SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K/A
(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. [ ]
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 60 pages (including exhibits). The index
to exhibits is set forth on pages 29-31.
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 Company as
Exhibit 99 to this Form 10-K, are incorporated herein by reference
and you are specifically referred to such Cautionary Statements for a
discussion of factors which could affect the Company's operations
and forward-looking statements contained herein.
General
Butler National Corporation (the "Company" or "BNC") is a
Delaware corporation formed in 1960, with corporate headquarters at
19920 West 161st Street, Olathe, Kansas 66062.
Current Activities. The Company's current product lines and
services include:
Aircraft Modifications - principally includes the modification
of customer and company owned business-size aircraft from
passenger to freighter configuration, addition of aerial
photography capability, and stability enhancing
modifications for Learjet, Beechcraft, Cessna, and Dasault
Falcon aircraft along with other modifications. We provide
these services through our subsidiary, Avcon Industries, Inc.
("Aircraft Modifications" or "Avcon"). Avcon also acquires,
modifies and resells aircraft, principally Learjets.
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 our subsidiary, Woodson Avionics,
Inc. ("Switching Units", "Avionics" or "WAI").
Gaming - principally includes business management services and
advances to Indian tribes in connection with the Indian
Gaming Regulatory Act of 1988. We provide these services
through our subsidiary, Butler National Service Corporation
("Management Services", "Gaming" or "BNSC").
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 provide these services through our subsidiary,
Butler National Services, Inc. ("Monitoring Services" or
"BNS").
Temporary Services - provides temporary employee services for
corporate clients. We provide these services through our
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>
Industry Segment Assets Revenue
<S> <C> <C>
Aircraft Modifications 39.7% 78.9%
Avionics 5.1% 7.0%
Gaming 43.7% 0.0%
Monitoring Services 1.9% 14.1%
Temporary Services 0.0% 0.0%
Corporate Office 9.6% 0.0%
</TABLE>
Regulations
Regulation Under Federal Aviation Authority: The Company's
Avionics and Modifications segments are subject to regulation by the
Federal Aviation Authority (the "FAA"). The Company manufactures
products and parts under FAA Parts Manufacturing Authority (PMA)
requiring qualification and traceability of all materials and vendors
used by the Company. The Company makes aircraft modifications
pursuant to the authority granted by Supplemental Type Certificates
issued by the FAA. The Company repairs aircraft parts pursuant to
the authority granted by its FAA Authorized Repair Station.
Violation of the FAA regulations could be detrimental to the
Company's operation in these business segments.
<PAGE>
Licensing and Regulation under Indian Law: Before commencing
gaming operations (Class II or Class III) on Indian Land, the
Company must obtain the approval of various regulatory entities.
Gaming on Indian Land is extensively regulated by Federal, State and
Tribal governments and authorities. Regulatory changes could limit
or otherwise materially affect the types of gaming that may be
conducted on Indian Land. All aspects of the Company's proposed
business operations on Indian Lands are subject to approval,
regulation and oversight by the BIA, the Secretary of the United
States Department of the Interior (the "Secretary") and the National
Indian Gaming Commission. The Company's proposed management
of Class III gaming operations in Kansas and Oklahoma are also
subject to approval of a Class III Gaming Compact between the
Indian Tribe and the States of Kansas and/or Oklahoma. Failure of
the Company to comply with applicable laws or regulations, whether
Federal, State or Tribal, could result in, among other things, the
termination of any management agreements which would have a
material adverse effect on the Company. Management agreement
terms are also regulated by the IGRA, which restricts initial terms to
five years and management fees to 30% of the net profits of the
casino, except in certain circumstances where the term may be
extended to seven years and the management fee increased to 40%.
Management agreements with Indian Tribes will not be approved by
the Commission unless, among other things, background checks of
the directors and officers of the manager and its ten largest holders of
capital stock have been satisfactorily completed. The Company will
also be required to comply with background checks as specified in
Tribal-State Compacts before it can manage gaming operations on
Indian Land. Background checks by the Commission may take up to
180 days, and may be extended to 270 days by written notice to the
Indian Tribe. There can be no assurance that the Company would be
successful in obtaining the necessary regulatory approvals for its
proposed gaming operations on a timely basis, or at all.
Licensing and Regulation under Kansas Law: Present and future
shareholders of the Company are and will continue to be subject to
review by regulatory agencies. In connection with the Company's
proposed operation of a Class III Shawnee Tribe casino or a Class III
Miami Tribe casino in Kansas, the Company, the appropriate Indian
Tribe and the key personnel of all entities may be required to hold
Class III licenses approved in the respective state prior to conducting
operations. The failure of the Company or the key personnel to
obtain or retain a license in these states could have a material adverse
effect on the Company or on its ability to obtain or retain Class III
licenses in other jurisdictions. Each such State Gaming Agency has
broad discretion in granting, renewing and revoking licenses.
Obtaining such licenses and approvals will be time consuming and
cannot be assured. The State of Kansas has approved pari-mutuel dog
and/or horse racing for non-Indian organizations. The State of
Kansas operates lottery and keno games for the benefit of the State.
There is no assurance that a Tribal/State Compact between the Tribes
and the State of Kansas can be completed. If the Compact is not
approved, there could be a material adverse effect on the Company's
plans for Class III gaming in Kansas.
As a condition to obtaining and maintaining a Class III license, the
Company must submit detailed financial and other reports to the
Indian Tribe and the Agency. Any person owning or acquiring 5% or
more of the Common Stock of the Company must be found suitable
by the Agency, and the Agency has the authority to require a finding
of suitability with respect to any shareholder regardless of the
percentage of ownership. If found unsuitable by the Agency or the
Indian Tribe, the shareholder must offer all of the Ownership Interest
held by such shareholder to the Company for cash at the current
market bid price less a fifteen percent (15%) administrative charge
and the Company must purchase such Interest within ten days of the
offer. The shareholder is required to pay all costs of investigation
with respect to a determination of his/her suitability. In addition, each
member of the board of directors and certain officers of the Company
are subject to a finding of suitability by the Agency and the Indian
Tribe.
Discontinued Operations
On April 14, 1998, the Company discontinued the operation of its
food distribution operations conducted by RF, Inc., and Valu Foods,
Inc., wholly owned subsidiaries of the Company. These operations
were liquidated and we do not plan any future operations in the
food distribution industry.
The Company acquired RF, Inc., on April 21, 1994. The individuals
(Marvin J. Eisenbath, "MJE") who sold RF, Inc. to us had sought for
some time to reacquire the ownership of RF, Inc. MJE (the
Employee) filed a lawsuit against us 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). MJE dismissed the lawsuit with
prejudice. In addition to the releases, under the terms of the
agreement, we 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. On June 21, 1997, 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 us
in the food distribution industry. Costs associated with this
transaction totaled $1,054,000 and were expensed in fiscal year 1997.
As a result of resolving the dispute and the ultimate release from the
employment agreement, we received compensation and recorded a
gain of $1,043,000, restated herein, (principally noncash) in the first
quarter of 1998. See Footnote 1 of Annual Report for further
discussion.
<PAGE>
On March 27, 1998, three 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.
The bank was to obtain control of all the assets of RF, Inc. and we
planned 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 $638,000, plus interest and legal collection
costs. We believed that an orderly liquidation of the assets and the
sale of the fixed assets would allow the bank to recover the amount
due on the bank line of credit.
As of April 30, 1998, the operations of RF, Inc. have been
deconsolidated because of the Chapter 7 involuntary bankruptcy
liquidation. The entire investment in RF, Inc. was written-off through
the 1998 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 1999, 1998, and 1997
were $0, $3,783,132, and $17,478,540 respectively.
We also discontinued the operation of its retail food store, Valu
Foods, Inc. We planned 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 in fiscal 1998 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. have been
discontinued due to the planned closing of the wholly owned
subsidiary. The entire investment in Valu Foods, Inc. was written-off
through the 1998 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
$175,446 and inventory $24,779. The revenues associated with Valu
Foods, Inc., for the year ended 1998 were $143,550.
The bankruptcy court ruled July 20, 1999, on the bankruptcy filing of the
creditors of RF, Inc. Subsequent to April 30, 1998, the bank was not
allowed to immediately assume control of the collateralized assets for
liquidation and as such, required us to pay the bank the amount due and the
court costs in total, including interest, aggregating $1,089,000. An
additional charge for the payment and other fees relating to RF, Inc.
totaling $1,698,379 was recorded in fiscal year 1999.
Financial Information about Industry Segments
Information with respect to the Company's industry segments are
found at Note 13 of Notes to Consolidated Financial Statements for
the year ended April 30, 1999, located herein at page 54.
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. Avcon makes these modifications on Company owned
aircraft for resale and customer owned aircraft.
<PAGE>
Sales of the Aircraft Modifications product line are handled directly
through Avcon. Specialty modifications are quoted individually by
job. The Company is geographically located in the marketplace for
Aircraft Modifications products. The Company believes there are
four primary competitors (AAR of Oklahoma, AVTEC, 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 a detailed review of the
design, engineering and functional documentation, and demonstrated
flight evaluation of the modified aircraft. The STC authorizes Avcon
to build the required parts and assemblies and to perform the
installations on applicable customer-owned aircraft.
Avcon owns over 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 Dasault Falcon 20 Cargo
Door.
On May 3, 1996, Avcon received approval from the Federal Aviation
Administration of a Supplemental Type Certificate ("STC") (no.
ST00432WI) for its AVCON FIN Modification for installation on
Learjet Model 35 and 36 Aircraft. FAA pilots thoroughly evaluated
the test 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.
Aircraft - Acquisition and Sales: The Company through its Avcon subsidiary
actively pursues airplanes, principally Learjets and sells the planes
directly to customers or receives a fee for finding a specific airplane.
In Fiscal 1999 the Company sold a Learjet for $2,100,000.
Avionics - Switching Units: The Company has an agreement with
Boeing McDonnell Douglas to manufacture and repair airborne
switching systems for Boeing McDonnell Douglas and its customers.
The Company subcontracts with its wholly owned subsidiary, Butler
National Corporation - Tempe, Arizona, (formerly 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 the Company and Boeing
McDonnell Douglas. Competition is minimal. However, sales 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 1999. However, the customer plans to stop
aircraft production in the year 2000. The impact on our business of
stopping production will be minimal due to planning on this issue for
many years. The Company has received additional contracts for these
products, which has sustained our business.
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.
The Company sells to Boeing McDonnell Douglas on terms of 2% 10
days, net 30 days. This means that the terms offered to this customer
represent that if the entire invoice is paid within 10 days then there
will be a 2% discount. If not, then the total amount due is payable
within 30 days.
Most payments have been and continue to be within those 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 Douglas
accounts for 35.2% of our avionics revenue.
Management Services: BNSC is engaged in the business of
providing management services to Indian tribes in connection with the
Indian Gaming Regulatory Act of 1988. The Company has 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, the
Company has signed consulting engagement letters with two tribes to
study and develop plans for Indian gaming. See Liquidity and Capital
Resources, Page 18.
<PAGE>
The Management Agreement between the Indian tribe (the owner and
operator) and Butler National Service Corporation (the manager) is
the final approval document issued by the National Indian Gaming
Commission ("NIGC") before Indian gaming is authorized. The
Management Agreement or Contract is authorized and approved by
the NIGC pursuant to the Indian Gaming Regulatory Act of 1988, PL
100-497, 102 Stat. 2467,25 U.S.C. 2701-2721 (sometimes referred to
as "IGRA"). Before the Management Agreement is approved by the
NIGC, all required contacts with other parties must be approved;
including, (a) the compact with the state for class III gaming, if
applicable, (b) compliance with the requirements of the National
Environmental Protection Agency ("NEPA"), (c) a Tribal Gaming
Ordinance approved by the NIGC, and (d) Indian land leases, if
applicable approved by the Bureau of Indian Affairs ("BIA").
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 may suffer a significant loss of asset value. See
Liquidity and Capital Resources, page 19.
Butler National Service Corporation is in the process of maintaining
and obtaining the required licenses for the opening and operation 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 maintaining and obtaining any
required licenses needed to assist the Indian tribes.
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. Construction of this project, known as the
STABLES, was completed and opened in September 1998.
