SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-Q
_________________
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the
X Securities Exchange Act of 1934
For the quarter ended October 31, 1999
Transition Report Pursuant to Section 13 or 15 (d) of the
Security Exchange Act of 1934
For the quarter ended October 31, 1999
Commission File Number 0-1678
BUTLER NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 41-0834293
(State of incorporation) (I.R.S. Employer Identification No.)
19920 West 161st Street, Olathe, Kansas 66062
(Address of Principal Executive Office)(Zip Code)
Registrant's telephone number, including area code: (913) 780-9595
Former Name, former address and former fiscal year if changed since last
report:
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months and (2) has been subject to such
filing requirements for the past ninety days: Yes X No ______
The number of shares outstanding of the Registrant's Common Stock, $0.01
par value, as of October 31, 1999, was 17,954,965 shares.
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION:
Page No.
Consolidated Balance Sheets - October 31, 1999
and April 30, 1999...............................................3
Consolidated Statements of Income - Three
Months ended October 31, 1999 and 1998...........................4
Consolidated Statements of Income - Six
Months ended October 31, 1999 and 1998...........................5
Consolidated Statements of Cash Flows - Six
Months ended October 31, 1999 and 1998...........................6
Notes to Consolidated Financial Statements........................7-9
Management's Discussion and Analysis
Financial Condition and Results of Operations................10-15
PART II.
OTHER INFORMATION...............................................16-18
SIGNATURES.........................................................19
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS 10/31/99 4/30/99
(unaudited) (unaudited)
<S> <C> <C>
Current Assets:
Cash $221,008 $164,923
Accounts receivable, net of allowance for
doubtful accounts of $68,886 at October 31, 652,724 451,334
and $68,886 at April 30, 1999
Note receivable - current 647,285 647,285
Contracts in process - 405,937
Inventories:
Raw materials 1,267,973 1,216,098
Work in process 291,897 333,399
Finished goods 102,584 68,310
--------- ---------
1,662,454 1,617,807
Prepaid expenses and other assets 13,589 72,634
--------- ---------
Total current assets 3,197,060 3,359,920
Note receivable 2,421,420 2,730,708
Supplemental Type Certificates 1,352,819 1,392,611
Property, Plant and Equipment:
Land & Building 673,878 673,878
Machinery and equipment 1,198,551 1,198,541
Office furniture and fixtures 607,736 585,968
Leasehold improvements 33,959 33,959
--------- ---------
Total cost 2,514,124 2,492,346
Accumulated depreciation (1,383,061) (1,275,145)
--------- ---------
1,131,063 1,217,201
Other Assets (Note 1):
Advances under Indian Gaming Agreements 2,198,409 2,162,120
Aircraft and aircraft parts 460,281 460,281
Other assets 63,041 91,910
--------- ---------
Total Other Assets 2,721,731 2,714,311
Total assets $10,824,093 $11,414,751
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY 10/31/99 4/30/99
(unaudited) (unaudited)
Current Liabilities:
Bank overdraft payable $ 100,031 $ 119,942
Promissory notes payable 419,887 471,575
Current maturities of long-term debt 624,654 571,345
Accounts payable 733,648 715,840
Customer Deposits 436,125 582,314
Accrued liabilities -
Compensation and compensated absences 63,448 99,190
Other 129,505 199,851
--------- ---------
Total current liabilities 2,507,298 2,760,057
Long-term debt, net of current maturities 2,854,805 2,105,596
Convertible debentures 568,000 650,000
Other liabilities - 769,319
--------- ---------
Total liabilities 3,422,805 6,284,972
Commitments and contingencies:
Liabilities of discontinued operations - -
Shareholders' equity:
Preferred stock, par value $5:
Authorized, 200,000 shares, all classes
$1,000 Class B, 6%, cumulative if earned,
liquidation and redemption value $1,000,
issued and outstanding, 1,500 shares in 1998, - -
$1,000 Class B, 6%, cumulative if earned,
liquidation and redemption value $1,000,
issued and outstanding, 693 shares in 1999
and 534 at 10/31/99 211,219 313,603
