SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
Annual Report Pursuant to Section 13 or 15(d) of the
X Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended April 30, 1999
Transition Report Pursuant to Section 13 or 15 (d) of the
Security Exchange Act of 1934 [No Fee Required]
For the Transition Period From ________ to ________.
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months and (2) has been subject to such
filing requirements for the past ninety days: Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.[X]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant was approximately $2,165,558 at August 6, 1999, when the
average bid and asked prices of such stock was $0.15.
The number of shares outstanding of the Registrant's Common Stock, $0.01
par value, as of August 6, 1999, was 16,726,657 shares.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
This Form 10-K consists of 57 pages (including exhibits). The index to
exhibits is set forth on pages 26 - 29.
<PAGE>
PART I
Item 1. BUSINESS
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 us 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 our
operations and forward-looking statements contained herein.
General
Butler National Corporation is a Delaware corporation formed in 1960, with
corporate headquarters at 19920 West 161st Street, Olathe, Kansas 66062.
Butler National Corporation and/or its subsidiaries are under the
guidelines and regulatory requirements of the Federal Aviation Administration
(FAA), Indian Gaming Regulatory Act of 1988 (IGRA), State of Oklahoma,
Occupational Safety Health Administration (OSHA), and the National
Environmental Policy Act (NEPA).
Current Activities. Our current product lines and services include:
(1)Aircraft Modifications - principally includes the modification of
business-size aircraft from passenger to freighter configuration,
addition of aerial photography capability, and stability enhancing
modifications for Learjet, Beechcraft, Cessna, and Dassault Falcon
aircraft along with other modifications. We provide these services
through a subsidiary, Avcon Industries, Inc. ("Aircraft
Modifications" or "Avcon").
(2)Avionics - principally includes the manufacture of airborne radio and
instrument switching units used in DC-9, DC-10, DC- 9/80, MD-80,
MD-90 and the KC-10 aircraft. We provide these services through a
subsidiary, Woodson Avionics, Inc. ("Switching Units", "Avionics" or
"WAI").
(3)Gaming - principally includes business consulting and management
services to Indian tribes in connection with the Indian Gaming
Regulatory Act of 1988. We provide these services through a
subsidiary, Butler National Service Corporation ("Management
Services", "Gaming" or "BNSC").
(4)SCADA Systems and Monitoring Services - principally includes the
monitoring of water and wastewater remote pumping stations through
electronic surveillance for municipalities and the private sector and
related repair services. We provides these services through a
subsidiary, Butler National Services, Inc. ("Monitoring Services" or
"BNS").
(5)Temporary Services - provides temporary employee services for
corporate clients. We provides these services through as subsidiary,
Butler Temporary Services, Inc. ("Temporary Services" or "BTS").
Assets as of April 30, 1999 and Net Revenues for the year ended April
30, 1999.
<TABLE>
<CAPTION>
Industry Segment
Assets Revenue
<S> <C> <C>
Aircraft Modifications 31.9% 78.9%
Avionics 12.2% 6.3%
Gaming 42.0% 0.0%
Monitoring Services 1.7% 14.8%
Temporary Services 0.1% 0.0%
Corporate Office 12.1% 0.0%
</TABLE>
Assets as of April 30, 1998 and Net Revenues for the year ended April
30, 1998.
<TABLE>
<CAPTION>
Industry Segment
Assets Revenue
<S> <C> <C>
Aircraft Modifications 53.1% 71.0%
Avionics 6.6% 8.9%
Gaming 31.3% 0.0%
Monitoring Services 1.2% 20.1%
Temporary Services 0.2% 0.0%
Corporate Office 7.6% 0.0%
</TABLE>
Assets as of April 30, 1997 and Net Revenues for the year ended April
30, 1997.
<TABLE>
<CAPTION>
Industry Segment
Assets Revenue
<S> <C> <C>
Aircraft Modifications 51.8% 12.7%
Avionics 3.1% 1.3%
Food Distribution 23.8% 81.1%
Gaming 13.9% 0.0%
Monitoring Services 4.0% 4.9%
Temporary Services 0.4% 0.0%
Corporate Office 3.0% 0.0%
</TABLE>
Operating profits for each industry segment are found on page 54 of this
report.
Discontinued Operations.
RF, Inc., dba Redi-Foods: On April 14, 1998, the Company discontinued the
operation of its wholesale food Distribution segment, a wholly owned
subsidiary , RF, Inc., a Missouri corporation. We have liquidated this
segment and we do not plan any future operations in the wholesale food
distribution industry.
We acquired RF, Inc. on April 21, 1994. We exchanged 650,000 shares our
common stock for 100% of the issued and outstanding shares of RF, Inc. At
the date of acquisition, RF, Inc.'s total assets were $565,605, consisting of
cash of approximately $200,000, accounts receivable of approximately
$280,000, and inventory of approximately $60,000. RF, Inc.'s liabilities
included approximately $260,000 of vendor payables, and $115,000 of accrued
payroll and payroll taxes.
The individuals who sold RF, Inc. to us had sought for some time to
reacquire from us the ownership of RF, Inc. The individual ("Marvin J.
Eisenbath, MJE") filed a lawsuit against the Company seeking to rescind the
sale of RF, Inc. stock and for damages. We reached an agreement with MJE to
settle and release all claims and counterclaims effective April 30, 1997,
("Release Agreement"). The Employee dismissed the lawsuit with prejudice.
In addition to the releases, under the terms of the agreement, the we
received, on June 26, 1997, 600,000 shares of the our common stock and a
commitment for certain payments over the next three years. We released MJE
from the terms of his employment contract and the April 24, 1994 Stock
Purchase Agreement, including his agreement not to compete with the us in
the food distribution industry. We recorded a net gain of $432,989
(principally noncash) in the first quarter of 1998 for this transaction
after consideration of $1,078,544 of costs associated with the claims,
counter-claims and settlement. The stock was valued at $2.00 per share on the
closing date of this transaction 4/30/98. Payment was secured, therefore
none of the gain was deferred. Full payment was received during fiscal 1999.
RF, Inc. continued operations with transition management after the release
MJE by us. However, product sales slowed and product selection and
availability was restricted because of the industry knowledge associated
with MJE and the loss of sales personnel to MJE. A bank credit line of
$1,200,000 arranged in 1996, was used to purchase approximately $600,000 of
inventory. Without providing samples as requested, a major chicken products
supplier shipped approximately $250,000 of product in the summer of 1997
against an order scheduled for delivery in February 1997.
Sales at RF, Inc. declined in the fall 1997 compared to the previous year.
The decline was accelerated more than expected due to the level of market
confusion caused by MJE filing suit against us and the non acceptance of RF,
Inc. without MJE and subsequent key sales personnel which caused a
significant loss of confidence in the industry towards RF, Inc. A part of
the unrest was a result of the growing dispute with a chicken supplier over
the product shipped late. In December 1997, the pressure from the chicken
supplier for complete payment of the late shipment was building, the product
inventory was high, bank interest was using available funds, and payments on
accounts receivable had slowed.
On January 7, 1998, the chicken supplier filed suit to collect approximately
$44,000 remaining unpaid for the late shipment. An attachment order was
issued which stopped shipment of all RF, Inc. products. The attachment order
effectively eliminated the ability of RF, Inc. to respond to the needs of
its customers. By February 1, 1998, because it was slow, expensive, and
sometimes not possible to have product released to fill orders and because
the actions of the chicken supplier had created a feeling of doom in the
industry regarding RF, Inc. causing customers and suppliers to believe that
RF, Inc. was going out of business, all the personnel at RF, Inc. were
terminated. Some personnel were called back to assist with liquidation of
the inventory.
On March 27, 1998, the chicken supplier and two transportation companies filed
a petition for involuntary bankruptcy against RF, Inc. On May 12, 1998, the
court determined that RF, Inc. was bankrupt and a trustee was appointed on
June 11, 1998. All the assets of RF, Inc. were pledged as security for the
bank line of credit.
After Industrial State Bank obtained control of all the assets of RF, Inc., we
needed to cooperate with the collection of accounts receivable through a law
firm, the liquidation of the inventory and to purchase the fixed assets,
primarily office equipment, from the bank. The RF, Inc. bank debt is
approximately $637,000, plus interest and legal collection costs. We
believed that an orderly liquidation of the assets at retail and the purchase
of the fixed assets should allow the bank to recover substantially the amount
due on the bank line of credit. Unsecured creditor claims, less the claims
of the three unsecured creditors filing the involuntary bankruptcy petition, the
bank claims and our claims, were expected to be approximately $200,000. We
believed that we would incur expenses associated with the bankruptcy of RF,
Inc. and had funds reserved for this.
As of April 30, 1998, the operations of RF, Inc. have been deconsolidated
due to the Chapter 7 involuntary bankruptcy liquidation of the wholly owned
subsidiary. The entire investment in RF, Inc. was written-off through
the current year loss from discontinued operations. The assets and
liabilities of RF, Inc. at April 30, 1998, were comprised of accounts
receivable $716,478, inventory $359,103, other assets $44,423, bank
liabilities $637,947 and other accrued liabilities $397,903. The revenues
associated with RF, Inc. for the years ended 1998, 1997, and 1996 were
$3,783,132, $17,478,540, and $13,685,871 respectively.
On September 28, 1998, the RFI bankruptcy trustee filed an action alleging
a number of claims against us and our officers including a claim for
repayment of preferential payments to the bankruptcy estate. This lawsuit
was settled on July 26, 1999, by the payment of $250,000 to the court.
As a result aggresive liquidation of the RFI inventory and the collection
of RFI accounts receivable were blocked by lawsuits from December 1997
through July 1999. The realizable value of the assets was significantly
reduced during the time. The new judge determined that RFI was not solvent
at April 30, 1997, and therefore, that we were liable to the RFI estate
for $430,000 in preferential payments made to us in fiscal 1998. Management
believed that RFI was in the best financial condition since acquisition in
1994 on April 30, 1997. However, the judge did not accept the annual audit
of the independent public accountant as of that date making the insolvency
decision for lack of an affidavit at the hearing of a motion for summary
judgment.
Approximately nine months of management's time during fiscal year 1999 was
focused on the resolution of the RFI bankruptcy matter. This was very
expensive to us in terms of management time, professional fees and the
diversion of management's attention away from the daily operation of the
core businesses as well as the analysis of business opportunities related to
the core businesses. The cost of this related time and expenses was
approximately $800,000.
We reconsidered our position after the bankruptcy judge determined that RFI
was not solvent at April 30, 1997, and therefore, that we were liable to the
RFI estate for $430,000 in preferential payments made us in fiscal 1998.
Although management of the Company strongly disagreed with the judge's
ruling, we had already expended professional fees of approximately $380,000
and considerable corporate payroll and other expenses directly related to the
RFI matter. Therefore, continued appeals of this matter were not in the best
interest of our shareholders. As a result, we settled with the Trustee by
paying $250,000 to the Court.
Because we guaranteed the RFI debt to the bank, we assumed an additional
liability of $908,209 , paid $250,000 in preferential payments to the RFI
estate, expended professional fees of $380,000 directly related to the RFI
matter, allocated $120,017 of direct corporate expense to the support of the
matter and have reserved for future costs an additional $189,000 before the
remaining assets are disposed of and the matter is closed. We do not expect
to recover a material amount from the disposal of the assets and have
expensed approximately $2,200,000 related to the closing of RFI. We believe
that all approved claims against RFI will be paid in full through the Trustee.
<PAGE>
Valu Foods, Inc., dba Valu Foods : On April 14, 1998, we discontinued the
operation of its retail food store, a wholly owned subsidiary , Valu Foods,
Inc., a Kansas corporation. This retail operation is being liquidated and we
does not plan any future operations in the retail food industry.
We formed Valu Foods, Inc. to market test the concept of selling frozen food
overruns, seconds, and other discounted products to the rural market. A
retail store owned by an individual in a rural Kansas community had been
operating since September 1996 market testing these lines of products. In
August 1997, we opened a retail store in the Kansas City area to market test
products packaged under the registered trade name, Valu Foods and other
products. Store sales were as expected at the opening and continued to grow
through the fall of 1997. The test project was discontinued when we
discontinued the operation of the wholesale food Distribution segment. We
plan to liquidate the Valu Foods, Inc. assets in the ordinary course of
business and the store will close the sooner of the completion of the
inventory liquidation or on January 31, 1999, when the lease expires. The
loss on discontinued operations is approximately $23,965 (net of tax). The
loss includes anticipated legal costs, rental costs and payroll.
At April 30, 1998, the operations of Valu Foods, Inc. was discontinued
due to the planned closing of the wholly owned subsidiary. The entire
investment in Valu Foods, Inc. was written-off through the current year loss
from discontinued operations. The assets and liabilities of Valu Foods, Inc.
at April 30, 1998, were comprised of property, plant and equipment including
leasehold improvements of $332,953 and inventory $24,779. The revenues
associated with Valu Foods, Inc. for the year ended 1998 was $143,550.
As of April 30, 1999 all operations at Valu Foods, Inc. had ceased and the
subsidiary had no assets.
Financial Information about Industry Segments
Information with respect to our industry segments are found at Note 13 of
Notes to Consolidated Financial Statements for the year ended April 30, 1999,
located herein at page 52.
Narrative Description of Business
Aircraft Modifications. Our subsidiary, Avcon, modifies business type
aircraft at Newton, Kansas. The modifications include aircraft conversion
from passenger to freighter configuration, addition of aerial photography
capability, stability enhancing modifications for Learjets, and other special
mission modifications. Avcon offers aerodynamic and stability improvement
products for selected business jet aircraft.
Sales of the Aircraft Modifications product line are handled directly
through Avcon. Specialty modifications are quoted individually by job.
Avcon is geographically located in the marketplace for Aircraft Modifications
products. The Company believes there are three primary competitors (AAR of
Oklahoma, Dee Howard Company, and Raisbeck Engineering) in the industry in
which the Aircraft Modifications division participates.
The Aircraft Modifications business derives its ability to modify
aircraft from the authority granted to it by the Federal Aviation
Administration ("FAA"). The FAA grants this authority by issuing a
Supplemental Type Certificate ("STC") after Avcon has documented and
demonstrated to the FAA that the changes to the aircraft following the
procedures defined within the STC do not endanger its safe operation. These
activities do not represent research and development costs as the cost for
developmental are expensed as incurred. Avcon uses the STC as a tool to make
the approved modifications to each aircraft and as such applies a portion of the
cost of the tool to each installation sold. The total amount of cost to be
applied was $2,392,611 and $1,456,246 at April 30, 1999 and 1998 respectively.
The FAA reviews and approves changes as the STC procedures are applied.
Periodically, the FAA verifies compliance by Avcon with the procedures and
calculations defined in the STC. The STC authorizes Avcon to build the
required parts and assemblies and to perform the installations on applicable
customer-owned aircraft.
Avcon owns more than 200 STC's. When the STC is applicable to a
multiple number of aircraft it is categorized as Multiple-Use STC. These
Multiple-Use STC's are considered a major asset of the Company. Some
of the Multiple-Use STC's include the Beechcraft Extended Door, Learjet
AVCON FINS, Learjet Extended Tip Fuel Tanks, Learjet Weight Increase Package
and Dassault Falcon 20 Cargo Door.
On May 3, 1996, Avcon received approval from the FAA of STC (no.
ST00432WI) for its AVCON FIN Modification for installation on Learjet Model
35 and 36 Aircraft. FAA pilots thoroughly evaluated the demonstration
aircraft, and determined that the fins substantially increase the aerodynamic
stability in all flight conditions. The AVCON FIN STC eliminates the
operational requirement for Yaw Dampers which are otherwise required in both
Learjet models to control adverse yaw tendencies in certain flight conditions,
particularly during approach and landing. Learjets equipped with AVCON FINS
exhibit the same aerodynamic stability and improved operating efficiency
offered on newer Learjet models, while maintaining the outstanding range,
speed and load-carrying capabilities that made the Learjet Models 35 and 36
among the most popular Business Jets ever produced. Mounted like the fins of
an arrow on the rear of the aircraft, Learjets equipped with AVCON FINS have
a new look much the same as the current production aircraft. This
modification will give the Learjets produced in the 1970's and 1980's the
look of the 21st century.
<PAGE>
Avionics - Switching Units. Butler National Corporation has an
agreement with Boeing McDonnell Douglas to manufacture and repair airborne
switching systems for Boeing McDonnell Douglas and its customers. Butler
National subcontracts with its wholly owned subsidiary, Woodson Avionics,
Inc., for the manufacture and repair of Switching Units. Switching Units are
used to switch the presentation to the flight crew from one radio system to
another, from one navigational system to another and to switch instruments in
the aircraft from one set to another. The Switching Units are designed and
manufactured to meet Boeing McDonnell Douglas and FAA requirements. Most
Boeing McDonnell Douglas commercial aircraft are equipped with one or more
Butler National Switching Units.
Marketing is accomplished directly between Butler National and Boeing
McDonnell Douglas. Competition is minimal. However, sales of new unites are
directly related to Boeing McDonnell Douglas' production of DC-9, DC-10,
DC9/80, MD-80, MD-90, MD-11 and KC-10 tanker aircraft. The current Boeing
McDonnell Douglas contract has been extended through fiscal year 2000.
However, the customer plans to stop production of the related Douglas
Aircraft after the currently scheduled units are manufactured in the year
2000.
Avionics provides new replacement units and overhaul service directly
to the major airlines using the aircraft manufactured by McDonnell Douglas.
This part of the Avionics business segment is growing to offset the loss of
sales from the original equipment units.
Butler National sells to Boeing McDonnell Douglas and the major airlines
using normal terms for trade accounts in the industry. Most payments have
been and continue to be within these terms. The Company has ordinary course
of business purchase orders from the commercial division (Douglas Aircraft
Company) for products with scheduled shipment dates into the fiscal year
2000. However, should Boeing McDonnell Douglas financially reorganize or for
some other reason not accept shipment against these orders, the Company could
suffer significant loss of revenue. Boeing McDonnell represents less than
10% of Butler National Corporations sales.
