SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the
X Securities Exchange Act of 1934
For the quarter ended July 31, 1998
Transition Report Pursuant to Section 13 or 15 (d) of the
Security Exchange Act of 1934
For the quarter ended July 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 July 31, 1998, was 11,780,746 shares.
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION:
Page No.
Consolidated Balance Sheets - July 31, 1998
and April 30, 1998................................................3
Consolidated Statements of Income - Three
Months ended July 31, 1998 and 1997...............................4
Consolidated Statements of Cash Flows - Three
Months ended July 31, 1998 and 1997...............................5
Notes to Consolidated Financial Statements...........................6
Management's Discussion and Analysis
Financial Condition and Results of Operations.....................8
PART II.
OTHER INFORMATION...................................................13
SIGNATURES..........................................................14
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS 7/31/98 4/30/98
(unaudited)
<S> <C> <C>
Current Assets:
Cash $ 230,357 $ 160,598
Accounts receivable, net of allowance for
doubtful accounts of $78,736 at July 31, 359,011 482,888
and $78,736 at April 30, 1998
Note receivable - current 497,733 491,733
Contracts in process 634,300 551,610
Inventories:
Raw materials 1,115,882 1,039,324
Work in process 168,538 76,073
Finished goods 58,491 55,939
-------------- --------------
1,342,911 1,171,336
Prepaid expenses and other assets 37,176 37,880
-------------- --------------
Total current assets 3,095,488 2,896,045
Note receivable 2,206,237 1,770,714
Supplemental Type Certificates 1,432,184 1,456,249
Property, Plant and Equipment:
Land & Building 667,628 639,130
Machinery and equipment 1,057,157 973,504
Office furniture and fixtures 560,967 632,617
Leasehold improvements 33,959 33,958
-------------- --------------
Total cost 2,319,711 2,279,209
Accumulated depreciation (1,111,070) (1,060,705)
-------------- --------------
1,208,641 1,218,504
Other Assets (Note 1):
Deferred costs of Indian Gaming 1,330,540 1,277,724
Aircraft and aircraft parts 555,281 2,056,281
Other assets 148,498 124,139
-------------- --------------
Total Other Assets 2,034,319 3,458,144
Total assets $9,976,869 $10,799,656
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY 7/31/98 4/30/98
(unaudited)
Current Liabilities:
Bank overdraft payable $ - $ 193,205
Promissory notes payable 642,677 695,718
Current maturities of long-term debt 14,777 17,968
Accounts payable 403,601 477,098
Customer Deposits 583,325 530,275
Accrued liabilities -
Compensation and compensated absences 128,060 134,343
Other 115,938 227,896
-------------- --------------
Total current liabilities 1,888,378 2,276,503
Long-Term Debt, net of current maturities 1,420,657 1,972,293
Convertible debentures 650,000 650,000
-------------- --------------
Total liabilities 3,959,035 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 7/31/98 355,236 506,834
Common stock, par value $.01:
Authorized, 40,000,000 shares
Issued 11,673,069 April 30, 1998 &
12,555,746 at July 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 (260,690) (286,823)
Treasury stock, at cost (No preferred at
7/31 & no preferred at 4/30 (1,537,240) (1,537,240)
and common 775,000 at 7/31 & 775,000
at 4/30)
Retained earnings (107,929) (140,956)
(Deficit of $11,938,813 eliminated
October 31, 1992)
--------------- --------------
Total shareholders' equity 6,017,834 5,861,860
-------------- --------------
Total liabilities and shareholders'
equity $ 9,976,869 $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
<CAPTION>
THREE MONTHS ENDED
July 31,
1998 1997
(unaudited) (unaudited)
<S> <C> <C>
Net sales $3,096,562 $1,245,890
Cost of sales 2,485,488 754,064
---------------- ----------------
Gross profit 611,074 491,826
Selling, general and
administrative expenses 536,891 381,488
---------------- ----------------
Operating income 74,183 110,338
Other income (expense):
Interest expense (41,990) (70,014)
Interest income 82 807
Net gain - Settlement Agreement - 426,947
Other 753 -
---------------- ----------------
Other income (41,155) 357,740
---------------- ----------------
Income before taxes 33,028 468,078
Provision for income tax 13,871 196,593
---------------- ----------------
Net income $ 19,157 $ 271,485
======== ========
Basic earnings (loss) per common share .01 .04
Shares used in per share calculation 10,022,282 9,243,347
Diluted earnings (loss) per common share .01 .03
Shares used in per share calculation 11,123,926 9,736,045
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended July 31,
1998 1997
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 19,157 $ 271,485