The services to be provided by the Company include consulting and
construction management for the Tribes. The Company provided the
necessary funds to construct the facilities and is being repaid the
principal plus interest out of the profits of the operation. The
principal amount of $3.5 million carries an interest rate of prime plus
2%. Additionally, the Company is receiving a 30% share of the
profits for its management services. The Company has obtained
construction and operating financing of the establishment.
The Princess Maria Casino, an Indian gaming establishment, is under
construction and is expected to open for business in July 2001. The
Management Agreement between the Miami Tribe (the owner and
operator) and Butler National Service Corporation (the Manager)
originally filed in 1992 was approved January 7, 2000. The State of
Kansas has challenged the BIA's determination of Indian land.
However, the Miami Tribe expects a favorable determination by the
10th Circuit Court of Appeals.
The Shawnee 206 Casino, an Indian gaming establishment, is in the
land clearing and approval phase under the terms of a 1992 consulting
agreement between the Shawnee Tribe, the land owner members of
the Shawnee Tribe and Butler National Service Corporation. The
Princess Maria Casino was used as the prototype project for the
eventual approval of the Shawnee 206 Management Agreement.
Approval of this Agreement is expected in early 2001.
The Company has other consulting agreements with other tribes and
an NIGC approved Management Agreement with the Modoc Tribe
for casino construction and openings scheduled after the opening of
the Princess Maria and the Shawnee 206.
The risk associated with advances of funds for assets and services on
behalf of the tribes under the consulting agreements is that a
Management Agreement will not be approved and the liquidation of
the assets and related services does not recover enough funds to cover
the advances. The Company has been involved in this business
segment since 1991 and has not experienced any project stopping
determinations by the federal courts or the regulatory agencies. All
Management Agreements submitted for approval have been approved
by the NIGC. There can be no assurance that future management
agreements will be approved and that Congress will not outlaw Indian
gaming. Should any of these events occur, the Company would
choose alternative uses of the Indian land in cooperation with the
Tribes to recover the advances to the Tribes.
<PAGE>
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.
We expect 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, Missouri
and Oklahoma. Currently, this Company is inactive. BTS plans to
provide contract staffing for the STABLES establishment planned to
open in 2001.
Raw Materials: Raw materials used in the Company's 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 ("STC's"), issued to us by the FAA,
for the Aircraft Modification and Avionics 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 the Company's 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 production schedule dates.
The rest of this page intentionally left blank.
<PAGE>
Backlog: Our backlog as of April 30, 1999, 1998, and 1997, was as
follows:
<TABLE>
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
--------- --------- ---------
Total backlog $3,073,736 $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 we expect not
to be filled within the next year totals $300,000; consisting of $0, $0
$300,000 and $0. These numbers represent firm orders that may not
be completed within the year. This is standard for the industry in
which modifications and related contracts may take several months or
years to complete. Such actions force backlog as additional
customers request modifications, but must wait for other projects to
be completed.
Our backlog in Monitoring Services increased due to our annual
contract with a customer (City of Plantation) being extended to a five-
year contract. Four years remain on this contract.
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 recognized that the impact of the Year 2000 issue extended
beyond traditional computer hardware and software to automated
plant systems and instrumentation, as well as to third parties. The
Year 2000 issue was addressed within our company by its individual
business units, with no material issues noted.
We committed resources to conduct risk assessments and have taken
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 no material issues have arisen.
The remaining costs of the Year 2000 activities were 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.
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
54. 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.
<PAGE>
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.
Item 2. PROPERTIES
Our corporate headquarters are located in a 9,000 square foot owned
facility for office and storage space at 19920 West 161st Street, in
Olathe, Kansas. The facilities are adequate for current and
anticipated operations.
Our 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 rent 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 reinstate the capital lease as originally contracted. These
facilities are adequate for current and anticipated operations.
Our 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.
Our wholly owned subsidiary, Butler National Corporation - Tempe,
Arizona (formerly Woodson Avionics, Inc.), had its principal offices
and manufacturing operations in Arkansas. During May 1996, the
Company relocated to 4816 South Ash Avenue, Tempe, Arizona. As
of January 1, 2000, the Company rents 7,150 square foot of space for
$3,992 per month. The lease expires January 1, 2003. The facilities
are adequate for current and anticipated operations.
Item 3. LEGAL PROCEEDINGS
We had an employment agreement with an individual (Brenda
Shadwick "BBS"), whom the Company terminated in April 1995.
BBS filed a lawsuit against the Company, the President of the
Company, and various corporate subsidiaries, alleging the Company
wrongfully terminated BBS's employment in breach of the contract.
The suit was filed in October 1995 in State Court in Johnson County,
Kansas.
We reached an agreement with BBS to settle and release all claims
and counterclaims on May 1, 1997. BBS dismissed the lawsuit with
prejudice. The terms of the settlement required monthly payments by
us to BBS in the amount of $6,000 per month during fiscal 1998 and
fiscal 1999, which were made.
We acquired RF, Inc. from Marvin and Donna Eisenbath (MJE) on
April 21, 1994. We 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 from us the
ownership of RF, Inc. MJE filed a lawsuit against us 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").
MJE dismissed the lawsuit with prejudice. In addition to the releases,
under the terms of the agreement, we received on June 26, 1997,
600,000 shares of the Company's common stock and 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. These documents released MJE from his agreement not
to compete with us in the food distribution industry.
We recorded a gain (principally noncash) of approximately
$1,043,000 in the first quarter of 1998 for this transaction. 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.
<PAGE>
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.
In December 1997, we sold Convertible Preferred Stock to certain
offshore investors. Beginning in February 1998, these investors
began converting the Preferred Stock into Common Stock and the
price of our stock declined. As reported earlier, we 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 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. We
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 and as a result of what we
believed were inappropriate actions and representations by the
holders of the Convertible Preferred Stock and the Convertible
Debentures, we announced plans to stop conversions 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 filed a lawsuit (the "Action") against us
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 seeks an injunction to force
us 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 thirty percent (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 (70%) 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 ($54,397) on
the Preferred Stock will be paid in shares of common stock. 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 eighty percent
(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
twenty percent (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.
We used an outside engineering firm to assist with the Aircraft
Modification Avcon Fin project and the related STC's. The
individual filed suit against us for final payment under the contract.
However, we did not feel that all work products had been delivered.
On October 19, 1998, the case was settled when we made final payment and the
work products were delivered.
A lawsuit was filed in the United States District Court for the District
of Kansas by the State of Kansas against us, the United States, the
Business Committee members of the Miami Tribe and others on
October 14, 1999, challenging the determination by the Department
of the Interior and the United States District Court for the District of
Kansas that the Miami Princess Maria Reserve No. 35 was Indian
Land. The State of Kansas requested an order by the Court
preventing further development on the Indian land by us and further
discussions about the Indian land by us or Mr. Stewart, our President.
<PAGE>
All of the defendants have asked the Courts to dismiss the case
because they believe the determination of Indian land is a power
reserved for the United States by the constitution of the United States.
A ruling by the court is expected in the winter of 2000.
As of August 4, 2000, there are no other known legal proceedings
pending against the Company. The Company considered 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
The Company 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
COMMON STOCK (BUKS):
(a) Market Information: The Company 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 Company's common
stock has been delisted from the small cap category effective January
20, 1999 and is now listed in the over-the-counter (OTCBB)
category. Approximately twelve (12) market makers offer and trade
the stock.
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, markdown or commissions, and
may not necessarily represent actual transactions.
<TABLE>
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 expect to declare
any cash dividends in the foreseeable future.
<PAGE>
SECURITIES CONVERTIBLE TO COMMON STOCK:
As of August 6, 1999, the status of the convertible securities issued is
as follows:
<TABLE>
Equivalent Common
Conversion Shares at Market
Convertible Security Face Value Discount Price of $0.15 per
Outstanding Percent 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
</TABLE>
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>
Year Ended April 30
(In thousands except per share date)
1999 1998 1997 1996 1995
(Restated)(Restated)
<S> <C> <C > <C> <C> <C>
Net Sales $6,612 $5,456 $4,062 $3,653 $3,668
Income (Loss) from
Continuing Operations (282) 399 (575) (658) (1,286)
Income (Loss) from/on
Discontinued Operations (1,698) 269 (689) 802 461
Net Income (Loss) ($1,980) $ 668 $(1,263) $ 144 $ (825)
Basic Per Share
Income (Loss) from
Continuing Operations $(0.03) $ 0.03 $ (0.06) $(0.07) $(0.16)
Income (Loss) from/on
Discontinued Operations $(0.14) $ (0.03) $ (0.07) $ 0.09 $ 0.06
Net Income (Loss) $(0.17) $ 0.00 $ (0.13) $ 0.02 $(0.10)
Selected Balance Sheet
Information
Total Assets $11,729 $10,870 $10,070 $8,261 $4,263
Long-term Obligations
(excluding current
maturities) $ 3,065 $ 1,926 $ 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
The Company has restated its financial statements for April 30, 1998
and 1997. These financial statements were restated primarily as a
result of two errors as follows:
<PAGE>
Beneficial Conversion Features: The Company issued convertible
debentures in June and November of 1996 that contained beneficial
conversion features, which allowed the investor to convert at 70% of
the average common stock closing bid price for the five days prior to
issuance of the debt security. The conversion period on the notes was
for limited periods. The financial statements for the year ended April
30, 1997, have been restated to reflect the accounting recognition of
the value attributable to the beneficial conversion feature ($375,000)
as a noncash charge to interest expense and an increase to the paid-in
capital.
The Company also issued convertible preferred stock on December
16, 1997, which contained beneficial conversion features. Those
features allow the holder of the security to convert the preferred stock
into the Company's common stock at 70% of the common stock bid
price (the average of the ending common stock price bid five days
prior to issuance of the preferred stock or the ending common stock
bid price 45 days after issuance of the preferred stock). The financial
statements for the period ended April 30, 1998, have been restated to
reflect accounting recognition of the value attributable to this
beneficial conversion feature as a deemed dividend and an increase to
capital contributed in excess of par of $650,000.
The accounting above is consistent with the accounting requirements
in Topic D-60 of the Emerging Issues Task Force (EITF), issued in
March 1997, and what was agreed to by the EITF in the final
deliberations for Issue 98-5 on May 20, 1999.
RF, Inc. Gain: As further discussed in Note 3, the Company settled a
dispute with a former employee in June 1997, effective April 30,
1997. The Company initially recorded a net gain on the settlement of
approximately $433,000 in June 1998. Costs aggregating
approximately $1,054,000 that had been deferred as of April 30,
1997, more appropriately should have been recognized as period
costs. The financial statements have been restated to expense these
costs as part of loss from discontinued operations in fiscal 1997. In
addition, the value assigned to the 600,000 shares of company stock
received as part of the consideration of the settlement was reduced
from $2 per share (stock price at April 30, 1997) to $1.22 per share
(stock price on June 26, 1997 - the date the shares were received).
The net effect of this transaction on the fiscal 1998 financial
statements is to change the previously reported loss from discontinued
operations of $172,281 to income from discontinued operations of
$269,219.
Fiscal 1999 compared to restated fiscal 1998
The Company's sales for fiscal 1999 were $6,612,121, an increase of
21.2% from fiscal 1998 sales of $5,456,106. Discussion of specific
changes by operation follows.
Aircraft Modification: Sales from the Aircraft Modifications
business segment increased 34.7%, from $3,874,490 in fiscal 1998, to
$5,217,138 in 1999. This segment earned an operating profit of
$315,291 in 1999, compared to $1,274,320 in 1998. Primarily
product sales increased due to the expanded business base related to
the purchase, modification and sale of Learjet using the multiple-use
Supplemental Type Certificates ("STC") developed by the Company.
As previously noted on page 5, (Item 1. Business), on May 3, 1996
the Company 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 eleven AVCON FIN packages installed in fiscal 1999 averaged
approximately $150,000 per aircraft.
In fiscal 1998, the Company invested $499,454 to design, 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 invest in activities that 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. In fiscal 1999, the
Company invested approximately $104,000.