Management Services. BNSC is engaged in the business of providing
consulting and management services to Indian Tribes in connection with the
Indian Gaming Regulatory Act of 1988. Management services include consulting
and construction management services to assist the tribes with the
development of the facilities and the operational management for the Tribes.
The Company has consulting agreements and three management agreements in
place; however, the performance of these agreements is contingent upon and
subject to approval by the Secretary of Interior, Bureau of Indian Affairs,
National Indian Gaming Commission and the appropriate State, if required.
Also, BNSC has signed consulting engagement letters with two tribes to
study and develop plans for Indian gaming.
The management consulting engagement letters provide for advances of
funds to the Indian tribes by BNSC for professional services, fees, licenses,
travel, administrative costs, documentation, procedure manuals, purchases of
property and equipment and other costs related to the approval and opening of
an establishment. These advances are considered to be a receivable from the
tribe and to be repaid by the tribe from the funding to open the enterprise.
The ability to collect the funds related to these advances depends upon the
opening of the establishment or in the alternative the liquidation of the
inventory and receivable accumulated in the event the establishment is not
opened. However, if the collection and/or liquidation efforts are not
successful, BNSC would suffer a significant loss of asset value. See
Liquidity and Capital Resources, page 16.
Butler National Service Corporation is in the process of obtaining
needed licenses as they are required necessary for the opening of any future
gaming establishments. BNSC follows the law and regulations of the Indian
Gaming Regulatory Act of 1988 and the state laws as they may apply. At this
time, BNSC does not foresee any substantial risks associated with obtaining
any required licenses needed to assist the Indian tribes.
<PAGE>
During fiscal 1997, the Company received approval by the National
Indian Gaming Commission of the management agreement between the Miami Tribe
of Oklahoma, the Modoc Tribe of Oklahoma and its subsidiary, Butler National
Service Corporation, to construct and manage a Class II (High Stakes Bingo)
and Class III (Off-Track Betting) establishment in Miami, Oklahoma.
Construction of this project, known as the STABLES, was completed and opened
for business on September 22, 1998.
The services to be provided by the Company include consulting and
construction management services for the development and establishment of the
facilities and operational management for the Tribes. The Company will
provide the necessary funds to construct the facilities and will be repaid
the principal plus interest out of the profits of the operation.
Additionally, the Company will receive a thirty percent (30%) share of the
profits for its management services. The loan agreement with the Tribes is
in the principal sum of Three Million Five Hundred thousand dollars, or so
much thereof as shall be disbursed. The interest rate is Prime Rate plus two
percent. The Company has arranged for a part of construction and operating
financing of the establishment to be provided by Miller & Schroeder Investments
Corporation.
SCADA Systems and Monitoring Services. BNS is engaged in the sale of
monitoring and control equipment and the sale of monitoring services for
water and wastewater remote pumping stations through electronic surveillance
by radio or telephone. BNS contracts with government and private owners of
water and wastewater pumping stations to provide both monitoring and
preventive maintenance services for the customer.
The Company expects a high percentage of BNS business to come from
municipally owned pumping stations. Currently, BNS is soliciting business in
Florida only. While the Company has exposure to competitive forces in the
monitoring and preventive maintenance business, management believes the
competition is limited.
Temporary Services. BTS provides managed temporary personnel to
corporate clients to cover personnel shortages on a short and/or long term
basis. This service is being marketed in Kansas and Missouri.
Currently, this Company is inactive. BTS plans to provide contract staffing
for the Princess Maria Casino planned for opening during the year 2000.
Raw Materials. Raw materials used in our products are currently
available from several sources. Certain components, used in the manufacture
of the Switching Units, are long lead time components and are single sourced.
Patents. There are no patents, trademarks, licenses, franchises, or
concessions held by us that need to be held to do business other than the
FAA, PMA and Repair Station licenses. However, we maintain certain airframe
alteration certificates, commonly referred to as Supplemental Type
Certificates ("STCs"), issued to it by the FAA, for its Aircraft
Modification and Avionic businesses. The STC, PMA and Repair Station
licenses are not patents or trademarks. The FAA will issue an STC to anyone,
provided that the person or entity documents and demonstrates to the FAA that
a change to an aircraft configuration does not endanger the safety of flight.
The PMA and Repair Station licenses are available to any person or entity,
provided that the person or entity maintains the appropriate documentation
and follows the appropriate manufacturing, repair and/or service procedures.
The FAA requires the aircraft owner to have the STC document in the aircraft
log after each modification is complete.
Seasonality. Our business is generally not seasonal. Demand for the
Falcon 20 cargo aircraft modifications is related to seasonal activity of the
automotive industry in the United States. Many of these modified aircraft
are used to carry automotive parts to automobile manufacturing facilities.
The peak modification demand occurs in late spring and early summer. Peak
usage of the modified aircraft is from June to December. Future changes in the
automotive industry could result in the fluctuation of revenues at the
Aircraft Modifications Division.
Customer Arrangements. Most of our products are custom-made. Except
in isolated situations no special inventory-storage arrangements,
merchandise return and allowance policies, or extended payment practices are
involved in our business. We are not dependent upon any single customer
except for Switching Units. Switching Units are sold to Boeing McDonnell
Douglas and Douglas Aircraft Company customers. We have required deposits
from our customers for aircraft modification schedule dates.
<PAGE>
Backlog. Our backlog as of April 30, 1999, 1998, and 1997, was as follows:
<TABLE>
<CAPTION>
Industry Segment 1999 1998 1997
<S> <C> <C> <C>
Aircraft Modifications 2,274,000 5,747,505 2,468,169
Avionics 295,000 173,174 316,558
Monitoring Services 504,736 1,124,191 1,317,580
Temporary Services - - -
--------- --------- ---------
$3,373,736 $7,044,870 $4,102,307
</TABLE>
Our backlog as of August 6, 1999, totaled $3,776,617; consisting of
$2,299,500, $237,000, $1,240,117 and $0, respectively, for Aircraft
Modifications, Avionics, Monitoring Services, and Temporary Services. The
backlog includes firm orders which may not be completed within the next
twelve months. Backlog that the we expect not to be filled within the next
year totals $300,000; consisting of $0, $0, $300,000, and $0. The backlog is
not unusual for this industry. The sales for fiscal 1999 were $6,631,355
which represents an increase of 21.5% from fiscal 1998.
Employees. We employed 59 people on April 30, 1999, compared to 66
people on April 30, 1998, and 54 people on April 30, 1997. As of August 6,
1999, we employed 60 people. None of our employees are subject to any
collective bargaining agreements.
"Year 2000". Historically, certain computerized systems have had two
digits rather than four digits to define the applicable year, which could
result in recognizing a date using "00" as the year 1900 rather than the year
2000. This could result in major failures or miscalculations and is generally
referred to as the "Year 2000 issue."
We recognize that the impact of the Year 2000 issue extends beyond
traditional computer hardware and software to automated plant systems and
instrumentation, as well as to third parties. The Year 2000 issue is being
addressed within our company by its individual business units, and progress
is reported periodically to management.
We have committed resources to conduct risk assessments and to take
corrective action, where required, within each of the following areas:
information technology, plant systems and external parties. Information
technology includes telecommunications as well as traditional computer
software and hardware in the mainframe, midrange and desktop environments.
Plant systems include all automation and embedded chips used in plant
operations. External parties include any third party with whom we interact.
In all three areas we are in the process of completing inventory and
assessment audits and taking whatever corrective action, if any, is necessary
to bring these areas into Year 2000 compliance.
The remaining costs of the Year 2000 activities is not expected to be
material to our operations, liquidity or capital resources. Costs are being
managed within each business unit. We purchased and replaced our central
computer system and all operating and application software with Year 2000
compatible products in the summer of 1998. The cost of this replacement was
approximately $200,000.
There is still uncertainty around the scope of the Year 2000 issue.
At this time we cannot quantify the potential impact of these failures. Our
Year 2000 program and contingency plans have been developed to address issues
within our control. Typically these contingency plans address the results of
single events while the scope of the Year 2000 issues may cause multiple
concurrent events which could result in business disruption that could
materially affect our operations, liquidity or capital resources. The
program minimizes, but does not eliminate, the issues of external parties.
Financial Information about Foreign and Domestic Operations, and Export Sales.
Information with respect to Domestic Operations may be found at Note
13 of Notes to Consolidated Financial Statements for the year ended April 30,
1999, located herein at page 52. There are no foreign operations.
Distribution of the Indian Gaming business. On May 14, 1999 we
reported that on May 4, 1999 the Board of Directors determined that the
interests of the shareholders would be best served by distributing the common
stock of our Indian Gaming Subsidiary ("IGS") to the shareholders. This
would allow the management of each business to focus solely on that business
segment. This would also provide incentives to the employees directly
related to the profitable operation of the business segment and enhance the
access to financing by allowing the financial community to focus on the business
activities and opportunities of the business segment.
We announced plans to distribute the IGS common stock to the
shareholders of record owning our common stock at the close of business on
May 24, 1999. The shares of the IGS were planned to be distributed to the
shareholders at a ratio of one share of common stock of the IGS for each
share of our stock owned at the close of business on May 24, 1999. The
original date of an Information Statement and distribution was expected to be
July 31, 1999. Distribution will be made as soon as the Form 10 is
completed and approved by the SEC.
On for 8-K filed December 7, 1998, Butler National reported the
completion of a Rights Agreement. On October 26, 1998, the Board of Directors
approved a Shareholder Rights Plan designed to discourage takeovers that
involve abusive tactics or do not provide fair value to shareholders. We
believe the Plan is an effective and reasonable method to safeguard the
interests of our shareholders. We are concerned that the future benefits of
current programs and initiative could be denied to shareholders by an
opportunistic, undervalued acquisition of Butler National. The Plan is
designed to assure that shareholders are not deprived of their rights in the
full measure of Butler National's long term potential, while not preventing
a fully valued bid for Butler National.
The Plan provides for a dividend distribution of one Preferred Stock
Purchase Right for each outstanding share of Butler National common stock as
of the record date of October 27, 1998. Each shareholder is automatically
entitled to the Rights and physical distribution of new certificates will
be made at this time. The Rights distribution is not taxable to shareholders.
The Rights will be exercisable only if a person or group (except for
certain exempted persons or groups) acquires 15% or more of Butler National
common stock or announces a tender offer which could result in ownership of
15% or more of the common stock. The Rights entitle the holder to purchase
one one-two hundredth of a share of Series C Participating Preferred Stock at
an exercise price of $10.00 and expire October 26, 2008.
Following the acquisition of 15% or more of Butler National's common
stock by a person or group, the holders of the Rights (other than the acquiring
person) will be entitled to purchase shares of common stock at one-half the
then current market price, and, in the event of a subsequent merger or other
acquisition of Butler National, to buy shares of common stock of the acquiring
entity at one-half of the market price of those shares.
Butler National is able to redeem the Rights at $0.0025 per right at any time
until a person or group acquires 15% or more of the Butler National shares.
Norwest Bank Minnesota, N.A. is the Rights Agent for Butler National under the
Rights Agreement dated October 26, 1998.
<PAGE>
Item 2. PROPERTIES
The corporate headquarters is located in a 9,000 square feet owned
facility for office and storage space at 19920 West 161st Street, in Olathe,
Kansas. The facilities are adequate for current and anticipated operations.
The Company's Aircraft Modifications Division is located at the
municipal airport in Newton, Kansas in facilities occupied under a long-term
lease extending to April 30, 2002, at an annual rental of $33,000. The lease is
renewable for an additional seven-year term. In February 1989, the Company
entered into a long-term capital lease with the City of Newton, Kansas for a
second hangar. The lease extends to February 28, 2009, at an initial annual
rental of $55,200. Commencing November 1, 1991, the annual rental declined
to $50,400 for the remaining term of the lease. The Company entered into a
letter of agreement with the landlord to reduce the lease payments to $33,000
per year on a month-to-month basis and to retain an option to reinstate the
capital lease as originally contracted. These facilities are adequate for
current and anticipated operations.
The Company's wholly-owned subsidiary, Butler National Services, Inc.
has its principal offices in Ft. Lauderdale, Florida in facilities occupied
under a three-year lease ending March 31, 2002. The annual rental is
approximately $30,330. The facilities are adequate for current and
anticipated operations.
The Company's wholly-owned subsidiary, Woodson Avionics, Inc., has
operations from its principal offices and manufacturing operations in
Arizona at 5032 South Ash Avenue, Tempe, Arizona. As of June 1, 1996, the
Company rents 3,865 square foot of space for $2,358 per month. The lease
expires December 31, 1999. The facilities are adequate for current and
anticipated operations.
Item 3. LEGAL PROCEEDINGS
The Company had an employment agreement with an individual (Brenda
Shadwick) who 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 required,
monthly payments by the Company to the individual in the amount of $6,000 per
month during fiscal 1998 and fiscal 1999. The final payment was made in April
1999.
The Company acquired RF, Inc. from Marvin and Donna Eisenbath on April
21, 1994. The Company exchanged 650,000 shares of the Company's common stock
for 100% of the issued and outstanding shares of RF, Inc. The Eisenbaths
sought for some time to reacquire the ownership of RF, Inc. The Eisenbaths
filed a lawsuit against Butler National seeking to rescind the sale of RF,
Inc. stock and for damages.
Butler National and the Eisenbaths reached an agreement to settle and
release all claims and counterclaims effective April 30, 1997, ("Release
Agreement"). The Eisenbaths dismissed the lawsuit with prejudice. In
addition to the releases, under the terms of the agreement, the Company
received on June 26, 1997, 600,000 shares of the Company's common stock and
certain payments over the next three years. Butler National released the
Eisenbaths from the terms of the employment contract and the April 24, 1994
Stock Purchase Agreement. These documents released the Eisenbaths from the
agreement not to compete with the Company in the food distribution industry.
Butler National recorded a net gain (principally noncash) in the first
quarter of 1998 for this transaction after consideration of $1,078,544 of
costs associated with the claims, counter-claims and settlement. In addition
Butler National recognized an additional gain as the promissory note payments
are received in cash. Although the effective date of the transaction as
agreed to by both parties is April 30, 1997, the transfer of the stock and
related proceeds was not completed until June 1997, see also Item 1, General,
Discontinued Operations, page 2, regarding the bankruptcy of RF, Inc.
On September 20, 1998, the RFI bankruptcy trustee filed an action
alleging a number of claims against Butler National and its officers including a
claim for repayment of preferential payments to the bankruptcy estate. Butler
National settled the lawsuit on July 26, 1999, by the payment of $250,000 to
the court. See Item 1, General, Discontinued Operations, page 2, regarding
the details of the bankruptcy of RFI.
In December of 1997, the Butler National sold Convertible Preferred
Stock to certain offshore investors. Beginning in February of 1998, these
investors began converting the Preferred Stock into Common Stock and the
price of the Company's stock declined. As reported earlier, the Company
received notice from NASDAQ stating that the Common Stock of the Company
would be delisted by NASDAQ if the price did not trade at a bid price of
$1.00 or more for ten (10) business days prior to August 6, 1998. The
delisting of the Company's Common Stock would be a default under the terms of
the Convertible Preferred Stock, as well as under the terms of certain
Convertible Debentures previously issued. The Company considered a number of
alternative actions including a reverse stock split, a repurchase of common
shares on the open market and/or the repurchase of the convertibles at a
premium to increase the price of the Common Stock.
After evaluation of various alternatives for what Butler National
believed the holders of the Convertible Preferred Stock and the Convertible
Debentures engaged in inappropriate actions and representations of being long
term investors and yet actually began converting within 45 days after the
initial agreement, we announced plans to stop conversions on July 7, 1998 of
the Convertible Preferred Stock and Convertible Debentures at prices below
$2.75 per share. On July 17, 1998, two of the holders of the Convertible
Preferred Stock (Austost Anstalt Schaan and Balmore Funds, SA) filed a
lawsuit (the "Action") against Butler National in Chancery Court in Delaware
alleging among other things, breach of contract, violation of Delaware law
and violation of the terms of the Convertible Preferred Stock. The Action
sought an injunction to force Butler National to convert the Convertible
Preferred Stock in accordance with its terms and for unspecified monetary
damages.
On January 25, 1999 Butler National announced that an agreement had been
reached with the Holders of the Class B Convertible Preferred Stock to settle
the lawsuit against the Company. Under the agreement, the Holders of the
Preferred are allowed to convert up to ten percent (10%) of the face value of
the Preferred into common stock in any month until the entire issue is
converted. The face value at the time of settlement was $785,000 allowing
$78,500 per month to be converted under the plan. However, if the bid price
is above $1.45 for three trading days, the Holders will be allowed to convert
up to a total of 30% per month or $235,500 of face value of the Preferred.
The conversion amount will increase five percent (5%) for each $.20 increase
in market price. The agreed conversion price is seventy percent of the
average bid price for the previous five trading days.
With the exception of 30,000 common shares owned at settlement by the
Holders, sales of the previous converted common shares, 148,849 shares, plus
any newly converted common shares, will be limited to the greater of $30,000
or twenty-five percent (25%) of the previous weeks trading volume.
Additionally, accrued dividends ($58,875) on the Preferred Stock will be paid
in shares of common stock at $.57 per share. The holders agreed to waive all
future dividends. All transactions are being handled through one broker and
all activity is reported on a weekly basis. The Holders also received
770,000 three-year warrants to purchase restricted common stock at $1.45
per share.
On April 30, 1999 Butler National entered into an agreement with the
Holders of the Convertible Debentures similar to the agreements with the
Holders of the Convertible Preferred. The face value at the time of this
agreement was $650,000 allowing $65,000 per month to be converted under the
plan at a conversion price equal to 80% of the five (5) day average closing
bid for the five (5) trading days prior to the conversion, provided, however,
that if the closing price increases to $1.45 per share or more for three (3)
consecutive trading days, the Holder will have the option to convert an
additional 20% or $130,000 of outstanding principal amount of Debentures. All
transactions are being handled through one broker and all activity is
reported on a weekly basis. The Holders also received 325,000 three-year
warrants to purchase restricted common stock at $1.45 per share.
