000 revolving credit line, as amended, are
incorporated by reference to Exhibit 10.13 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.
10.14 Bank IV guaranty for $250,000 dated *
October 14, 1994, are incorporated by
reference to Exhibit 10.14 of the Company's
Form 10-K/A, as amended, for the year
ended April 30, 1994.
10.15 Bank IV loan in principal amount of $300,000 *
dated December 30, 1993, are incorporated by
reference to Exhibit 10.15 of the Company's Form
10-K/A, as amended, for the year ended
April 30, 1994.
10.16 Letter of Intent to acquire certain assets of --
Woodson Electronics, Inc.
22 List of Subsidiaries 45
* Incorporated by reference
** Relates to executive officer employment compensation
(b) Reports On Form 8-K.
None
(c) Exhibits.
Reference is made to Item 14(a)(3).
(d) Schedules.
Reference is made to Item 14(a)(2).
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
April 15, 1996
BUTLER NATIONAL CORPORATION
STEPHANIE S. RUSKEY
Stephanie S. Ruskey, Vice President,
Chief Financial Officer and Principal
Accounting Officer
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) AND (2) --
LIST OF FINANCIAL STATEMENT STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
AND
ITEM 14(d) FINANCIAL STATEMENT SCHEDULES
Years Ended April 30, 1995, 1994 and 1993
BUTLER NATIONAL CORPORATION
Olathe, Kansas
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Butler National Corporation:
We have audited the accompanying consolidated balance sheets of Butler
National Corporation (a Minnesota corporation) and Subsidiaries as of April
30, 1995 and 1994 and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the
period ended April 30, 1995. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Butler National Corporation
and Subsidiaries as of April 30, 1995 and 1994 and the results of their
operations and their cash flows for each of the three years in the period
ended April 30, 1995, in conformity with generally accepted accounting
principles.
As explained in Note 5 to the financial statements, effective May 1, 1993,
the Company changed its method of accounting for income taxes.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II for each of the three
years in the period ended April 30, 1995, is presented for purposes of
complying with the Securities and Exchange Commission rules and is not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in all materials
respects in relation to the basic financial statements taken as a whole.
Arthur Andersen, LLP
Kansas City, Missouri
June 30, 1995
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of April 30, 1995 and 1994<FN1>
<TABLE>
<CAPTION>
ASSETS (Notes 1 and 2) 1995 1994
<S> <C> <C>
Current Assets:
Cash $ 212,799 $1,436,254
Accounts receivable, net of allowance for
doubtful accounts of $110,161 in 1995 974,506 1,010,945
and $53,643 in 1994
Contracts in process 140,092 151,879
Inventories (Note 1):
Raw materials 657,032 446,072
Work in process 177,672 127,896
Finished goods 188,864 121,924
--------- ---------
1,023,568 695,892
Prepaid expenses and other assets 69,299 394,703
--------- ---------
Total current assets 2,420,264 3,689,673
Property, Plant and Equipment (Note 1):
Machinery and equipment 532,152 859,548
Office furniture and fixtures 375,111 330,193
Leasehold improvements 52,318 43,937
Building under construction (Note 7) 130,000 -
--------- ---------
Total cost 1,089,581 1,233,678
Accumulated depreciation (804,952) (1,064,686)
---------- ---------
284,629 168,992
Other Assets (Note 1) 1,488,636 1,165,435
--------- ---------
Total assets $4,193,529 $5,024,100
========= =========
<FN>
<FN1>The accompanying notes are an integral part of these sheets.