Adjustments to reconcile income to
net cash used in operations:
Deferred income taxes 13,871 196,593
Depreciation 50,364 39,898
Amortization of intangible assets 44,311 112,535
Provision for uncollectible account - 181,973
Provision for obsolete inventories - 15,940
Amortization of service contracts 26,133 27,865
Changes in assets and liabilities:
Accounts receivable 123,876 (253,601)
Contracts in process (Increase) (82,690) (334,266)
Inventories (Increase) (171,575) (38,931)
Supplemental Type Certificates (Increase) 24,065 60,125
Prepaid expenses and other current assets 703 8,813
Other assets (98,423) 5,894
Accounts payable (decrease) (73,497) 258,594
Customer deposits 53,050 100,000
Accrued liabilities (decrease) (64,240) (72,213)
Settlement agreement (decrease) 18,000 (24,000)
Note receivable 835,229 -
----------------- ----------------
Total adjustments 564,499 (289,586)
----------------- ----------------
Cash provided by (used in) operations 718,334 556,704
----------------- -----------------
Discontinued operations:
Net investment in discontinued operations 15,708 -
Cash flows from investing activities:
Capital expenditures, net (20,501) 141,725
Deferred costs of Indian Gaming - (410,107)
Aircraft and aircraft parts - -
Proceeds from short term investments - -
------------- ------------
Cash used in investing activities (20,501) (268,382)
------------- ------------
Cash flows from financing activities:
Net borrowings under promissory note (53,041) 336,351
Proceeds from long-term debt 814,379 (100,000)
Repayments of long-term debt and lease
obligations (1,405,120) (25,705)
Bank overdraft payable - 149,394
Stock issuance for conversions and other - 100,000
Note receivable & redemption of common stock - (641,206)
------------- -------------
Cash provided by (used in)
financing activities (643,782) (181,166)
------------- -------------
Net increase (decrease) in cash 69,759 107,156
Cash, beginning of period 160,598 208,761
------------- -------------
Cash, end of period $ 230,357 $ 315,917
Supplemental disclosures of cash flow
information:
Interest paid $ 41,990 $ 74,503
Income taxes - 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 ended July 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 $3,854,760 and $1,812,628 at
July 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 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.
Acquisition of land by the Company in the amount of $53,000 in fiscal
year 1998.
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 term 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
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 July 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
1998 1997
<C> <C>
Common shares outstanding beginning of period 10,435,549 9,411,168
Cumulative increase in weighted average
due to Common Stock Equivalent net of treasury stock 603,953 (179,455)
Cumulative increase in weighted average
due to Convertible Debenture - 492,699
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
Cumulative increase in weighted average
due to Convertible Preferred 83,424 368,219
------------- -------------
Weighted average shares, end of period 11,123,926 9,736,045
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview: First quarter consolidated sales were $3,096,562 for the three
months ended July 31, 1998, compared to $1,245,890 for the three months
ended July 31, 1997, an increase of 149%. Sales increased in the Avionics
segment (16.9%), and the Aircraft Modifications segment (253.8%) and decreased
in the Monitoring Services segments (40.1%). The Company recorded a net
income of $19,157 in the current quarter compared to $196,593 in the
comparable period of fiscal 1998.
Aircraft Modifications (Avcon Industries, Inc.): Sales at Avcon Industries,
Inc. increased $2,001,141 (253.8%) from $788,229 in the first quarter of the
prior year to $2,789,370 in the quarter ending July 31, 1998. Gross profit
increased from $295,396 in the quarter ending July 31, 1997 to $483,190 in the
quarter ending July 31, 1998. 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 unit sales were $114,170 in the
three months ended July 31, 1998 compared to $94,900 in the comparable period
of the preceding year, a increase of 16.9%. Operating earnings for the three
months ended July 31, 1998, were $26,973 compared to $25,549 for the three
months ended July 31, 1997. The increase revenue is due to a closer location
to major customers like Boeing (McDonnell Douglas) and the increased
marketability of the new location. 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 three months ended July 31, 1998 were $217,132 compared to sales of
$362,761 for the comparable period of the prior year an decrease of 40.1%.