<PAGE>
Avcon and Butler Nationaly used an outside engineering firm to assist
with the Aircraft Modification Avcon Fin project and the related STC's. The
individual filed suit against the Company for final payment under the
contract. However, the Company did not feel that all work products had been
delivered. In fiscal 1999 the Company settled the lawsuit and made final
payment to the engineer and the engineering work product was delivered as
required by the contract. The Company had an account payable to the
individual equal to the agreed upon settlement to be paid upon delivery of
the complete engineer work product.
As of August 6, 1999, there are no other known legal proceedings
pending against the Company. The Company considers all such unknown
proceedings, if any, to be ordinary litigation incident to the character of
the business. The Company believes that the resolution of those unknown
claims will not, individually or in the aggregate, have a material adverse
effect on the financial position, results of operations, or liquidity of the
Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Butler National did not submit any matter to a vote of its security
holders during the fourth quarter of fiscal 1999.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(a) Market Information. Butler National Corporation was initially listed
in the national over-the-counter market in 1969, under the symbol "BUTL."
Effective June 8, 1992, the symbol was changed to "BLNL." On February 24,
1994, the Company was listed on the NASDAQ Small Cap Market 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 the 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, which has resulted even though an agreement
was reached with the Holders of the Convertible Preferred and Convertible
Debentures somewhat restricting their ability to convert and sell the
ompany's common stock, 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.
The range of the high and low bid prices per share of the Company's common
stock, for fiscal years 1999 and 1998, as reported by NASDAQ, is set forth
below. Such market quotations reflect intra-dealer prices, without retail
mark-up, mark-down or commissions, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Year Ended April 30, 1999 Year Ended April 30, 1998
High Low High Low
<S> <C> <C> <C> <C>
First Quarter 3/4 3/8 1 15/16 15/16
Second Quarter 5/8 3/8 1 3/32 15/16
Third Quarter 3/4 5/16 1 1/16 13/16
Fourth Quarter 9/16 15/64 1 5/8
</TABLE>
(b) Holders. The approximate number of holders of record of the Company's
common stock, as of August 6, 1999, was 2,900.
(c) Dividends. The Company has not paid any cash dividends on its common
stock, and the Board of Directors does not intend to declare any cash
dividends in the foreseeable future.
<PAGE>
As of August 6, 1999, the status of the convertible securities issued is as
follows:
<TABLE>
<CAPTION>
Convertible Face Value Conversion Equivalent Common
Security Outstanding Discount Shares at Market
Percent Price of $0.15 per
Common Share
<S> <C> <C> <C>
Debenture $ 618,000 20% 5,500,000
Class B Preferred $ 551,000 30% 5,247,619
Total $1,169,000 10,747,619
Item 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and with the Consolidated Financial Statements and related Notes
included elsewhere in the report.
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
(In thousands except per share data)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Sales $6,631 $5,456 $4,062 $3,653 $3,668
Income (Loss) from
Continuing Operations ( 50) 250 (200) (658) (1,286)
Income (Loss) from/on
Discontinued Operations (1,412) (172) 366 802 461
Net Income (Loss) (1,462) 78 166 144 (825)
Basic Per Share
Income (Loss) from
Continuing Operations $ (0.00) $ 0.03 $ (0.02) $ (0.07)$ (0.16)
Income (Loss) from/on
Discontinued Operations $ (0.12) $(0.02) $ 0.04 $ 0.09 $ 0.06
Net Income (Loss) $ (0.12) $ 0.01 $ 0.02 $ 0.02 $ (0.10)
Selected Balance Sheet Information
Total Assets $ 11,414 $10,780 $11,124 $ 8,261 $ 4,263
Long-term Obligations $ 2,105 $ 1,972 $ 1,541 $ 57 $ 81
Cash dividends declared per
common share None None None None None
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Fiscal 1999 compared to fiscal 1998
Consolidated sales for fiscal 1999 were $6,631,355, an increase of 21.5%
from fiscal 1998 sales of $5,456,106. Discussion of specific changes by
operation follows.
Aircraft Modification (Avcon): Sales from the Aircraft Modifications business
segment increased 35%, from $3,874,490 in fiscal 1998, to $5,236,370 in
fiscal 1999. This segment earned an operating profit of $511,567 in
1999, compared $844,320 in 1998. Primarily product sales increased due to
the sale of the first aircraft purchased, modified and resold and the
expanded business base related to the multiple-use Supplemental Type
Certificates ("STC") developed by the Company. The decrease in operating
income is due to the increase in sales and decrease in margins related to the
modified aircraft with proprietary products.
As previously noted on page 2, (Item 1. Business), on May 3, 1996 the
Company's subsidiary, Avcon Industries, Inc., received approval from the
Federal Aviation Administration of a Supplemental Type Certificate (no.
ST00432WI) for its AVCON FIN Modification for installation on Learjet Model
35 and 36 Aircraft. The STC authorizes Avcon to build the required parts and
assemblies and is used as a tool to perform the authorized procedures, to make
installations on applicable customer-owned Learjets. The Company believes
the potential market for fin installations to be approximately 1,000 aircraft
and that approximately 500 fin installations will be performed over the next
several years. Avcon plans to market the fin installation with related
options and to purchase additional aircraft for modification and resale.
In fiscal 1999, the Company invested $100,628 to document, engineer, build,
and demonstrate to the FAA, flight characteristics of Avcon products; thereby
adding to its ownership of multiple-use STC's. The Company's direction is to
continue to work on activities that should expand the aircraft modification
market. The Company believes that the increased modification-market, through
STC's for the Learjet and the Beechcraft KingAir, will enable this segment to
be an even greater contributor to the overall growth of the Company.
Switching Units (Woodson Avionics): Sales from the Avionics Switching Unit
business segment decreased 13.6%, from $484,518 in fiscal 1998, to $418,410
in fiscal 1999. Sales to McDonnell Douglas increased 28.3% due to the
overhaul of older aircraft. Sales for aircraft repair and refurbishment
decreased 24.1%, from fiscal 1998 to fiscal 1999. Operating profits decreased
from $146,744 in fiscal 1998 to $103,458 in fiscal 1999. Management expects
this business segment to continue to be stable in future years.
<PAGE>
SCADA Systems and Monitoring Services (Butler National Services): Revenue
from Monitoring Services decreased from $1,097,098 in fiscal 1998 to $976,574
in fiscal 1999, a decrease of 11%. During fiscal 1999, the Company
maintained a relatively level volume of long-term contracts with
municipalities. Revenue increased due to the introduction of new products
and services. The Company's contracts with its two largest customers have
been renewed for fiscal 2000. An operating profit of $175,879 in Monitoring
Services was recorded in fiscal 1999, compared to fiscal 1998 operating
profit of $228,488. The Company was able to secure performance bonds during
the first quarter of fiscal 1995. This division has since bid on certain jobs
requiring performance bonds, and completed two special jobs with revenue
totaling approximately $100,000.
The Company believes the service business of this segment will continue to
grow at a moderate rate. This segment has experienced consistent increases
over the past few years and the Company expects this trend to continue.
Variations in the growth rate are sometimes up or down due to the sales of
new equipment installations.
Temporary Services: This operation provides temporary employee services for
corporate clients. This segment was inactive during fiscal 1999. If and when
the Company is able to open Indian gaming facilities in Kansas, we expect
that a majority of the personnel in the various Indian gaming enterprises
will be staffed by Temporary Services personnel.
Management Services:
-General-
In the current fiscal year the Company received no revenue and incurred
$132,118 in general and administrative expenses associated with its continued
efforts to explore opportunities related to the Indian Gaming Act of 1988.
Additionally, the Company increased its reserve for collectibility and
amortized $50,781 and $77,864 in fiscal years 1999 and 1998, respectively,
related to shares issued for services rendered to the Company.
The Company has advanced $6,485,972 under the management consulting
agreements with the Indian Tribes. Funds advanced for the Tribes were used
to purchase land, land improvements, and professional design fees related to
the development of Indian Gaming facilities. Included in this receivable is
160 acres of land, located adjacent to the Linn Valley Lakes resort and
residential development in Linn County, Kansas, and a group of selected lots
within the resort development. The Company has a net receivable value of
$2,162,120 on the balance sheet as deferred cost related to projects other than
the Stables. The Company believes that in the event that the Indian tribes
were unable to repay the advances, that this tract could be developed and
sold for residential and commercial use, other than Indian gaming. 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. In the event of default, this may allow the Company to recover
the majority, if not all, of the $2,162,120 advanced.
-Princess Maria Casino-
The Company entered into a consulting agreement with the Miami Tribe on
June 11, 1992. As a part of this agreement the Company has a management
agreement with the Miami Tribe to provide management services to the Miami
Tribe. The Tribe requested a compact with the State of Kansas for Class III
Indian gaming, on Indian land, known as the Maria Christiana Miami Reserve
No. 35, located in Miami County, Kansas, on July 9, 1992.
The Miami Tribe's 1992 compact was the subject of a lawsuit filed in
February 1993, in the Federal District Court, by the Miami Tribe, alleging
the failure to negotiate a compact in good faith by the State of Kansas. The
United States District Court dismissed the Miami Tribe's suit against the
State of Kansas, citing the United States Supreme Court's ruling in Seminole
v. State of Florida. The Supreme Court ruled that the "failure to negotiate"
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 that the
Miami Tribe has not established jurisdiction over the Miami land in Kansas.
This was the first definitive statement received from the central office of
the BIA in three years. The latest opinion is contrary to a September, 1994
opinion of the Tulsa Field Solicitor, in an Indian probate, stating that the
Miami Tribe has jurisdiction over the Miami Indian land in Kansas. On July
11, 1995, the U.S. Department of Justice issued a letter to the Associate
Solicitor expressing concern about the conclusions reached, based upon the
analysis of the case.
<PAGE>
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) was 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 newly adopted tribal amendments. On February
22, 1996, the BIA approved the Miami Tribe's constitution and the membership
of the heirs. The Tribe resubmitted the management agreement. 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.
The Tribe resubmitted the management agreement and the land question to the
NIGC in June, 1996. In July, 1996, the NIGC again requested an opinion from
the BIA. On July 23, 1997, the Tribe and the Company were notified that the
BIA had again determined that the land was not suitable for gaming, for
political policy reasons, without consideration of the membership in the
Miami Tribe or recent case law, and the NIGC had to again deny the
management agreement. The Tribe filed a suit in the Federal District Court
in Kansas City, Kansas. On May 15, 1998 the Court determined that the land
was suitable for gaming and remanded the case to the BIA for the
documentation. Therefore, even though the Company and the Tribe believe the
BIA will agree with the Court that the land is "Indian land", and in
compliance with all laws and regulations, for a variety of reasons, there is
no assurance that the management agreement will be approved.
In the fall of 1998, the United States District Court for the District of
Kansas ruled that the Princess Maria Miami Reserve No. 35 was suitable for
Indian gaming under the IGRA. As a result of this determination, the reserve
for collectibility of the advances to the Miami Tribe of Oklahoma under the
consulting agreement and management agreement was reduced $650,846. Increases
and decreases to a reserve for each Indian gaming consulting engagement are
reported as expenses or income of the gaming segment. The total advances
to the engagements less the balance of the reserves are reported as net on
the consolidated financial statements. This adjustment to the reserves less
expenses of $132,118 resulted in a gaming segment operating profit of $518,728.
-Stables Bingo and Off-Track Betting-
Additionally, the Company has a signed Management Agreement with the Miami
and Modoc Tribes. A class III Indian Gaming Compact for a joint-venture by
the Miami and Modoc Tribes, both of Oklahoma, has been approved by the State
of Oklahoma and by the Assistant Secretary, Indian Affairs for the U.S.
Department of the Interior. The Compact was published in the Federal
Register on February 6, 1996, and is therefore, deemed effective. The
Compact authorizes Class III (Off-Track Betting "OTB") along with Class II
(high stakes bingo) at a site within the City of Miami, Oklahoma.
The Company provides consulting and construction management services in
the development of the facility and manages the joint-venture operation for
the tribes. The STABLES facility is approximately 22,000 square-feet and
located directly south of the Modoc Tribal Headquarters building in Miami.
The complex contains off-track betting windows, a bingo hall, sports bar,
and a restaurant. The Company's Management Agreement was approved by the
NIGC on January 14, 1997. Under the Management Agreement, as approved, the
Company, as manager, receives a 30% share of the profits and reimbursement of
advanced costs.
Construction on the STABLES began with the ground breaking on March 27,
1997 and opened September 21, 1998. The project cost was approximately
$3,500,000. Funds have been provided from the Company's operations and
long-term financing for the project was arranged through Miller & Schroeder
Investments Corporation. The loan is in the amount of $1,850,000 at a rate
of Prime plus 2%. Commencing on September 1, 1998 through August 1, 2003
monthly installments of principal and interest are being made to amortize the
note.
As a part of the Management Contract approved by the NIGC on January 14,
1997, between the Company's wholly owned subsidiary, Butler National Service
Corporation, and the Miami Tribe of Oklahoma and the Modoc Tribe of Oklahoma
(the "Tribes"); the Company agreed to loan the Tribes $3,500,000 at 2% over
prime, to be repaid over five years, for the construction and operation of
the Stables gaming establishment. At April 30, 1999, the Company had
advanced a total of $3,500,000 to the Tribes under the contract and reported
$647,285 current note receivable and $2,730,708 long-term note receivable.
Security under the contract includes the Tribes' profits from all tribal
gaming enterprises and all assets of the Stables except the land and building.
-Shawnee Reserve No. 206-
In 1992, the Company signed a consulting agreement and 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 advances for assistance in 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
advanced funds to purchase an additional 9 acres contiguous to the Indian
land providing access.
<PAGE>
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. The Indian land
is located on West 83rd Street, within the boundaries of Johnson County,
Kansas and the Kansas City metro area, approximately 25 miles southwest from
downtown Kansas City, Missouri.
The Company maintains a relationship and has a consulting agreement to
assist with the proposed establishment. This agreement is signed by the
owners and 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 federally recognized Cherokee Nation of Oklahoma.
The Indian Owners of Shawnee Reserve No. 206 have federal Indian membership
cards showing them to be 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 obtain federal recognition
for the Shawnee Tribe.
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 nor 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 signed a consulting agreement with the Modoc Tribe on April 21,
1993. As a part of this project the Company has a management agreement with
the Modoc Tribe to construct and operate an Indian gaming facility on Modoc
Reservation lands in Eastern Oklahoma. The Management Agreement was filed
with the NIGC on June 7, 1994, for review and approved on July 11, 1997.
The Tribe and the Company have not determined a schedule for this project.
There is no assurance that further action will be taken until the Stables is
in operation and well established or if ever. A total of $548,048 has been
advanced under this engagement, $399,713 has been reserved leaving a net
receivable of $148,335.
-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 this document.
Selling, general and administrative (SG&A): Expenses decreased $113,489
(6.7%) in fiscal year 1999. These expenses were $1,573,689, or 23.7% of
revenue, in fiscal 1999, and $1,687,178, or 30.1% of revenue in fiscal 1998.
Effective with fiscal 1999, the policy of the Board of Directors is to
distribute the cost of operating the Corporate office to the operating
subsidiaries. This is reported as the segment information on page 53. The
Corporate segment report shows an operating loss of $816,832. The $816,832
represents what we believe are Corporate time and expenses related to the
resolution of the RFI bankruptcy and should be allocated to the discontinued
operations. If we could make this allocation, net income before taxes from
continuing operations would be $766,562. However, the current accounting and
reporting rules do not allow us to report this cost to the discontinued
operations segment.
Other income (Expense): Expenses decreased due to the write down of the
land and building in Overton, Nebraska in fiscal 1995. This facility became
idle in 1994. The Company was unable to complete the negotiated sale of the
land and building. Therefore, the Company reduced the value of the asset by
$157,200 in order to record the asset at its estimated net realizable value.
The Company entered into an agreement, on September 13, 1995, with the
Village of Overton, for the sale of the building in Overton, Nebraska. The
Company received a cash payment of $30,000 at closing on September 18, 1995.
During fiscal year 1998 this building was sold for $45,000.
Fiscal 1998 compared to fiscal 1997
The Company's sales for fiscal 1998 were $5,456,106, an increase of 34.3%
from fiscal 1997 sales of $4,061,775. Discussion of specific changes by
operation follows.
Aircraft Modification: Sales from the Aircraft Modifications business
segment increased 42.2%, from $2,724,217 in fiscal 1997, to $3,874,490 in
fiscal 1998. This segment earned an operating profit of $844,320 in 1998,
compared to $501,984 in 1997. Primarily product sales increased due to the
expanded business base related to the multiple-use Supplemental Type
Certificates ("STC") developed by the Company. The increase in operating
income is due to the increase in sales and margins related to the
proprietary products.
As previously noted on page 2, (Item 1. Business), on May 3, 1996 the
Company's subsidiary, Avcon Industries, Inc., received approval from the
Federal Aviation Administration of a Supplemental Type Certificate
(no. ST00432WI) for its AVCON FIN Modification for installation on Learjet
Model 35 and 36 Aircraft. The STC authorizes Avcon to build the required
parts and assemblies and to perform the installations on applicable
customer-owned Learjets. The Company believes the potential market for fin
installations to be approximately 1,000 aircraft and that approximately 500
fin installations will be performed over the next several years. The Company
plans to market the fin installation with related options. The installed
package price for seventeen AVCON FIN packages installed in fiscal 1998
averaged approximately $150,000 per aircraft.
<PAGE>
In fiscal 1998, the Company invested $499,454 to document, engineer, build,
and demonstrate to the FAA, flight characteristics of Avcon products; thereby
adding to its ownership of multiple-use STC's. The Company's direction
is to continue to work on activities that should expand the aircraft
modification market. The Company believes that the increased modification-
market, through STC's for the Learjet and the Beechcraft KingAir, will enable
this segment to be an even greater contributor to the overall growth of the
Company.
Switching Units: Sales from the Avionics Switching Unit business segment
increased 74.6%, from $277,513 in fiscal 1997, to $484,518 in fiscal 1998.
