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 January 31, 1999
Transition Report Pursuant to Section 13 or 15 (d) of the
Security Exchange Act of 1934
For the quarter ended January 31, 1999
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: Not Applicable
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months and (2) has been subject to such
filing requirements for the past ninety days: Yes X No ______
The number of shares outstanding of the Registrant's Common Stock, $0.01
par value, as of January 31, 1999, was 12,555,746 shares.
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION:
Page No.
Consolidated Balance Sheets - January 31, 1999
and April 30, 1998............................... 3
Consolidated Statements of Income - Three
Months ended January 31, 1999 and 1998 .......... 4
Consolidated Statements of Income - Nine
Months ended January 31, 1999 and 1998............ 5
Consolidated Statements of Cash Flows - Nine
Months ended January 31, 1999 and 1998............ 6
Notes to Consolidated Financial Statements............ 7-8
Management's Discussion and Analysis
Financial Condition and Results of Operations..... 9-14
PART II.
OTHER INFORMATION..................................... 15
SIGNATURES............................................ 16
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS 01/31/99 4/30/98
<S> (unaudited)
<C> <C>
Current Assets:
Cash $ 163,654 $ 160,598
Accounts receivable, net of allowance for
doubtful accounts of $78,736 at January 31, 417,550 482,888
and $78,736 at April 30, 1998
Note receivable - current 450,000 491,733
Contracts in process - 551,610
Inventories:
Raw materials 1,285,419 1,039,324
Work in process 252,686 76,073
Finished goods 57,921 55,939
----------- -----------
1,596,026 1,171,336
Prepaid expenses and other assets 31,624 37,880
----------- -----------
Total current assets 2,658,854 2,896,045
Note receivable 3,019,217 1,770,714
Supplemental Type Certificates 1,420,269 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 (1,214,499) (1,060,705)
----------- ------------
1,128,712 1,218,504
Other Assets (Note 1):
Deferred costs of Indian Gaming 2,091,755 1,277,724
Aircraft and aircraft parts 555,281 2,056,281
Other assets 115,714 124,139
----------- -----------
Total Other Assets 2,762,750 3,458,144
Total assets $10,989,802 $10,799,656
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY 01/31/99 4/30/98
(unaudited)
Current Liabilities:
Bank overdraft payable $ 148,614 $ 193,205
Promissory notes payable 340,208 695,718
Current maturities of long-term debt 299,915 17,968
Accounts payable 747,423 477,098
Customer Deposits 572,983 530,275
Accrued liabilities -
Compensation and compensated absences 99,358 134,343
Other 207,614 227,896
----------- -----------
Total current liabilities 2,416,115 2,276,503
Long-Term Debt, net of current maturities 2,392,995 1,972,293
Convertible debentures 650,000 650,000
----------- -----------
Total liabilities 5,459,110 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 01/31/99 355,236 506,834
Common stock, par value $.01:
Authorized, 40,000,000 shares
Issued 11,673,069 April 30, 1998 &
12,555,746 at Jan. 31, 1999, 125,558 116,730
Common stock warrants 8,807 8,807
Capital contributed in excess of par 7,471,739 7,232,155
Note receivable arising from stock
purchase agreement (20,184) (37,647)
Unearned service contracts (208,424) (286,823)
Treasury stock, at cost (No preferred at
01/31 & no preferred at 4/30 (1,537,240) (1,537,240)
and common 775,000 at 01/31 &
775,000 at 4/30)
Retained earnings (664,800) (140,956)
(Deficit of $11,938,813 eliminated
October 31, 1992)
------------ -----------
Total shareholders' equity 5,530,692 5,861,860
------------ -----------
Total liabilities and
shareholders' equity $10,989,802 $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
January 31,
1999 1998
(unaudited) (unaudited)
<S> <C> <C>
Net sales $594,994 $1,211,434
Cost of sales 600,538 818,752
---------- ----------
Gross profit (5,544) 392,682
Selling, general and administrative expenses 582,929 183,279
---------- ----------
Operating income (loss) (588,473) 209,403
Other income (expense):
Interest expense (74,466) (85,065)
Interest income 87,799 794
Net gain - Settlement Agreement - -
Other (4,616) 135,255
---------- ---------
Other income 8,717 50,984
Income (loss) from continuing operations (579,756) 260,387
Profit or (loss) from discontinued operations - -
---------- ---------
Income (loss) before taxes (579,756) 260,387
Provision for income tax (benefit) 243,498 109,363
---------- ---------