Common stock, par value $.01:
Authorized, 40,000,000 shares
Issued and outstanding 15,387,087 shares 179,549 153,871
in 1999 and 17,954,965 at Oct. 31, 1999,
Common stock warrants 8,807 8,807
Capital contributed in excess of par 8,443,837 8,282,731
Unearned service contracts (346,822) (434,376)
Treasury stock, at cost (No preferred at 10/31 &
no preferred at 4/30 (1,537,240) (1,537,240)
and common 775,000 at 10/31 & 775,000 at 4/30)
Retained earnings (2,065,360) (1,657,617)
(Deficit of $11,938,813 eliminated October
31, 1992)
--------- ---------
Total shareholders' equity 4,893,990 5,129,779
--------- ---------
Total liabilities and shareholders' equity $ 10,824,093 $11,414,751
========== ==========
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
October 31,
1999 1998
(unaudited) (unaudited)
<S> <C> <C>
Net sales $1,250,295 $1,140,728
Cost of sales 961,730 1,005,991
--------- ---------
Gross profit 288,565 134,737
Selling, general and administrative expenses 528,402 (129,161)
--------- ---------
Operating income (239,837) 263,898
Other income (expense):
Interest expense (72,730) (46,237)
Interest income 81,881 31,404
Net gain - Settlement Agreement - -
Other 803 12,676
--------- ---------
Other income 9,954 (2,157)
Income (loss) from continuing operations
before taxes (229,883) 261,741
Provision for income tax - (109,931)
--------- ---------
Income (loss) from continuing operations (229,741) 151,810
Discontinued Operations
Income (loss) from discontinued operations, net
of taxes - (150,794)
Loss on discontinued operations, net of taxes - -
Net Income $(229,883) $ 1,016
-------- --------
Basic earnings (loss) per common share
Continuing operations $ (0.02) $ .01
Discontinued operations 0 0
-------- --------
(0.02) 0.01
-------- --------
Shares used in per share calculation 13,935,242 10,714,430
Diluted earnings (loss) per common share
Continuing operations (0.01) .01
Discontinued operations 0 0
---------- ----------
(0.01) .01
Shares used in per share calculation 22,171,908 12,009,635
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED
October 31,
1999 1998
(unaudited) (unaudited)
<S> <C> <C>
Net sales $2,799,676 $4,237,291
Cost of sales 1,924,263 3,493,667
--------- ---------
Gross profit 875,413 743,624
Selling, general and administrative expenses 1,113,247 434,795
--------- ---------
Operating income (237,829) 308,829
Interest expense (147,654) (88,228)
Interest income 165,086 31,487
Net gain - Settlement Agreement - -
Other 2,384 29,137
---------- ---------
Other income 19,816 (27,604)
---------- ---------
Income (loss) from continuing operations before taxes (218,018) 281,225
Provision for income tax - (118,114)
---------- ---------
Income (loss) from continuing operations (218,018) 163,111
Discontinued Operations
Income (loss) from discontinued operations, net
of taxes (189,723) (150,794)
Loss on discontinued operations, net of taxes - -
Net Income $ (407,741) $ 12,317
--------- --------
Basic earnings (loss) per common share
Continuing operations $ (0.02) $ .04
Discontinued operations (0.01) 0
--------- --------
(0.03) .04
Shares used in per share calculation 13,935,242 10,714,430
Diluted earnings (loss) per common share
Continuing operations (0.01) .04
Discontinued operations (0.01) 0
---------- ----------
(0.02) .04
Shares used in per share calculation 22,171,908 12,009,635
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended October 31,
1999 1998
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ (407,741) $ 12,317
Adjustments to reconcile income to
net cash used in operations:
Deferred income taxes - 8,919
Depreciation 107,916 102,189
Amortization of intangible assets 53,313 44,516
Provision for uncollectible accounts - -
Provision for obsolete inventories - -
Amortization of service contracts 87,552 52,266
Changes in assets and liabilities:
Accounts receivable (201,390) 66,466
Contracts in process (Increase) 405,937 496,610
Inventories (Increase) (44,647) (217,905)
Supplemental type certificates (Increase) (13,521) 26,029
Prepaid expenses and other current assets
(Increase) 59,045 879
Other assets 28,869 5,598
Accounts payable (decrease) 17,808 130,004
Bank overdraft payable (19,911) 146,368
Customer deposits (146,189) (445,705)