Sales to McDonnell Douglas decreased 18.3% due to the phase out of the
aircraft that these switching units are manufactured for. Sales for aircraft
repair and refurbishment increased 4.8 times, from fiscal 1997 to fiscal
1998. Operating profits increased from $123,571 in fiscal 1997 to $146,744
in fiscal 1998. Management expects this business segment to continue to be
stable in future years.
SCADA Systems and Monitoring Services: Revenue from Monitoring Services
increased from $1,060,045 in fiscal 1997 to $1,097,098 in fiscal 1998, an
increase of 3.5%. During fiscal 1998, the Company maintained a relatively
level volume of long-term contracts with municipalities. Revenue increased
due to the introduction of new products and services. The Company's
contracts with its two largest customers have been renewed for fiscal
1999. An operating profit of $228,488 in Monitoring Services was recorded in
fiscal 1998, compared to fiscal 1997 operating profit of $230,738. The
Company was able to secure performance bonds during the first quarter of
fiscal 1995. This division has since bid on certain jobs requiring
performance bonds, and completed two special jobs with revenue totaling
approximately $100,000.
The Company believes this segment will continue to grow at a moderate rate.
This segment has experienced consistent increases over the past few years and
the Company expects this trend to continue.
Temporary Services: This operation provides temporary employee services
for corporate clients. This segment was inactive during fiscal 1998. If and
when the Company is able to open Indian gaming facilities, management expects
that a majority of the personnel in the various Indian gaming enterprises
will be staffed by Temporary Services personnel.
Management Services:
-General-
In the current fiscal year the Company received no revenue and incurred
$32,569 in general and administrative expenses associated with its continued
efforts to explore opportunities related to the Indian Gaming Act of 1988.
Additionally, the Company increased its reserve for collectibility and
amortized $77,864 and $66,458 in fiscal years 1998 and 1997, respectively,
related to shares issued for services rendered to the Company.
The Company has advanced for the Tribes $1,812,628 in land, land
improvements, and professional design fees related to the development of
Indian Gaming facilities. Included in this advance is 160 acres of land,
located adjacent to the Linn Valley Lakes resort and residential development
in Linn County, Kansas, and a group of selected lots within the resort
development. The Company believes that this tract could be developed and sold
for residential and commercial use, other than Indian gaming, if the gaming
enterprise does not open. Additional improvements, including access roads,
water and sewer services, etc. are planned for this land. After these
improvements, the land may be sold in small tracts. This may allow the
Company to recover the majority, if not all, of the $1,812,628 advanced.
Selling, general and administrative (SG&A): Expenses increased $270,320
(19.1%) in fiscal year 1998. These expenses were $1,687,178, or 30.1% of
revenue, in fiscal 1998, and $3,330,874, or 34.9% of revenue in fiscal 1997.
Other income (Expense): Expenses decreased due to the write down of the
land and building in Overton, Nebraska in fiscal 1995. This facility became
idle in 1994. The Company was unable to complete the negotiated sale of the
land and building. Therefore, the Company reduced the value of the asset by
$157,200 in order to record the asset at its estimated net realizable value.
The Company entered into an agreement, on September 13, 1995, with the
Village of Overton, for the sale of the building in Overton, Nebraska. The
Company received a cash payment of $30,000 at closing on September 18, 1995,
and may receive an additional $70,000 if the Village of Overton is either
able to sell or lease the building in the future. During fiscal year 1998
this building was sold for $45,000.
<PAGE>
Liquidity and Capital Resources
Borrowed funds have been used primarily for working capital. Bank
(Industrial State Bank) debt related to the Company's operating line was
$471,574 at April 30, 1999, $695,718 at April 30, 1998, and $382,743 at
April 30, 1997.
The Company's unused line of credit at April 30, 1999 was $28,426. As of
August 6, 1999, the Company's unused line of credit was $43,390. The
Company's line of credit is $500,000. The interest rate on the Company's
line of credit is prime plus two, as of August 4, 1999, the interest rate is
10.00%.
The Company plans to continue using the promissory notes-payable, due in
August 1999, to fund working capital. The Company believes the extensions
will continue and does not anticipate the repayment of these notes in fiscal
2000. 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.
In fiscal 1997, the Company issued stock at fair market value for various
legal, marketing and consulting services, in lieu of cash payments. During
fiscal 1997, the Company issued 45,000 shares of stock, at a value $97,545,
for professional services to be provided in the future.
During fiscal 1998, the Company issued stock at fair market value for
various legal, marketing and consulting services, in lieu of cash payments.
In fiscal 1998, the Company issued 135,000 shares of common stock at a value
of $101,250 for professional services to be provided in the future.
During fiscal 1999, the Company issued stock at fair market value for
various legal, marketing and consulting services, in lieu of cash payments.
In fiscal 1999, the Company issued 600,000 shares of common stock at a value
of $300,000 for professional services to be provided in the future.
The Company completed the purchase of operating rights and assets of
Woodson Electronics, Inc. The transaction, as consummated, required the
Company to issue as the purchase price 100,000 shares of the Company's
common stock, $.01 par value, and cash payments totaling approximately
$34,000, over a period of two (2) years. This transaction was completed
May 1, 1996. See Note 4.
The Company relocated and consolidated the Avionics manufacturing
operations and assets, acquired from Woodson Electronics, Inc., and SCADA
manufacturing operations to a new location in the Phoenix, Arizona area.
This relocation places Avionics closer to its primary customer and provides a
more skilled labor force for the expansion of the consolidated manufacturing
operation. Capital to finance this relocation of approximately $60,000
was required during fiscal 1997.
The Company does not, as of April 30, 1999, have any material commitments
for other capital expenditures other than the advance requirements under the
terms of the Indian gaming Consulting and Management Agreements. These
requirements are further described in this section.
Depending upon the progress of the engagements, the Company, through BNSC,
will need additional funds to complete its currently planned Indian gaming
opportunities. The Company will use current cash available, and additional
funds, to fund advances to the tribes for the start up and construction of
gaming facilities. The Company anticipates initially obtaining these funds
from: internally generated working capital and borrowings. After a few
gaming facilities become operational, repayment of the advances by the tribes
from gaming operations will generate additional working capital to advance
for the start up and construction of other gaming facilities. The Company
expects that its advances for start up and construction financing of gaming
facilities will be replaced by other financial lenders, long term financing
through debt issue, or equity issues.
<PAGE>
The Stables Indian gaming project completed during fiscal 1999 and required
a total of $3,500,000 to complete, from the financing sources described above.
At April 30, 1999, $3,377,993 was receivable from the Stables. The full
$3,377,933 is believed to be recoverable from the operation of the
establishment per the terms of the approved Management Agreement.
As a part of the Management Contract approved by the NIGC on January 14,
1997, between the Company's wholly owned subsidiary, Butler National Service
Corporation, and the Miami Tribe of Oklahoma and the Modoc Tribe of Oklahoma
(the "Tribes"); the Company agreed to loan the Tribes $3,500,000 at 2% over
prime, to be repaid over five years, for the construction and operation of
the Stables gaming establishment. At April 30, 1998, the Company had
advanced $3,500,000 to the Tribes under the contract and reported $647,285
current note receivable and $2,730,708 long-term note receivable. Security
under the contract includes the Tribes' profits from all tribal gaming
enterprises and all assets of the Stables except the land and building.
On May 29, 1998, advances under the Stables Management Contract were
further funded by a loan to the Company from Miller & Schroeder Investment
Corporation in the amount of $1,850,000 at 2% over prime, to be repaid over
five years. As security for the $1,850,000 loan, the Company pledged its
contract rights to the repayment of the $3,500,000 loan and its Manager's
hare (30%) of the profits from the Stables. The balance payable to Miller &
chroeder at April 30, 1999, was $1,627,662. The remainder of net cash advances
to be repaid is $1,750,331.
Analysis of Cash Flow
During fiscal 1999, the Company's cash position increased by $4,325. A
majority of the positive cash flow from operations in fiscal 1999 is due to
the proceeds of the outside loans from Miller & Schroeder of approximately
$1,850,000 and the sale of the Lear 35 for approximately $2,100,000. A large
portion of the cash flow from these activities was used to retire debt and
fund the advances for the construction of the Stables bingo facility.
Operating Activities:The majority of the approximately $1,628,000 decrease
in other assets relates to the sale of the Lear 35. The large increase in
the note receivable deals directly with the increase of the advances under the
note with the Miami and Modoc Tribes for funding of the Stables bingo
facility which was completed in fiscal year 1999.
Notes payable increased directly by a new note with Industrial State Bank
for $187,000, an airplane note on the Lear 23 for $239,000 and a machinery
lease for equipment at the Avcon facility for another $115,000. Accrued
liabilities increased because the Company recorded a contingent liability of
$899,000 directly related to the RFI settlement including future loans to
cover all settlement costs and the RFI loan guarantee.
Investing Activities: The cash used in investing activities is due to the
use of approximately $884,396 related to the advances to the tribes under
agreements for Indian gaming; and approximately $213,000 to purchase tooling,
furniture and equipment at all Company locations.
Financing Activities: During fiscal year 1999, the Company received
proceeds from outside sources to fund the advances for the building of the
Stables Bingo facility ($1,850,000 Miller & Schroeder Note) and also placed a
mortgage on its Lear 23. The Company also repaid long-term debt of $1.7
million of which the majority was the repayment of the balance on the Lear 35
note of $1.4 million.
Changing Prices and Inflation
The Company did not experience any significant pressure from inflation in
1999.
Item 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity:
The table below provides information about the Company's other financial
instruments that are sensitive to changes in interest rates including debt
obligations.
<PAGE>
For debt obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates. Weighted average
variable rates are based on implied forward rates based upon the rate at the
reporting date.
<TABLE>
<CAPTION>
Expected Maturity Date
(Dollars in thousands)
2000 2001 2002 2003 2004 Total Fair
Value
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Note receivable:
Variable rate $ 417 $ 417 $ 417 $ 417 $ 408 $2,075 $2,075
Average interest
rate 10.5% 10.5% 10.5% 10.5% 10.5% 10.5%
Liabilities
Long-term debt:
Variable rate $1,477 $ 440 $ 55 - $ 18 $1,990 $1,990
Average interest
rate 10.5% 10.5% 10.5% 10.5%
</TABLE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of the Registrant are set forth on pages 32
through 54 of this report.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company reported on Form 8-K on September 16, 1998 that on September
4, 1998, Arthur Andersen LLP informed the Company that it has declined to
stand for reelection. The reports of Arthur Andersen LLP on the Company's
consolidated financial statements for each of the two fiscal years ended
April 30, 1997 and April 30, 1998, did not contain ay adverse opinion or
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
The Company reported on Form 9-K on March 31, 1999 that Grant Thornton LLP
was engaged to audit fiscal year 1999.
The Company reported on Form 8-K on August 10, 1999 that on August 3, 1999,
Grant Thornton LLP informed the Company that it has resigned as auditors for
Butler National Corporation and its subsidiaries and from their engagement to
audit the consolidated financial statements of Butler National Corporation
and its subsidiaries as of April 30, 1999.
As previously reported on Form 8-K on March 31, 1999 Grant Thornton LLP was
engaged on March 30, 1999 as Registrant's independent auditors in connection
with an audit of the Registrant's financial statements for the year ending
April 30, 1999. The reports of the prior independent auditor, Arthur
Andersen LLP on the Company's consolidated financial statements for each of
the two fiscal years ended April 30, 1997 and April 30, 1998, contained no
adverse opinion or disclaimer of opinion, and were not qualified or modified
as to uncertainty, audit scope or accounting principles. The Company
believes there are no disagreement with Grant Thornton LLP or reportable events
as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
The Company has requested Grant Thornton LLP to provide the Company with
specific information regarding the existence, if any, of any disagreements
with Grant Thornton LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Grant Thornton LLP,
would have caused Grant Thornton LLP to make reference to the subject matter
of thedisagreements in connection with their reports. The Company has requested
Grant Thornton LLP to provide the Company with specific information regarding
the existence, if any, of any "reportable events" as that term is defined
in Item 304(a)(1)(v) of Regulation S-K.
<PAGE>
The Company has requested that Grant Thornton LLP immediately provide the
specific information referenced above. The Company has requested that Grant
Thornton LLP furnish it with a letter stating whether it agrees with the
above statements.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the directors, their principal occupations for at
least the past five years are set forth below, based on information furnished
to the Company by the directors.
Name of Nominee Served Principal Occupation for Last Five
and Director and Since Years and Other Directorships
Age
Clark D. Stewart
(59) 1989 President of the Company from
September 1, 1989 to present.
President of Tradewind Systems, Inc.
(consulting and computer sales)
1980 to present; Executive Vice
President of RO Corporation
(manufacturing) 1986 to 1989;
President of Tradewind Industries,
Inc. (manufacturing) 1979 to 1985.
R. Warren Wagoner
(47) 1986 Chairman of the Board of Directors of
the Company since August 30, 1989
and President of the Company from
July 26, 1989 to September 1, 1989.
Sales Manager of Yamazen Machine
Tool, Inc. from March, 1992 to March,
1994; President of Stelco, Inc.
(manufacturing) 1987 to 1989; General
Manager, AmTech Metal Fabrications,
Inc., Grandview, MO 1982 to 1987.
William E. Logan
(61) 1990 Vice President and Treasurer of
Wendy's Hamburgers of Kansas City,
Inc. June, 1984 to present. Vice
President and Treasurer of Valley
Foods Services, Inc. (wholesale food
distributor) June, 1988 to April,
1993. Professional practice as a
Certified Public Accountant 1965 to
1984.
William A. Griffith
(52) 1990 Secretary of the Company, President
of Griffith and Associates
(management consulting) since 1984.
Management consultant for Diversified
Health Companies (management
consulting) from 1986 to 1989 and for
Health Pro (health care) from 1984 to
1986. Chief Executive Officer of
Southwest Medical Center (hospital)
from 1981 to 1984.
David B. Hayden
(53) 1996 Co-owner and President of Kings
Avionics, Inc. since 1974 (avionics
sales and service). Co-owner of
Kings Aviation LLP (aircraft fixed
base operation and maintenance) since
1994. Field Engineer for King Radio
Corporation (avionics manufacturing)
1966 to 1974.
The executive officers of the Company are elected each year at the annual
meeting of the Board of Directors held in conjunction with the annual meeting
of shareholders and at special meetings held during the year. The executive
officers are as follows:
Name Age Position
R. Warren Wagoner 47 Chairman of the Board of Directors
Clark D. Stewart 59 President and Chief Executive Officer
Larry W. Franke 55 President of Avcon Industries, Inc., a wholly-
owned subsidiary of the Company
Jack L. Graham 73 President of Avcon Industries, Inc., a wholly-
owned subsidiary of the Company (retired
January 1, 1999)
Jon C. Fischrupp 59 President of Butler National Services, Inc., a
wholly-owned subsidiary of the Company
Edward J. Matukewicz 51 Treasurer and Chief Financial Officer
(resigned February 1999)
Robert E. Leisure 44 Chief Financial Officer
William A. Griffith 52 Secretary
<PAGE>
R. Warren Wagoner was General Manager, Am-Tech Metal Fabrications, Inc. from
1982 to 1987. From 1987 to 1989, Mr. Wagoner was President of Stelco, Inc.
Mr. Wagoner was Sales Manager for Yamazen Machine Tool, Inc. from March 1992
to March 1994. Mr. Wagoner was President of the Company from July 26, 1989,
to September 1, 1989. He became Chairman of the Board of the Company on
August 30, 1989.
Clark D. Stewart was President of Tradewind Industries, Inc., a
manufacturing company, from 1979 to 1985. From 1986 to 1989, Mr. Stewart was
Executive Vice President of RO Corporation. In 1980, Mr. Stewart became
President of Tradewind Systems, Inc. He became President of the Company in
September 1989.
Larry W. Franke was Vice President and General Manager of Kansas City
Aviation Center from 1984 to 1992. From 1993 to 1994 he was Vice President of
Operations and Sales for Marketlink, an aircraft marketing company. Mr.
Franke joined the Company in July 1994 as Director of Marketing and was
promoted in August 1995 to Vice President of Operations and Sales. Mr.
Franke is President of Avcon Industries, Inc.
Jack L. Graham was President of Avcon Industries for 19 years and joined
the Company in December 1983, at the time of the acquisition of Avcon
Industries by the Company. Mr. Graham retired January 1, 1999 as President of
Avcon Industries, Inc.
Jon C. Fischrupp was President of Lauderdale Services, Inc. ("LSI") from
June 14, 1978, until May 1, 1986, at which time the Company acquired LSI and
he became President of LSI (now known as Butler National Services, Inc.).
Ed Matukewicz was Vice President of Master Fund Company from 1987 to 1990
and Vice President of First Trust of Mid America from 1990 to 1991. Mr.
Matukewicz joined the Company in May, 1991, as Treasurer. Mr. Matukewicz
resigned in February 1999 and remains as a consultant to the Company.
Robert E. Leisure was a certified public accountant with the firm of Agler
& Gaeddert from 1995 to 1997. Mr. Leisure joined the Company in December
1997 as Director of Accounting. Mr. Leisure became the Chief Executive
Officer in February 1999.
William A. Griffith was Chief Executive Officer of Southwest Medical Center
(hospital) from 1981 to 1984. Mr. Griffith was a management consultant for
Health Pro from 1984 to 1986 and for Diversified Health Companies from 1986
to 1989. Mr. Griffith has been President of Griffith and Associates,
management consulting, since 1984. Mr. Griffith became Secretary of the
Company in 1992.
As noted previously, on September 20, 1998 a petition in bankruptcy court
was filed against Butler National Corporation, Butler Temporary Services,
Inc., and the then current directors and officers, William A. Griffith,
Clark D. Stewart, and Edward J. Matukewicz and was dismissed with prejudice
on July 26, 1999.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16(a) - 3(e) during the most recent
fiscal year and Form 5 and amendments thereto furnished to the Company with
respect to the most recent fiscal year, the Company believes that no person
who at any time during the fiscal year was a director, officer, beneficial
owner of more than 10% of any class of equity securities registered pursuant
to Section 12 of the Exchange act failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act during the most recent fiscal
year or prior fiscal years.