</FN>
LIABILITIES AND SHAREHOLDERS' EQUITY (Note 2) 1995 1994
Current Liabilities:
Bank Overdraft payable $112,814 -
Promissory notes payable (Note 2) 362,495 $405,351
Current maturities of long-term debt(Notes 2 and 3) 37,506 343,540
Accounts payable 638,741 610,495
Customer Deposits 155,669 15,000
Accrued liabilities -
Compensation and compensated absences 188,609 447,156
Other 44,067 193,942
-------- ---------
Total current liabilities 1,539,901 2,015,484
Long-Term Debt, net of current maturities (Note 2) 81,347 107,095
--------- ---------
Total liabilities 1,621,248 2,122,579
Commitments and contingencies (Notes 7 and 8)
Shareholders' equity (Notes 1, 4, 6, 7 and 9):
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 8,231,015 shares in 1995 & 7,888,467
in 1994, 82,310 78,885
Common stock warrants 8,707 8,707
Capital contributed in excess of par 3,645,342 2,980,528
Note receivable arising from stock purchase
agreement (27,004) (26,388)
Unearned service contracts (422,185) (320,250)
Treasury stock, at cost (20,000 preferred (2,037,240) (2,037,240)
& 30,000 common in 1995 and 1994)
Retained (deficit) earnings (677,649) 217,279
(Deficit of $11,938,813 eliminated
October 31, 1992) --------- ---------
Total shareholders' equity 2,572,281 2,901,521
--------- ---------
Total liabilities and shareholders' equity $4,193,529 $5,024,100
========= =========
</TABLE>
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended April 30, 1995, 1994 and 1993<FN1>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net sales:
Nonaffiliates $12,365,666 9,882,840 9,322,600
WH of KC (Note 9) 790,316 7,830,258 7,531,482
---------- ---------- ----------
13,155,982 17,713,098 16,854,082
Cost of sales 11,254,310 15,759,410 14,886,067
---------- ---------- ----------
Gross profit 1,901,672 1,953,688 1,968,015
Selling, general and administrative expenses 2,631,285 1,759,339 1,285,639
---------- ---------- ----------
Operating income (loss) (729,613) 194,349 682,376
Other income (expense):
Interest expense (49,967) (59,425) (57,850)
Interest income 32,392 10,064 3,798
Favorable settlement of liabilities 71,230 - 78,842
Writedown of building (Note 1) (157,200) - -
Other (61,770) 132,218 93,353
Other income (expense) (165,315) 82,857 118,143
--------- --------- ---------
Income (loss) before taxes (894,928 277,206 800,519
Provision for income tax - 6,000 -
--------- --------- ---------
Net income (loss) $(894,928) $271,206 $ 800,519
========= ========= =========
Net income (loss) per share $ (0.11) $ 0.04 $ 0.12
========= ========= =========
Shares used in per share calculation 8,043,994 7,466,589 6,785,528
========= ========== =========
<FN>
<FN1>The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
for the years ended April 30, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Note
Receivable
Capital Capital Arising
Contributed Contributed Stock
Preffered in Excess Common in Excess Purchase
Balance, 4/30/92 Stock of Par Stock of Par Agreement
<S> <C> <C> <C> <C> <C>
Distributions
(note 10) 100,000 1,900,000 56,534 11,979,386 (5,196)
Note Receivable
arising from stock
purchase agreement
(Note 9) 6,000 137,750 (82,323)
Reduction in note
receivable arising
from stock purchase
agreement (note 9) 15,468
Quasi reorganization
(Note 1) (11,938,813)
Issuance of stock to
vendors 122 12,096
Unearned Service
Contracts 2,233 192,765
--------------------------------------------------------
Balance 3/30/93 100,000 1,900,000 64,889 383,184 (72,051)
========================================================
</TABLE>
<TABLE>
<CAPTION>
Unearned Treasury Treasury Total
Service Stock Stock Retained Shareholders
Contracts (Preferred) (Common) Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance 4/30/92 (82,000) (2,000,000) (37,240) (11,904,089) 7,395
Distributions(note 10) (607,134) (607,134)
Note Receivable
arising from
purchase agreement
(note 9) 61,427
Reduction of note
receivable
arising from
stock purchase 15,468
Quasi Reorganization
(Note 1) 11,938,813 -
Issuance of stock
to vendors 12,218
Unarned Service (132,920) 62,078
Amortization 81,994 81,994
Net Income 800,519 800,519
---------------------------------------------------------
(132,926) (2,000,000) (37,240) 228,109 433,965
</TABLE>
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLODATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED APRIL 30, 1995, 1994, 1993
<CAPTION>
Preferred Capital Common Capital Note Rec.
Stock Contributed Stock Contributed Arising from
in excess in excess stock pur.
