SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the
X Securities Exchange Act of 1934
For the quarter ended October 31, 1998
Transition Report Pursuant to Section 13 or 15 (d) of the
Security Exchange Act of 1934
For the quarter ended October 31, 1998
Commission File Number 0-1678
BUTLER NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 41-0834293
(State of incorporation) (I.R.S. Employer Identification No.)
19920 West 161st Street, Olathe, Kansas 66062
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (913) 780-9595
Former Name, former address and former fiscal year if changed since last
report:
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months and (2) has been subject to such
filing requirements for the past ninety days: Yes X No ______
The number of shares outstanding of the Registrant's Common Stock, $0.01
par value, as of October 31, 1998, was 12,555,746 shares.
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION:
Page No.
Consolidated Balance Sheets - October 31, 1998
and April 30, 1998..................................3
Consolidated Statements of Income - Three
Months ended October 31, 1998 and 1997..............4
Consolidated Statements of Income - Six
Months ended October 31, 1998 and 1997..............5
Consolidated Statements of Cash Flows - Six
Months ended October 31, 1998 and 1997..............6
Notes to Consolidated Financial
Statements.........................................7-8
Management's Discussion and Analysis
Financial Condition and Results of Operations......9-13
PART II.
OTHER INFORMATION..........................................14
SIGNATURES.................................................15
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS 10/31/98 4/30/98
(unaudited)
<S> <C> <C>
Current Assets:
Cash $ 76,111 $ 160,598
Accounts receivable, net of allowance for
doubtful accounts of $78,736 at October 31, 416,422 482,888
and $78,736 at April 30, 1998
Note receivable - current 533,400 491,733
Contracts in process 55,000 551,610
Inventories:
Raw materials 1,151,164 1,039,324
Work in process 176,608 76,073
Finished goods 61,469 55,939
---------- ---------
1,389,241 1,171,336
Prepaid expenses and other assets 37,001 37,880
---------- ---------
Total current assets 2,507,175 2,896,045
Note receivable 3,119,500 1,770,714
Supplemental Type Certificates 1,456,955 1,456,249
Property, Plant and Equipment:
Land & Building 667,628 639,130
Machinery and equipment 1,055,657 973,504
Office furniture and fixtures 585,967 632,617
Leasehold improvements 33,959 33,958
---------- ---------
Total cost 2,343,211 2,279,209
Accumulated depreciation (1,162,894) (1,060,705)
---------- ---------
1,180,317 1,218,504
Other Assets (Note 1):
Deferred costs of Indian Gaming 2,032,274 1,277,724
Aircraft and aircraft parts 555,281 2,056,281
Other assets 118,540 124,139
---------- ---------
Total Other Assets 2,706,095 3,458,144
Total assets $10,970,042 $10,799,656
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY 10/31/98 4/30/98
(unaudited)
Current Liabilities:
Bank overdraft payable $ 146,368 $ 193,205
Promissory notes payable 436,260 695,718
Current maturities of long-term debt 261,714 17,968
Accounts payable 607,102 477,098
Customer Deposits 84,570 530,275
Accrued liabilities -
Compensation and compensated absences 117,259 134,343
Other 291,859 227,896
---------- ---------
Total current liabilities 1,945,132 2,276,503
Long-Term Debt, net of current maturities 2,308,058 1,972,293
Convertible debentures 650,000 650,000
---------- ---------
Total liabilities 4,903,190 4,898,796
Commitments and contingencies:
Liabilities of discontinued operations - 39,000
Shareholders' equity:
Preferred stock, par value $5:
Authorized, 200,000 shares, all classes
$1,000 Class B, 6%, cumulative if earned,
liquidation and redemption value $1,000,
issued and outstanding, 1,120 shares at
4/30/98 & 785 shares at 10/31/98 355,236 506,834
Common stock, par value $.01:
Authorized, 40,000,000 shares
Issued 11,673,069 April 30, 1998 &
12,555,746 at Oct. 31, 1998, 125,557 116,730
Common stock warrants 8,807 8,807
Capital contributed in excess of par 7,471,740 7,232,155
Note receivable arising from stock purchase
agreement (37,647) (37,647)
Unearned service contracts (234,557) (286,823)
Treasury stock, at cost (No preferred at 10/31
& no preferred at 4/30 (1,537,240) (1,537,240)
and common 775,000 at 10/31 & 775,000
at 4/30)
Retained earnings (85,044) (140,956)
(Deficit of $11,938,813 eliminated
October 31, 1992)
----------- ---------
Total shareholders' equity 6,066,852 5,861,860
---------- ---------