Switching Units: Sales from the Avionics Switching Unit business
segment decreased 3.8%, from $484,518 in fiscal 1998, to $465,830
in fiscal 1999. Sales to the major OEM customer increased 28.6%
due to the phase out schedule of this type of aircraft. Sales for
aircraft repair and refurbishment decreased 6.5%, from fiscal 1998 to
fiscal 1999. Operating profits decreased from $146,744 in fiscal
1998 to ($46,370) in fiscal 1999. Management expects this business
segment to continue to be stable in future years due to the additional
orders the Company has received.
<PAGE>
SCADA Systems and Monitoring Services: Revenue from
Monitoring Services decreased from $1,097,098 in fiscal 1998 to
$929,153 in fiscal 1999, a decrease of 15.3%. During fiscal 1999, the
Company maintained a relatively level volume of long-term contracts
with municipalities. Revenue fluctuates due to the introduction of
new products and services and the related installations of these
products. The Company's contracts with its two largest customers
have been renewed for fiscal 2000. An operating profit of $14,809 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 a number of special jobs with revenue totaling
approximately $800,000.
The Company believes the service business of this segment will
continue to grow at a moderate rate. This segment has experienced
general increases over the past few years and the Company expects
this trend to continue.
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, Missouri
and Oklahoma. Currently, this Company is inactive. BTS plans to
provide contract staffing for the Princess Maria establishment planned
to open in early 2001.
Management Services
-General-
The Company has advanced and invested a total of $7,941,604
reported as notes receivable $3,377,993, net advances of $1,722,636
and reserves of $2,718,928 after recognition of note repayments of
$122,007 in land, land improvements, professional design fees and
other consulting and legal costs related to the development of Indian
Gaming facilities. Included in these advances and investments are
lands and other areas located adjacent to residential developments.
The Company believes that these tracts could be developed and sold
for residential and commercial use, other than Indian gaming, if the
gaming enterprises do not open. Additional improvements, including
access roads, water and sewer services, etc. are planned for these
lands. After these improvements, these lands may be sold in small
tracts. This would allow the Company to recover the majority, if not
all, of the land investments and other gaming costs.
-Princess Maria Casino-
The Company has a management agreement with the Miami Tribe to
provide management services to the Miami Tribe. On July 9, 1992,
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.
The Miami Tribe's 1992 compact was the subject of a lawsuit filed in
February 1993, in the Federal District Court, by 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 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. Subsequent to April 30, 1998, the NIGC approved the
management agreement on January 7, 2000. Under the Management
Agreement, as approved, the Company, as manager, is to receive a
30% share of the profits and reimbursement of development costs.
The total advances and investment related to the Princess Maria at
April 30, 1999, was $692,270. This amount is net of a reserve of
$1,413,511, which represents the current net realizable value of the
advanced receivable.
A lawsuit was filed in the United States District Court for the District
of Kansas by the State of Kansas against us, the United States, the
Business Committee members of the Miami Tribe and others on
October 14, 1999, challenging the determination by the Department
of the Interior and the United States District Court for the District of
Kansas that the Miami Princess Maria Reserve No. 35 was Indian
Land. The State of Kansas requested an order by the Court
preventing further development on the Indian land by us and further
discussions about the Indian land by us or Mr. Stewart, our President.
All of the defendants have asked the Courtsto dismiss the case
because they believe the determination of Indian land is a power
reserved for the United States by the constitution of the United States.
A ruling by the courts is expected in the winter of 2000.
-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, Bureau of 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 is providing consulting and construction management
services in the development of the facility and will manage 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 will
contain 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, is to receive a 30% share of
the profits and reimbursement of development costs.
<PAGE>
Construction on the STABLES began with the ground breaking on
March 27, 1997. The STABLES opened in September 1998. The
estimated project cost is approximately $3,500,000. Funds have been
provided from the Company's operations and long-term financing for
project completion was arranged.
Long-term financing was provided by Miller & Schroeder
Investments Corporation. The loan was dated May 29, 1998, in the
amount of $1,850,000 at a rate of prime plus2% and was funded as
needed during the phases of construction with interest only being
payable up to August 1, 1998. Commencing on September 1, 1998,
through August 1, 2003, monthly installments of principal and interest
to sufficiently fully amortize the principle balance will be due.
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 two percent (2%)
over prime, to be repaid over five (5) years, for the construction and
operation of the Stables gaming establishment. At April 30, 1999, the
Company had advanced $3,644,234 under the contract and reported
$647,285 current note receivable, $2,730,708 long-term note
receivable and $60,435 reserve for Indian gaming development.
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 of 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 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.
The total advances and investment related to Shawnee Reserve No.
206 at April 30, 1999, was $791,587. This amount is net of a reserve
of $849,222, which represents the current net realizable value of the
advanced receivable.
-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, if ever.
The total advances and investment related to Modoc Tribe at April
30, 1999, was $148,336. This amount is net of a reserve of $337,436,
which represents the current net realizable value of the advanced
receivable.
<PAGE>
- Other Opportunities -
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.
The total advances and investment related to Other Gaming at April
30, 1999, was $6,645. This amount is net of a reserve of $58,324
which represents the current net realizable value of the advanced
receivable.
Selling, General and Administrative (SG&A): Expenses decreased
$408,100 (19.7%) in fiscal year 1999. These expenses were
$1,665,656, or 25.2% of revenue, in fiscal 1999, and $2,073,756, or
38% of revenue in fiscal 1998.
Other Income (Expense): Other expense decreased from $235,880
in fiscal 1998 to $57,317 in fiscal 1999. This decrease is a result of
increased interest reserve net of expense from the Stables gaming
contract.
Expenses decreased in 1998 due to the writedown 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.
Restated fiscal 1998 compared to restated 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 1998. This segment earned an operating profit of
$1,274,320 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 5, (Item 1. Business), on May 3, 1996
the Company 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.
In fiscal 1998, the Company invested $499,454 to design, 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 invest in activities that 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 the major OEM customer decreased 18.3%
due to the phase out of this type of aircraft. 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 due to the additional orders the
Company has received.
<PAGE>
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 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.
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, Missouri
and Oklahoma. Currently, this Company is inactive. BTS plans to
provide contract staffing for the STABLES establishment opening in
September 1998.
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 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 and invested a total of $6,071,449 in
land, land improvements, professional design fees and other
consulting and legal costs related to the development of Indian
Gaming facilities. Included in these advances and investments are
lands and other areas located adjacent to residential developments.
The Company believes that these tracts could be developed and sold
for residential and commercial use, other than Indian gaming, if the
gaming enterprises do not open. Additional improvements, including
access roads, water and sewer services, etc. are planned for these
lands. After these improvements, these lands may be sold in small
tracts. This would allow the Company to recover the majority, if not
all, of the land investments and other gaming costs.
For detailed discussion of Indian Gaming developments, see pages 15
to 18.
The Company is currently reviewing other potential Indian gaming
opportunities with other tribes. These discussions are in the early
stages of negotiations and there can be no assurances 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 increased
$656,898 (46.4%) in fiscal year 1998. These expenses were
$2,073,756, or 38% of revenue, in fiscal 1998, and $1,416,858, or
34.9% of revenue in fiscal 1997.
Other Income (Expense): Expenses decreased due to the writedown
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.
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 $471,575 at April 30, 1999, and $695,718 at April 30, 1998.
<PAGE>
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 10.0%..
The Company plans to continue using the promissory notes-payable
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.
During 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 of $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 $300,000 for professional services as
advances to the Indian gaming projects.
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
Management segment's requirements under the terms of the Indian
gaming Management Agreements. These requirements are further
described in this section.
Depending upon the development schedules, the Company, through
BNSC, will need additional funds to complete its currently planned
Indian gaming opportunities. The Company will use current cash
available as well as additional funds, 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, gaming operations
will generate additional working capital for the start up and
construction of other gaming facilities. The Company expects that its
start up and construction financing of gaming facilities will be
replaced by other financial lenders, long term financing through debt
issue, or equity issues.
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 (5) years, for the construction and operation of the
Stables gaming establishment. At April 30, 1998, the Company had
advanced $2,074,797 to the Tribes under the contract and reported
$408,333 current note receivable and $1,666,464 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, the Stables Management Contract was further
funded by a loan to the Company from a financial institution 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.
<PAGE>
Analysis of Cash Flow
During 1999, the Company's cash position increased by $4,325. A
majority of the positive cash flow 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: Modification customer's deposits increased
approximately $52,039 from the sales of new projects. These funds
are fully earned upon completion of the projects.
Investing Activities: The $1,592,776 increase in the note receivable
are advances under the note from the Miami and Modoc tribes for
funding to of the Stables bingo facility which was completed in fiscal
1999.
The remaining cash used in investing activities is due to the use of
approximately $233,550 related to the development of Indian gaming;
approximately $221,854 to purchase tooling and equipment at
Modifications and Services, and approximately $104,000 was used in
the completion of STC's at Modification.
Financing Activities: During fiscal year 1999, the Company received
proceeds from outside sources to fund advances for the building of
the Stables bingo facility ($1,850,000 Miller & Schroeder note) and
also added the Lear 23 to the inventory floor plan note. 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 floor plan
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.
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>
Expected Maturity Date
(Dollars in thousands)
Fair
2000 2001 2002 2003 2004 Total Value
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Note receivable:
Variable rate $ 647 $ 702 $ 762 $ 826 $ 440 $3,377 $3,377
Average
interest rate 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% 10.5%
Liabilities
Long-term debt:
Variable rate $ 701 $1,110 $ 715 $ 749 $ 286 $3,561 $3,561
Average
interest rate 10.5% 10.5% 10.5% 10.5% 10.5% - -
</TABLE>
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Financial Statements of the Registrant are set forth on pages 33
through 53 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 14, 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 any 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 8-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 the
disagreements 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.
Grant Thornton responded to the requests. The response did not
disclose any disagreements or reportable events and was filed as an
attachment to a Form 8-K/A on August 23, 1999.
Subsequent to the Grant Thornton LLP resignation, the Company
engaged Kelly & Company to audit fiscal year 1999, as reported on
Form 8-K November 1, 1999. Kelly & Company was dismissed by
the Company as reported on Form 8-K on June 27, 2000, as a result
of a fee dispute. A Form 8-K filed June 30, 2000 Kelly & Company
reported no disagreements or reportable events.
On a Form 8-K, filed July 11, 2000 the Company reported the
engagement of Weaver & Martin LLC to audit fiscal 1999 and 2000.
<PAGE>
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 and Director and Age:
Clark D. Stewart
(59)
Served Since:
1989
Principal Occupation for Last Five Years and Other Directorships:
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.
Name of Nominee and Director and Age:
R. Warren Wagoner
(47)
Served Since:
1986
Principal Occupation for Last Five Years and Other Directorships:
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.
Name of Nominee and Director and Age:
William E. Logan
(61)
Served Since:
1990
Principal Occupation for Last Five Years and Other Directorships:
Vice President and Treasurer of WH of KC, Inc. (Wendy's franchisee) 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.
Name of Nominee and Director and Age:
William A. Griffith
(52)
Served Since:
1990
Principal Occupation for Last Five Years and Other Directorships:
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.
Name of Nominee and Director and Age:
David B. Hayden
(53)
Served Since:
1996
Principal Occupation for Last Five Years and Other Directorships:
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 rest of this page intentionally left blank.
<PAGE>
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:
<TABLE>
Name Age Position
<S> <C> <C>
R. Warren Wagoner 47 Chairman of the Board of Directors
Clark D. Stewart 59 President and Chief Executive Officer
Larry W. Franke 55 Vice President Aircraft Modifications
Jack L. Graham 73 President of Avcon Industries, Inc.,
a wholly-owned subsidiary of the Company
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
Robert E. Leisure 44 Chief Financial Officer
William A. Griffith 52 Secretary
</TABLE>
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 currently Vice
President of Aircraft Modifications at Avcon.
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 is 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.).
Edward J. 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 as an officer of the
Company 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 Financial 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.