Net income (loss) $ (336,258) $ 151,024
========= ========
Basic earnings (loss) per common share (.03) .02
Shares used in per share calculation 11,302,885 9,275,673
Diluted earnings (loss) per common share (.03) .01
Shares used in per share calculation
(see Note 8) 12,737,885 10,329,192
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED
January 31,
1999 1998
(unaudited) (unaudited)
<S> <C> <C>
Net sales $4,866,961 $3,718,693
Cost of sales 4,094,205 2,119,180
---------- ---------
Gross profit 772,756 1,599,513
Selling, general and administrative expenses 1,017,724 1,066,714
---------- ---------
Operating income (244,968) 532,799
Other income (expense):
Interest expense (162,693) (175,026)
Interest income 119,285 3,230
Net gain - Settlement Agreement -
Other 24,521 506,155
----------- ---------
Other income (loss) (18,887) 334,359
----------- ---------
Income (loss) from continuing operations (263,855) 867,158
Profit or (loss) on discontinued operations (259,989) -
Income(loss) before taxes (523,844) 867,158
Provision for income tax (benefit) (220,014) 364,206
----------- ---------
Net income (loss) $ (303,830) $ 502,952
=========== =========
Basic earnings (loss) per common share (.03) .05
Shares used in per share calculation 11,302,885 9,275,673
Diluted earnings (loss) per common share (.02) .05
Shares used in per share calculation
(see Note 8) 12,737,885 10,329,192
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended January 31,
1999 1998
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ (303,830) $ 151,025
Adjustments to reconcile income to
net cash used in operations:
Deferred income taxes (benefit) (220,014) 109,362
Depreciation 153,794 109,480
Amortization of intangible assets 79,658 198,478
Provision for uncollectible accounts - 81,971
Provision for obsolete inventories - 15,940
Amortization of service contracts 78,399 75,677
Changes in assets and liabilities:
Accounts receivable 65,388 15,417
Contracts in process 551,610 862,673
Inventories (Increase) (424,690) (356,834)
Supplemental Type Certificates (Increase) (40,628) (135,678)
Prepaid expenses and other current
assets (Increase) 6,256 (8,911)
Note Receivable 41,733 125,100
Other assets 6,832 161,864
Accounts payable (decrease) 270,325 (71,932)
Customer deposits (decrease) 42,708 (1,184,300)
Accrued liabilities (decrease) (114,189) 15,923
Settlement agreement (decrease) 9,592 (54,000)
---------- ---------
Total adjustments 506,774 (662,524)
---------- ---------
Cash provided by (used in) operations 202,944 79,409
---------- ---------
Cash flows from investing activities:
Capital expenditures, net (64,001) (59,736)
Deferred costs of Indian Gaming (814,031) (1,541,955)
---------- ---------
Cash provided by (used in) investing
activities (878,032) (1,601,691)
---------- ---------
Cash flows from financing activities:
Net borrowing under promissory notes - 1,029,643
Proceeds from long term debt 2,008,477 -
Retirement of convertible debentures - (350,000)
Repayments of long-term debt and lease
obligations (1,478,947) (49,476)
Bank overdraft payable 148,614 (150,306)
Stock issuance for conversions and other - 620,441
Class B preferred issues - 1,089,959
Note receivable & redemption of common stock - (641,206)
---------- ---------
Cash provided by (used in)
financing activities 678,144 1,549,055
---------- ---------
Net increase (decrease) in cash 3,056 26,773
Cash, beginning of period 160,598 208,761
---------- ---------
Cash, end of period $ 163,654 $ 235,534
Supplemental disclosures of cash flow information:
Interest paid $ 162,69 $ 175,026
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 nine months ended
January 31, 1999 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 $5,569,972 and $3,353,000 at
January 31, 1999 and April 30, 1998, respectively, of costs related to the
anticipated construction of three Indian gaming facilities. These costs are
included on the Balance Sheet at January 31, 1999 as Notes Receivable-Current
$450,000, Notes Receivable $3,019,217 and Deferred Costs of Indian Gaming
$2,091,755. The Notes Receivable classifications represent advances to the
Stables under the Management Agreement. The cost reported as Other Assets
represent the investments in land, buildings, and improvements including
construction, engineering and architecture fees for the Princess Maria,
Shawnee 206 and other properties. 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,
<PAGE>
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 loan of 125,000
shares of common stock valued at $250,000. The loan balance is currently
$20,184.