Total liabilities and shareholders'
equity $10,970,042 $10,799,656
========== ==========
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
October 31,
1998 1997
(unaudited) (unaudited)
<S> <C> <C>
Net sales $1,140,728 $1,261,369
Cost of sales 1,005,991 546,364
Gross profit 134,737 715,005
Selling, general and administrative expenses (129,161) 457,321
Operating income 263,898 257,684
Other income (expense):
Interest expense (46,237) (44,583)
Interest income 31,404 1,629
Net gain - Settlement Agreement - -
Other 12,676 (1,770)
Other income (2,157) (44,724)
Income from continuing operations 261,741 212,960
Profit or (loss) from discontinued operations (259,989) -
Income before taxes $ 1,752 $ 212,960
Provision for income taxes (736) (89,443)
Net Income 1,016 123,517
Basic earnings (loss) per common share .01 .01
Shares used in per share calculation 10,714,430 8,952,123
Diluted earnings (loss) per common share .01 .01
Shares used in per share calculation 12,009,635 9,739,160
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED
October 31,
1998 1997
(unaudited) (unaudited)
<S> <C> <C>
Net sales $4,237,291 $2,507,259
Cost of sales 3,493,667 1,300,429
Gross profit 743,624 1,206,830
Selling, general and administrative expenses 434,795 883,435
Operating income 308,829 323,395
Other income (expense):
Interest expense (88,228) (139,616)
Interest income 31,487 2,436
Net gain - Settlement Agreement - -
Other 29,137 448,306
Other income (27,604) 311,126
Income from continuing operations 281,225 634,521
Profit or (loss) on discontinued operations (259,989) -
Income before taxes $ 21,236 $ 634,521
Provision for income taxes 8,919 266,499
Net Income 12,317 368,022
Basic earnings (loss) per common share .01 .04
Shares used in per share calculation 10,714,430 8,952,123
Diluted earnings (loss) per common share .01 .04
Shares used in per share calculation 12,009,635 9,739,160
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended October 31,
1998 1997
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 12,317 $ 368,022
Adjustments to reconcile income to
net cash used in operations:
Deferred income taxes 8,919 266,499
Depreciation 102,189 72,492
Amortization of intangible assets 44,516 112,535
Provision for uncollectible accounts - 181,973
Provision for obsolete inventories - 15,940
Amortization of service contracts 52,266 46,146
Changes in assets and liabilities:
Accounts receivable 66,466 974,831
Contracts in process (Increase) 496,610 1,123,673
Inventories (Increase) (217,905) (564,804)
Supplemental Type Certificates (Increase) 26,029 (122,918)
Prepaid expenses and other current
assets (Increase) 879 (12,576)
Note Receivable (41,700) 20,850
Other assets 5,598 21,527
Accounts payable (decrease) 130,004 137,585
Customer deposits (445,705) (1,420,626)
Accrued liabilities (decrease) 46,879 (145,895)
Settlement agreement (decrease) (36,000) (42,000)
------------- ---------
Total adjustments 31,155 (30,353)
------------- ----------
Cash provided by (used in)
operations 251,362 1,033,254
------------- ----------
Discontinued operations:
Net investment in discontinued operations (19,503) -
Cash flows from investing activities:
Capital expenditures, net (64,001) (39,032)
Deferred costs of Indian Gaming (754,550) (661,984)
------------ ---------
Cash used in investing activities (818,551) (701,016)
------------ ---------
Cash flows from financing activities:
Net borrowing under promissory notes 76,307 324,244
Proceeds from long term debt 1,758,477 -
Retirement of convertible debentures - (250,000)
Repayments of long-term debt and lease
obligations (1,478,947) (50,955)
Bank overdraft payable 146,368 (150,306)
Stock issuance for conversions and other - 288,101
Note receivable & redemption of common stock - (641,206)
------------ ---------
Cash provided by (used in)
financing activities 502,205 (480,122)
------------ ---------
Net increase (decrease) in cash (84,487) (147,884)
Cash, beginning of period 160,598 208,761
------------ ---------
Cash, end of period $ 76,111 $ 60,877
Supplemental disclosures of cash flow
information:
Interest paid $ 88,227 $ 114,598
Income taxes 10,000 10,000
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with the instructions to Form 10-Q of Regulation S-X
and do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of the management of the Company, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation have been
included. Operating results for the three months and six months ended October
31, 1998 are not indicative of the results of operations that may be expected
for the year ending April 30, 1999.