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 $100,000 (determined as of the end of the last fiscal
year) for the fiscal years ended April 30, 1999, 1998 and 1997:
SUMMARY COMPENSATION TABLE
Name and Principal Position: Clark D. Stewart President and CEO, Director
Annual Compensation Year: 1999
Salary ($): 218,743
Bonus($): 0
Other Annual Compensation ($): 0
Long Term Compensation
Awards
Restricted Stock Award(s) ($): 0
Securities Underlying Options(#)(1): (820,000)
Payouts
LTIP Payouts ($): 0
All Other Compensation ($): 0
Name and Principal Position: Clark D. Stewart President and CEO, Director
Annual Compensation Year: 1998
Salary ($): 226,997
Bonus($): 0
Other Annual Compensation ($): 0
Long Term Compensation
Awards
Restricted Stock Award(s) ($): 0
Securities Underlying Options(#)(1): 1,050,000
Payouts
LTIP Payouts ($): 0
All Other Compensation ($): 0
Name and Principal Position: Clark D. Stewart President and CEO, Director
Annual Compensation Year: 1997
Salary ($): 212,729
Bonus($): 0
Other Annual Compensation ($): 0
Long Term Compensation
Awards
Restricted Stock Award(s) ($): 0
Securities Underlying Options(#)(1): 50,000
Payouts
LTIP Payouts ($): 0
All Other Compensation ($): 0
(1) Represents options granted or (cancelled) pursuant to the Company's 1989
Nonqualified Stock Option Plans (820,000) in 1999 1,050,000 in 1998 and
50,000 in 1997.
OPTION GRANTS, EXERCISES AND HOLDINGS
The following table provides further information concerning grants of
stock options pursuant to the 1989 Nonqualified Stock Option Plan
during the fiscal 1999 year to the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Clark D. Stewart
Number of Securities Underlying Options: 180,000
(1,000,000)
Percent of Total Options Granted to Employees in Fiscal Year: 7.4%
Exercise or Base Price: 0.50
Expiration: 11/01/2008
Potential Realizable Value at Assumed Annual Rates of Stock Price
Appreciation for Option Term: 0
(1) Except in the event of death or retirement for disability, if Mr.
Stewart ceases to be employed by the Company, his option shall terminate.
Upon death or retirement for disability, Mr. Stewart (or his
representative) shall have three months or one year, respectively,
following the date of death or retirement, as the case may be, in which to
exercise such options. The option granted for 180,000 shares of Common
Stock was granted on November 2, 1998 from the 1995 Stock Option Plan.
All such options are immediately exercisable.
<PAGE>
The following table provides information with respect to the named
executive officers concerning options exercised and unexercised
options held as of the end of the Company's last fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Name: Clark D. Stewart, Chief Executive Officer
Shares Acquired on Exercise (#): 0
Value Realized ($): 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
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 $96,000. 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.
<PAGE>
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 current market price of $0.90.
The rest of this page intentionally left blank.
<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, Kansas 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>
Name of
Beneficial Owner
Amount and Nature of Amount and Nature of
Beneficial Ownership (1) Beneficial Ownership(1) Percent 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.
<PAGE>
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 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. Interest was charged on the outstanding balance at the prime
rate during fiscal 1999.
The rest of this page intentionally left blank.
<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.
Report of Independent Accountants 33-34
Consolidated Balance Sheet as of April 30, 1999 and 1998 (restated) 35
Consolidated Statements of Operations for
the years ended April 30, 1999, 1998 (restated) and 1997 (restated) 36
Consolidated Statements of Shareholders' Equity
for the years ended April 30, 1999, 1998 (restated) and 1997 (restated) 37-39
Consolidated Statements of Cash Flows for
the years ended April 30, 1999, 1998 (restated) and 1997 (restated) 40
Notes to Consolidated Financial Statements 41-60
(2) Financial Statement Schedules:
Schedule Description Page No.
II. Valuation and Qualifying Accounts and Reserves
for the years ended April 30, 1999, 1998
(restated) and 1997 (restated) 56
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:
No. Description 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 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 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 57
23.1 Consent of Independent Public Accountants 58
23.2 Consent of Independent Public Accountants 59
27.1 Financial Data Schedule (EDGAR version only). Filed herewith. *
99 Cautionary Statement for Purpose of the "Safe Harbor"
Provisions of the Private Securities Reform Act of 1995. 60
* 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.
Change in Registrant's Certifying Accountant is *
incorporated by reference to the Company's
Form 8-K filed on November 1, 1999.
Change in Registrant's Certifying Accountant is *
incorporated by reference to the Company's
Form 8-K filed on June 27, 2000.
Change in Registrant's Certifying Accountant is *
incorporated by reference to the Company's
Form 8-K filed on July 11, 2000.
(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 4, 2000
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
Clark D. Stewart President, Chief August 4, 2000
Executive Officer and Director (Principal
Executive Officer)
/s/ R. Warren Wagoner
R. Warren Wagoner Chairman of the Board August 4, 2000
and Director
/s/ William A. Griffith
William A. Griffith Director August 4, 2000
/s/ William E. Logan
William E. Logan Director August 4, 2000
/s/ David B. Hayden
David B. Hayden Director August 4, 2000
/s/ Robert E. Leisure
Robert E. Leisure Chief Financial Officer August 4, 2000
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS
AS OF APRIL 30, 1999
TOGETHER WITH AUDITORS' REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Butler National Corporation:
We have audited the accompanying consolidated balance
sheet of Butler National Corporation (a Delaware
corporation) and Subsidiaries as of April 30, 1999 and the
related consolidated statements of operations, shareholders'
equity, and cash flows for the year ended April 30,
1999. These financial statements and the schedule referred
to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements and the schedule based on our
audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Butler National Corporation and Subsidiaries as of April
30, 1999 and the results of their operations and their cash
flows for the year ended April 30, 1999, in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion
on the basic financial statements taken as a whole.
Schedule II for the year ended April 30, 1999, is presented
for purposes of complying with the Securities and
Exchange Commission rules and is not a required part of
the basic financial statements. This information has been
subjected to the auditing procedures applied in our audit of
the basic financial statements and, in our opinion, is fairly
stated in all materials respects in relation to the basic
financial statements taken as a whole.
WEAVER & MARTIN, LLC
Kansas City, Missouri,
August 4, 2000
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
RESTATED FINANCIAL STATEMENTS
AS OF APRIL 30, 1998
TOGETHER WITH AUDITORS' REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Butler National Corporation:
We have audited the accompanying consolidated balance
sheet of Butler National Corporation (a Delaware
corporation) and Subsidiaries as of April 30, 1998, and the
related consolidated statements of operations, shareholders'
equity, and cash flows for each of the two years in the
period ended April 30, 1998 (1998 and 1997 restated - See
Note 1). These financial statements and the schedule
referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements and the schedule based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Butler National Corporation and Subsidiaries as of April
30, 1998 and the results of their operations and their cash
flows for each of the two years in the period ended April
30, 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole.
Schedule II for each of the two years in the period ended
April 30, 1998 (restated), is presented for purposes of
complying with the Securities and Exchange Commission
rules and is not a required part of the basic financial
statements. This information has been subjected to the
auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in
all materials respects in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Kansas City, Missouri,
February 11, 2000
<TABLE>
BUTLER NATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS
as of April 30, 1999 and 1998
1999 1998
(As Restated
See Note 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $164,923 $160,598
Accounts receivable, net of allowance for doubtful 435,323 413,257
accounts of $68, 900 in 1999 and $78,736 in 1998
Note receivable from Indian Gaming developments 647,285 408,333
Contracts in process 405,937 551,610
Inventories -
Raw materials 1,754,444 1,469,324
Work in process 333,399 76,073
Finished goods 45,188 55,939
Aircraft 295,281 1,816,281
----------- ---------
2,428,312 3,417,617
Prepaid expenses and other current assets 72,634 121,280
----------- ---------
Total current assets 4,154,414 5,072,695
PROPERTY, PLANT AND EQUIPMENT:
Land and building 948,089 639,130
Machinery and equipment 1,198,541 973,504
Office furniture and fixtures 585,968 632,617
Leashold improvements 33,959 33,958
----------- ---------
Total cost 2,766,557 2,279,209
Accumulated depreciation (1,275,145) (1,060,705)
----------- ---------
1,491,412 1,218,504
SUPPLEMENTAL TYPE CERTIFICATES 1,392,611 1,456,249
INDIAN GAMING:
Note receivable from Indian Gaming 2,730,708 1,376,884
Advances for Indian Gaming Developments 1,722,636 1,277,724
(net of reserves of $2,718,928 &
$3,008,508 in 1999 & 1998, respectively) ---------- ----------
Total Indian Gaming 4,453,344 2,654,608
OTHER ASSETS 236,910 468,389
---------- ----------
Total assets $11,728,691 $10,870,445
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
(As Restated
See Note 1)
CURRENT LIABILITIES:
Bank overdraft payable $ 119,942 $ 193,205
Promissory notes payable 471,575 695,718
Current maturities of long-term debt and 701,345 63,849
capital lease obligations
Accounts payable 919,087 507,698
Customer deposits 582,314 530,275
Accrued liabilities -
Compensation and compensated balances 99,190 170,110
Other 69,850 227,896
---------- ----------
Total current liabilities 2,963,303 2,388,751
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION, 3,064,639 1,926,412
NET OF CURRENT MATURITIES
CONVERTIBLE DEBENTURES 650,000 650,000
COMMITMENTS AND CONTINGENCIES
LIABILITIES OF DISCONTINUED OPERATIONS 0 39,000
---------- ---------
Total liabilities 6,677,942 5,004,163
SHAREHOLDERS' EQUITY:
Preferred stock, par value $5
Authorized, 200,000 shares, all classes
$1,000 Class A, 9.8%, cumulative if earned
liquidation and redemption value $100,
no shares issued and outstanding 0 0
$1,000 Class B, 6%, convertible cumulative
liquidation and redemption value $1,000
issued and outstanding, 313 shares in 1999
and 506 shares in 1998 313,603 506,834
Common stock, par value $.01:
Authorized, 40,000,000 shares
issued and outstanding 15,212,087 shares
in 1999 and 11,673,069 in 1998 152,121 116,730
Common stock warrants 0 8,807
Capital contributed in excess of par 8,981,048 8,257,155
Note receivable from officer arising from 0 (37,647)
stock purchase agreement
Shares issued for future services 0 (286,824)
Treasury stock at cost (600,000 and 775,000 in (732,000) (1,069,240)
1999 and 1998)
Retained deficit (deficit of $11,938,813 (3,664,023) (1,629,533)
eliminated October 31, 1992)
---------- ----------
Total shareholders' equity 5,050,749 5,866,282
Total liabilities and shareholders' equity' $11,728,691 $10,870,445
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
1999 1998 1997
(As Restated (As Restated
See Note 1) See Note 1)
<S> <C> <C> <C>
NET SALES $ 6,612,121 $ 5,456,106 $ 4,061,775
COST OF SALES 5,170,862 2,727,656 2,351,159
---------- ---------- ----------
1,441,259 2,728,450 1,710,616
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,665,656 2,073,756 1,416,858
---------- ---------- ----------
Operating income (loss) (224,397) 654,694 293,758
OTHER INCOME (EXPENSES)
Interest expense (238,519) (255,004) (657,534)
Interest revenue 201,928 3,584 25,428
Other (20,726) 15,540 (232,869)
---------- ---------- ----------
Other expense (57,317) (235,880) (864,975)