of par of par and agreement
warrants
<S> <C> <C> <C> <C> <C>
Balance 4/30/93 100,000 1,900,000 64,889 383,184 (72,051)
Reduction in note 45,663
rec. arising from
stock purchase agmt
(note9)
Iss of stock - Private
placement 6,966 1,486,033
Iss of stock Reg S 3,200 665,702
Iss of Stock - Bank Agmt 2,000 (1,354)
Exercise of stock options
(note 6) 40 9,960
Iss of stock - other 1,100 273,900
Unearned service contracts 690 171,810
-------------------------------------------------------
Balance 4/30/94 100,000 1,900,000 78,885 2,989,235 (26,388)
</TABLE>
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended April 30, 1995, 1994 and 1993
1995 1994 1993
[S] [C] [C] [C]
Cash flows from operating activities:
Net income (loss) $(894,928) $ 271,206 $ 800,519
Adjustments to reconcile income to
net cash used in operations:
Depreciation 68,082 115,703 145,834
Amortization of shares subscribed 142,752 85,176 81,994
Loss (Gain) on retirement of fixed assets (875) 244 1,095
Provision for uncollectible accounts 56,518 - 6,500
Provision for obsolete inventories (5,121) - -
Changes in assets and liabilities:
(Increase) in accounts receivable (20,079) (296,962) (139,203)
(Increase) decrease in contracts in process 11,787 104,092 (255,971)
(Increase) decrease in inventories (322,555) 96,472 62,987
(Increase) decrease in prepaid expenses
and other current assets 25,403 (364,225) 14,373
(Increase) decrease in other assets (143,081) (692,105) 7,877
Increase (decrease) in accounts payable 28,247 60,616 (71,024)
Increase (decrease) in customer deposits 140,669 (316,696) 331,696
Increase (decrease) in accrued liabilities (349,035) 177,102 68,323
--------- ---------- ---------
Total adjustments (367,288) (1,030,583) 254,481
--------- ---------- ---------
Cash provided by (used in) operations (1,262,216) (759,377) 1,055,000
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures, net (182,845) (11,819) (8,215)
Proceeds from disposal of assets
related to discontinued operations - - (32,318)
Proceeds from short term investments 300,000 - -
-------- -------- --------
Cash provided by (used in)
investing activities 117,155 (11,819) (40,533)
--------- ---------- ---------
Cash flows from financing activities:
Net borrowings under
line-of-credit agreement (42,857) 17,096 (111,745)
Proceeds from long-term debt 12,618 432,000 8,215
Distributions to sole proprietor - (282,036) (607,134)
Repayments of long-term debt
and lease obligations (344,400) (45,445) (130,555)
Bank overdraft payable 112,814 - (6,181)
Proceeds from Stock Issuances, Net 183,431 1,871,901 -
--------- --------- ---------
Cash provided by (used in)
financing activities (78,394) 1,993,516 (847,400)
--------- --------- ---------
Net increase (decrease) in cash (1,223,455) 1,222,320 167,067
Cash, beginning of period 1,436,254 213,934 46,867
--------- --------- ---------
Cash, end of period $212,799 $1,436,254 $ 213,934
======= ========= ========
Supplemental disclosures of
cash flow information:
Interest paid $ 47,970 $ 42,778 $ 52,987
Income taxes paid 6,650 - -
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1995
1. Significant Accounting Policies:
The following is a summary of significant accounting policies:
a. Consolidation Policy: The accompanying consolidated financial statements
include the accounts of BNC and its wholly-owned subsidiaries, Cansas
International Corporation, Butler National Corporation Consulting Engineers,
Inc., Butler National Services, Inc., Butler Temporary Services, Inc.,
Butler National Service Corporation, Woodson Avionics, Inc. and RFI,
(collectively "the Company"). Cansas International Corporation and Butler
National Corporation Consulting Engineers, Inc., were inactive during the
years ended April 30, 1995, 1994 and 1993. All significant intercompany
transactions have been eliminated in consolidation.
b. Inventories: Inventories are priced at the lower of cost, determined on
a first-in, first-out basis, or market. Inventories include material, labor
and factory overhead required in the production of the Company's products.
c. Properties 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. Leasehold improvements are
amortized on a straight-line basis over the term of the lease. The lives
used for the significant items within each propertyclassification are as
follows:
Life in Years
Machinery and equipment 5 to 17 years
Office furniture and fixtures 5 to 17 years
Leasehold improvements 3 to 20 years
Maintenance and repairs are charged to expense as incurred. The cost and
accumulated depreciation of assets retired are removed from the accounts and
any resulting gains or losses are reflected as income or expense.
d. Other Assets: As of April 30, 1994, the Company classified as other
assets the land and building in Overton, Nebraska, with a book value of
approximately $190,000. This facility became idle in 1994 when the Company's
subsidiary, Woodson Avionics, relocated to Imboden, Arkansas. During fiscal
1995, the Company was unable to complete a negotiated sale of the land and
building. Therefore, the Company reduced the value of the asset by
$157,200 in order to record the asset at its estimated net realizable value.
The Company has capitalized approximately $978,000 and $375,000 at April 30,
1995 and April 30, 1994, respectively, of costs related to the anticipated
construction of an Indian bingo facility. These costs are included
in other assets in the accompanying balance sheet. 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.