For further information, refer to the Consolidated Financial Statements
and Footnotes included in the Registrant's Annual Report on Form 10-K for the
year ended April 30, 1998.
2. On June 26, 1996, the Company completed a private placement in which
the Company issued a 8.0% cumulative convertible debenture due June 26, 1998
in the amount of $750,000. Interest to be paid at time of conversion either
in cash or kind at the option of the Company. Net proceeds of the offering
were $675,000, after deducting the expenses of the offering. The proceeds of
the offering was utilized for relocation of the Avionics segment and
additional aircraft product development.
3. The Company has capitalized approximately $2,032,274 and $3,353,000 at
October 31, 1998 and April 30, 1998, respectively, of costs related to the
anticipated construction of three Indian gaming facilities. These costs are
included in other assets in the accompanying balance sheet. In the opinion
of management, these costs will be recoverable through the gaming activities
or, in the event the Company is unsuccessful in establishing such operations,
these costs will be recovered through the liquidation of the associated
assets. These costs include the following:
A prepayment of $242,500 for construction services to be rendered. This
prepayment was funded with 60,000 shares of the Company's common stock issued
in the fiscal year 1994 and an additional 40,000 shares in fiscal year 1995.
Payments of $87,622 for architectural and engineering services. These
payments were also funded with stock issuances of 29,715 shares in fiscal year
1995. Payments of $50,000 for equipment. These payments were funded with
stock issuances of 20,000 shares in fiscal year 1994.
Cash payments of approximately $1,813,000, $186,000, and $172,000 in 1998,
1997, and 1996 respectively, for architectural, engineering and construction
services.
Cash Advances to the Tribes of $190,000 in fiscal 1995 which the Tribes used
for the acquisition of land.
Acquisition of land and land improvements by the Company in the amount of
$203,000 in fiscal year 1997.
Advances to the Indian Tribes for construction costs under an approved
Management Contract during fiscal 1998 of $449,423.
4. The Company had an employment agreement with an individual which the
Company terminated in April 1995. This individual filed a lawsuit against the
Company, the President of the Company and various corporate subsidiaries
alleging the Company wrongfully terminated the individual's employment in
breach of the contract. The suit was filed in October, 1995, in State Court
in Johnson County, Kansas. The Company and the individual reached an
agreement to settle and release all claims and counterclaims on May 1, 1997.
The individual dismissed the lawsuit with prejudice. The terms of the
Settlement Agreement include payments by the Company to the individual during
fiscal 1998 and fiscal 1999 respectively.
5. On May 1, 1996, the Company acquired certain assets of Woodson
Electronics, Inc. (WEI). The Company received a portion of WEI's operating
rights and assets in exchange for 80,000 shares of stock with a fair market
value of $160,000. The Company also entered into a Non-Exclusive Consulting,
Non-Disclosure and Non-Compete Agreement with Thomas E. Woodson, which
provides for the issuance of 20,000 shares of the Company's common stock and
$36,000 to be paid out over 24 months. WEI is engaged in the business of
designing, manufacturing, improving, marketing, maintaining, and providing,
directly and with the assistance of others, data acquisition, alarm monitoring
<PAGE>
and reporting products and services related to such products. WEI supplies
the monitoring products to Butler National Services, Inc. During the first
quarter of fiscal 1997, the Company relocated its Woodson Avionics business
segment, along with the newly acquired operating rights and assets of WEI to
Phoenix, Arizona.
6. During fiscal 1996, the President and CEO, Clark D. Stewart, exercised his
option to purchase 400,000 shares of the Company's common stock under the
terms of the 1989 Nonqualified Stock Option Plan through a loan by the
Company. The shares were purchased at prices ranging from $.70 to $1.00 per
share. The largest aggregate amount of indebtedness outstanding was $367,000
during fiscal 1996. The amount outstanding at July 31, 1996, was $338,634.
Interest is charged at the applicable federal rate and the loan is being
amortized over five years. In fiscal 1997, the officer reduced the loan
balance by $277,264 through expense reimbursement and the transfer of 125,000
shares of common stock valued at $250,000. The loan balance is currently
$37,647.