<PAGE>
Item 11. EXECUTIVE COMPENSATION
SUMMARY
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the other most highly compensated
executive officers of the Company whose salary and bonus exceeded $100,000
(determined as of the end of the last fiscal year) for the fiscal years ended
April 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Other Annual
Principal Salary Bonus Compensation
Position Year ($) ($) ($)
<S> <C> <C> <C> <C>
Clark D. Stewart,
President
and CEO, Director 99 218,743 - -
98 226,997 - -
97 212,729 - -
</TABLE>
<TABLE>
<CAPTION>
Long Term Compensation
Awards Payouts
Restricted Securities
Stock Underlying LTIP All Other
Year Award(s) Options Payouts Compensation
($) (#)(1) ($) ($)
<S> <C> <C> <C> <C> <C>
Clark D. Stewart,
President
and CEO, Director 99 - (820,000) - -
98 - 1,050,000 - -
97 - 50,000 - -
</TABLE>
(1) Represents options granted pursuant to the Company's Nonqualified Stock
Option Plans (820,000) in 1999, 1,050,000 in 1998 and 50,000 in 1997.
OPTION GRANTS, EXERCISES AND HOLDINGS
The following table provides further information concerning grants of
stock options pursuant to the Nonqualified Stock Option Plans during the
fiscal 1999 year to the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Name
Clark D. Stewart, Chief Executive Officer (1)
Number of Securities Underlying Options Granted (#): 180,000 (1,000,000)
Percent of Total Options Granted to Employees in Fiscal Year: 7.4%
Exercise or Base Price ($/Sh): 0.50
Expiration Date: 11/01/2008
Potential Realizable Value at Assumed Annual Rate of Stock Price Appreciation
for Option Term
5%($): -0-
10%($) -0-
(1) Except in the event of death or retirement for disability, if Mr.
Stewart ceases to be employed by the Company, his option shall terminate.
Upon death or retirement for disability, Mr. Stewart (or his
representative) shall have three months or one year, respectively,
following the date of death or retirement, as the case may be, in which
to exercise such options. The option granted for 180,000 shares of
Common Stock was granted on November 2, 1998 from the 1995 Stock Option
Plan. All such options are immediately exercisable.
The following table provides information with respect to the named
executive officers concerning options exercised and unexercised options held
as of the end of the Company's last fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Name: Clark D. Stewart, Chief Executive Officer
Shares Acquired on Exercise (#): -0-
Value Realized ($): -0-
Number of Securities Underlying Unexercised Options at FY-End (#)
Exercisable/Unexercisable: 1,400,000 / 0
Value of Unexercised In-the-Money Options at FY-End ($)
Exercisable/Unexercisable: 0 / 0
<PAGE>
COMPENSATION OF DIRECTORS
Each non-officer director is entitled to a director's fee of $100 for
meetings of the Board of Directors which he attends. Officer-directors are
not entitled to receive fees for attendance at meetings.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
On May 6, 1997, the Company extended the March 17, 1994, employment
agreement with Clark D. Stewart under the terms of which Mr. Stewart was
employed as the President and Chief Executive Officer of the Company at
an initial minimum annual salary of $198,000 and a minimum salary of
$208,000, $218,500, $229,500 and $241,000, respectively, in years two through
five. The extended contract provides a minimum annual salary of $253,100,
$265,700, $278,900, $292,900, $307,600, respectively in years six through
ten. In the event Mr. Stewart is terminated from employment with the Company
other than "for cause," Mr. Stewart shall receive as severance pay an amount
equal to the unpaid salary for the remainder of the term of the employment
agreement. Mr. Stewart was also granted an automobile allowance of $600 per
month.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is comprised of Mr.
Wagoner, Mr. Stewart, Mr. Griffith and Mr. Logan. Mr. Wagoner is the
Chairman, Mr. Stewart is the President and Chief Executive Officer of the
Company and Mr. Griffith is the Secretary of the Company.
During fiscal 1999, the consulting firm of Griffith & Associates was
paid for business consulting services rendered to the Company in the
approximate amount of $90,643. William A. Griffith, who is a director for the
Company, is a principal at Griffith & Associates. It is anticipated that
Griffith & Associates will continue to provide services for the Company.
During fiscal 1999, the Company paid consulting fees of approximately
$61,120 to Mr. Logan for business consulting services. It is anticipated
that Mr. Logan will continue to provide services for the Company. Mr. Logan
was granted an option to purchase 500,000 shares of common stock at an
exercise price of $0.50 per share on November 2, 1998. Mr. Logan exercised
this option by agreeing to provide consulting services to the Company for an
additional three years without receiving any further cash payments other
than for out-of-pocket expenses. The cost of the consulting services are
charged to various projects including advances under the Indian consulting
agreements.
During fiscal 1999, the consulting firm of Butler Financial Corporation
was paid for business consulting services rendered to the Company in the
approximate amount of $32,000. R. Warren Wagoner, who is a director for
the Company, is a principal at Butler Financial Corporation. It is
anticipated that Butler Financial Corporation will continue to provide
services for the Company.
During fiscal 1998, the Company filed Form-8 registration statements
concerning the 1989, 1993-I, 1993-II, and 1995 Non-Qualified Stock Option
Plans. The plans were amended to increase the number of shares authorized by
8,000,000; 4,500,000; 3,500,000; and 3,500,000 respectively. The expiration
dates were also amended to reflect December 31, 2010 as the expiration date
for all four plans. As a part of the amendment process all eligible
outstanding options were canceled and reissued at the then current market
price of $0.90.
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, with respect to the Company's common
stock (the only class of voting securities), the only persons known to be
beneficial owners of more than five percent (5%) of any class of the
Company's voting securities as of August 6, 1999.
Name and Address of Beneficial Owner: Clark D. Stewart
19920 West 161st Street
Olathe, KS 66062
Amount and Nature of Beneficial Ownership (1): 2,159,425(2)
Percent of Class: 10.6%
(1) Unless otherwise indicated by footnote, nature of beneficial ownership
of securities is direct, and beneficial ownership as shown in the table
arises from sole voting power and sole investment power.
(2) Includes 1,400,000 shares which may be acquired by Mr. Stewart pursuant
to the exercise of stock options which are exercisable.
The following table sets forth, with respect to the Company's common stock
(the only class of voting securities), (i) shares beneficially owned by all
directors and named executive officers of the Company, and (ii) total shares
beneficially owned by directors and officers as a group, as of April 30, 1999.
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership (1) of Class
<S> <C> <C>
Larry B. Franke 220,600(6) 1.1%
William A. Griffith 258,700(5) 1.3%
David B. Hayden 272,500(7) 1.3%
William E. Logan 960,000(3) 4.7%
Clark D. Stewart 2,159,425(2) 10.6%
R. Warren Wagoner 600,000(4) 3.0%
All Directors and Executive
Officers as a Group
(12 persons) 5,212,304(8) 25.7%
</TABLE>
(1) Unless otherwise indicated by footnote, nature of beneficial ownership
of securities is direct, and beneficial ownership as shown in the table
arises from sole voting power and sole investment power.
(2) Includes 1,400,000 shares which may be acquired by Mr. Stewart pursuant
to the exercise of stock options which are exercisable.
(3) Includes 410,000 shares which may be acquired by Mr. Logan pursuant to
the exercise of stock options which are exercisable.
(4) Includes 500,000 shares which may be acquired by Mr. Wagoner pursuant to
the exercise of stock options which are exercisable.
(5) Includes 108,000 shares which may be acquired by Mr. Griffith pursuant
to the exercise of stock options which are exercisable.
(6) Includes 220,600 shares which may be acquired by Mr. Franke pursuant to
the exercise of stock options which are exercisable.
(7) Includes 250,000 shares which may be acquired by Mr. Hayden pursuant to
the exercise of stock options which are exercisable.
(8) Includes 3,697,700 shares for all directors and executive officers as a
group, which may be acquired pursuant to the exercise of stock options
which are exercisable.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 11, Executive Compensation 22-23. 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. During fiscal 1997, Mr.
Stewart delivered to the Company 125,000 shares of common stock as security
valued at $250,000 to the Company and made cash reductions, a total of
$277,265, on the loan. The shares were purchased at prices ranging from
$.70 to $1.00 per share. The largest aggregate amount of indebtedness
outstanding was $359,027 during fiscal 1996. There was not an amount
outstanding at April 30, 1999 and the amount outstanding at August 6, 1999 is
zero. Interest was charged on the outstanding balance at the prime rate
until paid.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed As Part of Form 10-K Report.
(1) Financial Statements:
Description Page No.
Consolidated Balance Sheet as of April 30, 1999 and 1998 34
Consolidated Statements of Operations for the years ended
April 30, 1999, 1998 and 1997 35
Consolidated Statements of Shareholders' Equity
for the years ended April 30, 1999, 1998 and 1997 36-38
Consolidated Statements of Cash Flows for
the years ended April 30, 1999, 1998 and 1997 39
Notes to Consolidated Financial Statements 40-54
(2) Financial Statement Schedules:
Schedule Description Page No.
II. Valuation and Qualifying Accounts
and Reserves for the years ended
April 30, 1999, 1998 and 1997 54
All other financial statements and schedules not listed have been
omitted because the required information is inapplicable or the information
is presented in the financial statements or related notes.
(3) Exhibits Index Page No.
3.1 Articles of Incorporation, as amended, are *
incorporated by reference to Exhibit 3.1 of
the Company's Form 10-K for the year
ended April 30, 1988
3.2 Bylaws, as amended, are incorporated by *
reference to exhibit 3.2 of the Company's
Form 10-K for the year ended April 30, 1989
4.1 Certificate of Rights and Preferences of $100 *
Class A Preferred Shares of the Company, are
incorporated by reference to Exhibit 4.1 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.
4.2 Certificate to Set Forth Designations, Voting *
Powers, Preferences, Limitations, Restrictions,
and Relative Rights of Series B 6% Cumulative
Preferred Stock, $5.00 Par Value Per Share, is
incorporated by reference to Exhibit 4.1 of the
Company's Form 10Q/A, as amended, for the
quarter ending January 31, 1998.
4.3 Private Placement of Common Stock, as afforded *
by Reg S, dated November 27, 1996, is incorporated
by reference to the Company's Form 8-K filed on
December 12, 1996.
10.1 1989 Nonqualified Stock Option Plan is *
incorporated by reference to the Company's
Form 8-K filed on September 1, 1989
10.2 Nonqualified Stock Option Agreement dated *
September 8, 1989 between the Company
and Clark D. Stewart is incorporated by
reference to the Company's Form 8-K filed
on September 1, 1989
10.3 Agreement dated March 10, 1989 between *
the Company and Woodson Electronics, Inc.
is incorporated by reference to the Company's
Form 10-K for the fiscal year ended
April 30, 1989
10.4 Agreement of Stockholder to Sell Stock dated *
January 1, 1992, is incorporated by reference to
the Company's Form 8-K filed on January 15, 1992
10.5 Private Placement of Common Stock pursuant *
to Regulation D, dated December 15, 1993, is
incorporated by reference to the Company's
Form 8-K filed on January 24, 1994
10.6 Stock Acquisition Agreement of RFI dated *
April 21, 1994, is incorporated by reference to
the Company's Form 8-K filed on July 21, 1994
10.7 Employment Agreement between the Company *
and Brenda Lee Shadwick dated July 6, 1994, are
incorporated by reference to Exhibit 10.7 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.**
10.8 Employment Agreement between the Company *
and Clark D. Stewart dated March 17, 1994, are
incorporated by reference to Exhibit 10.8 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.**
10.9 Employment Agreement among the Company, *
R.F., Inc. and Marvin J. Eisenbath dated
April 22, 1994, are incorporated by reference
to Exhibit 10.9 of the Company's Form 10-K/A,
as amended, for the year ended April 30, 1994.**
10.10 Real Estate Contract for Deed and Escrow *
Agreement between Wade Farms, Inc. and
the Company, are incorporated by reference
to Exhibit 10.10 of the Company's Form 10-K/A,
as amended, for the year ended April 30, 1994.
10.11 1993 Nonqualified Stock Option Plan, are *
incorporated by reference to Exhibit 10.11 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.
10.12 1993 Nonqualified Stock Option Plan II, are *
incorporated by reference to Exhibit 10.12 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.
10.13 Industrial State Bank principal amount of *
$500,000 revolving credit line, as amended, are
incorporated by reference to Exhibit 10.13 of the
Company's Form 10-K/A, as amended, for the
year ended April 30, 1994.
10.14 Bank IV guaranty for $250,000 dated *
October 14, 1994, are incorporated by
reference to Exhibit 10.14 of the Company's
Form 10-K/A, as amended, for the year
ended April 30, 1994.
10.15 Bank IV loan in principal amount of $300,000 *
dated December 30, 1993, are incorporated by
reference to Exhibit 10.15 of the Company's Form
10-K/A, as amended, for the year ended
April 30, 1994.
10.16 Letter of Intent to acquire certain assets of *
Woodson Electronics, Inc., is incorporated by
reference to Exhibit 10.16 of the Company's
Form 10-K, as amended for the year ended
April 30, 1995.
10.17 Asset Purchase Agreement between the Company *
and Woodson Electronics, Inc. dated May 1,
1996, is incorporated by reference to Exhibit
10.17 of the Company's Form 10-K, as amended
for the year ended April 30, 1996.
10.18 Non-Exclusive Consulting, Non-Disclosure and *
Non-Compete agreement with Thomas E. Woodson
dated May 1, 1996, is incorporated by reference to
Exhibit 10.18 of the Company's Form 10-K, as
amended for the year ended April 30, 1996.
10.19 1995 Nonqualified Stock Option Plan dated *
December 1, 1995, is incorporated by reference to
Exhibit 10.19 of the Company's Form 10-K, as
amended for the year ended April 30, 1996.
10.20 Settlement Agreement and Release - Marvin J. *
Eisenbath and the Company dated April 30, 1997,
is incorporated by reference to Exhibit 10.20 of
the Company's Form 10-K, as amended for the
year ended April 30, 1997.
10.21 Settlement Agreement and Release - Brenda *
Shadwick and the Company dated May 1, 1997,
is incorporated by reference to Exhibit 10.21
of the Company's Form 10-K, as amended for
the year ended April 30, 1997.
21 List of Subsidiaries 55
27.1 Financial Data Schedule (EDGAR version only) *
Filed herewith
99 Cautionary Statement for Purpose of the "Safe 57
Harbor" Provisions of the Private Securities Reform
Act of 1995.
* Incorporated by reference
** Relates to executive officer employment compensation
(b) Reports On Form 8-K.
Change in Registrant's Certifying Accountant *
is incorporated by reference to the Company's
Form 8-K filed on September 16, 1998
Change in Registrant's Certifying Accountant is *
incorporated by reference to the Company's
Form 8-K filed on March 3, 1999
Change in Registrant's Certifying Accountant is *
incorporated by reference to the Company's
Form 8-K filed on August 10, 1999
(c) Exhibits.
Reference is made to Item 14(a)(3).
(d) Schedules.
Reference is made to Item 14(a)(2).
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
August 15, 1999
BUTLER NATIONAL CORPORATION
/s/ Clark D. Stewart
Clark D. Stewart, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
Signature Title Date
/s/ Clark D. Stewart President, Chief August 15, 1999
Clark D. Stewart Executive Officer
and Director (Principal
Executive Officer)
/s/ R. Warren Wagoner Chairman of the Board August 15, 1999
R. Warren Wagoner and Director
/s/ William A. Griffith Director August 15, 1999
William A. Griffith
/s/ William E. Logan Director August 15, 1999
William E. Logan
/s/ David B. Hayden Director August 15, 1999
David B. Hayden
/s/ Robert E. Leisure Chief Financial Officer August 15, 1999
Robert E. Leisure
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) AND (2) --
LIST OF FINANCIAL STATEMENT STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
AND
ITEM 14(d) FINANCIAL STATEMENT SCHEDULES
Years Ended April 30, 1999, 1998 and 1997
(UNAUDITED)
BUTLER NATIONAL CORPORATION
Olathe, Kansas
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The accompanying consolidated balance sheets of Butler National
Corporation (a Delaware Corporation) and subsidiaries as of April 30, 1999
and the related consolidated statements of income, shareholders equity, and
cash flow for the year ended April 30, 1999 has not been audited (unaudited)
by independent public accountants.
As reported in Form 8-K, dated August 10, 1999, the independent
public accountants engaged to audit the fiscal year 1999 resigned. The
Company is in the process of selecting another independent public accountant.