The Company has acquired and is currently in the process of refurbishing an
aircraft at their Aircraft Modification facility. The book value of this
plane is $424,405 which includes the original cost of the plane plus parts,
labor and overhead incurred during the refurbishment. At this time, the
Company has not determined if this plane will be retained for corporate use
or sold and as such continues to classify the plane as other assets.
During fiscal year 1995, the Company completed the refurbishment of another
aircraft and exchanged that aircraft which had been classified in other
assets in the prior year for Lear inventory parts. The book value of
this aircraft was approximately $250,000. The Lear parts have been classified
as inventory in the current year.
<PAGE>
e. Revenue Recognition: The Company performs aircraft modifications under
fixed-price contracts. Revenues from fixed-price contracts are recognized on
the percentage-of-completion method, measured by the direct labor costs
incurred compared to total estimated direct labor costs. At April 30, 1995,
there was one contract in process. The Company recognizes revenue for its
distribution company on product sales during the period in which title
passes to the purchaser.
f. Income Taxes: Investment and jobs tax credits are treated as a direct
reduction of income tax expense in the year the credit is utilized. Prior to
January 1, 1994, RFI was taxed under the Internal Revenue Code's provisions
for a sole-proprietorship whereby all income was taxable directly to the
proprietors.
g. Income Per Share: Income per (common and common equivalent) share is based
on the weighted average number of common shares outstanding during the year.
Stock options are not included in 1995, since they are anti-dilutive. Stock
options are included in 1994 and 1993 as common stock equivalents since they
are dilutive. Warrants were not included as they are anti-dilutive. No
preferred stock dividends have been included in the income per share
calculation.
h. Quasi Reorganization: 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.
i. Non-Cash Transactions: During the year ended April 30, 1995, the Company
issued 173,048 shares of stock valued at $424,809 in various non-cash
transactions. As discussed in Note 1 (d), the Company issued a total of
69,715 shares of stock with a value of $180,122 in fiscal year 1995, for
costs related to the Indian bingo facility. As discussed in Note 1 (j),
the Company issued a total of 95,000 shares of stock in exchange for current
and future professional services. Additionally, 8,333 shares were issued
with a value of $24,999 as payment for services per an employment agreement.
During the year ended April 30, 1994, the Company issued 797,500 shares of
stock valued at $1,993,750 in various non-cash transactions. In connection
with the acquisition of RFI, 650,000 shares, with a value of $1,625,000 were
issued. The remaining 147,500 shares, with a combined value of $368,750 were
issued in exchange for inventories and certain current and future
professional services. See Note 1 (j).
j. Unearned Service Contracts: As discussed in Note 1(i), during fiscal year
1995, the Company issued 95,000 shares of stock at fair market value,
($219,688) to various professionals in exchange for services contracted to be
provided in future periods. During 1994, the Company issued 169,000 shares of
stock at fair market value, ($422,500), to various professionals in exchange
for services contracted to be provided in future periods. The unearned
portion of these service contracts is being amortized over the service period,
(generally 12-60 months) and is reflected as a reduction in equity until
such time as the services are rendered.
<PAGE>
Amortization of unearned service contracts are as follows:
<TABLE>
<CAPTION>
Year Ending
April 30, Amount
<S> <C>
1996 $143,124
1997 95,365
1998 83,646
1999 57,292
2000 26,979
2001 11,563
2002 4,216
Total 422,185
</TABLE>
k. Reclassifications: Certain reclassifications within the financial
statement captions have been made to maintain consistency in presentation
between years.
2. Debt:
Principal amounts of debt at April 30, 1995 and 1994, consist
of the following:
<TABLE>
<CAPTION>
Promissory Notes: 1995 1994
<S> <C> <C>
Interest at prime plus 2% $250,000 $250,000
(11% at April 30, 1995), due
August 25, 1995, collateralized
by a first or second position on
all assets of the Company
Interest at prime plus 2% 112,495 155,351
(11% at April 30, 1995), due
August 25, 1995, collateralized
by a first or second position on
all assets of the Company
Interest at 4.225%, due - 300,000
January 30, 1995, collateralized
by Security Agreement dated
December 30, 1993
Note payable for land purchase, 99,000 132,000
annual installments of $33,000.00
through January 19, 1998, non interest
bearing
Other Notes Payable:
Interest at 8.50% and 23.60% payable in 19,853 18,635
monthly principal and interest
installments of $266.72 and $348.15
through January 13, 1988 and November
16, 1999, respectively
481,348 855,986
Less: Promissory notes payable 362,495 405,351
Less: Current maturities 37,506 343,540
$ 81,347 $107,095
======= =======
</TABLE>
<PAGE>
Maturities of long-term debt (excluding Promissory notes) over the next
five years are as follows:
<TABLE>
<CAPTION>
Year Ending
April 30, Amount
<S> <C>
1996 $ 37,506
1997 38,245
1998 37,866
1999 3,283
2000 1,953
</TABLE>
The Company has promissory notes in which it may borrow a maximum of
$500,000. The maturity of the notes was extended from May 25, 1995 to
August 25, 1995. At April 30, 1995, the Company had borrowed $362,495 on the
notes.