During fiscal 1996, an officer of the Company sold 20,000 shares of the
Company stock to the Company at fair market value. These shares are now held
in the treasury.
7. After completing a three year program of restructuring the Company's
operation on October 31, 1992, by using quasi reorganization accounting, the
Company was able to adjust the accumulated deficit to a zero balance thereby
affording the Company a "fresh start". No assets or liabilities required
adjustment in this process. The amount of accumulated deficit and capital
contributed in excess of par removed as of October 31, 1992, was $11,938,813.
8. Income per common and common equivalent share are based on the weighted
average number of common shares outstanding during the quarters ended October
31, 1998 and 1997. Stock options are included in 1998 and 1997 as common
stock equivalents to the extent that they are dilutive. The Convertible
debenture is included in fiscal 1997 and fiscal 1998 as a common stock
equivalent since the debenture is dilutive. The convertible preferred stock
is included in 1998 since the convertible preferred stock is dilutive. Shares
used in the per share computations are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
October 31, October 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Common shares outstanding
beginning of period 11,123,926 9,736,045 10,436,549 9,411,168
Cumulative increase in
weighted average due to
Common Stock Equivalent
net of treasury stock 692,148 (291,224) 1,296,101 (470,679)
Cumulative increase in
weighted average due to
Convertible Debenture - 294,339 - 787,038
Cumulative increase in
weighted average due to
Convertible Preferred 193,561 - 276,985 -
Cumulative increase in
weighted average due to
issues per acquisition
and consulting agreements - - - 8,904
Cumulative increase in
weighted average due to
issues per Nonqualified
Stock Option Plans - - - 2,729
-------- -------- -------- --------
Weighted average shares,
end of period 12,009,635 9,739,160 12,009,635 9,739,160
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview: Consolidated sales were $4,237,291 for the six months ended October
31, 1998, compared to $2,507,259 for the six months ended October 31, 1997, an
increase of 69%. Sales for the second fiscal quarter were $1,140,728 compared
to $1,261,369 for the six months ended October 31, 1997. Sales for the six
month period increased in the Aircraft Modifications segment (120.72%) and
decreased in the Monitoring Services segment (32%) and in the Avionics segment
(29.51%).
The Company recorded a net income of $12,317 for the first half of fiscal 1999
compared to $368,022 in the same period of fiscal 1998. Income was $1,017 in
the current quarter compared to $123,517 in the comparable period of fiscal
1998.
Aircraft Modifications (Avcon Industries, Inc.): Sales at Avcon Industries,
Inc. increased $1,936,752 (121%) from $1,604,399 in the first half of the
prior year to $3,541,150 in the first half ending October 31, 1998. Gross
profit decreased from $750,162 in the six months ending October 31, 1997 to
$470,770 in the six months ending October 31, 1998. Second quarter fiscal
1999 sales were $751,180 compared to $816,170 in fiscal 1998. Second quarter
gross profit was $12,420 and $454,766, respectively. This segment is
experiencing increased sales volume from the sale of AVCON FINS and fin
related modifications. This segment is continuing to work on the development
of new products and expects to see an increase in sales and gross margin in
the coming quarters of fiscal 1999.
Avionics (Woodson Avionics, Inc.): Avionics sales were $226,838 for the six
months ended October 31, 1998 compared to $321,790 in the comparable period of
the preceding year, a decrease of 7%. Operating earnings for the six months
ended October 31, 1998, were $(21,027) compared to $54,359 for the six months
ended October 31, 1997. The Company believes the sales volume will remain
relatively stable with steady growth for the next few years and hopes the
relocation will allow this segment to expand and serve additional customers.
SCADA Systems and Monitoring Services (Butler National Services, Inc.): Sales
for the six months ended October 31, 1998 were $465,721 compared to sales of
$691,528 for the comparable period of the prior year a decrease of 32.65%.
Gross profit for the six months ended October 31, 1998, was $180,497 compared
to $297,842 for the six months ended October 31, 1997. Sales for the second
quarter of fiscal 1999 were $248,588, a decrease of $80,178 from the same
quarter of fiscal 1998.
Temporary Services (Butler Temporary Services, Inc.): This segment did not
recognize any revenue in the first quarter of fiscal 1998 and fiscal 1999.
When the Company and the Tribes open the Kansas Indian gaming facilities,
management expects that a majority of the personnel in the various Indian
gaming enterprises will be staffed by Temporary Services.
Indian Gaming Management: This segment earned interest income of $14,766
during the current quarter.