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 January
31, 1999 and 1998. 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 NINE MONTHS ENDED
January 31, January 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Common shares outstanding
beginning of period 12,009,635 9,739,160 10,436,549 9,411,168
Cumulative increase in
weighted average due to
Common Stock Equivalent net
of treasury stock 588,455 319,310 1,884,556 (151,369)
Cumulative increase in
weighted average due to
Convertible Debenture - (787,038) - -
Cumulative increase in
weighted average due to
issues per acquisition and
consulting agreements - - - 13,145
Cumulative increase in
weighted average due to
Convertible Preferred 139,795 1,053,519 416,780 1,053,519
Cumulative increase in
weighted average due to
issues per Nonqualified
Stock Option Plans - - - 2,729
---------- --------- --------- ---------
Weighted average shares,
end of period 12,737,885 10,329,192 12,737,885 10,329,192
</TABLE>
The convertible debentures ($650,000) and the convertible preferred stock
($785,000) are dilutive on a percentage basis of the common stock price. For
purposes of the weighted average shares calculation, a $1.00 price has been
assumed for the dilution calculations for future conversions.
9. On September 14, 1998, Arthur Andersen LLP informed the Company that it
has declined to stand for reelection. A new independent auditor has not been
engaged by the Company for fiscal year 1999. Appointment of a new independent
auditor will be selected by an action of the Board of Directors. The Audit
Committee is receiving prospective candidates and expects to engage an auditor
during the fourth quarter of fiscal 1999.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview: Consolidated sales were $4,866,961 for the nine months ended January
31, 1999, compared to $3,718,693 for the nine months ended January 31, 1998,
an increase of 30%. Sales for the third fiscal quarter were $594,994 compared
to $1,211,434 for the three months ended January 31, 1998. Sales for the
nine month period decreased in the Avionics segment (24%), and the Monitoring
Services segments (22%), and increased in the Aircraft Modifications segment
(51%).
The Company recorded a net (loss) of $(303,830) for the first nine months of
fiscal 1999 compared to a profit of $502,952 in the same period of fiscal
1998. Income was a loss of $(336,258) in the current quarter compared to a
profit of $151,024 in the comparable period of fiscal 1998.
Selling, General and Administrative expenses increased $399,650 in the current
quarter and decreased $48,990 for the nine months ending January 31, 1999.
The increase of $399,650 during the current quarter was legal fees of
approximately $147,000 related to the defense of the Company and the
negotiation of a settlement with holders of the convertible preferred shares.
The original suit was reported in Item 3. of the Company's Annual Report on
Form 10-K/A for the fiscal year ending April 30, 1998.
Administrative expenses related to payroll, travel and accounting fees also
increased approximately $157,000 to support the legal defense of the company
in this case and the analysis of the RF, Inc. bankruptcy case. The Company
has reserved approximately $260,000 legal expenses and bank payments to
Industrial State Bank on the RF, Inc. case.
Avcon experienced an increase in Selling, General and Administrative cost of
approximately $100,000 for the quarter due to the low overhead absorption
related to the significant decrease in shipments during the quarter (see
additional description below).
Aircraft Modifications (Avcon Industries, Inc.): Sales at Avcon Industries,
Inc. increased $1,288,166 (51%) from $2,491,544 in the first nine months of
the prior year to $3,779,710 in the first nine months ending January 31,
1999. Gross profit decreased from $1,055,075 in the nine months ending
January 31, 1998 to $299,945 in the nine months ending January 31, 1999.
Third quarter fiscal 1999 sales were $238,559 compared to $887,145 in fiscal
1998. Third quarter gross profit was a loss of $(170,824) and a profit of
$304,913, respectively. This segment is experiencing increased sales demand
from the sale of Falcon 20 Cargo Doors, 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.
During the quarter, sales were down due to the failure of the customers to
deliver the aircraft for modification as planned. The cargo
aircraft were busy with increased Christmas freight and a threatened strike by
Federal Express. All orders remained in the backlog. Aircraft began to
arrive as scheduled in January 1999 but not soon enough to make deliveries in
the quarter.
