SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the
X Securities Exchange Act of 1934
For the quarter ended January 31, 2000
Transition Report Pursuant to Section 13 or 15 (d) of the
Security Exchange Act of 1934
For the quarter ended January 31, 2000
Commission File Number 0-1678
BUTLER NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 41-0834293
(State of incorporation) (I.R.S. Employer Identification No.)
19920 West 161st Street, Olathe, Kansas 66062
(Address of Principal Executive Office)(Zip Code)
Registrant's telephone number, including area code: (913) 780-9595
Former Name, former address and former fiscal year if changed since last
report:
Not Applicable
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months and (2) has been subject to such filing
requirements for the past ninety days: Yes X No ______
The number of shares outstanding of the Registrant's Common Stock,
$0.01 par value, as of January 31, 2000, was 21,171,980 shares.
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION:
Page No.
Consolidated Balance Sheets - January 31, 2000
and April 30, 1999 (not audited)........................ 3
Consolidated Statements of Income - Three
Months ended January 31, 2000 and 1999.................. 4
Consolidated Statements of Income - Nine
Months ended January 31, 2000 and 1999.................. 5
Consolidated Statements of Cash Flows - Nine
Months ended January 31, 2000 and 1999.................. 6
Notes to Consolidated Financial Statements................. 7-10
Management's Discussion and Analysis
Financial Condition and Results of Operations........... 10-14
PART II.
OTHER INFORMATION.......................................... 15
SIGNATURES................................................. 16
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS 01/31/00 4/30/99
(unaudited) (unaudited)
Current Assets:
Cash $ 118,744 $164,923
Accounts receivable, net of allowance for
doubtful accounts of $68,886 at January 31, 479,000 451,334
and $68,886 at April 30, 1999
Note receivable - current 647,285 647,285
Contracts in process - 405,937
Inventories:
Raw materials 1,179,599 1,216,098
Work in process 288,250 333,399
Finished goods 109,931 68,310
----------------------------
1,577,780 1,617,807
Prepaid expenses and other assets 6,309 72,634
----------------------------
Total current assets 2,829,118 3,359,920
Note receivable 2,176,694 2,730,708
Supplemental Type Certificates 1,352,819 1,392,611
Property, Plant and Equipment:
Land & Building 673,878 673,878
Machinery and equipment 1,198,551 1,198,541
Office furniture and fixtures 608,412 585,968
Leasehold improvements 33,959 33,959
----------------------------
Total cost 2,514,800 2,492,346
Accumulated depreciation (1,435,833) (1,275,145)
----------------------------
1,078,967 1,217,201
Other Assets (Note 1):
Deferred costs of Indian Gaming 2,192,127 2,162,120
Aircraft and aircraft parts 1,620,666 460,281
Other assets 57,438 91,910
----------------------------
Total Other Assets 3,870,231 2,714,311
Total assets $11,307,829 $11,414,751
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY 01/31/00 4/30/99
(unaudited) (unaudited)
Current Liabilities:
Bank overdraft payable $ 56,782 $119,942
Promissory notes payable 438,035 471,575
Current maturities of long-term debt 827,613 571,345
Accounts payable 648,037 715,840
Customer Deposits 10,000 582,314
Accrued liabilities -
Compensation and compensated absences 97,266 99,190
Other 166,674 199,851
----------------------------
Total current liabilities 2,244,407 2,760,057
Long-Term Debt, net of current maturities 3,903,104 2,105,596
Convertible debentures 503,000 650,000
Other liabilities - 769,319
----------------------------
Total liabilities 6,650,511 6,284,972
Commitments and contingencies:
Liabilities of discontinued operations - -
Shareholders' equity:
Preferred stock, par value $5:
Authorized, 200,000 shares, all classes
$1,000 Class B, 6%, cumulative if earned,
liquidation and redemption value $1,000,
issued and outstanding, 693 shares in
1999 & 173,445 439 shares at 1/31/00 173,445 313,603
Common stock, par value $.01:
Authorized, 40,000,000 shares
Issued 15,387,087 in 1999 and
21,171,980 at Jan. 31, 2000, 211,720 153,871
Common stock warrants 8,807 8,807
Capital contributed in excess of par 8,177,201 8,282,731
Note receivable from officer arising from
stock purchase agmt. - -
Unearned service contracts (434,376) (434,376)
Treasury stock, at cost (No preferred at 1/30
& no preferred in 1999) (1,200,000) (1,537,240)
and common 600,000 at 01/31 & 775,000
at 4/30/99)
Retained earnings (2,279,479) (1,657,617)
(Deficit of $11,938,813 eliminated
October 31, 1992)
-----------------------------
Total shareholders' equity 4,657,318 5,129,779
-----------------------------
Total liabilities and
shareholders' equity $ 11,307,829 $11,414,751
======== ========
The accompanying notes are an integral part of these balance sheets.