Accrued liabilities (decrease) (3,088) 27,376
Settlement agreement (decrease) - (36,000)
Note receivable 309,288 (41,700)
Note payable 216,745 -
--------- ---------
Total adjustments 857,727 365,910
--------- ---------
Cash provided by (used in) operations 449,986 378,227
--------- ---------
Cash flows from investing activities:
Capital expenditures, net (45,872) (64,001)
Advances under Indian Gaming Agreements (36,289) (754,550)
--------- --------
Cash used in investing activities (82,161) (818,551)
--------- --------
Cash flows from financing activities:
Net borrowing under promissory notes (51,688) 76,307
Proceeds from long term debt - 1,758,477
Repayments of long-term debt and lease
obligations (262,452) (1,478,947)
Stock issuance for conversions and other 2,400 -
Note receivable & redemption of common stock - -
--------- ---------
Cash provided by (used in) financing
activities (311,740) 355,837
--------- ---------
Net increase (decrease) in cash 56,085 (84,487)
Cash, beginning of period 164,923 160,598
--------- ---------
Cash, end of period $ 221,008 $ 76,111
Supplemental disclosures of cash flow
information:
Interest paid $ 147,653 $ 88,227
Income taxes - 10,000
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with the instructions to Form 10-Q of Regulation S-X
and do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of the management of the Company, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation have been
included. Operating results for the three months and six months ended October
31, 1999 are not indicative of the results of operations that may be expected
for the year ending April 30, 2000.
For further information, refer to the Consolidated Financial Statements and
Footnotes included in the Registrant's Annual Report on Form 10-K (unaudited)
for the year ended April 30, 1999.
2. On June 26, 1996, the Company completed a private placement in which the
Company issued a 8.0% cumulative convertible debenture due June 26, 1998 in
the amount of $750,000. Interest to be paid at time of conversion either in
cash or kind at the option of the Company. Net proceeds of the offering were
$675,000, after deducting the expenses of the offering. The proceeds of the
offering was utilized for relocation of the Avionics segment and additional
aircraft product development.
3. Indian Gaming: The Company has received a net receivable associated with
advances to the Indian tribes under various consulting and management
agreements related to the potential start-up of Indian gaming. These
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
advances 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-
erm 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 capitalized approximately $5,267,114 and $5,540,113 at
October 31, 1999 and April 30, 1999, respectively, of advances under
consulting and management agreements with five Indian tribes. These advances
are included on the Balance Sheet at October 31, 1999 as Notes Receivable-
Current $647,285, Notes Receivable $2,421,420 and Advanced Costs of Indian
Gaming $2,198,409. The Notes Receivable classifications represent advances
to the Stables under the Management Agreement. The cost reported as Other
Assets represent the advances to the tribes and under management consulting
agreements for investments in land, buildings, and improvements including
construction, engineering and architecture fees for the Princess Maria,
Shawnee 206 and other properties. In the opinion of management, these
advances will be recoverable through the gaming activities or, in event the
Company is unsuccessful in establishing such operations, these advances will
be recovered through the liquidation of the associated assets. These costs
include the following:
An advance for the 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.
Advances for the Tribes of $87,622 for architectural and
engineering services. These advances were also funded with stock
issuances of 29,715 shares in fiscal year 1995. Advances of
$50,000 for equipment, funded with stock issuances of 20,000
shares in fiscal 1994.
Cash advances for the Tribes 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.
Advances for acquisition of land and land improvements in the
amount of $203,000 in fiscal 1997.