Avionics (Woodson Avionics, Inc.): Avionics sales were $335,194 for the nine
months ended January 31, 1999 compared to $444,624 in the comparable period of
the preceding year, a decrease of 24%. The decrease was a result of reduced
sales to the Boeing McDonnell division. Operating earnings for the nine
months ended January 31, 1999, were $(25,634) compared to a gain of $66,061
for the nine months ended January 31, 1998. The Company believes the sales
volume will remain relatively stable with steady growth from new projects 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 nine months ended January 31, 1999 were $699,388 compared to sales of
$901,581 for the comparable period of the prior year a decrease of 22%. Sales
were down when compared to the prior year because of a special project
completed in fiscal year 1998. Gross profit for the nine months ended January
31, 1999, was $273,758 compared to $334,264 for the nine months ended January
31, 1998. Sales for the third quarter of fiscal 1999 were $233,667, an
increase of $23,614 from the same quarter of fiscal 1998.
<PAGE>
Temporary Services (Butler Temporary Services, Inc.): This segment did not
recognize any revenue in the third 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 $87,770
during the current quarter and approximately $115,000 for the nine months.
(See comments under the Stables).
<PAGE>
Management Services (Butler National Services Corporation):
-General-
The Company received approximately $115,000 of interest income, reduced its
debt by approximately $166,000 and incurred $8,299 in expenses in the first
nine months of fiscal 1999 and $29,569 in the first nine 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 $20,703 and $20,703 in the third quarter
of 1999 and 1998, respectively, related to shares issued for services rendered
to the Company in that regard.
The Company has invested $5,560,972 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 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 $5,560,972 investment (see Note 3).
-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. On January 15, 1999, the United
States District Court for the District of Kansas in receipt of a Stipulation
executed by the National Indian Gaming Commission ("NIGC") and the Miami Tribe
ordered the case dismissed pursuant to the Stipulation.
<PAGE>
The Stipulation executed by the NIGC and the Miami Tribe acknowledges that the
restricted Indian allotment surrounded by the State of Kansas known as the
Maria Christiana Miami Reserve No. 35 is Indian land within the meaning of 25
U.S.C. § 2703(4), the Indian Gaming Regulatory Act of 1988 ("IGRA"), over
which the Miami Tribe of Oklahoma has jurisdiction and exercises governmental
power. These are the basic requirements for Indian gaming.
The Miami Tribe and the heirs of Princess Maria are completing plans to build
and operate the Princess Maria Casino on the Maria Christiana Miami Reserve
No. 35. The Princess Maria Casino will be located upon the Maria Christiana
Miami Reserve No. 35 which is within the extended greater metropolitan are of
Kansas City. The exact location is one-half mile southwest of Jingo, Kansas,
20 miles south of the Johnson County line. The establishment is to be managed
by Butler National Service Corporation a wholly owned subsidiary of Butler
National Corporation under the terms of a Management Contract signed by the
Tribe and Butler currently under review by the NIGC. The Company expects the
Management Agreement to be approved by the NIGC within the next three to four
months. Upon final approval of the Management Agreement, the Miami Tribe 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 28,000 square-feet and to be 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. Since opening, the Company has received
payments from the Stables to reduce the Company's loan from Miller & Schroeder
by approximately $166,000 and interest income of $115,000.
-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.
<PAGE>
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 15.8% for the nine months
and .9% for the three months ended January 31, 1999, from 43.0% for the nine
months and 32.4% for the three months ended January 31, 1998.
Operating expenses (selling, general and administrative) in the nine months
ended January 31, 1999, were $1,017,724 or 20.9% of sales compared to
$1,066,714 or 28.6% of sales for the nine months ended January 31, 1998, a
decrease of $48,990 or 1.3%. Costs for the three month period were $582,929
in fiscal 1999 and $183,279 in fiscal 1998.
Interest expense for the nine months ended January 31, 1999, was $162,693
compared to the first nine months of the prior year of $175,026. 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 Lear 35 in the first quarter of fiscal 1999 and
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 $(18,887) in the nine months ended January
31, 1999, versus income of $334,359 for the nine months ended January 31,
1998. The income in 1998 resulted from the Eisenbath agreement.
The Company employed 67 people at January 31, 1999, and 73 people at January
31, 1998.