<PAGE>
<TABLE>
<CAPTION>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of April 30, 1999 and 1998
ASSETS (Notes 1 and 3) 1999 1998
(unaudited)
<S> <C> <C>
Current Assets:
Cash $ 164,923 $ 160,598
Accounts receivable, net of allowance
for doubtful accounts of $68,886 in
1999 and $78,736 in 1998 451,334 482,888
Note receivable 647,285 491,733
Contracts in process 405,937 551,610
Inventories (Note 1):
Raw materials 1,216,098 1,039,324
Work in process 333,399 76,073
Finished goods 68,310 55,939
1,617,807 1,171,336
Prepaid expenses and other current
assets 72,634 37,880
Total current assets 3,359,920 2,896,045
Note receivable 2,730,708 1,770,714
Supplemental type certificates (Note 1) 1,392,611 1,456,249
Property, Plant and Equipment (Note 1):
Land and Building 673,878 639,130
Machinery and equipment 1,198,541 973,504
Office furniture and fixtures 585,968 632,617
Leasehold improvements 33,959 33,958
Total cost 2,492,346 2,279,209
Accumulated depreciation (1,275,145) (1,060,705)
1,217,201 1,218,504
Noncurrent assets of discontinued
operations (Note 3) - -
Other Assets (Note 1)
Deferred costs of Indian gaming 2,162,120 1,277,724
Aircraft and aircraft parts (Note 1) 460,281 2,056,281
Other assets 91,910 124,139
Total other assets 2,714,311 3,458,144
Total assets $11,414,751 $10,799,656
LIABILITIES AND SHAREHOLDERS' EQUITY (Note 2) 1999 1998
(unaudited)
Current Liabilities:
Bank overdraft payable (Note 1) $ 119,942 $193,205
Promissory notes payable (Note 2) 471,575 695,718
Current maturities of long-term
debt (Notes 2) 571,345 17,968
Accounts payable 715,840 477,098
Customer Deposits 582,314 530,275
Accrued liabilities -
Compensation and
compensated absences 99,190 134,343
Other 199,851 227,896
Total current liabilities 2,760,057 2,276,503
Long-Term Debt, net of current
maturities (Note 2) 2,105,596 1,972,293
Convertible debentures (Note 4) 650,000 650,000
Other liabilities 769,319 -
Total liabilities 6,284,972 4,898,796
Commitments and contingencies
(Notes 7 and 8)
Liabilities of discontinued
operations (Note 3) - 39,000
Shareholders' equity (Notes 1, 3, and 4):
Preferred stock, par value $5:
Authorized, 200,000 shares, all
classes $1,000 Class B, 6%,
cumulative if earned, liquidation
and redemption value $1000,
issued and outstanding, 1,500
shares in 1998, - -
$1,000 Class B, 6%, cumulative
if earned, liquidation and
redemption value $1,000, issued
and outstanding, 693 shares in 1999 313,603 506,834
Common stock, par value $.01:
Authorized, 40,000,000 shares
Issued and outstanding 15,387,087 shares 153,871 116,730
in 1999 and 11,673,069 in 1998,
Common stock warrants 8,807 8,807
Capital contributed in excess of par 8,282,731 7,232,155
Note receivable from officer arising
from stock purchase agreement - (37,647)
Unearned service contracts (434,376) (286,823)
Treasury stock, at cost (No
preferred in 1999 and 1998 (1,537,240) (1,537,240)
& 775,000 and 775,000 common in 1999
and 1998)
Retained deficit (1,657,617) (140,956)
(Deficit of $11,938,813 eliminated
October 31, 1992)
Total shareholders' equity 5,129,779 5,861,860
Total liabilities and shareholders' equity $11,414,751 $10,799,656
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended April 30, 1999, 1998 and 1997
1999 1998 1997
(unaudited)
<S> <C> <C> <C>
Net Sales $6,631,355 $5,456,106 $4,061,775
Cost of Sales 5,107,934 3,157,656 2,351,159
1,523,421 2,298,450 1,710,616
Selling, general and
administrative expenses 1,421,764 1,648,178 1,416,858
Operating income (loss) 101,657 650,272 293,758
Other income (expense):
Interest expense (237,129) (255,004) (282,534)
Interest revenue 201,928 3,584 25,428
Other expense (116,726) 15,540 (232,869)
Other expense (151,927) (235,880) (489,975)
Income (loss) from continuing
operations before taxes (50,270) 414,392 (196,217)
Provision for income taxes - 164,380 3,416
Income (loss) from continuing
operations (50,270) 250,012 (199,633)
Discontinued Operations:
Income (loss) from discontinued
operations, net of taxes (1,412,402) (148,316) 365,325
Loss on discontinued operations,
net of taxes (23,965) -
Net Income (Loss) $ (1,462,672) $ 77,731 $ 165,692
Basic earnings (loss) per common
share (Note 1)
Continuing operations $ (0.00) $ 0.03 $ (0.02)
Discontinued operations (0.12) (0.02) 0.04
$ (0.12) $ 0.01 $ 0.02
Shares used in per share
calculation 11,845,875 9,418,330 9,411,168
Diluted earnings (loss) per
common share (Note 1)
Continuing operations $ 0.00 $ 0.02 $ (0.02)
Discontinued operations (0.08) (0.01) 0.04
$ (0.08) $ 0.01 $ 0.02
Shares used in per share
calculation 17,217,875 10,436,549 9,411,168
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended April 30, 1999(unaudited), 1998, and 1997
<TABLE>
<CAPTION>
Note
Capital Receivable
Capital Contributed Arising
Contributed In Excess From Stock
Preferred In Excess Common of Par Purchase
Stock of Par Stock and Warrants Agreement
<S> <C> <C> <C> <C> <C>
Balance, April 30,
1996 $100,000 $1,900,000 $92,809 $5,275,438 $ (359,027)
Note Receivable
arising from stock
purchase agreement
(Note 9) (43,416)
Reduction in note
receivable arising
from stock purchase
agreement (Note 9) 320,681
Acquisition of
treasury stock
(Note 9)
Exercise of stock
options (Note 6) 120 23,645
Issuance of stock -
other (Note 1) 100
Issuance of stock -
private offering 2,313 435,242
Unearned service
contracts
Amortization of
unearned service
contracts
Utilization of net
operating losses
(Note 5)
Net income
Other
Balance,April
30, 1997 $100,000 $1,900,000 $95,242 $5,734,425 $ (81,762)
Reduction in note
receivable arising
from stock purchase
agreement (note 9) 44,115
Acquisition of
treasury stock
(Note 9)
Retirement of
treasury stock 100,000 (1,900,000)
Exercise of stock
warrants (Note 6) 1,135 89,765
Issuance of stock-
other (Note 1) 2,970 227,308
Issuance of stock-
private offering 7,500 1,308,459 6,417 391,306
Conversions to
common stock (1,900) (807,225) 10,967 798,158
Unearned service
contracts
Amortization of
unearned service
contracts
Utilization of net
operating losses
(Note 5)
Net Income
Balance, April
30, 1998 $ 5,600 $ 501,234 $ 116,731 $ 7,240,962 $ (37,647)
Reduction in
note receivable
arising from
stock purchase
agreement (Note 9) 37,647
Acquisition of
treasury stock
(Note 9)
Retirement of
treasury stock
Exercise of stock
warrants (Note 6)
Issuance of stock-
other (Note 1) 24,560 869,926
Issuance of stock-
private offering
Conversions to
common stock (2,135) (191,096) 12,580 180,650
Unearned service
contracts
Amortization of
unearned service
contracts
Utilization of net
operating losses
(Note 5)
Net Income
Balance, April
30, 1999 $ 3,465 $ 310,138 $ 153,871 $ 8,291,538 $ -0-
Unearned Treasury Treasury Retained Total
Service Stock Stock Earnings Shareholders'
Contracts (Preferred) (Common) (Deficit) Equity
Balance, April
30, 1996 $(276,771) $(2,000,00) $ (87,240) $(533,247) $4,111,962
Note Receivable
arising from
stock purchase
agreement (Note 9) (43,416)
Reduction in note
receivable arising
from stock
purchase agreement
(Note 9) 320,681
Acquisition of
treasury stock
(Note 9) (250,000) (250,000)
Exercise of
stock options
(Note 6) 23,765
Issuance of
stock-other
(Note 1) 100
Issuance of stock
private offering 437,555
Unearned service
contracts (53,125) (53,125)
Amortization of
unearned service
contracts 66,458 66,458
Utilization of
net operating
losses (Note 5) 120,357 120,357
Net Income 165,692 165,692
Other (27,775) (27,775)
Balance, April
30, 1997 $(263,438) $(2,000,000) $ (337,240) $(274,973) $4,872,254
Reduction in
note receivable
arising from
stock purchase
agreement (Note 9) 44,115
Acquisition of
treasury stock
(Note 9) (1,200,000) (1,200,000)
Retirement of
treasury stock 2,000,000 -0-
Exercise of stock
warrants (Note 6) 90,900
Issuance of stock-
other (Note 1) 230,278
Issuance of stock-
private offering 1,713,682
Conversions to
common stock -0-
Unearned service
contracts (101,250) (101,250)
Amortization of
unearned servce
contracts 77,864 77,864
Utilization of
net operating
losses (Note 5) 56,287 56,287
Net income 77,731 77,731
Balance, April
30, 1998 $ (286,824) $ -0- $(1,537,240) $(140,955) $ 5,861,861
Reduction in
note receivable
arising from
stock purchase
agreement (Note 9) 37,647
Acquisition of
treasury stock
(Note 9) -0-
Retirement of
treasury stock -0-
Exercise of
stock warrants
(Note 6) -0-
Issuance of stock
other (Note 1) 894,486
Issuance of stock-
private offering -0-
Conversions to
common stock (53,990) (53,991)
Unearned service
contracts (300,000) (300,000)
Amortization of
unearned service
contracts 152,448 152,448
Utilization of
net operating
losses (note 5) -0-
Net Income (1,462,672) (1,462,672)
Balance, April
30, 1999 $(434,376) $ -0- $(1,537,240) $(1,657,617) $5,129,779
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended April 30, 1999, 1998 and 1997
(unaudited)
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income
Adjustments to reconcile income to
net cash used in operations: $(1,462,672) $77,731 $165,692
Deferred income taxes - 56,287 -
Depreciation 214,440 147,229 71,731
Amortization of intangible assets 167,315 408,106 52,872
Gain on retirement of fixed assets - - -
Provision for uncollectible accounts - - (13,146)
Provision for obsolete inventories - - 12,491
Amortization of service contracts 152,449 (23,385) 13,333
Changes in assets and liabilities:
Accounts receivable 31,553 (241,442) (39,020)
Contracts in process 145,673 572,063 (267,137)
Inventories (446,471) (237,621) (180,174)
Prepaid expenses and other
current assets (34,753) 83,152 (62,584)
Supplemental Type Certificates (63,638) (499,454) (814,474)
Other assets 1,628,228 120,135 (133,091)
Accounts payable 238,742 67,481 (308,723)
Customer deposits 52,039 (989,760) 993,628
Settlement Agreement - (72,000) -
Accrued liabilities 667,820 (69,108) 138,209
Note receivable (1,115,546) 62,550 -
Notes payable 685,982 - -
Total adjustments 2,323,833 (615,767) (536,085)
Cash used in operations 861,161 (104,991) (1,222,944)
Cash flows from investing activities:
Capital expenditures, net (213,136) (681,336) (444,738)
Deferred costs of Indian Gaming (884,396) (1,812,628) (397,870)
Aircraft and aircraft parts - - 8,268
Cash used in investing activities (1,097,532) (1,850,937) (1,686,891)
Cash flows from financing activities:
Net borrowings under
promissory notes (224,143) 312,975 81,309
Proceeds from long-term debt 2,068,495 502,603 1,411,466
Repayments of long-term debt
and lease obligations (1,723,598) (103,745) (94,162)
Repayment of officer note - 44,115 27,265
Issue class B convertible preferred - 1,315,959 -
Stock issuance for conversions
and other - 268,903 261,119
Bank overdraft payable 119,942 - -
Stock issuance Woodson purchase - - 200,000
Cash provided by (used in)
financing activities 240,696 2,340,810 1,886,997
Net increase (decrease) in cash 4,325 (48,163) (170,287)
Cash, beginning of period 160,598 208,761 379,048
Cash, end of period 164,923 160,598 208,761
Supplemental disclosures of cash
flow information:
Interest paid 237,128 254,202 215,867
Income taxes paid - 16,741 27,775
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
1.Significant Accounting Policies:
The following is a summary of significant accounting policies:
a. Consolidation Policy: The accompanying consolidated financial statements
includes the accounts of Butler National Corporation ("BNC") and its
wholly-owned subsidiaries, Cansas International Corporation, Butler
National Engineers, Inc., Butler National Services, Inc., Butler
Temporary Services, Inc., Butler National Service Corporation, Butler
National, Inc., Woodson Avionics, Inc. (collectively, "The Company").
Cansas International Corporation and Butler National Engineers, Inc.,
were inactive during the years ended April 30, 1999, 1998 and 1997. All
significant intercompany transactions have been eliminated in
consolidation.
b. Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
c. Inventories: Inventories are priced at the lower of cost, determined on
a first-in, first-out basis, or market. Inventories include material,
labor and factory overhead required in the production of the Company's
products.
d. Properties and Related Depreciation: Machinery and equipment are
recorded at cost and depreciated over their estimated useful lives.
Depreciation is provided on a straight-line basis. Leasehold
improvements are amortized on a straight-line basis over the term of
the lease. The lives used for the significant items within each
property classification are as follows:
Life in Years
Building 23-39 years
Machinery and equipment 5 to 17 years
Office furniture and fixtures 5 to 17 years
Leasehold improvements 3 to 20 years
Maintenance and repairs are charged to expense as incurred. The cost
and accumulated depreciation of assets retired are removed from the
accounts and any resulting gains or losses are reflected as income or
expense.
e. Indian Gaming: The Company currently is deferring the net receivable
costs associated with advances to the Indian tribes under various
consulting and management agreements related to the potential start-up
of Indian gaming. These costs represent advances for land, land
improvements, engineering and architectural fees associated with the
improvements and are as such actual hard costs for fixed assets, land
and roads and buildings. The realization of these receivables is
predicated on the ability of the Company and their Indian gaming clients
to successfully open and operate the proposed casinos. As these
establishments are opened, the advances are repaid or converted
to notes receivable. Currently there is no assurance that the Tribes and
the Company will be successful. The inability of the Company to
recover these deferred costs could have a material adverse effect on the
Company's business and results of operations.
As a part of the Management Contract approved by the NIGC on January 14,
1997, between the Company's wholly owned subsidiary, Butler National
Service Corporation, and the Miami Tribe of Oklahoma and the Modoc Tribe
of Oklahoma (the "Tribes"); the Company agreed to replace the advances
receivable under the consulting agreement with a loan to the Tribes of
$3,500,000 at 2% over prime, to be repaid over five years, for the
repayments of prior advances,and for the construction and operation of
the Stables gaming establishment. At April 30, 1999, the Company
had advanced $3,500,000 to the Tribes under the contract and reported
$647,285 current note receivable and $2,730,708 long-term note
receivable. Security under the contract includes the Tribes' profits
from all tribal gaming enterprises and all assets of the Stables except
the land and building.
The Company has advanced a total of $6,486,000 under the various
consulting agreements. After the application of a reserve for
collectibility, the net receivable amounts are approximately
$5,540,113 and $3,353,000 at April 30, 1999 and April 30, 1998,
respectively. These costs are reported as notes receivable of $3,377,993
and $2,074,797 and as deferred costs of $2,162,120 and $1,277,724
respectively in 1999 and 1998. 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 advances:
A prepayment for the Tribes 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 for the Tribes 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,
funded with stock issuances of 20,000 shares in fiscal 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 for the Tribes
in the amount of $203,000 in fiscal 1997.
Net construction advances of $884,396 during fiscal 1999 and $1,813,106
during fiscal 1998.
f. Other Assets: Supplemental Type Certificates ("STC's") are authorization
granted by the Federal Aviation Administration for the modification of a
Type Certificated aircraft. The STC is a tool required for each aircraft
modified and authorizes the Company to build the required parts and
assemblies and to perform the installations on applicable customer-owned
aircraft. The Company has acquired and is currently in the process of
refurbishing an aircraft at their Aircraft Modification facility. The
book value of this plane is $315,000 which includes the original cost of
the plane plus parts, labor and overhead incurred during the
refurbishment. The estimated market value of the aircraft is in excess
of $350,000. The plane is currently being used in the support of the FAA
approval of various Learjet Supplement Type Certificates. At this time,
the Company has not determined if this plane will be retained for
corporate use or sold and as such continues to classify the plane as
other assets.
During fiscal year 1995, the Company completed the refurbishment of
another aircraft and exchanged that aircraft which had been classified in
other assets in the prior year, for Lear inventory parts. The book value
of this aircraft was approximately $240,000. The Lear parts have been
classified as other assets in the current year are valued at $145,281.
During fiscal year 1996, the Company acquired a Lear 35 valued at
approximately $1,500,000 which was also recorded in other assets on the
Balance Sheet. This aircraft was used in the support of the FAA
approval of various Learjet Supplemental Type Certificates.
Recovery of these STC costs will be obtained through future modification
orders on aircraft in which the asset will be amortized against the
orders. Each aircraft receives a charge for the use of the STC tool and
the STC certificate included with each aircraft's documentation. The
charge to cost of sales for the use of the STC tooling and certificates was
approximately $168,000, $408,000 and $124,000 for 1999, 1998 and 1997
respectively. The Company expects that future orders will fully recover
the current costs. However, uncertainty exists as to the ability of the
Company to gain future orders. Failure to gain these orders and
subsequently recover the asset costs could have a materially adverse
impact on the company's financial position and operations.
g. Bank Overdraft Payable: The Company's cash management program results in
checks outstanding in excess of bank balances in the general disbursement
account. When checks are presented to the bank for payment, cash
deposits in amounts sufficient to fund the checks are made from funds
provided under the terms of the Company's revolving credit notes
agreement (Note 2).
h. Financial Instruments: The fair values of the Company's financial
agreements generally approximate their fair market values. The fair
value of the convertible debentures and convertible preferred stock is
not determinable.
i. Revenue Recognition: The Company performs aircraft modifications under
fixed-price contracts. When the price is in excess of $100,000 revenues
from fixed-price contracts are recognized on the percentage-of-completion
method, measured by the direct labor costs incurred compared to total
estimated direct labor costs. At April 30, 1999, there were two major
contracts in process. The Company recognizes revenue for its other
segments on product sales during the period in which title passes to the
purchaser.
j. Income Per Share: Income per (common and common equivalent) share is
based on the weighted average number of common shares outstanding during
the year. Stock options are included as common stock equivalents in
1999 or 1998, since they are dilutive. Stock options, convertible
preferred, and convertible debentures have been considered in the
dilutive earnings per share calculation (Note 10). Warrants are not
included in any period as they are anti-dilutive.
k. Quasi Reorganization: After completing a three year program of
restructuring the Company's operation, on October 31, 1992, by using
quasi reorganization accounting, the Company was able to adjust the
accumulated deficit to a zero balance thereby affording the Company a
"fresh start." No assets or liabilities required adjustment in this
process. The amount of accumulated deficit and capital contributed in
excess of par, removed as of October 31, 1992, was $11,938,813.
l. Non-Cash Transactions:
During the year ended April 30, 1999, the Company issued 3,714,018 shares
of stock valued at $931,300 in various non-cash transactions. Six
hundred thousand shares valued at $300,000 were issued for services to be
rendered in the future; 264,124 shares valued at $107,300 were
issued as the Company match to the employee 401-K plan; vendors accepted
1,489,486 shares as payment for $372,400 of services rendered and 1,360,408
shares were issued under the exchange provisions of the convertible and
preferred debentures for $151,600 in face value plus interest.