INCOME (LOSS) FROM
CONTINUING OPERATIONS BEFORE
TAXES (281,714) 418,814 (571,217)
PROVISION FOR INCOME TAXES
FROM CONTINUING OPERATIONS - 19,880 3,416
---------- ---------- ----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS (281,714) 398,934 (574,633)
DISCONTINUED OPERATIONS
Income (loss) from
discontinued operations
net of taxes (1,698,379) 293,184 (688,675)
Loss on discontinued
operations net of taxes - (23,965) -
Total discontinued operations (1,698,379) 269,219 (688,675)
NET INCOME (LOSS) (1,980,093) 668,153 (1,263,308)
DEEMED DIVIDEND ASSOCIATED
WITH BENEFICIAL CONVERSION
FEATURE OF PREFERRED STOCK - 650,000 -
DIVIDENDS TO PREFERRED
STOCKHOLDERS (54,398) - -
NET INCOME (LOSS) AVAILABLE
TO COMMON SHAREHOLDERS $ (2,034,491) $ 18,153 $ (1,263,308)
BASIC EARNINGS (LOSS) PER
COMMON SHARE
Continuing operations $ (0.03) $ (0.03) $ (0.06)
Discontinued operations (0.14) 0.03 (0.07)
$ (0.17) $ 0.00 $ (0.13)
Shares used in per share
calculation 11,845,875 9,418,330 9,411,168
DILUTED EARNINGS (LOSS)
PER COMMON SHARE
Continuing operations $ (0.03) $ (0.03) $ (0.06)
Discontinued operations (0.14) 0.03 (0.07)
$ (0.17) $ 0.00 $ (0.13)
Shares used in per share
calculation 11,845,875 9,418,330 9,419,276
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1999, 1998, AND 1997
Preferred Common
Stock Stock
<S> <C> <C>
Balance, April 30, 1996 $2,000,000 $ 92,809
Note receivable arising
from stock purchase agreement
Reduction in note receivable
from stock purchase agreement
Acquisition of treasury stock
Exercise of stock options 120
Issuance of stock - Other
Issuance of stock - Private Offering 2,313
Deferred service contracts
Value associated with beneficial
conversion feature of conver. debt
Amortization of service contracts
Utilization of net operating losses
Other
Net loss
Balance, April 30, 1997 $2,000,000 $ 95,242
Note
Capital Receivable
Contributed Arising
in Excess of From Stock
Par and Purchase
Warrants Agreements
Balance, April 30, 1996 $ 5,275,438 $ (359,027)
Note receivable arising (43,416)
from stock purchase agreement
320,681
Reduction in note receivable
from stock purchase agreement
Acquisition of treasury stock
Exercise of stock options 23,645
Issuance of stock - Other 100
Issuance of stock - Private Offering 435,242
Deferred service contracts
Value associated with beneficial 375,000
conversion feature of conver. debt
Amortization of service contracts
Utilization of net operating losses
Other
Net loss
Balance, April 30, 1997 $ 6,109,425 $ (81,762)
Shares
Issued for Treasury
Future Stock
Services (Preferred)
Balance, April 30, 1996 $ (276,711) $(2,000,000)
Note receivable arising
from stock purchase agreement
Reduction in note receivable
from stock purchase agreement
Acquisition of treasury stock
Exercise of stock options
Issuance of stock - Other
Issuance of stock - Private Offering
Deferred service contracts (53,125)
Value associated with beneficial
conversion feature of conver. debt
Amortization of service contracts 66,458
Utilization of net operating losses
Other
Net loss
Balance, April 30, 1997 $ (263,438) $(2,000,000)
Treasury Retained
Stock Earnings
(Common) (deficit)
Balance, April 30, 1996 $ (87,240) $ (533,247)
Note receivable arising
from stock purchase agreement
Reduction in note receivable
from stock purchase agreement
Acquisition of treasury stock (250,000)
Exercise of stock options
Issuance of stock - Other
Issuance of stock - Private Offering
Deferred service contracts
Value associated with beneficial
conversion feature of conver. debt
Amortization of service contracts
Utilization of net operating losses 120,357
Other (27,775)
Net loss (1,263,308)
Balance, April 30, 1997 $ (337,240) $(1,703,973)
Total
Shareholders'
Equity
Balance, April 30, 1996 $ 4,111,962
Note receivable arising (43,416)
from stock purchase agreement
Reduction in note receivable 320,681
from stock purchase agreement
Acquisition of treasury stock (250,000)
Exercise of stock options 23,765
Issuance of stock - Other 100
Issuance of stock - Private Offering 437,555
Deferred service contracts (53,125)
Value associated with beneficial 375,000
conversion feature of conver. debt
Amortization of service contracts 66,458
Utilization of net operating losses 120,357
Other (27,775)
Net loss (1,263,308)
Balance, April 30, 1997 $3,818,254
</TABLE>
The accompanying notes are an integral part of these financial statements
<TABLE>
Preferred Common
Stock Stock
<S> <C> <C>
Balance, April 30, 1997 $ 2,000,000 $ 95,242
Note receivable arising
from stock purchase agreement
Acquisition of treasury stock
Retirement of $100 Class A (2,000,000)
preferred treasury stock
Exercise of stock warrants 1,135
Issuance of stock - Other 2,970
Issuance of $1,000 Class B 1,315,959 6,416
preferred stock-Private Offering
Conversion to common stock (809,125) 10,967
Value associated with beneficial
conversion feature of conver. debt
Deferred service contracts
Amortization of service contracts
Utilization of net operating losses
Net income
Deemed dividend associated with
beneficial conversion feature of
preferred stock
Balance, April 30, 1998 $ 506,834 $ 116,730
Note
Capital Receivable
Contributed Arising
in Excess of From Stock
Par and Purchase
Warrants Agreements
Balance, April 30, 1997 $ 6,109,425 $ (81,762)
Note receivable arising 44,115
from stock purchase agreement
Acquisition of treasury stock
Retirement of $100 Class A
preferred treasury stock
Exercise of stock warrants 89,765
Issuance of stock - Other 233,133
Issuance of $1,000 Class B 385,481
preferred stock-Private Offering
Conversion to common stock 798,158
Value associated with beneficial 650,000
conversion feature of conver. debt
Deferred service contracts
Amortization of service contracts
Utilization of net operating losses
Net income
Deemed dividend associated with
beneficial conversion feature of
preferred stock
Balance, April 30, 1998 $ 8,265,962 $ (37,647)
Shares
Issued for Retained
Future Earnings
Services (deficit)
Balance, April 30, 1997 $ (263,438) $(2,000,000)
Note receivable arising
from stock purchase agreement
Acquisition of treasury stock
Retirement of $100 Class A 2,000,000
preferred treasury stock
Exercise of stock warrents
Issuance of stock - Other
Issuance of $1,000 Class B
preferred stock-Private Offering
Conversion to common stock
Value associated with beneficial
conversion feature of conver. debt
Deferred service contracts (101,250)
Amortization of service contracts 77,864
Utilization of net operating losses
Net income
Deemed dividend associated with
beneficial conversion feature of
preferred stock
Balance, April 30, 1998 $ (286,824) $ 0
Shares
Issued for Treasury
Future Stock
Services (Preferred)
Treasury Retained
Stock Earnings
(Common) (deficit)
Balance, April 30, 1997 $ (337,240) $(1,703,973)
Note receivable arising (732,000)
from stock purchase agreement
Acquisition of treasury stock
Retirement of $100 Class A
preferred treasury stock
Exercise of stock warrents
Issuance of stock - Other
Issuance of $1,000 Class B
preferred stock-Private Offering
Conversion to common stock
Value associated with beneficial
conversion feature of conver. debt
Deferred service contracts
Amortization of service contracts
Utilization of net operating losses 56,287
Net income 668,153
Deemed dividend associated with (650,000)
beneficial conversion feature of
preferred stock
Balance, April 30, 1998 $(1,069,240) $(1,629,533)
Total
Shareholders'
Equity
Balance, April 30, 1997 $ 3,818,254
Note receivable arising 44,115
from stock purchase agreement
Acquisition of treasury stock (732,000)
Retirement of $100 Class A
preferred treasury stock
Exercise of stock warrants 90,900
Issuance of stock - Other 236,103
Issuance of $1,000 Class B 1,707,856
preferred stock-Private Offering
Conversion to common stock
Value associated with beneficial 650,000
conversion feature of conver. debt
Deferred service contracts (101,250)
Amortization of service contracts 77,864
Utilization of net operating losses 56,287
Net loss 668,153
Deemed dividend associated with (650,000)
beneficial conversion feature of
preferred stock
Balance, April 30, 1998 $ 5,866,282
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
Preferred Common
Stock Stock
<S> <C> <C>
Balance, April 30, 1998 $ 506,834 $ 116,730
Reduction in note receivable
from stock purchase agreement
Retirement of Treasury stock (1,750)
Conversion to common stock (193,231) 12,580
Issuance of stock - Other 23,532
Transfer of service contracts
to advances for Indian Gaming
developments
Amortization of service contracts
Dividends on Preferred Stock 1,029
paid by issuing commong stock
Net loss
Balance, April 30, 1999 $ 313,603 $ 152,121
Note
Receivable
Capital Arising
Contributed From Stock
in Exess of Purchase
Par Agreements
Balance, April 30, 1998 $ 8,265,962 $ (37,647)
Reduction in note receivable 37,647
from stock purchase agreement
Retirement of Treasury stock (335,490)
Conversion to common stock 180,651
Issuance of stock - Other 816,556
Transfer of service contracts
to advances for Indian Gaming
developments
Amortization of service contracts
Dividends on Preferred Stock 53,369
paid by issuing commong stock
Net loss
Balance, April 30, 1999 $ 8,981,048 $ -
Shares
Issued for Treasury
Future Stock
Services (common)
Balance, April 30, 1998 $ (286,824) $(1,069,240)
Reduction in note receivable
from stock purchase agreement
Retirement of Treasury stock 337,240
Conversion to common stock
Issuance of stock - Other
Transfer of service contracts 185,573
to advances for Indian Gaming
developments
Amortization of service contracts 101,251
Dividends on Preferred Stock
paid by issuing commong stock
Net loss
Balance, April 30, 1999 $ - $ (732,000)
Retained Total
Earnings Shareholders'
(deficit) Equity
Balance, April 30, 1998 $(1,629,533) $5,866,282
Reduction in note receivable 37,647
from stock purchase agreement
Retirement of Treasury stock -
Conversion to common stock -
Issuance of stock - Other 840,088
Transfer of service contracts 185,573
to advances for Indian Gaming
developments
Amortization of service contracts 101,251
Dividends on Preferred Stock (54,397) -
paid by issuing commong stock
Net loss (1,980,093) (1,980,093)
Balance, April 30, 1999 $(3,664,023) $ 5,050,749
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
1999 1998 1997
(As Restated (As Restated
See Note 1) See Note 1)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,980,093) $ 668,153 $(1,263,308)
Income (loss) from discontinued
operations (1,698,379) 269 219 (688,675)
Income (loss) from continuing
operations (281,714) 398,934 (574,633)
Adjustments to reconcile
net income (loss) to net cash
provided by (used in) operations -
Depreciation 223,157 147,228 71,731
Amortization 167,316 408,106 52,872
Provision for uncollectible accounts - - (13,416)
Provision for obsolete inventories - - 12,761
Amortization of shares issued for
future services 101,251 77,864 66,458
Noncash services and benefit plan
contributions 540,088 91,353 -
Convertible debt beneficial
conversion feature - - 375,000
Other noncash expenses - 56,287 74,025
Changes in assets and liabilities -
Accounts receivable (22,066) (171,811) (39,020)
Contracts in process 145,673 572,063 (267,137)
Inventories 989,305 (667,621) (180,174)
Prepaid expenses and other current
assets 48,646 83,152 (22,584)
Other assets and other 231,479 178,497 (130,216)
Accounts payable 338,126 98,081 (308,723)
Customer deposits 52,039 (989,760) 993,628
Settlement agreement - (72,000) -
Accrued liabilities (228,965) (33,341) 138,209
Cash provided by continuing
operations 2,304,335 177,032 248,781
Cash provided by (used in)
discontinued operations (1,737,379) 518,345 (789,915)
Cash provided by (used in) operations 566,956 695,377 (541,134)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net (221,854) (681,335) (340,738)
Advances for Indian Gaming Developments (233,550) (1,773,248) (397,870)
Indian Gaming note receivable, net (1,592,776) -
Supplemental Type Certificates (103,678) (499,454) (814,474)
Aircraft and aircraft parts - - 8,268
Cash used in investing activities (2,151,858) (2,954,037) (1,544,814)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under promissory notes (224,143) 312,975 1,181,309
Proceeds from long-term debt and
capital lease obligations 3,494,322 502,603 1,582,338
Repayments of long-term debt and
capital lease obligations (1,718,599) (103,743) (1,194,162)
Repayment of officer note 37,647 44,115 27,265
Issuance of Class B convertible
preferred stock - 1,315,959 -
Issuance of stock - 90,900 -
Cash provided by financing
activities 1,589,227 2,162,809 1,596,750
NET INCREASE (DECREASE) IN CASH 4,325 (95,851) (489,198)
CASH, beginning of year 160,598 256,449 745,647
CASH, end of year $ 164,923 $ 160,598 $ 256,449
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 financial statements.