Advances for acquisition of land in the amount of $53,000 in
fiscal year 1998.
Net construction advances to the Tribes of $884,396 during fiscal
1999 and $1,813,106 during fiscal 1998.
4. The Company had an employment agreement with an individual which the
Company terminated in April 1995. This individual filed a lawsuit against
the Company, the President of the Company and various corporate subsidiaries
alleging the Company wrongfully terminated the individual's employment in
breach of the contract. The suit was filed in October, 1995, in State Court
in Johnson County, Kansas. The Company and the individual reached an
agreement to settle and release all claims and counterclaims on May 1, 1997.
The individual dismissed the lawsuit with prejudice. The terms of the
Settlement Agreement include payments by the Company to the individual during
fiscal 1998 and fiscal 1999 respectively.
5. On May 1, 1996, the Company acquired certain assets of Woodson
Electronics, Inc. (WEI). The Company received a portion of WEI's operating
rights and assets in exchange for 80,000 shares of stock with a fair market
value of $160,000. The Company also entered into a Non-Exclusive Consulting,
Non-Disclosure and Non-Compete Agreement with Thomas E. Woodson, which
provides for the issuance of 20,000 shares of the Company's common stock and
$36,000 to be paid out over 24 months. WEI is engaged in the business of
designing, manufacturing, improving, marketing, maintaining, and providing,
directly and with the assistance of others, data acquisition, alarm
monitoring and reporting products and services related to such products. WEI
supplies the monitoring products to Butler National Services, Inc. During
the first quarter of fiscal 1997, the Company relocated its Woodson Avionics
business segment, along with the newly acquired operating rights and assets
of WEI to Phoenix, Arizona.
6. During fiscal 1996, the President and CEO, Clark D. Stewart, exercised
his option to purchase 400,000 shares of the Company's common stock under the
terms of the 1989 Nonqualified Stock Option Plan through a loan by the Company.
The shares were purchased at prices ranging from $.70 to $1.00 per share.
The largest aggregate amount of indebtedness outstanding was $367,000 during
fiscal 1996. The amount outstanding at July 31, 1996, was $338,634.
Interest is charged at the applicable federal rate and the loan is being
amortized over five years. In fiscal 1997, the officer reduced the loan
balance by $277,264 through expense reimbursement and the transfer of 125,000
shares of common stock valued at $250,000. The loan balance is currently $0.
During fiscal 1996, an officer of the Company sold 20,000 shares of the
Company stock to the Company at fair market value. These shares are now held
in treasury.
7. After completing a three year program of restructuring the Company's
operation on October 31, 1992, by using quasi reorganization accounting, the
Company was able to adjust the accumulated deficit to a zero balance thereby
affording the Company a "fresh start". No assets or liabilities required
adjustment in this process. The amount of accumulated deficit and capital
contributed in excess of par removed as of October 31, 1992, was $11,938,813.
8. Income per common and common equivalent share are based on the weighted
average number of common shares outstanding during the quarters ended October
31, 1999 and 1998. Stock options are included in 1999 and 1998 as common
stock equivalents to the extent that they are dilutive. The Convertible
debenture is included in fiscal 1998 and fiscal 1999 as a common stock
equivalent since the debenture is dilutive. The convertible preferred stock
is included in 1999 since the convertible preferred stock is dilutive.
Shares used in the per share computations are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
October 31, October 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Common shares outstanding
beginning of period 21,672,186 11,123,926 17,217,875 10,436,549
Cumulative increase in
weighted average due to
Common Stock Equivalent
net of treasury stock 393,843 692,148 1,191,399 1,296,101
Cumulative increase in
weighted average due to
Convertible Debenture 725,547 - 1,592,546 -
Cumulative increase in
weighted average due to
Convertible Preferred 33,333 193,561 2,170,088 276,985
Cumulative increase in
weighted average due to
issues per acquisition
and consulting agreements - - - -
Cumulative increase in
weighted average due to
issues per Nonqualified
Stock Option Plans - - - -
--------- --------- --------- --------
Weighted average shares,
end of period 22,171,908 12,009,635 22,171,908 12,009,635
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview: Consolidated sales were $2,799,675 for the six months ended October
31, 1999, compared to $4,237,291 for the six months ended October 31, 1998,
a decrease of 34%. Sales for the second fiscal quarter were $1,250,295
compared to $1,140,728 for the six months ended October 31, 1998. Sales for
the six month period increased in the Aircraft Modifications segment (20%)
and increased in the Monitoring Services segment (45%) and decreased in the
Avionics segment (7%).