During the year ended April 30, 1998, the Company issued 2,148,913 shares
of stock valued at $1,528,026 in various non-cash transactions. One
hundred ninety three thousand shares valued at $101,250 were issued for
services to be rendered in the future; 91,318 shares valued at $79,903
were issued as the Company match to the employee 401-K plan; and
1,738,413 shares were issued under the exchange provisions of the
convertible and preferred debentures for $1,259,125 in face value plus
interest.
(a) 100,000 shares valued at $200,000 were issued in exchange for the
assets of Woodson Electronics, Inc., an agreement not to compete, and an
agreement to provide consulting services by Thomas E. Woodson; 84,034
shares were issued under the exchange provisions of the convertible
debenture for $150,000 in face value; and 12,232 shares valued at
$21,833 were issued to pay interest on the debentures.
m. Unearned Service Contracts: During fiscal 1999, the Company issued
600,000 shares of common stock for services valued at $300,000 to be
performed in the future. The unearned portion of these service
contracts is being amortized over the service period, (generally 12-60
months) and is reflected as a reduction in equity until such time as the
services are rendered.
In fiscal 1998 and 1997, the Company issued 193,000 and 250,000 shares
of common stock respectively at a value of $101,250 and $53,125
respectively for professional services to be provided in the future.
Future amortization of unearned service contracts is as follows:
Year Ending
April 30, Amount
2000 175,105
2001 149,584
2002 89,167
2003 12,550
2004 7,968
2005 -
Total 434,374
n. Reclassifications: Certain reclassifications within the financial
statement captions have been made to maintain consistency in
presentation between years.
2. Debt:
Principal amounts of debt at April 30, 1999 and 1998, consist of the
following:
Promissory Notes: 1999 1998
Interest at prime plus 2% $ 82,000 $ 118,000
(9.75% at April 30, 1999), due
August 25, 1999, collateralized
by a first or second position on
all assets of the Company
Interest at prime plus 2% 389,574 577,718
(9.75% at April 30, 1999), due
August 25, 1999, collateralized
by a first or second position on
all assets of the Company
Total Promissory Notes $471,574 $695,718
Other Notes Payable:
Note Payable for Lear 23,
Interest $239,051 $1,497,124
at prime plus 2%, (9.75% at April
30, 1999), due May 24, 2004
collateralized by Aircraft Security
Agreement dated November 3, 1998
Note payable for Indian Gaming, 1,607,641 -
interest at prime plus 2% (9.75%
at April 30, 1999), due August 1,
2003
Note payable for building, interest 388,291 398,813
at prime plus 1%, 9.5% at April 30,
1999, due March 1, 2001
collateralized by real estate.
Note payable for repayment of advance 187,000 -
of November 1, 1996,
interest at prime plus 2% (9.75%
at April 30, 1999 collateralized
by a first and second position on
all assets of the Company.
Other Notes Payable 254,958 178,725
2,676,941 1,990,261
Less: Current maturities 571,345 17,968
$2,105,596 $1,972,293
Maturities of long-term debt (excluding Promissory notes) over the next five
years are as follows:
Year Ending
April 30, Amount
2000 571,345
2001 979,538
2002 519,947
2003 535,084
2004 71,027
The Company has promissory notes in which it may borrow a maximum of
$500,000. The notes mature August 25, 1999. At April 30, 1999, the Company
had borrowed $471,574 on the notes. The weighted average interest rates were
10.25% for the years ended 1999 and 1998 respectively.
3. Discontinued Operations.
RF, Inc., dba Redi-Foods: On April 14, 1998, the Company discontinued
the operation of its wholesale food Distribution segment, a wholly owned
subsidiary , RF, Inc., a Missouri corporation. This segment is being
liquidated and the Company does not plan any future operations in the
wholesale food distribution industry.
The Company acquired RF, Inc. on April 21, 1994. The Company exchanged
650,000 shares of the Company's common stock for 100% of the issued and
outstanding shares of RF, Inc. At the date of acquisition, RF, Inc.'s
total assets were $565,605, consisting of cash of approximately $200,000,
accounts receivable of approximately $280,000, and inventory of
approximately $60,000. RF, Inc.'s liabilities included approximately
$260,000 of vendor payables, and $115,000 of accrued payroll and payroll
taxes.
The individuals who sold RF, Inc. to the Company had sought for some time
to reacquire from the Company the ownership of RF, Inc. The individual
(the "Employee") filed a lawsuit against the Company seeking to rescind
the sale of RF, Inc. stock and for damages. The Company and the Employee
reached an agreement to settle and release all claims and counterclaims
effective April 30, 1997, ("Release Agreement"). The Employee dismissed
the lawsuit with prejudice. In addition to the releases, under the terms
of the agreement, the Company received, on June 26, 1997, 600,000 shares
of the Company's common stock and a commitment for certain payments over
the next three years. The Company released the Employee from the terms of
his employment contract and the April 24, 1994 Stock Purchase Agreement,
including his agreement not to compete with the Company in the food
distribution industry. The Company recorded a net gain of $432,989
(principally noncash) in the first quarter of 1998 for this transaction
after consideration of $1,078,544 of costs associated with the claims,
counter-claims and settlement. The stock was valued at $2.00 per share on
the closing date of this transaction April 30, 1998. Payment was secured,
therefore none of the gain was deferred. Full payment was received during
fiscal 1999.
RF, Inc. continued operations with transition management after the release
of the Employee by the Company. However, product sales slowed and product
selection and availability was restricted because of the industry
knowledge associated with the Employee and the loss of sales personnel to
the Employee. A bank credit line of $1,200,000 arranged in 1996, was used
to purchase approximately $600,000 of inventory. Without providing
samples as requested, a major chicken products supplier shipped
approximately $250,000 of product in the summer of 1997 against an order
scheduled for delivery in February 1997.
Sales at RF, Inc. declined in the fall 1997 compared to the previous year.
The decline was accelerated more than expected due to the level of market
confusion and the non acceptance of RF, Inc. without the Employee. A
part of the unrest was a result of the growing dispute with a chicken
supplier over the product shipped late. In December 1997, the pressure
from the chicken supplier for complete payment of the late shipment was
building, the product inventory was high, bank interest was using
available funds, and payments on accounts receivable had slowed.
On January 7, 1998, the chicken supplier filed suit to collect
approximately $44,000 remaining unpaid for the late shipment. An
attachment order was issued which stopped shipment of all RF, Inc.
products. The attachment order effectively eliminated the ability of RF,
Inc. to respond to the needs of its customers. By February 1, 1998,
because it was slow, expensive, and sometimes not possible to have product
released to fill orders and because the actions of the chicken supplier
had created a feeling of doom in the industry regarding RF, Inc., all the
personnel at RF, Inc. were terminated. Some personnel were called back to
assist with liquidation of the inventory.
On March 27, 1998, the chicken supplier and two transportation companies
filed a petition for involuntary bankruptcy against RF, Inc. On May 12,
1998, the court determined that RF, Inc. was bankrupt and a trustee
was appointed on June 11, 1998. All the assets of RF, Inc. were pledged
as security for the bank line of credit.
After Industrial State Bank obtained control of all the assets of RF, Inc.,
the Company needed to cooperate in the collection of accounts receivable
through a law firm, the liquidation of the inventory and to purchase the
fixed assets, primarily office equipment, from the bank. The RF, Inc.
bank debt was approximately $637,000, plus interest and legal collection
costs. The Company believes that an orderly liquidation of the assets at
retail and the purchase of the fixed assets should allow the bank to recover
substantially the amount due on the bank line of credit. Unsecured
creditor claims, less the claims of the three unsecured creditors filing
the involuntary bankruptcy petition, the bank claims and the Company
claims, were expected to be approximately $200,000.
As of April 30, 1998, the operations of RF, Inc. have been deconsolidated
due to the Chapter 7 involuntary bankruptcy liquidation of the wholly
owned subsidiary. The entire investment in RF, Inc. was written-off
through the current year loss from discontinued operations. The assets
and liabilities of RF, Inc. at April 30, 1998, were comprised of accounts
receivable $716,478, inventory $359,103, other assets $44,423, bank
liabilities $637,947 and other accrued liabilities $397,903. The
revenues associated with RF, Inc. for the years ended 1998, 1997, and
1996 were $3,783,132, $17,478,540, and $13,685,871 respectively.
On September 28, 1998, the RFI bankruptcy trustee filed an action alleging
a number of claims against the Company and its officers including a claim
for repayment of preferential payments to the bankruptcy estate. This
lawsuit was settled on July 26, 1999, by the payment of $250,000 to the
court.
As a result aggressive liquidation of the RFI inventory and the collection
of RFI accounts receivable were blocked by lawsuits from December 1997
through July 1999. The realizable value of the assets was significantly
reduced during the time. The new judge determined that RFI was not
solvent at April 30, 1997, and therefore, that the Company was liable to
the RFI estate for $430,000 in preferential payments made to the Company
in fiscal 1998. Management believed that RFI was in the best financial
condition since acquisition in 1994 on April 30, 1997. However, the judge
did not accept the annual audit of the independent public accountant as of
that date making the insolvency decision for lack of an affidavit at the
hearing of a motion for summary judgment.
Approximately nine months of management's time during fiscal year 1999 was
focused on the resolution of the RFI bankruptcy matter. This was very
expensive to the Company in terms of management time, professional fees and
the diversion of management's attention away from the daily operation of
the core businesses as well as the analysis of business opportunities
related to the core businesses. The cost of this related time and expenses
was approximately $800,000.
We reconsidered our position after the bankruptcy judge determined that
RFI was not solvent at April 30, 1997, and that the Company was liable to
the RFI estate for $430,000 in preferential payments made to the Company
in fiscal 1998. Although management of the Company strongly disagreed
with the judge's ruling, the Company had already expended professional
fees of approximately $380,000, and considerable corporate payroll and
other expenses directly related to the RFI matter. Therefore, continued
appeals of this matter were not in the best interest of our shareholders.
As a result, the Company settled with the Trustee by paying $250,000 to
the Court.
Because the Company guaranteed the RFI debt to the bank, it assumed an
additional liability of $908,209 , paid $250,000 in preferential payments
to the RFI estate, expended professional fees of $380,000 directly related
to the RFI matter, allocated $120,017 of direct corporate expense to the
support of the matter and have reserved for future costs an additional
$189,000 before the remaining assets disposed of and the matter is closed.
The Company does not expect to recover a material amount from the disposal
of the assets and have expensed approximately $2,200,000, related to the
closing of RFI. The Company believes that all approved claims against RFI
will be paid in full through the Trustee.
Valu Foods, Inc., dba Valu Foods : On April 14, 1998, the Company
discontinued the operation of its retail food store, a wholly owned
subsidiary , Valu Foods, Inc., a Kansas corporation. This retail operation
is being liquidated and the Company does not plan any future operations in
the retail food industry.
The Company formed Valu Foods, Inc. to market test the concept of selling
frozen food overruns, seconds, and other discounted products to the rural
market. A retail store owned by an individual in a rural Kansas community
had been operating since September 1996 market testing these lines of
products. In August 1997, the Company opened a retail store in the Kansas
City area to market test products packaged under the registered trade
name, Valu Foods and other products. Store sales were as expected at
the opening and continued to grow through the fall of 1997. The test
project was discontinued when the Company discontinued the operation of
the wholesale food Distribution segment. The Company plans to liquidate
the Valu Foods, Inc. assets in the ordinary course of business and the
store will close the sooner of the completion of the inventory liquidation
or on January 31, 1999, when the lease expires. The fiscal 1998 loss on
discontinued operations is approximately $23,965 (net of tax). The loss
includes anticipated legal costs, rental costs and payroll.
As of April 30, 1998, the operations of Valu Foods, Inc. was
discontinued due to the planned closing of the wholly owned subsidiary.
The entire investment in Valu Foods, Inc. was written-off through the
current year loss from discontinued operations. The assets and
liabilities of Valu Foods, Inc. at April 30, 1998, were comprised of
property, plant and equipment including leasehold improvements of $332,953
and inventory $24,779. The revenues associated with Valu Foods, Inc. for
the year ended 1998 was $143,550.
As of April 30, 1999 all operations at Valu Foods, Inc. had ceasedand the
subsidiary had no assets.
4.Stock Transactions:
On May 1, 1995, the Company entered into a letter of intent to acquire
certain assets of Woodson Electronics, Inc. (WEI). On May 1, 1996, this
transaction was completed. 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.
On December 16, 1997, the Company completed a private placement which was
executed in reliance upon the exemption from registration afforded by
Regulation S as promulgated by the Securities and Exchange Commission,
under the Securities Act of 1933, (see Page 36 "Consolidated Statements of
Shareholders' Equity for the Years ended April 30, 1999, 1998, and 1997
beginning and ending balances that carry forward to the balance sheet)as
amended. The Company issued Series B 6% Convertible Preferred Stock in the
amount of $1,500,000. The securities were not publicly offered. The
securities were sold to accredited investors. The investors were not U.S.
persons. Net proceeds of the offering were $1,315,959, after deducting
legal, accounting, wire transfer and consulting expenses of the offering.
The terms of conversion allow the holder, at its option, at any time
commencing 45 days after issue to convert the preferred stock into
shares of the Company's Common Stock, $0.01 par value per share, at a
conversion price for each share of common stock equal to 70% of the 5 day
average closing bid for the five days prior to closing. The shares
are subject to a mandatory, 24 month conversion feature at the end of
which all shares outstanding will be automatically converted. Accounting
for the beneficial conversion feature is done with a reduction in
Preferred Stock and an increase in capital stock in excess of par. The
calculation of the amount of capital stock of paid in excess of par is
divided by the dollar amount of conversion by the current market price per
the terms of the agreement to determine the number of shares. The shares
are then recorded by distributing the total dollar amount between the paid
in excess of par and the capital contributed in excess of par.
The Company completed a private placement on June 26, 1996 in which the
Company issued a 8.0% cumulative convertible debenture due June 26, 1998
in the amount of $750,000. Net proceeds of the offering were $675,000,
after deducting the expenses of the offering. The debenture is
convertible only to common stock at 70% of the average closing price for
the five days prior to conversion, unless the average closing price is
$1.78 or lower. When the average closing price is below $1.78, the
conversion is at the closing price without a discount. At the due date,
the end of the two year term, the balance not yet converted must be
converted to common stock. The 8% interest is payable in stock or cash at
the option of the Company.
The Company completed a private placement on November 1, 1996 in which the
Company issued a 8.0% cumulative convertible debenture due November 1,
1998, in the amount of $500,000. Net proceeds of the offering were
$450,000, after deducting the expenses of the offering. The debenture is
convertible only to common stock at 70% of the average closing price for
the five days prior to conversion, unless the average closing price is
$2.07 or lower. When the average closing price is below $2.07, the
conversion is at the closing price without a discount. At the due date,
the end of the two year term, the balance not yet converted must be
converted to common stock. The 8% interest is payable in stock or cash at
the option of the Company.
5. Income Taxes:
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provision of the enacted tax laws. The Company
has net operating loss carryforwards and cumulative temporary differences
which would result in the recognition of net deferred tax assets. A
valuation allowance has been provided which reduces the net deferred tax
asset to zero. At April 30, 1999, the Company had approximately $5.3
million of net operating losses which expire in 2002 to 2014.
The tax benefit of net operating losses generated prior to the Quasi
reorganization and utilized after the reorganization are reflected as
additions to capital contributed in excess of par.
The deferred taxes are comprised of the following components:
Current Deferred Taxes 04/30/99 4/30/98
Current Assets $ 380,350 $ 416,843
Current Liabilities (463,210) (463,210)
Total Current Deferred Taxes 82,860 46,367
Noncurrent Deferred Taxes
Noncurrent Assets 2,967,054 2,349,958
Noncurrent Liabilities (374,112) (297,012)
Total Noncurrent Deferred Taxes 2,592,972 2,052,946
Total Deferred Taxes 2,006,579 2,006,579
Less: Valuation Allowance (2,510,112) (2,006,579)
Total Deferred Taxes, Net $ 503,533 $ 0
The tax effect of significant temporary differences representing deferred
tax assets and liabilities are as follows:
4/30/99 4/30/98
Accounts Receivable Reserve 27,308 30,352
Inventory Reserve 309,285 309,285
Net Operating Loss 2,063,249 1,793,073
Discontinued Operations Accrual 346,950 -
Depreciation (392,532) (283,314)
Gaming 570,865 519,934
Release Agreement Costs (462,600) (462,600)
Other 46,987 99,849
Net Deferred Tax Items $2,510,112 $2,006,579
A reconciliation of the provision for income taxes to the statutory federal
rate is as follows:
1999 1998 1997
Statutory Federal Income Tax Rate 34.0% 34.0% 34.0%
Less: Permanent differences
Nondeductible expenses 1.0 7.5 1.7
State taxes 5.0 0.5 6.3
Effective Tax Rate 40.0% 42.0% 42.0%
6.Stock Options and Incentive Plans:
The Company has established a number of nonqualified stock option plans to
provide key employees with an opportunity to acquire a proprietary interest
in the Company. Options are granted under these plans at exercise prices
equal to fair market value at the date of the grant, and are generally
exercisable immediately and expire in 10 years. Each of the plans
automatically terminate after 10 years at which time no more options may be
granted but all previously granted options remain exercisable until
reaching their expiration date.