<PAGE>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements include the
accounts of Butler National Corporation (BNC) and its wholly-owned
subsidiaries, Avcon Industries, Inc., Cansas International
Corporation, Butler National Engineers, Inc., Butler National
Services, Inc., Butler Temporary Services, Inc., Butler National
Service Corporation, Woodson Avionics, Inc. and Butler National,
Inc., (collectively, The Company). Cansas International Corporation
and Butler National Corporation Consulting Engineers, Inc., were
inactive during the years ended April 30, 1999, 1998 and 1997. The
operations of RF, Inc., a wholesale food distribution company were
discontinued in April 1998. All significant intercompany transactions
have been eliminated in consolidation.
Avcon Industries, Inc. modifies business category aircraft at its
Newton, Kansas facility. Modifications can include passenger-to-
freighter configuration, addition of aerial photography capability, and
stability enhancing modifications. Avcon also acquires airplanes,
principally Learjets, to refurbish and sell. Woodson Avionics, Inc. is
primarily engaged in the manufacture of airborne switching units used
in Boeing McDonnell Douglas aircraft. Butler National Services is
principally engaged in monitoring remote water and wastewater
pumping stations through electronic surveillance. Butler National
Service Corporation is a management consulting and administrative
services firm providing business planing and financial coordination to
Indian tribes interested in owning and operating casinos under the
terms of the Indian Gaming Regulatory Act of 1988.
Restatement
Subsequent to the issuance of the Company's consolidated financial
statements for the fiscal years ended April 30, 1998 and 1997, it was
determined that the reported results for 1998 and 1997 were in error,
primarily as follows:
Beneficial Conversion Features: The Company issued convertible
debentures in June and November of 1996 that contained beneficial
conversion features which allowed the investor to convert at seventy
percent (70%) of the average common stock closing bid price for the
five days prior to issuance of the debt security. The conversion
period on the notes were for limited periods. The financial statements
for the year ended April 30, 1997, have been restated to reflect the
accounting recognition of the value attributable to the beneficial
conversion feature ($375,000) as a noncash charge to interest expense
and an increase to the paid-in capital.
The Company also issued convertible preferred stock on December
16, 1997 which contained beneficial conversion features. Those
features allow the holder of the security to convert the preferred stock
into the Company's common stock at seventy percent (70%) of the
common stock bid price (the average of the ending common stock
price bid five (5) days prior to issuance of the preferred stock or the
ending common stock bid price 45 days after issuance of the
preferred stock). The financial statements for the period ended April
30, 1998, have been restated to reflect the accounting recognition of
the value attributable to this beneficial conversion feature as a
deemed dividend and an increase to capital contributed in excess of
par of $650,000.
The accounting above is consistent with the accounting requirements
outlined in Topic D-60 of the Emerging Issues Task Force (EITF),
issued in March 1997, and what was agreed to by the EITF in their
final deliberations for Issue 98-5 on May 20, 1999.
RF, Inc. Gain: As further discussed in Note 3, the Company settled a
dispute with a former employee in June 1997, effective April 30,
1997. The Company initially recorded a net gain on the settlement of
approximately $433,000 in June 1998. Costs aggregating
approximately $1,054,000 that had been deferred as of April 30,
1997, more appropriately should have been recognized as period
costs. The financial statements have been restated to expense these
costs as part of loss from discontinued operations in fiscal 1997. In
addition, the value assigned to the 600,000 shares of company stock
received as part of the consideration of the settlement was reduced
from $2 per share (stock price at April 30, 1997) to $1.22 per share
(stock price on June 26, 1997 the date the shares were received).
The net effect of this transaction on the fiscal 1998 financial
statements is to change the previously reported loss from discontinued
operations of $172,281 to income from discontinued operations of
$269,219.
<PAGE>
The following reflects selected financial information and the effects
of the aforementioned restatements:
<TABLE>
1998 1998 1997 1997
As previously As As previously As
reported restated reported restated
<S> <C> <C> <C> <C>
Total assets $10,799,656 $10,870,445 $11,124,008 $10,070,008
Total
shareholders'
equity 5,861,860 5,866,282 4,872,254 3,818,254
Total net sales 5,546,106 5,456,106 4,061,775 4,061,775
Income (loss)
from operations
Operations 250,012 398,934 (199,633) (574,633)
Discontinued
operations (172,281) 269,219 365,325 (688,675)
Net income (loss) 77,731 668,153 165,692 (1,263,308)
Net income (loss)
available for
common shareholders 77,731 18,153 165,692 (1,263,308)
Basic EPS $ 0.01 $ - $ 0.02 $ (0.13)
Fully diluted EPS $ 0.01 $ - $ 0.02 $ (0.13)
</TABLE>
a. 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.
b. 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.
c. Property 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:
Live in Years
Building 23 to 39
Machinery and equipment 5 to 17
Office furniture and fixtures 5 to 17
Leasehold improvements 3 to 20
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.
Included in machinery and equipment and office furniture and
fixtures are capital lease items totalling $251,636 and $123,925
at April 30, 1999 and 1998 respectively. Accumulated
amortization on capital lease items at April 30, 1999 was
$43,900.
d. Long-Lived Assets: Long-lived assets and identifiable
intangibles to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Impairment is
measured by comparing the carrying value of the long-lived asset
to the estimated undiscounted future cash flows expected to
result from use of the assets and their eventual disposition. The
Company determined that as of April 30, 1999, there had been
no impairment in the carrying value of long-lived assets.
e. Indian Gaming: The Company is advancing funds for the
establishment of Indian gaming. These funds have been
capitalized in accordance with Statements of Financial
Accounting Standards (SFAS) 67 "Accounting for Costs and
Initial Rental Operations of Real Estate Projects." Such standard
requires costs associated with the acquisition, development, and
construction of real estate and real estate-related projects to be
capitalized as part of that project. The realization of these
advances is predicated on the ability of the Company and their
Indian gaming clients to successfully open and operate the
proposed casinos. There is no assurance that the Company will
be successful. The inability of the Company to recover these
advances could have a material adverse effect on the Company's
financial position and results of operations
Advances to the tribes and for gaming developments are
capitalized and recorded as receivables from the tribes. These
receivables shown as Advances for Indian Gaming Development on the
the balance sheet, represent costs to be reimbursed to the
Company pending approval of Indian gaming in several
locations. The Company has agreements in place which require
payments to be made to the Company for the respective projects
upon opening of Indian gaming facilities. Once gaming facilities
have gained proper approvals, the Company will enter into note
receivable arrangements with the Tribe to secure reimbursement
of advanced funds to the Company for the particular project.
The Company currently has one note receivable shown as Note
Receivable From Indian Gaming Development on the balance
sheet.
Reserves were recorded for Indian gaming development costs that
cannot be determined whether reimbursement from the tribes will
occur. There are agreements with the Tribes to be reimbursed for
all costs incurred to develop gaming when the facilities are
constructed and opened. Because the Stables represents the only
operations opened, there is uncertainty as to whether
reimbursement on all remaining costs that have been reserved will
occur. It is the Company's policy therefore, to reduce the
respective reserves as reimbursement from the Tribes is collected.
Capitalized costs totalled approximately $5,100,629 and
$3,062,941 at April 30, 1999 and April 30, 1998, respectively,
related to the development of Indian gaming facilities. These
amounts are net of reserves of $2,718,928 and $3,008,508 in
1999 and 1998, respectively, which were established to reserve
for potentially unreimburseable costs. In the opinion of
management, the net advances will be recoverable through the
gaming activities. Current economic projections for the gaming
activities indicate adequate future cash flows to recover the
advances. In the event the Company and its Indian clients are
unsuccessful in establishing such operations, these net recorded
advances will be recovered through the liquidation of the
associated assets. The Company has title to land purchased for
Indian gaming. These tracts, currently owned by the Company,
could be sold to recover costs in the projects.
As a part of a Management Contract approved by the National
Indian Gaming Commission (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
convert their current unsecured receivable from the Tribes to a
secured note receivable with the Tribes of $3,500,000 at 2 percent
over prime, to be repaid over five years, for the construction of
the Stables gaming establishment and reimbursement for
previously advanced funds. 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 is
currently receiving payments on the note and its management fee
on the Stables' operation. Amounts to be received on the notes are
2000 - $647,285; 2001 - $702,000; 2002 - $762,000; 2003 - $826,000 and
2004 - $440,708.
The rest of this page intentionally left blank.
<PAGE>
f. Supplemental Type Certificates: Supplemental Type Certificates
(STCs) are authorizations granted by the Federal Aviation
Administration (FAA) for specific modification of a certain
aircraft. The STC authorizes the Company to perform
modifications, installations and assemblies on applicable
customer-owned aircraft. Costs associated with obtaining these
STCs from the FAA are capitalized and subsequently amortized
against revenues being generated from aircraft modifications
associated with the STC. The costs are expensed as services are
rendered on each aircraft through costs of sales using the units of
production method. Current company estimates of future orders
indicate the life for these costs to be approximately five years.
The legal life of these STCs is indefinite. Consultant costs, as
shown below, include costs of engineering, legal and aircraft
specialists. Components of the capitalized costs are as follows:
1999 1998
Direct labor $ 206,752 $ 206,752
Direct materials 187,129 187,129
Consultant costs 1,371,420 1,267,742
Labor overhead 326,669 326,669
Subtotal 2,091,970 1,988,292
Less- Amortized costs 699,359 532,043
Net STC balance 1,392,611 1,456,249
The recoverability of these costs are dependent upon the Company's
ability to obtain and sustain future orders. Failure to gain these orders
and subsequently recover these costs could have a material adverse
impact on the Company's financial position and results of 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 promissory notes agreement.
h. Financial Instruments: The carrying value of the Company's
cash and cash equivelants, short-term investments, accounts
receivable, accounts payable, accrued expenses and accrued
employee costs approximate fair value because of the short-term
maturity of these instruments. Fair values are based on quoted
market prices and assumptions concerning the amount and timing
of estimated future cash flows and assumed discount rates
reflecting varying degrees of perceived risk. Based upon
borrowing rates currently available to the Company with similar
terms, the carrying value of notes payable long-term debt and
capital lease obligations approximate fair value.
i. Revenue Recognition: The Company performs aircraft
modifications under fixed-price contracts. 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 (2) contracts in process.
j. Earnings Per Share: Earnings per common share is based on the
weighted average number of common shares outstanding during
the year. Stock options, convertible preferred, and convertible
debentures have been considered in the dilutive earnings per
share calculation, but not used in 1999 and 1998 and because they are
anti-dilutive.
k. New Accounting Pronouncements: In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities". The
Statement will require the Company to recognize all derivatives
on the balance sheet at fair value. SFAS No. 133 requires that
derivative instruments used to hedge be identified specifically to
assets, liabilities, unrecognized firm commitments or forecasted
transactions. The gains or losses resulting from changes in the
fair value of derivative instruments will either be recognized in
current earnings or in other comprehensive income, depending on
the use of the derivative and whether the hedging instrument is
effective or ineffective when hedging changes in fair value or
cash flows. This Statement, as amended, is effective for fiscal
years beginning after June 15, 2000. Management believes that
the adoption of this Statement will not have a material effect on
the Company's consolidated financial position, results of
operations or cash flows.
In March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal
Use". This SOP provides guidance on accounting for certain
costs in connection with obtaining or developing computer
software for internal use and requires that entities capitalize such
costs once certain criteria are met. The Company adopted SOP
98-1 as of January 1, 1999. The adoption of this SOP did not
have a material effect on the Company's consolidated financial
position, results of operations or cash flows.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the
Costs of Start-Up Activities". This SOP requires that entities
expense start-up costs and organization costs as they are
incurred. The Company adopted SOP 98-5 as of January 1,
1999. As the Company has expensed these costs historically, the
adoption of this SOP did not have a material effect on the
Company's consolidated financial position, results of operations
or cash flows.