<PAGE>
Management Services (Butler National Services Corporation):
-General-
The Company received no revenue and incurred $8,299 in the first six months of
fiscal 1999 and $34,365 in the first six months of fiscal 1998 for general and
administrative expenses associated with its continued efforts to explore
service opportunities related to the Indian Gaming Act of 1988. Additionally,
the Company amortized $41,406 and $46,146 in the second quarter of 1999 and
1998, respectively, related to shares issued for services rendered to the
Company in that regard.
The Company has invested $2,032,274 in land, land improvements, professional
design fees and construction costs related to the development of Indian Gaming
facilities. Included in this investment is 160 acres of land, located
adjacent to the Linn Valley Lakes resort and residential development in Linn
County, Kansas and a house on four acres of land in Johnson County, Kansas.
The Company believes that these tracts 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. These development
opportunities may allow the Company to recover the majority, if not all, of
the $2,032,274 investment.
-Princess Maria Casino-
In 1992, the Company signed a management agreement with the Miami Tribe to
provide management services to the Miami Tribe. The Miami Tribe requested a
compact with the State of Kansas for Class III Indian full-casino Indian
gaming on Indian land known as the Maria Christiana Miami Reserve No. 35
located in Miami County, Kansas, on July 9, 1992.
The Miami Tribe's 1992 compact was the subject of a lawsuit filed in February
1993, by the Miami Tribe in the Federal District Court, alleging the failure
to negotiate a compact in good faith by the State of Kansas. This case has
been dismissed. The United States District Court dismissed the Miami Tribe's
failure to negotiate a compact suit against the State of Kansas as a result of
the United States Supreme Court's ruling in Seminole v. State of Florida. The
Supreme Court ruled that the provision of the IGRA did not allow an Indian
tribe to compel a state by litigation to negotiate a compact.
In February, 1993, former Kansas Governor Finney requested a determination of
the suitability of the Miami Indian land for Indian Gaming under the IGRA from
the Bureau of Indian Affairs (the "BIA"). In May, 1994, the NIGC again
requested the same determination. Finally, in May, 1995, an Associate
Solicitor within the BIA issued an opinion letter stating the Miami Tribe has
not established jurisdiction over the Miami land in Kansas. This 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
concern about the conclusions reached based upon the analysis of the case.
The Miami Tribe challenged this opinion in Federal Court to prove and protect
the sovereignty of the Miami Tribe and other Indian tribes relating to their
lands. On April 11, 1996, the Court ruled that the Miami Tribe did not have
jurisdiction because the BIA had not approved the Tribal membership of the
Princess Maria heirs at the time the management agreement was submitted,
therefore, the Court ordered that the NIGC's determination that Reserve No. 35
is not "Indian land" pursuant to IGRA is affirmed. However, the Court noted
in its ruling that nothing precludes the Tribe from resubmitting its
management agreement to the NIGC along with evidence of the current owners'
consent and the newly adopted tribal amendment. On February 22, 1996, the BIA
approved the Miami Tribe's constitution and the membership of the heirs. The
Tribe has resubmitted the management agreement, no approval has yet been
received by the NIGC. Although the Court noted that the Tribe could resubmit
the management agreement, the Court did not pass on whether or not a new
submission will obtain approval. In July 1997, the NIGC, again, found the
land not suitable for gaming, based upon the BIA's determination that Reserve
No. 35 is not "Indian land" pursuant to IGRA. On August 11, 1997, the Miami
Tribe filed another action to define the Indian land in the Federal District
Court. On May 12, 1998, the court ruled that the land was Indian Country
under the jurisdiction of the Miami Tribe and remanded the question of whether
the Tribe is exercising governmental powers to the Bureau of Indian Affairs.
The BIA is to respond within six (6) months. Upon a favorable outcome of this
filing, Butler National is ready to proceed with construction and operation of
the Princess Maria Casino in Miami County, Kansas.
-Stables Bingo and Off-Track Betting-
In 1994, the Company signed a Management Agreement with the Miami and Modoc
Tribes. A class III Indian Gaming Compact for a joint-venture by the Miami
and Modoc Tribes, both of Oklahoma, has been approved by the State of Oklahoma
and by the Assistant Secretary, Indian Affairs for the U.S. Department of the
Interior. The Compact was published in the Federal Register on February 6,
1996, and is therefore, deemed effective. The Compact authorizes Class III
(Off-Track Betting "OTB") along with Class II (high stakes bingo) at a site
within the City of Miami, Oklahoma.