The Company has five stock option plans, the 1981 Qualified Plan ("1981
Plan"), the 1989 Non Qualified Plan ("1989 Plan"), the First 1993 Non
Qualified Plan ("1993-I Plan"), the Second 1993 Non Qualified Plan
("1993-II Plan") and the 1995 Non Qualified Plan ("1995 Plan"). The
Company accounts for these plans under Accounting Principles Board Opinion
No. 25 under which no compensation cost has been recognized. Had
compensation cost been recognized in accordance with Financial Accounting
Standards Board Statement No. 123, Accounting for Stock Based Compensation,
the Company's operating income would have been effected as follows:
1999 1998 1997
Dividend Yield 0% 0% 0%
Expected Stock Volatility 98% 98% 101%
Risk Free Interest Rate 6.07% 6.07% 6.79%
Expected Option Lives 10 years 10 years 10 years
Fair Value of Options $ .77 $ 1.06 $ 1.67
Pro Forma Expense $ - $ 565,000 $ -
Basic EPS effect $ - $ 0.06 $ -
The 1981 Plan has 100,000 shares reserved by the Company and has never been
used. The other plans permit grants of nonqualified and incentive stock
options. The Company has reserved 10,000,000, 5,000,000, 5,000,000 and
5,000,000 shares of its common stock under the 1989 Plan, 1993-I Plan,
1993-II Plan and 1995 Plan, respectively. All plans vest at the date of
grant and provide that the exercise price shall be equal to the fair market
value at the date of grant as determined by the Board of Directors, and the
term of the options shall not exceed ten years from grant date.
The following table summarizes the Option Plans.
<TABLE>
<CAPTION>
4/30/99 4/30/98 4/30/97
<S> <C> <C> <C>
1989 Nonqualified Option Plan
Beginning Balance - options
outstanding 100,000 100,000 100,000
Options granted - 100,000 -
Canceled/Forfeited - 100,000 -
Exercised - - -
Ending Balance - options
outstanding 100,000 100,000 100,000
Exercise Price Ranges $ 0.90 $ 0.90 $2.3125
Shares available for grants 8,000,000 8,000,000 -
Price range of options exercised - - -
1993 Nonqualified Option Plan I
Beginning Balance - options
outstanding 257,500 290,500 295,500
Options granted - 247,500 -
Canceled/Forfeited 1,000 280,500 5,000
Exercised - - -
Ending Balance - options
outstanding 256,500 257,500 290,500
Exercise Price Ranges $0.90 to 2.50 $0.90 to 2.50 $2.50 to 3.00
Shares available for grants 4,726,500 4,725,500 130,500
Price range of options exercised - - -
1993 Nonqualified Option Plan II
Beginning Balance - options
outstanding 1,417,300 1,444,400 1,457,564
Options granted - 1,275,300 -
Canceled/Forfeited 65,500 1,302,400 13,164
Exercised - - -
Ending Balance - options
outstanding 1,351,800 1,417,300 1,444,400
Exercise Price Ranges $0.90 to 2.50 $0.90 to 2.50 $2.3125 to 3.00
Shares available for grants 3,639,100 3,573,600 18,400
Price range of options exercised - - -
1995 Nonqualified Option Plan
Beginning Balance - options
outstanding 4,601,000 1,323,000 696,000
Options granted 2,418,000 4,601,000 772,000
Canceled/Forfeited 2,448,000 1,323,000 133,000
Exercised 600,000 - 12,000
Ending Balance - options
outstanding 3,971,000 4,601,000 1,323,000
Exercise Price Ranges $0.50 to 0.90 $0.90 $2.00
Shares available for grants 3,854,000 3,824,000 165,000
Price range of options exercised $0.50 - $2.00
</TABLE>
7. Commitments:
a. Lease Commitments: The Company leases space under operating leases with
initial terms ranging from three years to twenty years. Minimum lease
commitments under operating leases for the next five years are as follows:
For the year ending April 30, 2000 $ 116,075
2001 97,262
2002 98,222
2003 33,000
2004 33,000
And thereafter 159,500
Total rental expense incurred for the years ended April 30, 1999, 1998
and 1997 was $111,587, $187,905 and $185,742 respectively.
b.Employment Agreements: The Company has employment contracts with one
officer.
The contract with Mr. Stewart calls for annual compensation of $198,000
increasing in various amounts to $307,600. This contract expires August
31, 2004. As of April 30, 1999, Mr. Stewart has been granted options to
purchase 1,220,000 shares of common stock at $0.90 per share and 180,000
shares at $0.50 per share.
A second contract with Mr. Eisenbath called for annual compensation of
$300,000 and incentive compensation based on operating income. This
contract was terminated by the Release agreement effective April 30,
1997. See Note 3.
8. Contingencies:
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 include payments of $122,000 and $72,000 by the
Company to the individual during fiscal 1998 and fiscal 1999 respectively.
The Company is involved in various lawsuits incidental to its business.
Management believes the ultimate liability, if any, will not have an
adverse effect on the Company's financial position or results of operations.
Due to the Company's financial condition, and the need to reduce expenses,
the Board of Directors approved the elimination of product liability
insurance in August, 1989. Management is not aware of any claims which
individually or in the aggregate exceed the annual cost of the insurance.
9.Related Party Transactions:
During fiscal 1999, the Company paid consulting fees of approximately
$61,120 to a board member for business consulting services.
A board member of the Company is also a principal of a firm which provides
business consulting services to the Company. Total payments in 1999 under
this agreement were approximately $90,643.
A board member of the Company is also a principal of a firm which provides
business consulting services to the Company. Total payments and accruals
in 1999 under this agreement were approximately $32,000, and $64,000,
respectively.
In 1996 a loan was made to an officer to purchase 400,000 shares of the
Company's stock. These shares were purchased with options outstanding
from the 1989 Nonqualified Stock Option Plan, at prices ranging from
$.70 to $1.00 per share. This loan was shown as a reduction of
stockholders' equity on the financial statements. These loans are
non-interest bearing, due on demand, and collateralized by the stock
purchased with the proceeds.
In fiscal 1999, the officer reduced the loan balance by $37,647 through
expense reimbursement. The loan balance is currently $0.
10. Common Shares Used in Per Share Calculations:
The following table shows the amounts used in computing earnings per share
and the effect on income and weighted average number of shares of dilutive
potential common stock.
1999 1998 1997
Earnings available for common shares (890,576) 77,731 165,692
Convertible debentures (interest
expense, net of tax) 31,954 31,954 43,100
Earnings available for common shares
after assumed conversion of
dilutive securities (858,622) 109,685 208,792
Earnings per share:
Basic:
Earnings from continuing
operations (0.01) 0.03 (0.02)
Income (loss) from/on
discontinued operations (0.07) (0.02) 0.04
Earnings available for
common shares (0.08) 0.01 0.02
Earnings per share:
Diluted:
Earnings from continuing
operations 0.00 0.02 (0.02)
Income (loss) from/on
discontinued operations (0.05) (0.01) 0.04
Earnings available for
common shares (0.05) 0.01 0.02
Weighted average number of common
shares used in basic EPS 11,845,875 9,418,330 9,411,168
Per share effect of dilutive securities:
Convertible Preferred Stock 2,772,000 368,219 -
Convertible debentures 2,600,000 650,000 47,474
Options - - 8,108
Weighted number of common shares
and dilutive potential
common shares used in diluted EPS 17,217,875 10,436,549 9,411,168
11.Subsequent Events:
On May 4, 1999, the Board of Directors determined that the interests of the
shareholders would be best served by distributing the common stock of its
Indian Gaming Subsidiary ("IGS") to the shareholders. As discussed at the
Annual Meeting of the Shareholders and as reported from time-to-time over
the past few years in its Annual Reports on Form 10-K, the Company has
planned to separate the business segments for a number of business reasons
including:
Allow the management of each business to focus solely on that business
segment.
Provide future incentives to the employees directly related to the profitable
operation of the business segment.
Enhance the access to financing by allowing the financial community to
focus on the business activities and opportunities of the business segment.
SEC Rule 10b-17 Information:
The Company plans to distribute the IGS common stock to the shareholders of
record owning Butler National Corporation $0.01 Common Stock at the close
of business on May 24, 1999 (the "Shareholders")>
The shares of the IGS are planned to be distributed to the Shareholders at
a ratio of one share of the common stock of the IGS for each share of
Butler National Corporation owned at the close of business on May 24, 1999.
An Information Statement and the shares of the IGS are expected to be
distributed to the Shareholders after the review and approval of the Form
10 by the SEC.
The Company has owned the IGS for over five years, has reported the
operations as a separate business segment for over five years in its
Annual Report on Form 10-K and expects the distributed shares to be
unrestricted and tradeable upon filing of the Information Statement, a
Form 10 with the SEC and distribution of the shares.
The Company believes the distribution will be tax-free but the Company
will not seek an Internal Revenue Service ruling on the matter.
12.New Accounting Standards:
The American Institute of Certified Public Accountants has issued SOP 98-5,
"Reporting on the costs of start-up activities." This standard provides a
change in the capitalization policy for start up costs. The standard is
required for fiscal year end 1999. The Company evaluated the adoption of
this standard and determined the consulting fees and advances did not
constitute start up costs for Company assets or businesses, because they are
reimbursable under the consulting agreements by the owners. See Note 1.e.
13.Industry Segmentation and Sales by Major Customer:
a. Industry Segmentation: The Company's operations have been classified
into five segments in 1999, 1998 and 1997.
1.Gaming - principally includes the business management services to
Indian tribes in connection with the Indian Gaming Act of 1988.
(Beginning in fiscal 1994).
2.Avionics - principally includes the manufacture of airborne
switching units used in DC-9, DC-10, DC- 9/80, MD-80, MD-90 and
the KC-10 aircraft.
3.Aircraft Modifications - principally includes the modification of
business type aircraft from passenger to freighter configuration,
addition of aerial photography capability, stability enhancing
modifications for Learjets, and other modifications.
4.Monitoring Services - principally includes the monitoring of
water and wastewater remote pumping stations through electronic
surveillance, for municipalities and the private sector.
5.Temporary Services - provides temporary employee services for
corporate clients.
Year ended April 30, 1999
Gaming Avionics Modifications Services
Net Sales $ - $418,410 $5,236,371 $976,574
Depreciation - 75,460 110,469 15,314
Operating Profit
(loss) (a) 518,728 30,622 844,320 26,265
Capital 884,396 - 140,034 16,867
expenditures, net
Interest, net
Other Income
Income or (loss)
from continuing
operations
Income or (loss)
from discontinued
operations
Income taxes
Net Income
Identifiable
assets $5,570,847 $ 692,022 $4,171,658 $ 128,216
Temporaries Corporate Consolidation
Net Sales $ - $ - $ 6,631,355
Depreciation - 13,197 214,440
Operating profit - (816,832) (50,270)
(loss) (a)
Capital - 64,962
expenditures, net
Interest, net (35,201)
Other Income (116,726)
Income or (loss) (50,270)
from continuing
operations
Income or (loss) (1,412,401)
from discontinued
operations
Income taxes (572,095)
Net Income (890,576)
Identifiable $ 302 $ 851,706 $11,414,751
assets
Year ended April 30, 1998
Gaming Avionics Modifications Services
Net Sales $ - $ 484,518 $ 3,874,490 $1,097,098
Depreciation - 12,870 91,075 10,831
Operating Profit (32,569) 146,744 844,320 228,488
(loss) (a)
Capital 1,813,106 - 8,871 23,904
expenditures
Interest, net
Other Income
Income or (loss)
from continuing
operations
Income or (loss)
from discontinued
operations
Income taxes
Net Income
Identifiable $3,356,892 $709,868 $5,691,256 $135,629
assets
Temporaries Corporate Consolidation
Net Sales $ - $ - $ 5,456,106
Depreciation - 46,927 161,703
Operating Profit - (536,711) 650,272
(loss) (a)
Capital - 602,711 -
expenditures
Interest, net (251,421)
Other income 15,540
Income or (loss) 414,392
from continuing
operations
Income or (loss) (172,281)
from discontinued
operations
Income taxes 164,380
Net Income 77,731
Indentifiable $ 16,428 $889,583 $10,799,656
assets
Year ended April 30, 1997
Gaming Avionics Modifications Services
Net Sales $ - $ 277,513 $ 2,724,217 $1,060,045
Depreciation - 34,629 31,071 6,029
Operating profit
(loss) (a) (243,728) 123,571 501,984 230,738
Capital
expenditures 393,474 55,778 1,213,032 117,100
Interest, net
Other income
Income or (loss)
from continuing
operations
Income or (loss)
from discontinued
operations
Income taxes
Net income
Identifiable assets $1,543,786 $ 595,556 $ 5,765,537 $ 311,694
Temporaries Corporate Consolidation
Net Sales $ - $ - $4,061,775
Depreciation - - 71,729
Operating Profit - (318,807) 293,758
(loss) (a)
Capital - 14,260
expenditures
Interest, Net (257,105)
Other income (232,869)
Income or (loss) (196,217)
from continuing
operations
Income or (loss) 365,325
from discontinued
operations
Income taxes (3,416)
Net Income 165,692
Identifiable assets $ 43,945 $257,856 $8,518,374
(a) Operating expenses not specifically identifiable are allocated based upon
sales, cost of sales, square footage or other factors as considered
appropriate.
b. Major Customers:
Sales to major customers (10% or more of consolidated sales) were as
follows:
1999 1998 1997
Aircraft Modification 14% 16% 21%
Monitoring Services - 12% 16%
Total Major Customers 14% 28% 37%
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
for the years ended April 30, 1999, 1998 and 1997
Year ended April 30, 1999
Additions
Balance Charged to Balance
at Beginning Costs and at end
Description of Year Expenses Deductions of Year
Allowance for doubtful
accounts $78,736 $ - 9,850 $68,886
Reserve for inventory
obsolescence 74,562 - - 74,562
Reserve for loss on note
receivable 27,327 - - 27,327
Year ended April 30, 1998
Allowance for doubtful
accounts $78,736 $ - $ - $78,736
Reserve for inventory
obsolescence 74,562 - - 74,562
Reserve for loss on note
receivable 27,327 - - 27,327
Year ended April 30, 1997
Allowance for doubtful
accounts $91,882 $13,146 $ - $78,736
Reserve for inventory
obsolescence 62,071 12,491 - 74,562
Reserve for loss on note
receivable 35,729 - 8,402 27,327
<PAGE>
Exhibit 21
Subsidiaries
Avcon Industries, Inc., a Kansas Corporation
Butler National Services, Inc., a Florida Corporation,
formerly Lauderdale Services, Inc.
Butler National Engineers, Inc.,
a Kansas Corporation, formerly HSD, Inc.
Butler National Service Corporation, a Delaware Corporation
Butler National, Inc., a Nevada Corporation
Butler Temporary Services, Inc., a Missouri Corporation
Woodson Avionics, Inc., a Nebraska Corporation
Cansas International Corporation, a Delaware Corporation
Valu Foods, Inc., a Kansas Corporation
<PAGE>
EXHIBIT 99
CAUTIONARY STATEMENTS FOR PURPOSE OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company desires to take advantage of the new "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 and is filing this
exhibit in order to do so. The following important factors, among others,
could effect the Company's actual results and could cause such results to
differ materially from those expressed in the Company's forward-looking
statements:
- -The General Governmental Regulation of Gaming Operations - The Company is a
consultant to a number of Indian tribes. In addition the Company's
approved and proposed gaming management assistance is subject to
extensive gaming laws and regulations, many of which were recently
adopted and have not been the subject of definitive interpretations and are
still subject to proposed amendments and regulation. The political and
regulatory environment in which the Company's clients are and will be
operating, with respect to gaming activities on Indian land, is dynamic
and rapidly changing. Adoption and/or changes in gaming laws and regulations
could have a materially adverse effect on the Company.
- -Key Personnel - The Company's inability to retain key personnel may be
critical to the Company's ability to achieve its objectives. Key personnel
are particularly important in maintaining relationships with Indian Tribes
and with the operations controlled by the FAA. Loss of any such personnel
could have a materially adverse effect on the Company.
- -Competition - Increased competition, including the entry of new competitors,
the introduction of new products by new and existing competitors, or price
competition, could have a materially adverse effect on the Company.
Additionally, because of the rapid rate at which the gaming industry has
expanded and continues to expand, the gaming industry may be at risk of
market saturation, both as to specific areas and generally. Overbuilding of
gaming facilities at particular sites chosen by the Indian tribes may have a
material adverse effect on the Company's clients ability to compete and on the
Company's operations.
- -Major Customers - The termination of contracts with major customers or
renegotiation of these contracts at less cost-effective terms, could have a
materially adverse effect on the Company.
- -Product Development - Difficulties or delays in the development, production,
testing and marketing of products, could have a materially adverse effect on
the Company. The Company's aviation business is subject, in part, to
regulatory procedures and administration enacted by and/or administered by the
FAA. Accordingly, the Company's business may be adversely affected in the
event the Company is unable to comply with such regulations and/or if any new
products and/or services to be offered by the Company can or may not be
formally approved by such agency. Moreover, the Company's proposed new
aviation modification products depend upon the issuance by the FAA of a
supplemental type certificate with related parts manufacturing authority and
repair station license, the continued issuanceand maintenance of which no
assurances can be given.
- -Administrative Expenditures - Higher service, administrative or general
expenses occasioned by the need for additional legal, consulting,
advertising, marketing, or administrative expenditures may decrease income to be
recognized by the Company.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> APR-30-1999
<CASH> 164,923
<SECURITIES> 0
<RECEIVABLES> 520,220
<ALLOWANCES> 68,886
<INVENTORY> 1,617,807
<CURRENT-ASSETS> 3,359,920
<PP&E> 2,492,346
<DEPRECIATION> 1,217,201
<TOTAL-ASSETS> 11,414,751
<CURRENT-LIABILITIES> 2,760,057
<BONDS> 2,755,596
<COMMON> 153,871
0
3,465
<OTHER-SE> 4,972,443
<TOTAL-LIABILITY-AND-EQUITY> 11,414,751
<SALES> 6,631,355
<TOTAL-REVENUES> 6,631,355
<CGS> 5,107,934
<TOTAL-COSTS> 7,942,100
<OTHER-EXPENSES> (116,726)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,201
<INCOME-PRETAX> (1,462,672)
<INCOME-TAX> 0
<INCOME-CONTINUING> (50,270)
<DISCONTINUED> (1,412,402)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,462,672)
<EPS-BASIC> .00
<EPS-DILUTED> (.08)
</TABLE>