In November 1999, the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin No. 100,
"Restructuring and Impairment Charges". In December 1999,
the SEC issued SAB No. 101, "Revenue Recognition in Financial
Statements". SAB No. 100 expresses the views of the SEC staff
regarding the accounting for and disclosure of certain expenses
not commonly reported in connection with exit activities and
business combinations. This includes the accrual of exit and
employee termination costs and the recognition of impairment
charges. SAB No. 101 expresses the views of the SEC staff in
applying accounting principles generally accepted in the United
States to certain revenue recognition issues. The Company does
not anticipate that these SAB's will have a material impact on its
financial position, results of operations or cash flows.
l. Stock-based Compensation: The Company accounts for non-
employee stock-based awards in which goods or services are the
consideration received for the equity instruments issued in
accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force No. 96-18, "Accounting for Equity
Instruments that are Issued to Employees for Acquiring, or in
Conjunction with Selling, Goods or Services".
m. Income Taxes: Amounts provided for income tax expense are
based on income reported for financial statement purposes and
do not necessarily represent amounts currently payable under tax
laws. Deferred taxes, which arise principally from temporary
differences between the period in which certain income and
expense items are recognized for financial reporting purposes
and the period in which they affect taxable income, are included
in the amounts provided for income taxes. Under this method,
the computation of deferred tax assets and liabilities give
recognition to enacted tax rates in effect in the year the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to amounts that the Company expects to realize.
n. Cash and Cash Equivalents: Cash and cash equivalents consist
primarily of cash and investments in a money market fund. The
Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The
Company maintains its cash in bank deposit accounts that, at
times, may exceed federally insured limits.
o. Concentration of Credit Risk: The Company extends credit to
customers based on an evaluation of their financial condition and
collateral is not required. The Company performs ongoing credit
evaluations of its customers and maintains an allowance for
doubtful accounts.
p. Reclassifications: Certain reclassifications within the financial
statement captions have been made to maintain consistency in
presentation between years.
The rest of this page intentionally left blank
<PAGE>
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% (9.75%
at April 30, 1999), due $ 471,575 $ 695,718
August 25, 1999, collateralized
by a first or second position
on all assets of the Company.
$ 471,575 $ 695,718
Other Notes Payable and Capital Lease
Note payable, interest at prime
plus 2%, (9.75% at April $ 239,051 $ 1,412,723
30, 1999) due May 24, 2004
collateralized by Aircraft
Security Agreement dated
November 3, 1998.
Note payable, interest at prime
plus 2% (9.75% at April 1,607,641 -
30, 1999) due August 1, 2003.
Note payable, interest at prime
plus 1%, (9.5% at April 388,291 398,813
30, 1999) due March 1, 2001
collateralized by real estate.
Note payable, interest at prime
plus 2% (9.75% at April 187,000 -
30, 1999) collateralized by a
first or second position on all
of the Company.
Note payable, interest at prime
plus 2% (9.5% at April 30, 1,089,040 -
1999) due May 13, 2009,
collateralized by a first or
second position of all assets of
the Company.
Other Notes Payable and Capital
Lease Obligations 254,961 178,725
3,765,984 1,990,261
Less: Current maturities 701,345 63,849
$ 3,064,639 $1,926,412
Maturities of long-term debt and capital
lease obligations are as follows:
Year Ending
30-Apr Amount
2000 $ 701,345
2001 1,110,000
2002 715,000
2003 749,000
2004 286,000
Thereafter 204,639
$ 3,765,984
<PAGE>
The Company has promissory notes in which it may borrow a
maximum of $500,000. The notes matured in August 1999, and were
renewed under similar terms each quarter. At April 30, 1999, the
Company had borrowed $471,574 on the notes. The weighted-
average interest rates were 10% and 10.25% for the years ended 1999
and 1998 respectively.
3. DISCONTINUED OPERATIONS:
On April 14, 1998, the Company discontinued the operation of its
food distribution operations conducted by RF, Inc., and Valu Foods,
Inc., wholly owned subsidiaries of the Company. These operations
were liquidated and the Company does not plan any future
operations in the food distribution industry.
The Company acquired RF, Inc., on April 21, 1994. The individuals
who sold RF, Inc. to the Company had sought for some time to
reacquire 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. 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. On June 21, 1997, 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. Costs associated with this transaction totaled
$1,054,000 and were expensed in fiscal year 1997. As a result of resolving
the dispute and the ultimate release from the employment agreement, the
Company received compensation and recorded a gain of $1,043,000, restated
herein, (principally noncash) in the first quarter of 1998.
On March 27, 1998, three 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.
The bank was to obtain control of all the assets of RF, Inc. and the
Company planned 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 $638,000, plus interest
and legal collection costs. The Company believed that an orderly
liquidation of the assets and the sale of the fixed assets would allow
the bank to recover the amount due on the bank line of credit.
As of April 30, 1998, the operations of RF, Inc. were deconsolidated
because of the Chapter 7 involuntary bankruptcy liquidation. The
entire investment in RF, Inc. was written-off through the 1998 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 1999, 1998, and 1997 were $0,
$3,783,132, and $17,478,540 respectively.
The Company also discontinued the operation of its retail food store,
Valu Foods, Inc. The Company planned 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 in fiscal 1998 was $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. have been
discontinued due to the planned closing of the wholly owned
subsidiary. The entire investment in Valu Foods, Inc. was written-off
through the 1998 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
$175,446 and inventory $24,779. The revenues associated with Valu
Foods, Inc., for the year ended 1998 were $143,550.
The bankruptcy court ruled July 20, 1999, on the bankruptcy filing of
the Company. Subsequent to April 30, 1998, the bank was not
allowed to immediately assume control of the collateralized assets for
liquidation and as such, required the Company to pay the bank the
amount due and the court costs in total, including interest, aggregating
$1,089,000. An a dditional charge for this payment and other fees
relating to RF, Inc. totalling $1,698,379 was recorded in fiscal year
1999.
4. CONVERTIBLE DEBENTURES:
The Company completed a private placement on June 26, 1996, in
which the Company issued an eight percent (8.0%) cumulative
convertible debenture due June 26, 1998, in the amount of $750,000.
Net proceeds of the offering were $675,000. The debenture is
convertible only to common stock at 70 percent of the average closing
price of the common stock for the five (5) days prior to issuance of
the debenture. At June 26, 1998, the end of the two-year term, the
balance not yet converted must be converted to common stock. The
eight percent (8.0%) interest is payable in stock or cash at the option
of the Company.
<PAGE>
The Company completed a private placement on November 1, 1996,
in which the Company issued an eight percent (8.0%) cumulative
convertible debenture due November 1, 1998, in the amount of
$500,000. Net proceeds of the offering were $450,000. The
debenture is convertible only to common stock at seventy percent
(70%) of the average closing bid price of the common stock for the
five days prior to issuance of the debenture. At November 1, 1998,
the end of the two-year term, the balance not yet converted must be
converted to common stock. The eight percent (8.0%) interest is
payable in stock or cash at the option of the Company.
The two aforementioned securities include nondetachable conversion
features that are "in the money" at the dates of issuance. These
features, known as beneficial conversion features, allow for securities
to be convertible into common stock at a fixed discount to the
common stock's market price at the date of conversion. These
features are recognized and measured by allocating a portion of the
proceeds equal to the intrinsic value of these features to additional
paid-in capital. These amounts are calculated as the difference
between the conversion price and the fair value of the common stock
into which the security is convertible, multiplied by the number of
shares into which the security is convertible. The allocation of the
proceeds is considered to be analogous to additional interest to the
security holder and is recognized over the minimum period in which
the security holders can realize that return.
The beneficial conversion features included in the two convertible
debt issuances have a value of $375,000. Because the conversion
period and thus the minimum realized return period is very limited,
the entire amount was amortized and recorded in fiscal year 1997.
See footnote 1 for further discussion.
On January 25, 1999, a change was made to the issuance documents
changing the conditions of the conversions. 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 eighty
percent (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 percent 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, and all past and future interest payments
were rescinded. At April 30, 1999, based on a bid price of $.25 of
the Company stock, the number of shares the debentures could be
converted into totalled 3,250,000.
The rest of this page intentionally left blank.
<PAGE>
5. INCOME TAXES:
Deferred taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax basis 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 $5.8 million of net operating losses,
which expire in 2002 to 2014.
The tax benefit of net operating losses generated prior to the quasi
reorganization in 1992 and utilized after the reorganization are
reflected as additions to capital contributed in excess of par (See
Note 6).
The deferred taxes are comprised of the following components:
April 30, 1999 April 30, 1998
as restated
Current deferred taxes -
Current assets $ 373,000 $ 416,843
Current liabilities - (610)
Total current deferred taxes 373,000 416,233
Noncurrent deferred taxes -
Non current assets 3,095,000 2,580,599
Non current liabilities (309,000) (297,070)
Total non current deferred taxes 2,786,000 2,283,529
Total deferred taxes 3,159,000 2,699,762
Less - Valuation allowance (3,159,000) (2,699,762)
Total deferred taxes, net $ - $ -
The tax effect of significant temporary differences representing deferred
tax assets and liabilities are as follows:
April 30, as Restated
1999 1998
Accounts receivable reserves $ 27,000 $ 30,352
Inventory reserve 309,000 309,285
Net operating loss 2,575,000 2,023,656
Depreciation (174,000) (283,314)
Indian gaming development 520,000 519,934
Accrued interest (135,000) -
Other 37,000 99,849
Net deferred tax items $ 3,159,000 $ 2,699,762
A reconciliation of the provision for income taxes to the statutory federal
rate for continuing operations is as follows:
1999 1998 1997
Statutory federal income tax rate -34.0% 34.0% -34.0%
Changes in valuation allowances 33.0% -36.7% 6.8%
Beneficial conversion feature 0.0% 0.0% 22.3%
Nondeductible expenses 1.0% 2.2% 1.6%
State taxes 0.0% 5.3% 3.9%
Effective tax rate 0.0% 4.8% 0.6%
<PAGE>
6. SHAREHOLDER'S EQUITY:
Quasi Reorganization
After completing a three-year program of restructuring the Company's
operation, on October 31, 1992, the Company adjusted the
accumulated deficit (earned surplus benefit) to a zero balance thereby
affording the Company a "fresh start." No assets or liabilities
required adjustment in this process as they had been recorded at fair
value. The amount of accumulated deficit eliminated as of October
31, 1992, was $11,938,813. Upon consummation of the
reorganization, all deficits in the surplus accounts were eliminated
against paid-in capital.
Common Stock Transactions
During the year ended April 30, 1999, the Company issued 3,713,658
shares of stock valued at $894,485 in various non-cash transactions:
2,089,126 shares valued at $732,787 were issued for services
rendered; 264,124 shares valued at $107,300 were issued as the
Company match to the employee 401-K plan; 1,258,012 shares were
issued under exchange provisions of the Preferred Stock; and 102,396
shares valued at $54,398 were issued for Preferred Stock dividends.
During the year ended April 30, 1998, the Company issued 2,035,453
shares of stock valued at $1,437,126 in various non-cash transactions:
193,000 shares valued at $144,750 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; 12,722 shares
valued at $11,450 were issued for services rendered; and 1,738,413
shares were issued under the exchange provisions of the convertible
and preferred debentures for $1,201,023 in face value plus interest.
During the year ended April 30, 1997, the Company issued 231,266
shares of stock valued at $446,208 less $10,966 of issue costs in
various non-cash transactions: 25,000 shares valued at $53,125 were
issued for services to be rendered in the future; 10,000 shares valued
at $21,250 were issued for other assets; 100,000 shares valued at
$200,000 were issued in connection with the assets acquisition of
Woodson Electronics, Inc.; 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.
Shares Issued for Future Services
In fiscal 1998 and 1997, the Company issued 193,000 and 25,000
shares of common stock, respectively, at a value of $144,750 and
$53,125, respectively, for professional services to be received in the
future. The deferred portion of these service contracts were being
recognized over the service period, (generally 24-60 months) and was
reflected as a reduction in equity until such time as the services are
received. Effective May 1, 1998, the unamortized balances of the
issue cost of the shares issued were expensed or transferred as
advances to the gaming related projects. These amounts are
recoverable under the terms of the approved management agreements.