3. Capital Lease Obligation: During fiscal 1989, the Company completed
construction of additional hangar space at its aircraft modification division
and sold the hangar to the City of Newton, Kansas at the Company's cost of
$336,774. The Company leased back the hangar under a long-term lease
agreement (twenty-year). This transaction met the criteria of a capital
lease and the cost of the hangar is included in property, plant and equipment.
Subsequently on December 5, 1990, the Company entered into a memorandum of
agreement with the City of Newton modifying the original capital lease
whereby the Company began paying cash rent of $2,750 per month. These
payments are included in rent expense in 1995, 1994 and 1993. The agreement
provides the Company may reestablish the capital lease payments at its
option. If reestablished and the back lease payment of $23,000 is made,
management expects the future minimum payments under this capital lease would
range from $4,200 to $4,600 per month over the remaining life of the lease.
No amortization expense for the leased facility was recorded for 1995,
1994 or 1993.
During fiscal 1995, the Company reclassified the capital lease to an
operating lease since the lease no longer met the criteria of a capital lease
and removed the Building under capital lease from Property Plant and
Equipment and the related Capital lease obligation. The Company restated
the 1994 Financial Statements to show this reclassification.
4. Stock Transactions:
Subsequent to year end, the Company consummated an off-shore private placement
of its securities pursuant to Regulation S promulgated under the Securities
Act of 1933, as amended. The Company sold 259,985 shares, resulting in gross
proceeds to the Company of approximately $650,000, and net proceeds of
approximately $570,000 after deducting the expenses of the offering.
5. Income Taxes:
The Company adopted the provisions of SFAS No. 109 effective May 1, 1993.
Under the new standard, deferred taxes are determined based on the estimated
future tax effects of differences between the financial statement and tax
bases of assets and liabilities given the provision of the enacted tax laws.
At May 1, 1993, the Company has net operating loss carryforwards and
cumulative temporary differences which would result in the recognition of net
deferred tax assets. However, SFAS No. 109 requires a "valuation allowance"
be established for any items where realization is not "more likely than not".
Due to the Company's historic operating performance, a valuation allowance of
$1,854,352 has been provided at May 1, 1994, which reduces the net deferred
tax asset to zero. Additionally, at April 30, 1995, the valuation reserve
was increased to $2,205,100 so as to fully offset the total deferred tax
asset at that date.
<PAGE>
At April 30, 1995, the Company had the following net operating
loss carry forwards:
<TABLE>
<CAPTION>
Year of Expiration Amount
<S> <C>
2002 $ 402,854
2003 77,783
2004 1,886,484
2005 1,222,565
2006 72,769
2007 -
2008 -
2009 58,071
2010 676,964
Total $4,397,490
</TABLE>
Under the new standard, net operating loss carryforwards realized are no
longer reflected as extraordinary items but as direct reductions of tax
expense. The tax benefit of net operating losses realized prior to the Quasi
reorganization have been reflected as such. However, due to the Company's
Quasi reorganization, the tax benefit of net operating loss carryforwards
realized after the reorganization will be reflected as additions to capital
contributed in excess of par.