The NIGC approved management contract between the Company and the Tribes to
direct the development, the construction and to manage the joint-venture
gaming enterprise (the STABLES) for the Tribes. The facility is approximately
24,000 square-feet and is located directly south of the Modoc Tribal
Headquarters building in Miami. The complex contains off-track betting
windows, a bingo hall, electronic bingo machines, and a restaurant. Under the
Management Agreement as approved, the Company, as manager, is to receive a 30%
share of the profits and reimbursement of the development costs. The Stables
grand opening was October 1, 1998.
-Shawnee Reserve No. 206-
Since 1992, the Company has maintained a business relationship with
approximately seventy Indian and Non-Indian heirs (the "Owners") of the Newton
McNeer Shawnee Reserve No. 206 ("Shawnee Reserve No. 206"). This relationship
includes assistance with the defense of the property against adverse
possession by one family member in exchange for being named the manager for
any Indian gaming enterprises that may be established on the land. As a
result of the Company's assistance, the Owners are in the process of becoming
the undisputed beneficial owners of approximately 72 acres of the Shawnee
Reserve No. 206 as ordered by the United States District Court for the
District of Kansas. The Company has purchased options for an additional 17
acres and purchased a four acre tract contiguous to the Indian land.
Shawnee Reserve No. 206 has been a part of the Shawnee Reservation in Kansas
Territory since 1831 and was reserved as Indian land and not a part of the
State of Kansas when Kansas became a state in 1861. Within the boundaries of
Johnson County, Kansas and the Kansas City metro area, the Indian land is
located on west 83rd Street approximately 25 road miles southwest from
downtown Kansas City, Missouri.
In addition, the Company maintains a relationship and agreement to manage the
proposed establishment as a part of the Owners' desire to work with the
Shawnee Tribe of Oklahoma. The Shawnee Tribe of Oklahoma is not a federally
recognized tribe. The tribe, sometimes known as the Loyal Shawnee Tribe, is a
tribe organized by a 1960 federal resolution operating within and as a part of
the federal recognition of the Cherokee Nation of Oklahoma. The Indian Owners
of Shawnee Reserve No. 206 have federal Indian membership cards showing them
as Cherokee-Shawnee members of the Cherokee Nation of Oklahoma. The Shawnee
and the Cherokee are currently working to reaffirm the Shawnee's jurisdiction
over the Indian land and to open a high stakes Indian Bingo enterprise.
The tribal governments of the Shawnee Tribe and the Cherokee Nation are in the
process of approving a land lease with the co-owners, a development agreement
with the Company, and a long-term operating agreement between the Shawnee
Tribe and the Cherokee Nation. Plans are for the development of a Class II
bingo establishment. The Chief of the Cherokee Nation has announced his plans
to support the formal recognition of the Shawnee Tribe by the federal
government. The Shawnee Tribe is working to complete the supporting
documentation for the Bureau of Indian Affairs.
The Company believes that there is a significant opportunity for Indian gaming
on the Shawnee Reserve No. 206. However, none of the above agreements have
been approved by the BIA or the Cherokee Nation or any other regulatory
authority. There can be no assurance that these or future agreements will be
approved and that any Indian gaming will ever be established on the Shawnee
Reserve or that the Company will be the Management Company.
-Modoc Bingo-
The Company has an NIGC approved management contract with the Modoc Tribe, to
construct and operate a Class II Indian gaming facility on Modoc Reservation
lands in Eastern Oklahoma. The Tribe is working to acquire additional Indian
land before this project can be started.
-Other Gaming-
The Company is currently reviewing other potential Indian gaming opportunities
with other tribes. These discussions are in the early stages of negotiation
and there can be no assurance that these gaming opportunities will be
successful. The various management agreements have not yet been approved by
the various governing agencies and therefore are not filed as exhibits to the
document.
COSTS AND EXPENSES
The consolidated gross profit percentage declined to 18.2% for the six months
and 13.4% for the three months ended October 31, 1998, from 33.8% for the six
months and 35.4% for the three months ended October 31, 1997.
Operating expenses (selling, general and administrative) in the six months
ended October 31, 1998, were $434,794 or 10.2% of sales compared to $883,435
or 35% of sales for the six months ended October 31, 1997, a decrease of
$448,641 or 50.7%. Costs for the three month period were $(129,161) in fiscal
1999 and $674,823 in fiscal 1998.