Convertible Preferred Stock
The Company completed a private placement on December 16, 1997,
to issue Series B, 6 percent Convertible Preferred Stock in the amount
of $1,500,000. Dividends when declared, are payable quarterly at 6
percent of stated value per share. Net proceeds of the offering were
$1,315,959. The terms of conversion allow the holder, at its option,
at any time commencing 45 days after issuance of the preferred stock
to convert the preferred stock into shares of the Company's common
stock, at a conversion price equal to seventy percent (70%) of the
common stock bid price (the average of the ending common stock bid
price five days prior to issuance of the preferred stock or the ending
bid price of the common stock 45 days after issuance of the preferred
stock. The shares are subject to a mandatory, 24-month conversion
feature at the end of which all shares outstanding will be
automatically converted. Liquidation rights upon dissolution are
equal to the stated value per share and all unpaid dividends. The
preferred shareholders have no voting rights.
The aforementioned security includes a nondetachable conversion
feature that is "in the money" at the date of issuance. This feature,
known as beneficial conversion features, allows for securities to be
convertible into common stock at a fixed discount to the common
stock's market price at the date of conversion. This feature is
recognized and measured by allocating a portion of the proceeds
equal to the intrinsic value of this feature to additional paid-in capital.
This amount is calculated as the difference between the conversion
price and the fair value of the common stock into which the security is
convertible, multiplied by the number of shares into which the
security is convertible. The allocation of the proceeds is considered
to be analogous to a dividend to the preferred security holder and is
recognized over the minimum period in which the security holders
can realize that return.
The beneficial conversion feature included in the convertible
preferred stock debt issuances has a value of $650,000. Because the
conversion period and thus the minimum realized return period is
very limited, the entire amount was amortized and recorded in fiscal
year 1998. See footnote 1 for further discussion.
<PAGE>
On January 25, 1999, Butler National reached an agreement with the
Holders of the Class B Convertible Preferred Stock to change the
conversion conditions of the preferred stock. 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 percent 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 70
percent of the average bid price for the previous five (5) 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
week's trading volume. The Company issued 102,396 shares of its
stock valued at $54,398 in lieu of any past or future dividends. At
April 30, 1999 based on a bid price of $.25 of the Company stock the
number of shares the outstanding Preferred Stock could be converted
into totalled 3,960,000. 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.
7. STOCK OPTIONS AND INCENTIVE PLANS:
The Company has established nonqualified stock option plans to
provide key employees and consultants an opportunity to acquire
ownership in the Company. Options are granted under these plans at
exercise prices equal to fair market value at the date of the grant,
generally exercisable immediately and expire in 10 years. All options
terminate if the employee leaves the Company. 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 104.50% 98.00% 101.00%
Risk free interest rate 4.78% 6.07% 6.79%
Expected option lives 10 years 10 years 10 years
Fair value per option $ .19 $ 1.06 $ 1.67
Pro forma expense $ 459,420 $ 565,000 $ -
Pro forma net income (loss) $ (459,420) $ (546,847) $ -
Basic EPS effect $ (.04) $ (0.06) $ -
Fully diluted EPS effect $ (.04) $ (0.06) $ -
The following table summarizes the Option Plans.
1999 1998 1997
Beginning balance - Options
outstanding 6,375,800 3,157,900 2,549,064
Options granted 2,418,000 6,223,800 772,000
Options canceled/forfeited (2,514,500) (3,005,900) (151,164)
Options exercised (600,000) - (12,000)
Ending balance - Options
outstanding 5,679,300 6,375,800 3,157,900
Exercise price ranges $.50 to $.55 $.90 to $2.50 $2.00 to $3.00
Shares available for grants 25,000,000 20,123,100 379,000
Price range of options
exercised $.50 None $2.00
The options exercised in 1999 are included in shares issued for
services in Note 6 as the exercise price was exchanged for services
provided by the optionholder.
<PAGE>
8. COMMITMENTS:
Lease Commitments
The Company leases space under operating leases with initial terms
ranging from three (3) years to twenty (20) years. Minimum lease
commitments under noncancelable operating leases for the next five
(5) years are as follows:
Year Ending
30-Apr Amount
2000 $ 116,000
2001 97,000
2002 98,000
2003 33,000
2004 33,000
Thereafter 159,000
Total rental expense incurred for the years ended April 30, 1999,
1998 and 1997, was $259,000, $187,905 and $185,742, respectively.
9. 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 entire $194,000 was accrued in fiscal 1998.
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.
10. RELATED-PARTY TRANSACTIONS:
During fiscal 1999 and 1998, the Company paid consulting fees of
approximately $135,443 and $231,055 to board members and board
member's consulting companies for business consulting services. In
fiscal 1999 the Company advanced as part of the Indian Gaming
Advances $350,320 to board members and board members consulting
companies for business consulting services.
11. 401(K) SAVINGS PLAN
The Company has a defined contribution plan authorized under
Section 401(k) of the Internal Revenue Code. All benefits-eligible
employees with at lease one year of service are eligible to participate
in the plan. Employees may contribute up to twelve percent of their
pre-tax covered compensation through salary deductions. The
Company contributed 100 percent of every pre-tax dollar an
employee contributes. Employees are 100 percent vested in the
employer's contributions after five years of service. All employer
contributions are tax deductible by the Company. The Company's
matching contribution expense in 1999 and 1998 was approximately $107,300 and
$79,910.
12. 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. This
transaction will take place in fiscal 2001.
<PAGE>
13. COMMON SHARES USED IN EARNINGS 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 potential dilutive common stock.
<TABLE>
1999 1998 1997
(As Restated (As Restated
See Note 1) See Note 1)
<S> <C> <C> <C>
Earnings (losses) available for
Common shares $(1,980,093) $ 18,153 $(1,263,308)
Convertible debentures - - -
Preferred dividend (54,398) - -
Earnings (losses) available for
common shares after assumed (2,034,491) $ 18,153 $(1,263,308)
conversion of dilutive
securities
Earnings (loss) per share -
Basic -
Earnings from
continuing operations $ (0.03) $ (0.03) $ (0.06)
Income (loss) from/on
discontinued operations (0.14) 0.03 (0.07)
Earnings (loss)
available for common
shares $ (0.17) $ - $ (0.13)
Earnings (loss) per share -
Diluted -
Earnings from
continuing operations $ (0.03) $ (0.03) $ (0.06)
Income (loss) from/on
discontinued operations (0.14) 0.03 (0.07)
Earnings (loss)
available for common
shares $ (0.17) $ - $ (0.13)
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
securities - - -
Convertible preferred
securities - - -
Options - - 8,108
Weighted number of common
shares and dilutive potential
common sharesused in dilutive
EPS 11,845,875 9,418,330 9,419,276
</TABLE>
<PAGE>
13. INDUSTRY SEGMENTATION AND SALES BY MAJOR CUSTOMER:
Industry Segmentation
The Company's operations have been classified into six segments in
1999, 1998 and 1997.
1. 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.
2. 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.
3. Aircraft Sales - acquires, modifies and resells aircraft, principally
Learjets.
4. Gaming - Business management services to Indian tribes in
connection with the Indian Gaming Act of 1988. (Beginning in fiscal
1994).
5. Monitoring Services - principally includes the monitoring of
water and wastewater remote pumping stations through electronic
surveillance, for municipalities and the private sector.
6. Temporary Services - provides temporary employee services for
corporate clients.
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<PAGE>
<TABLE>
Year ended April 30, 1999
Gaming Avionics Modifications
<S> <C> <C> <C>
Net Sales - $ 465,830 $ 3,117,138
Depreciation - 33,667 110,469
Operating profit (loss)(a) $ 52,765 (46,370) (284,709)
Capital Expenditures 1,704,319 - 140,034
Interest, net
Other expense
Loss from continuing
operations
Income taxes
Loss from discontinued
operations
Net loss
Identifiable assets $ 5,131,363 $ 594,496 $ 4,371,602
Services Aircraft Corporate
Net Sales $ 929,153 $ 2,100,000 -
Depreciation 23,851 - $ 55,170
Operating profit (loss)(a) 14,809 600,000 (560,892)
Capital Expenditures 16,867 - 64,953
Interest, net
Other expense
Loss from continuing
operations
Income taxes
Loss from discontinued
operations
Net loss
Identifiable assets $ 225,742 $ 295,281 $ 1,110,207
Consolidated
Net Sales $ 6,612,121
Depreciation 223,157
Operating profit (loss)(a) (224,397)
Capital Expenditures 1,926,173
Interest, net (36,591)
Other expense (57,317)
Loss from continuing
operations (281,714)
Income taxes -
Loss from discontinued
operations (1,698,379)
Net loss $ (1,980,093)
Identifiable assets $ 11,728,691
Year ended April 30, 1998 (Restated)
Gaming Avionics Modifications
<S> <C> <C> <C>
Net Sales - $ 484,518 $ 3,874,490
Depreciation - 12,870 91,075
Operating profit(loss)(a) $ (322,129) 146,744 1,274,320
Capital Expenditures 1,773,248 - 8,871
Interest, net
Other income
Loss from continuing
operations
Income taxes
Loss from discontinued
operations
Net income
Identifiable assets $ 3,062,941 $ 1,068,999 $ 3,874,974
Services Aircraft Corporate
Net Sales $ 1,097,098 - -
Depreciation 10,831 - $ 32,453
Operating profit(loss)(a) 228,488 - (672,729)
Capital Expenditures 23,904 - 648,560
Interest, net
Other income
Loss from continuing
operations
Income taxes
Loss from discontinued
operations
Net income
Identifiable assets $ 135,629 $ 1,816,281 $ 911,621
Consolidated
Net Sales $ 5,456,106
Depreciation 147,229
Operating profit(loss)(a) 654,694
Capital Expenditures 2,454,583
Interest, net (251,420)
Other income 15,540
Loss from continuing
operations 418,814
Income taxes 19,880
Loss from discontinued
operations 269,219
Net income $ 668,153
Identifiable assets $ 10,870,445
Year ended April 30, 1997 (Restated)
Gaming Avionics Modifications
<S> <C> <C> <C>
Net Sales - $ 277,513 $ 2,724,217
Depreciation - 34,629 31,071
Operating profit(loss)(a) $ (243,728) 123,571 501,984
Capital Expenditures 397,870 (8,268) -
Interest, net
Other expense
Loss from continuing
operations
Income taxes
Loss from discontinued
operations
Net loss
Identifiable assets $ 1,543,786 $ 1,015,001 $ 3,949,256
Services Aircraft Corporate
Net Sales $ 1,060,045 - -
Depreciation 6,031 - $ 32,453
Operating profit(loss)(a) 230,738 - (318,807)
Capital Expenditures - - 340,738
Interest, net
Other expense
Loss from continuing
operations
Income taxes
Loss from discontinued
operations
Net loss
Identifiable assets $ 313,374 $ 1,816,281 $ 1,432,310
Consolidated
Net Sales $ 4,061,775
Depreciation 71,731
Operating profit(loss)(a) 293,758
Capital Expenditures 730,340
Interest, net (632,106)
Other expense (232,869)
Loss from continuing
operations (571,217)
Income taxes 3,416
Loss from discontinued
operations (688,675)
Net loss $ (1,263,308)
Identifiable assets $ 10,070,008
</TABLE>
(a) Operating expenses not specifically identifiable are allocated based
upon sales, costs of sales, square footage or other factors as
considered appropriate.
(b) Segment of Temporaries had no activity in the three year period ended
April 30, 1999.
<PAGE>
Major Customers: Sales to major customers (10 percent or more of
consolidated sales) were as follows:
1999 1998 1997
Aircraft modifications (GFD) 14% 16% 21%
Monitoring services (Plantation) - 12% 16%
Aircraft sales (Private corporation) 32% - -
Total major customers 56% 28% 37%
<TABLE>
SCHEDULE II
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997 (1998 AND 1997 RESTATED)
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions of Year
<S> <C> <C> <C> <C>
Year ended April 30, 1999
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
Reserve for Indian
gaming development 3,008,508 - (289,580) 2,718,928
Deferred interest (1) - (135,000) - (135,000)
Income tax valuation
allowance 2,699,762 459,238 - 3,159,000
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
Reserve for Indian gaming
development 2,845,629 162,879 - 3,008,508
Income tax valuation
allowance 2,518,271 237,778 56,287 2,699,762
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
Reserve for Indian gaming
development 2,601,901 243,728 - 2,845,629
Income tax valuation
allowance 2,239,298 278,973 - 2,518,271
</TABLE>
(1) Interest to be paid as part of the note payable on discontinued
operations.
<PAGE>