The deferred taxes are comprised of the following components:
<TABLE>
<CAPTION>
Current Deferred Taxes 4/30/95 4/30/94
<S> <C> <C>
Current Assets $ 406,371 $ 368,677
Current Liabilities - -
Total Current Deferred Taxes 406,371 368,677
Noncurrent Deferred Taxes
Noncurrent Assets 1,806,170 1,534,225
Noncurrent Liabilities (7,441) (48,550)
Total Noncurrent Deferred Taxes 1,798,729 1,485,675
Total Deferred Taxes 2,205,100 1,854,352
Less: Valuation Reserve (2,205,100) (1,854,352)
Total Deferred Taxes, Net $ 0 $ 0
</TABLE>
The tax effect of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
4/30/95 4/30/94
<S> <C> <C>
Accounts Receivable Reserve 44,064 $ 21,457
Inventory Reserve 316,600 318,649
Other 45,707 28,571
Net Operating Loss 1,728,917 1,466,972
Depreciation (7,441) (48,550)
Other 77,253 67,253
Net Deferred Tax Items $2,205,100 $1,854,352
</TABLE>
<PAGE>
A reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory Federal Income Tax Rate 34.0% 34.0% 34.0%
Less: Income of Sole-Proprietorship
not taxed at corporate level - (41.1) (24.1)
Net operating loss carryforwards
generated (used) - (9.3) (9.9)
Valuation Allowance for net
operating losses (35.7) - -
Nondeductable expenses (3.1) - -
Nonqualified stock options
exercised 4.8 - -
Effective Tax Rate 0.0% 0.0% 0.0%
</TABLE>
6. Stock Options and Incentive Plans:
On September 5, 1989, the Company created a nonqualified stock option plan
providing key employees an opportunity to acquire a proprietary interest in
the Company. The total shares available under this plan is 2,000,000
shares. Options have been granted for 2,000,000 shares (see Note 7).
On January 4, 1993, the Company created a nonqualified stock option plan
providing key employees and key persons an opportunity to acquire a
proprietary interest in the Company. The Plan, which automatically
terminates January 4, 2003, provides for the issuance of up to 500,000
shares. The Plan was approved by shareholders on September 28, 1993.
Employees exercised options to purchase 54,000 and 4,000 shares of stock in
fiscal years 1995 and 1994, respectively.
On June 30, 1993, the Company created a second nonqualified stock option plan
providing key persons an opportunity to acquire a proprietary interest in
the Company. The Plan, which automatically terminates June 30, 2004,
provides for the issuance of up to 1,500,000 shares. On June 30, 1993,
1,500,000 options were granted, pursuant to this plan. Options totalling
150,000 were forfeited/terminated during fiscal 1994. On February 1, 1994,
the Company's Board of Directors granted an additional 77,064 options pursuant
to the plan. Options, with an exercise price of $2.50 per share, have been
granted for a total of 1,427,064 shares. These options, subject to certain
restrictions, are exercisable at any time through June 30, 2003. During
fiscal year 1995, an additional 72,700 options were granted at prices
ranging from $2.3125 to $3.00. Employees exercised options to purchase 15,000
shares of stock in fiscal 1995.
The Company has a qualified stock option plan with a maximum of 100,000
shares available. This plan had no activity in fiscal years 1995 or 1994
and no options are currently outstanding.
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes the Option Plans.
4/30/95 4/30/94 4/30/93
<S> <C> <C> <C>
1989 Nonqualified Option Plan
Beginning Balance 500,000 600,000 1,200,000
Grant 100,000 - -
Cancelled/Forfeit - 100,000 -
Exercised 100,000 - 600,000
Ending Balance 500,000 500,000 600,000
Exercise Price Ranges $.70 TO 2.3125 $.60 TO 1.00 $.1875 TO 1.00
1993 Nonqualified Option Plan I
Beginning Balance 394,500 404,500 -
Grant - 525,564 404,500
Cancelled/Forfeit 7,000 531,564 -
Exercised 54,000 4,000 -
Ending Balance 333,500 394,500 404,500
Exercise Price Ranges $2.50 TO 3.00 $2.50 TO 3.00 $2.50 TO 3.00
1993 Nonqualified Option Plan II
Beginning Balance 1,427,064 - -
Grant 72,700 1,577,064 -
Cancelled/Forfeit - 150,000 -
Exercised 15,500 - -
Ending Balance 1,484,264 - -
Exercise Price Ranges $2.3125 TO 3.00 $2.50
</TABLE>
7. Commitments:
a. Lease Commitments: The Company leases space under operating leases
with initial terms ranging from three years to twenty years. Minimum lease
commitments under operating leases for the next five years are as follows:
For the year ending April 30,
1996 $125,161
1997 105,204
1998 92,136
1999 66,000
2000 66,000
Total rental expense incurred for the year ended April 30, 1995, 1994 and
1993 was $144,719 $142,942 and $149,339, respectively.
b. Employment Agreements: The Company has employment contracts with two
officers.