The Company recorded a net loss of $407,741 for the first half of fiscal 2000
compared to $12,317 in the same period of fiscal 1999. Income was $229,883
in the current quarter compared to $1,017 in the comparable period of fiscal
1999.
Aircraft Modifications (Avcon Industries, Inc.): Sales at Avcon Industries,
Inc. decreased $1,813,353 (51%) from $3,541,150 in the first half of the
prior year to $1,727,797 in the first half ending October 31, 1999. Gross
profit decreased from $470,770 in the six months ending October 31, 1998 to
$276,496 in the six months ending October 31, 1999. Second quarter fiscal
2000 sales were $737,567 compared to $751,180 in fiscal 1999. Second quarter
gross profit was $(4,687) and $(12,420), respectively. This segment is
continuing to work on the development of new products and expects to see an
ncrease in sales and gross margin in the coming quarters of fiscal 2000.
Avionics (Woodson Avionics, Inc.): Avionics sales were $204,354 for the six
months ended October 31, 1999 compared to $226,838 in the comparable period
of the preceding year, a decrease of 7%. Operating earnings for the six
months ended October 31, 1999, were $(6,650) compared to $(21,027) for the
six months ended October 31, 1998. The Company believes the sales volume
will remain relatively stable with steady growth for the next few years and
hopes the relocation will allow this segment to expand and serve additional
customers.
SCADA Systems and Monitoring Services (Butler National Services, Inc.):
Sales for the six months ended October 31, 1999 were $679,901 compared to
sales of $465,721 for the comparable period of the prior year an increase of
45%. Gross profit for the six months ended October 31, 1999, was $289,314
compared to $180,497 for the six months ended October 31, 1998. Sales for
the second quarter of fiscal 2000 were $312,720, an increase of $64,132 from
the same quarter of fiscal 1999.
Temporary Services (Butler Temporary Services, Inc.): This segment did not
recognize any revenue in the second quarter of fiscal 1999 and fiscal 2000.
When the Company and the Tribes open the Kansas Indian gaming facilities,
management expects that a majority of the personnel in the various Indian
gaming enterprises will be staffed by Temporary Services.
Indian Gaming Management: This segment earned management fees of $77,141
and interest income e of $81,877 during the current quarter. (See comments
under the Stables).
<PAGE>
Management Services (Butler National Services Corporation):
-General-
The Company received approximately $164,763 in management fees, $165,078 of
interest income, reduced its debt by approximately $157,840 and incurred
$15,297 in expenses in the first six months of fiscal 2000 and incurred
$8,299 in the first six months of fiscal 1999 for general and administrative
expenses associated with its continued efforts to explore service
opportunities related to the Indian Gaming Act of 1988. Additionally, the
Company amortized $74,896 and $41,406 in the first quarter of 2000 and 1999,
respectively, related to shares issued for services rendered to the Company
in that regard. Under the terms of an intercompany management agreement,
management services is charged $33,333 per month for administrative costs
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
$2,198,409 on the balance sheet as deferred advances under Indian Gaming
agreements 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
$2,198,409 advancement.
-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.
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.
<PAGE>
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 advances.
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. The Stables grand opening was October 1, 1998. Since opening, the
Company has received payments from the Stables to reduce the Company's loan
from Miller & Schroeder by approximately $308,675 and interest income of
$366,718. During the second quarter of fiscal 2000, $77,141 of undistributed
management fee revenue was recognized.