Interest expense for the six months ended October 31, 1998, was $88,227
compared to the first six months of the prior year of $127,106. The Company
continues to use its line of credit to maintain operations. The Company
acquired a Lear 35 during fiscal 1996 for debt on an inventory floor plan of
$1,500,000, the majority of the increase in interest expense relates to this
acquisition and the related debt and the increased borrowing on the credit
line. The Company sold the Learjet Model 35 resulting in reduced interest
cost for the second quarter of fiscal 1999. The Company plans to use the
inventory floor plan to acquire a Model 25 for modification and resale during
fiscal 1999.
Other income(expense) is expense of $31,487 in the six months ended October
31, 1998, versus income of $2,436 for the six months ended October 31, 1997.
The Company employed 51 people at October 31, 1998, and 60 people at October
31, 1997.
EARNINGS
The Company recorded a profit of $12,317 in the six months ended October 31,
1998. This is comparable to a profit of $368,022 in the six months ended
October 31, 1997. Income per share is $.01 and income per share is $.01 for
the six months ending October 31, 1998, and October 31, 1997, respectively.
Second quarter earnings were $1,017 ($0.01 per share) in fiscal 1999 and
$123,517 in fiscal 1998.
CAPITAL RESOURCES
The Company had no material commitment for capital expenditures as of October
31, 1998, except for the contingent advances to the Miami Tribe and Modoc
Tribe for the construction of the gaming establishment. The Company has
advanced approximately $3,500,000 under the approved management contract.
LIQUIDITY
Borrowed funds have been used primarily for working capital. Bank debt is
$436,260 at October 31, 1998, and was $1,528,062 at October 31, 1997. The
Company's unused line of credit was approximately $313,740 as of October 31,
1998, and approximately $423,888 as of October 31, 1997. The interest rate on
the Company's line of credit is prime plus two, as of December 15, 1997, the
interest rate is 9.75%.
The Company plans to continue using the promissory notes payable due in
February, 1999, as working capital. The Company believes the extensions will
continue and does not anticipate the repayment of these notes in fiscal 1999.
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.
The Company has issued stock at fair market value for various legal, marketing
and consulting services, in lieu of cash payments. During fiscal 1995, the
Company issued 95,000 share of stock at a value of $219,668 for professional
services to be provided in the future.
The Company did not issue shares for professional services to be provided in
the future in fiscal 1996. The Company issued 20,000 shares for consulting
services related to the acquisition of the operating rights and assets of WEI
in fiscal 1997. The Company issued 742,452 shares of convertible preferred
stock, and 140,225 shares of common stock related to discontinued operations.
FORWARD LOOKING INFORMATION
The information set forth above may include "forward-looking" information as
outlined in the recently enacted Private Securities Litigation Reform Act of
1995. The Cautionary Statements filed by the Company as Exhibit 99 to this
filing are incorporated herein by reference and investors are specifically
referred to such Cautionary Statements for a discussion of factors which could
affect the Company's operations and forward-looking statements contained
herein.
<PAGE>
PART II.
OTHER INFORMATION
Responses to items 1, 3, and 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
Item 2. Changes in Securities
None.
Item 4.Submission of Matters to Vote of Security Holders
The Company held the annual meeting of shareholders on October 27, 1998.
Item 6.Exhibits and reports on Form 8-K.
(A) Exhibits.
3.1 Articles of Incorporation, as amended are incorporated
by reference to Exhibit 3.1 of the Company's Form 10-K for
the year ended April 30, 1988.
3.2 Bylaws, as amended, are incorporated by reference to Exhibit 3.2
the Company's Form 10-K for the Statement dated August 16, 1996.
99 Exhibit Number 99.
Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995, are incorporated by reference to Exhibit 99 of
the Form 10-K for the fiscal year ended April 30, 1998
27.1 Financial Data Schedule (EDGAR version only) filed herewith.
The Company agrees to file with the Commission any
agreement or instrument not filed as an exhibit upon the
request of the Commission.
(B) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUTLER NATIONAL CORPORATION
(Registrant)
December 15, 1998 /S/Clark D. Stewart_
Date Clark D. Stewart, (President
and Chief Executive Officer)
December 15, 1998 /S/Edward J. Matukewicz
Date Edward J. Matukewicz,
(Treasurer and Chief Financial Officer)
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<PERIOD-END> OCT-31-1998
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