The first contract calls for annual compensation of $198,000 increasing in
various amounts to $241,000. This contract expires April 30, 1999. The
Company also issued this officer options to purchase 500,000 shares of
common stock at $.1875 per share and 600,000 shares of common stock at prices
ranging from $.50 per share to $1.00 per share. During 1991, the Company
issued this officer additional options to purchase 800,000 shares of common
stock at $.05 per share. These options expire the earliest of ten years from
date of grant, one year after death occurring while employed by the Company,
or three months after ceasing to be a full-time employee of the Company for
any reason other than death. This officer exercised options for 600,000
shares at prices ranging from $.1875 per share to $.50 per share during
fiscal 1993 and 800,000 shares at $.05 per share during fiscal 1992. This
officer exercised options for 100,000 shares at $.60 per share during fiscal
1995. The Company granted an additional options to purchase 100,000 shares
at $2.3125 during fiscal 1995. At April 30, 1995, 500,000 options remain
available to exercise at prices ranging from $.70 to $2.00 per share which
expires September 1, 1999.
<PAGE>
A second contract calls for annual compensation of $300,000 and incentive
compensation based on operating income. This contract expires April 21, 1999.
c. The Company has entered into a letter of intent to purchase the operating
rights and assets of Woodson Electronics, Inc. If the transaction is
consummated under the terms of the letter of intent, the Company anticipates
a purchase price of approximately 100,000 shares of the Company's common
stock, $.01 par value, and cash payments totalling approximately $34,000, over
a period of two (2) years. This transaction is expected to be finalized in
fiscal 1996.
d. The Company has entered into an arrangement to construct an airplane hangar
facility in Gardner, Kansas. At April 30, 1995, the Company has expended
$130,000 on this project and anticipates the projects total cost will be
approximately $150,000.
8. Contingencies:
The Company had an employment agreement with an individual in which the
Company terminated the relationship in April 1995. Although a lawsuit has
not been filed, the individual has asserted a significant claim for damages,
and has proposed a settlement offer for $500,000. The Company will defend
the claim vigorously.
The Company is involved in various lawsuits incidental to its business.
Management believes the ultimate liability, if any, will not have an adverse
effect on the Company's financial position.
Due to the Company's poor financial condition and the need to reduce expenses,
the Board of Directors approved the elimination of product liability
insurance in August, 1989. Management is not aware of any claims which
individually or in the aggregate exceed the annual cost of the insurance.
9. Related Party Transactions:
A board member of the Company is also an officer of a major customer (WH of
KC) which accounted for approximately 6%, 44% and 45%, respectively, of the
net sales of the Company during 1995, 1994 and 1993. Subsequent to June 3,
1994, the Company no longer provides temporary services to this customer. As
a result, the operating revenues, expenses, and income for the temporaries
segment as detailed in Note 11 was significantly reduced in fiscal 1995.
A board member of the Company is also a principal of a firm which provides
business consulting services to the Company. Total payments in 1995 under
this agreement were approximately $130,000.
In 1992, a loan was made to an officer to purchase 10,000 shares of the
Company's stock. These shares were purchased from the company at $.60 per
share and recorded at their fair market value with the difference recorded as
compensation. This loan is shown as a reduction of stockholders' equity on
the financial statements. This loan was paid during fiscal 1995.
In 1993, a loan was made to an officer to purchase 600,000 shares of the
Company's stock. These shares were purchased with options outstanding from
the 1989 Nonqualified Stock Option Plan at prices ranging from $.1875 to
$.50 per share. This loan was paid during fiscal 1995. In 1995, an
additional loan was made to this officer to purchase 100,000 shares of the
Company's stock. These shares were also purchased with options outstanding
from the 1989 Nonqualified Stock Option Plan at $.60 per share. This loan
is shown as a reduction of stockholders' equity on the financial statements.
<PAGE>
10. Stock Acquisition Agreement:
On April 21, 1994 the Company entered into a stock acquisition agreement
whereby 100% of the issued and outstanding shares of R F, Inc. ("RFI") were
exchanged for 650,000 shares of Butler National Corporation ("BNC").
RFI is a food distribution business with contract warehouses in Kansas City
and St. Louis, Missouri. RFI sells to the wholesale, food processing and
retail industries.
The acquisition was accounted for as a "pooling of interests" under
Accounting Principles Board Opinion No. 16 and other applicable guidelines.
Under "pooling of interests" guidelines, the accompanying financial statements
have been restated to include RFI since inception.
RFI was operated as a sole-proprietorship until December 31, 1993. As such,
prior to December 31, 1993, no compensation was paid to the proprietor.
Rather distributions were taken by the proprietor. These distributions are
shown as a reduction of retained earnings on the Statement of Shareholders'
Equity. If RFI had operated as a Corporation prior to December 31, 1993,
some portions of the distributions taken would have been recorded as
compensation expense and been reflected as a reduction of net income.