EARNINGS
The Company recorded a loss of $(303,830) in the nine months ended January 31,
1999. This is comparable to a profit of $502,952 in the nine months ended
January 31, 1998. Income per share is a loss of ($.02) per share and earnings
per share of $.05 for the nine months ending January 31, 1999, and January
31, 1998, respectively. Third quarter earnings were $(336,258) ($0.01 per
share) in fiscal 1999 and a gain of $151,024 ($0.05 per share) in fiscal 1998.
CAPITAL RESOURCES
The Company had no material commitment for capital expenditures as of January
31, 1999, 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.
<PAGE>
LIQUIDITY
Borrowed funds have been used primarily for working capital. Bank debt is
$2,308,094 at January 31, 1999, and was $1,412,386 at January 31, 1998. The
Company's unused line of credit was approximately $159,793 as of January 31,
1999, and approximately $537,614 as of January 31, 1998. The interest rate on
the Company's line of credit is prime plus two, as of January 31, 1999, the
interest rate is 10%.
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 full 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 and
88,034 shares to reduce the convertible debt by $150,000.
During fiscal 1998, the Company issued 460,722 shares for consulting,
professional services and expenses in lieu of cash payments. To reduce the
$380,000 of convertible debt, 860,647 shares as a result of conversion were
issued. Convertible debt was reduced by $450,000 in exchange for the issue
of 641,726 shares.
During the first nine months of fiscal 1999, 742, 722 shares were issued to
reduce the convertible preferred stock by $335,000. In addition, the Company
issued 140,225 shares to purchase claims related to the discontinued
operations of $140,225.
The Company's common stock is registered with the NASDAQ market system under
the symbol BUKS. The stock was listed as a small cap stock until January 20,
1999. The stock was delisted from the small cap category and now is listed
in the over-the-counter (OTC) category. Since delisting, the stock continues
to trade and to be offered by twelve (12) market makers. The Company has not
experienced a change in liquidity as a result of the delisting. However, the
Company's depressed stock price, resulting from the constant selling pressure
of the conversion shares may reduce the liquidity of the Company's stock in
the market and therefore, the ability to raise capital through the issue of
equity securities.
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 3 and 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
Item 1. Legal Proceedings
On September 30, 1998, the Trustee for the RF, Inc. involuntary
bankruptcy filed suit in the U.S. Bankruptcy Court, Western District of
Missouri, against the Company and the Directors alleging improper transfer of
funds of approximately $1,500,000 to the Company and its subsidiaries from
RF, Inc. since April 21, 1994 asking that these funds be returned to RF,
Inc. The Company believes that all transfers were proper. The Company is
vigorously defending its position in bankruptcy court.
On July 7, 1998 the Company stopped the conversion from Convertible
Preferred Stock to Common Stock because it believed the holders of the
Preferred Stock had violated the agreement with the Company. The Company
and the holders of the Preferred Stock reached an agreement to settle this
dispute in February 1999 on terms favorable to the Company. The original
suit was reported in Item 3. of the Company's Annual Report on Form 10-K/A
for the fiscal year ending April 30, 1998.
Item 2. Changes in Securities
None
Item 4. Submission of Matters to Vote of Security Holders
The Company held a special meeting of the shareholders on January 4, 1999
that did not have enough shares represented in person or by proxy to declare a
quorum present. The meeting was adjourned. The purpose of the meeting was to
consider action on a proposal to reverse split the Company's Common Stock.
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 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)
March 17, 1999 /S/Clark D. Stewart
Date Clark D. Stewart, (President
and Chief Executive Officer)
March 17, 1999 /S/Robert E. Leisure
Date Robert E. Leisure
(Chief Financial Officer)
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<PERIOD-END> JAN-31-1999
<CASH> 163,654
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<RECEIVABLES> 417,550
<ALLOWANCES> 78,736
<INVENTORY> 1,596,026
<CURRENT-ASSETS> 2,658,854
<PP&E> 2,343,211
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<BONDS> 3,042,995
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3,925
<OTHER-SE> 5,401,209
<TOTAL-LIABILITY-AND-EQUITY> 10,989,802
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<INCOME-PRETAX> (523,844)
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