Gross profit for the three months ended July 31, 1998 were $81,700 compared
to $120,061 for the three months ended July 31, 1997.
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 Indian gaming facilities, management
expects that a majority of the personnel in the various Indian gaming
enterprises will be staffed by Temporary Services.
<PAGE>
Management Services (Butler National Services Corporation):
-General-
The Company received no revenue and incurred $19,804 in the first quarter 1999
and $34,365 in the first quarter 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 $19,804
and $44,531 in the first quarter of 1999 and 1998, respectively, related to
shares issued for services rendered to the Company in that regard.
The Company has invested $3,854,760 in land, land improvements, professional
design fees and construction cost 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 and the NIGC approved Management Contract for construction and
operation of the STABLES may allow the Company to recover the majority, if not
all, of the $3,854,760 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 file 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.
<PAGE>
-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 proposed facility is
planned to be approximately 28,000 square-feet and to be located directly
south of the Modoc Tribal Headquarters building in Miami. As currently
designed and under construction, the complex will contain off-track betting
windows, a bingo hall, 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.
-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.
<PAGE>
-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 was 19.73% for the three months ended
July 31, 1998, compared to 32.56% for the three months ended July 31, 1997.
Operating expenses (selling, general and administrative) in the three months
ended July 31, 1998, were $536,891 or 17.3% of sales compared to $737,871 or
30.6% of sales for the three months ended July 31, 1997, a decrease of
$200,980 or 27.2%.
Interest expense for the three months ended July 31, 1998, decreased $32,513
from $74,503 in the first quarter of the prior year to $41,990. 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 first 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 income of $82 in the quarter ended July 31, 1998,
versus income of $807 in the quarter ended July 31, 1997.
The Company employed 69 at July 31, 1998, and 63 at July 31, 1997.
EARNINGS
The Company recorded a profit of $19,157 in the three months ended July 31,
1998. This is comparable to a profit of $271,485 in the three months ended
July 31, 1997. Income per share is $.01 and income per share is $.04 for the
three months ending July 31, 1998, and July 31, 1997, respectively.
CAPITAL RESOURCES
The Company had no material commitment for capital expenditures as of July 31,
1998, except for the advances to the Miami Tribe and Modoc Tribe for the
construction of the gaming establishment. The Company has advanced
approximately $449,423 under the approved management contract. The Company
has arranged all the required financing to complete the opening of The Stables
in September 1998.
LIQUIDITY
Borrowed funds have been used primarily for working capital. Bank debt is
$642,677 at July 31, 1998, and was $719,094 at July 31, 1997. The Company's
unused line of credit was approximately $107,323 as of July 31, 1998 and
approximately $880,906 as of July 31, 1997. The interest rate on the
Company's line of credit is prime plus two, as of September 15, 1998, the
interest rate is 10.25%.
The Company plans to continue using the promissory notes payable due in
November, 1998, 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.
<PAGE>
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.
See Note 5.
FORWARD LOOKING INFORMATION:
The information set forth below includes "forward-looking" information as
outlined in the Private Securities Litigation Reform Act of 1995. The
Cautionary Statements, filed by the Company as Exhibit 99 to this Form 10-K,
are incorporated herein by reference and you 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
The Company issued 742,452 shares of convertible preferred stock,
and 140,225 shares of common stock related to discontinued
operations.
Item 4. Submission of Matters to Vote of Security Holders
None
Item 6. Exhibits and reports on Form 8-K.
(A) Exhibits.
3.1 Articles of Incorporation, as amended are incorporated
by reference to Exhibit 3.1 of the Company's Form 10-K for
the year ended April 30, 1988
3.2 Bylaws, as amended, are incorporated by reference to
Exhibit 3.2 of the Company's Form 10-K
for theStatement 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)
September 18, 1998 /S/ Clark D. Stewart
Date Clark D. Stewart, (President
and Chief Executive Officer)
September 18, 1998 /S/ Edward J. Matukewicz
Date Edward J. Matukewicz,
(Treasurer and Chief
Financial Officer)
<PAGE>
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