The following table illustrates the proforma impact of the compensation on
net income for each of the years indicated had salaries been paid to the
Company's President and former owner as they were in 1994, based on the
Company's current employment agreement with the President. (See Note 7)
1993 1992
Net Income, as reported $800,519 $339,507
Proforma Adjustments:
Base Compensation 300,000 300,000
Incentive Compensation 12,451 820
Taxes and Fringe Benefits 18,893 18,893
Adjusted Net Income $469,175 $ 19,794
11. Industry Segmentation and Sales by Major Customer:
a. Industry Segmentation: The Company's operations have been classified
into six segments in 1995, 1994 and 1993.
1. Gaming - principally includes the business management services to Indian
tribes in connection with the Indian Gaming Act of 1988.
(Beginning in fiscal 1994).
2. Avionics - principally includes the manufacture of airborne switching
units used in DC-9, DC-10, DC- 9/80, MD-80 and the KC-10 aircraft.
3. Aircraft Modifications - principally includes the modification of
business-size aircraft from passenger to freighter configuration, conversion
to air ambulance, addition of aerial photography capability, addition of
exterior cargo space and other modifications.
4. Monitoring Services - principally includes the monitoring of water and
wastewater remote pumping stations through electronic surveillance for
municipalities and the private sector and related repair services.
5. Temporary Services - provides temporary employee services for corporate
clients.
6. Food Distribution Services - principally includes food distribution to
the wholesale, food processing and retailing industries.
<PAGE>
11. Industry
Segmentation and Sales by Major Customer: (continued)
<TABLE>
Year ended April 30, 1995
<CAPTION>
Gaming Avion Mods Serv Temp Distr Consol
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales - 238,162 1,845,609 793,930 790,317 9,487,964 13,155,982
Depreciation - 17,113 25,867 15,405 - 2,629 61,014
Operating
profit
(loss) (a) (701,678) 4,443 133,924 156,614 (59,021) 461,200 (4,518)
Capital expenditures - - 136,931 - - 3,686
Unallocated administrative and general expense (725,094)
Interest, net (17,575)
Other income (expense) (147,741)
Net loss (894,928)
Identifiable
assets 978,432 177,538 1,571,643 140,493 2,874 1,097,033 3,968,013
Corporate assets 225,516
Total assets 4,193,529
Year ended April 30, 1994
Net sales - 324,234 1,913,619 671,910 8,192,589 6,610,746 17,713,098
Depreciation - 30,195 33,109 50,199 - 2,200 115,703
Operating
profit (127,454) 2,031 316,933 100,792 75 471,277 783,654
Capital
expenditures - 8,573 - 12,245 - -
Unallocated administrative and general expense (595,305)
Interest, net (49,361)
Other income 132,218
Net income 271,206
Identifiable
assets 529,099 471,600 1,174,258 107,035 440,992 736,289 3,459,273
Corporate assets 1,564,827
Total assets 5,024,100
</TABLE>
<TABLE>
Year ended April 30, 1993
<CAPTION>
Avionics Mods Serv Temp Distr Consol
<S> <C> <C> <C> <C> <C> <C>
Net sales 579,420 2,084,116 856,161 7,625,298 5,709,087 16,854,082
Depreciation 29,563 50,576 59,239 - 6,456 145,834
Operating
profit (a) 222,992 309,617 170,461 28,089 565,764 1,296,923
Capital expenditures - 8,215 - - -
Unallocated administrative and general expense (614,547)
Interest, net (54,052)
Other income 172,195
Net income 800,519
Identifiable
assets 537,760 1,187,271 163,378 327,503 342,520 2,558,432
Corporate assets 86,131
Total assets 2,644,563
</TABLE>
b. Major Customers:
Sales to major customers (10% or more of consolidated sales) were as follows:
1995 1994 1993
Temporary services 6% 44% 45%
Food Distribution services 36% 15% 16%
42% 59% 61%
<PAGE>
EXHIBIT 22
Subsidiaries
Avcon Industries, Inc., a Kansas Corporation
Butler National Services, Inc., a Florida Corporation,
formerly Lauderdale Services, Inc.
Butler National Corporation Consulting Engineers, Inc.,
a Kansas Corporation, formerly HSD, Inc.
Butler National Service Corporation, a Delaware Corporation
Butler Temporary Services, Inc., a Missouri Corporation
Woodson Avionics, Inc. a Nebraska Corporation
Cansas International Corporation, a Delaware Corporation
R F, Inc., a Missouri Corporation