-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.
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. The receivable is secured by 68 acres of land in
Eastern Oklahoma and Western Missouri.
-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.
COSTS AND EXPENSES
The consolidated gross profit percentage increased to 12% for the six months
and 85% for the three months ended October 31, 1999, from a decline of 18.2%
for the six months and 13.4% for the three months ended October 31, 1998.
Operating expenses (selling, general and administrative) in the six months
ended October 31, 1999, were $1,113,245 or 39% of sales compared to $434,794
or 10.2% of sales for the six months ended October 31, 1998, an increase of
$678,451 or 150%. Costs for the three month period were $(528,403) in fiscal
2000 and $(129,161) in fiscal 1999.
Interest expense for the six months ended October 31, 1999, was $147,653
compared to the first six months of the prior year of $88,227. The Company
continues to use its line of credit to maintain operations. The increase in
interest expense from the previous years quarter of operations is primarily
due to the Miller & Schroeder loan for the Stables facility.
Other income(expense) is expense of $165,085 in the six months ended October
31, 1999 versus $31,487 for the six months ended October 31, 1998.
The Company employed 56 people at October 31, 1999, and 51 people at October
31, 1998.
EARNINGS
The Company recorded a loss of $218,017 from continuing operations and a loss
of $189,723 from discontinued operations in the six months ended October 31,
1999. This is comparable to a profit of $12,317 in the six months ended
October 31, 1998. Loss per share is $.01 and loss per share is $.02 for
the six months ending October 31, 1999, and October 31, 1998, respectively.
Second quarter earnings were $229,883 ($0.01 per share) in fiscal 2000 and
$1,017 in fiscal 1999.
<PAGE>
CAPITAL RESOURCES
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 the gaming operations will generate additional working capital 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.
The Stables Indian gaming project was 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
share (30%) of the profits from the Stables. The balance payable to Miller &
Schroeder at April 30, 1999, was $1,627,662. The remainder of net cash
advances to be repaid is $1,750,331.
The Company had no material commitment for capital expenditures as of October
31, 1999, except for the advances to the Miami Tribe for the construction of
the Miami County, Kansas gaming establishment.
LIQUIDITY
Borrowed funds have been used primarily for working capital. Bank debt is
$419,886 at October 31, 1999, and was $436,260 at October 31, 1998. The
Company's unused line of credit was approximately $80,114 as of October 31,
1999, and approximately $313,740 as of October 31, 1998. The interest rate
on the Company's line of credit is prime plus two, as of December 15, 1999,
the interest rate is 10.25%.
The Company plans to continue using the promissory notes payable due in
February, 2000, as 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.
The Company has issued stock at fair market value for various legal,
marketing and consulting services, in lieu of cash payments. During fiscal
1995, the Company issued 95,000 share of stock at a value of $219,668 for
professional services to be provided in the future.
The Company did not issue shares for professional services to be provided in
the future in fiscal 1996. The Company issued 20,000 shares for consulting
services related to the acquisition of the operating rights and assets of WEI
in fiscal 1997. The Company issued 742,452 shares of convertible preferred
stock, and 140,225 shares of common stock related to discontinued operations.
During fiscal 1998, the Company issued 460,722 shares for consulting,
professional services and expenses in lieu of cash payments. To reduce the
$380,000 of convertible debt, 860,647 shares as a result of conversion were
issued. Convertible debt was reduced by $450,000 in exchange for the issue
of 641,726 shares.
During fiscal 1999, the Company issued 1,949,261 shares for consulting,
professional services and expenses in lieu of cash payments. During the
first six months of fiscal 2000, 1,332,116 shares were issued to reduce the
convertible preferred stock by $159,000. Convertible debt was reduced by
$82,000 with the issuance of 1,226,162 shares of common stock.
The Company's common stock is registered with the NASDAQ market system under
the symbol BUKS. The stock was listed as a small cap stock until January 20,
1999. The stock was delisted from the small cap category and now is listed
in the over-the-counter (OTC) category. Since 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, resulting from the
constant selling pressure of the conversion shares may reduce the liquidity
of the Company's stock in the market and therefore, the ability to raise
capital through the issue of equity securities.
FORWARD LOOKING INFORMATION
The information set forth above may include "forward-looking" information as
outlined in the recently enacted Private Securities Litigation Reform Act of
1995. The Cautionary Statements filed by the Company as Exhibit 99 to this
filing are incorporated herein by reference and investors are specifically
referred to such Cautionary Statements for a discussion of factors which
could affect the Company's operations and forward-looking statements
contained herein.
(The rest of this page intentionally left blank)
<PAGE>
PART II.
OTHER INFORMATION
Responses to items 3 and 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
Item 1. Legal Proceedings
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 Eisenbath's sought
for some time to reacquire the ownership of RF, Inc. The Eisenbath's filed a
lawsuit against Butler National seeking to rescind the sale of RF, Inc. stock
and for damages.
Butler National and the Eisenbath's reached an agreement to settle and
release all claims and counterclaims effective April 30, 1997, ("Release
Agreement"). The Eisenbath's dismissed the lawsuit with prejudice. In
addition to the releases, under the terms of the agreement, Butler National
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
Eisenbath's from the terms of the employment contract and the April 24, 1994
Stock Purchase Agreement. These documents released the Eisenbath's
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 3, 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 3, 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.
Avcon and Butler National 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 December 15, 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 2. Changes in Securities
The Company issued 1,332,116 shares of common stock related to the convertible
preferred stock, and 1,226,162 shares of common stock related to the
convertible debenture.
Item 4. Submission of Matters to Vote of Security Holders
None
Item 6. Exhibits and reports on Form 8-K.
(A) Exhibits.
3.1 Articles of Incorporation, as amended are incorporated by reference to
Exhibit 3.1 of the Company's Form 10-K for the year ended April 30, 1988.
3.2 Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of the
Company's Form 10-K for the Statement dated August 16, 1996.
99 Exhibit Number 99.
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995, are incorporated
by reference to Exhibit 99 of the Form 10-K for the fiscal year ended
April 30, 1998.
27.1 Financial Data Schedule (EDGAR version only). Filed herewith.
The Company agrees to file with the Commission any agreement or instrument
not filed as an exhibit upon the request of the Commission.
(B) Reports on Form 8-K.
The Company filed a Form 8-K dated August 10, 1999, reporting under Item 4,
Change in Registrant's Certifying Accountant regarding the resignation of the
Company's auditor.
The Company filed a Form 8-K dated August 23, 1999, reporting under Item 4,
Change in Registrant's Certifying Accountant regarding the resignation of the
Company's auditor and subsequent correspondence between the auditor and the
SEC.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUTLER NATIONAL CORPORATION
(Registrant)
December 15, 1999 /S/Clark D. Stewart
Date Clark D. Stewart
President and Chief Executive Officer
December 15, 1999 /S/Robert E. Leisure
Date Robert E. Leisure
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> OCT-31-1999
<CASH> 221,008
<SECURITIES> 0
<RECEIVABLES> 721,609
<ALLOWANCES> 68,886
<INVENTORY> 1,662,454
<CURRENT-ASSETS> 3,197,060
<PP&E> 2,514,124
<DEPRECIATION> 1,383,061
<TOTAL-ASSETS> 10,824,093
<CURRENT-LIABILITIES> 2,507,298
<BONDS> 568,000
<COMMON> 179,549
0
2,670
<OTHER-SE> 4,711,770
<TOTAL-LIABILITY-AND-EQUITY> 10,824,093
<SALES> 2,799,676
<TOTAL-REVENUES> 2,799,676
<CGS> 1,924,263
<TOTAL-COSTS> 3,037,508
<OTHER-EXPENSES> (19,816)
<LOSS-PROVISION> 189,723
<INTEREST-EXPENSE> 147,653
<INCOME-PRETAX> (218,017)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (407,741)
<EPS-BASIC> 0
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