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
January 31,
2000 1999
(unaudited) (unaudited)
Net sales $ 980,605 $ 594,994
Cost of sales 857,851 600,538
---------- ----------
122,754 (5,544)
Selling, general and administrative expenses 601,464 582,929
---------- -----------
Operating income (loss) (478,710) (588,473)
Other income (expense):
Interest expense (93,009) (74,466)
Interest revenue 79,811 87,799
Other expense 513 (4,616)
---------- ------------
Other income (expense) (12,685) 8,717
Income (loss) from continuing operations (491,395) (579,756)
Profit or (loss) from discontinued operations - -
---------- ------------
Income (loss) before taxes (491,395) (579,756)
Provision for income tax (benefit) 206,386 243,498
---------- ------------
Net income (loss) $ (285,009) $ (336,258)
========= =========
Basic earnings (loss) per common share (.02) (.03)
Shares used in per share calculation 15,781,554 11,302,885
Diluted earnings (loss) per common share (.01) (.03)
Shares used in per share calculation
(see Note 7) 22,789,054 12,737,885
The accompanying notes are an integral part of these statements.
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED
January 31,
2000 1999
(unaudited) (unaudited)
Net sales $3,780,281 $4,866,961
Cost of sales 2,782,115 4,094,205
---------- ----------
998,166 772,756
Selling, general and administrative expenses 1,627,159 1,017,724
---------- ----------
Operating income (628,993) (244,968)
Other income (expense):
Interest expense (240,662) (162,693)
Interest income 244,897 119,285
Other expense 2,897 24,521
---------- ----------
Other income (expense) 7,132 (18,887)
---------- ----------
Income (loss) from continuing operations (621,861) (263,855)
Profit or (loss) on discontinued operations - (259,989)
Income(loss) before taxes (621,861) (523,844)
Provision for income tax (benefit) 261,182 220,014
---------- ----------
Net income (loss) $ (360,679) $ (303,830)
======== =========
Basic earnings (loss) per common share (.02) (.03)
Shares used in per share calculation 15,781,554 11,302,885
Diluted earnings (loss) per common share (.02) (.02)
Shares used in per share calculation
(see Note 7) 22,789,054 12,737,885
========== ==========
The accompanying notes are an integral part of these statements.
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended January 31,
2000 1999
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ (360,679) $ (303,830)
Adjustments to reconcile income to
net cash used in operations:
Deferred income taxes (benefit) (261,182) (220,014)
Depreciation 160,688 153,794
Amortization of intangible assets 39,792 79,658
Provision for uncollectible accounts - -
Gain on retirement of fixed asset - -
Provision for obsolete inventories - -
Amortization of service contracts - 78,399
Changes in assets and liabilities:
Accounts receivable (27,666) 65,388
Contracts in process 405,937 551,610
Inventories 40,027 (424,690)
Supplemental Type Certificates - (40,628)
Prepaid expenses and other current assets 66,325 6,256
Other assets (1,125,913) 6,832
Accounts payable (67,803) 270,325
Bank overdraft payable (63,160) -
Customer deposits (572,314) 42,708
Accrued liabilities 67,899 (114,189)
Settlement agreement - 9,592
Note Receivable 554,014 41,733
Note payable 215,230 -
---------- ----------
Total adjustments (568,126) 506,774
---------- ----------
Cash used in operations (928,805) 202,944
---------- ----------
Cash flows from investing activities:
Capital expenditures, net (22,454) (64,001)
Deferred costs of Indian Gaming (30,007) (814,031)
Aircraft and aircraft parts - -
---------- ----------
Cash used in investing activities (52,461) (878,032)
---------- ----------
Cash flows from financing activities:
Net borrowing under promissory notes (33,540) -
Proceeds from long term debt 1,405,000 2,008,477
Retirement of convertible debentures - -
Repayments of long-term debt and lease
obligations (438,773) (1,478,947)
Stock issuance for conversions and other 2,400 -
Note receivable & redemption of common stock - -
---------- ---------
Cash provided by (used in) financing
activities 935,087 678,144
---------- ---------
Net increase (decrease) in cash (46,179) 3,056
Cash, beginning of period 164,923 160,598
---------- ---------
Cash, end of period $ 118,744 $ 163,654
Supplemental disclosures of cash flow
information:
Interest paid $ 240,662 $ 162,693
Income taxes paid - 10,000
The accompanying notes are an integral part of these statements.
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with the instructions to Form 10-Q of Regulation S-X
and do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of the management of the Company, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation have been
included. Operating results for the three months and nine months ended
January 31, 2000 are not indicative of the results of operations that may be
expected for the year ending April 30, 2000.
For further information, refer to the Consolidated Financial Statements
and Footnotes included in the Registrant's Annual Report on Form 10-K for the
year ended April 30, 1999.
2. On June 26, 1996, the Company completed a private placement in which the
Company issued a 8.0% cumulative convertible debenture due June 26, 1998 in
the amount of $750,000. Interest to be paid at time of conversion either in
cash or kind at the option of the Company. Net proceeds of the offering were
$675,000, after deducting the expenses of the offering. The proceeds of the
offering was utilized for relocation of the Avionics segment and additional
aircraft product development.
3. Indian Gaming: The Company 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 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.
The Company has capitalized approximately $2,823,979 and $3,377,993 at
January 31, 2000 and April 30, 1999, respectively, related to the development
of Indian gaming facilities. These amounts are net of reserves of $2,192,127
and $2,162,120 at January 31, 2000 and April 30, 1999 respectively. 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 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. At April 30,
1999, the Company had advanced $3,500,000 to the Tribes under the contract
and had reported $647,285 as a current note receivable and $2,730,708 as a
long-term note receivable. Security under the contract includes the Tribe's
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.
4. The Company had an employment agreement with an individual which the
Company terminated in April 1995. This individual filed a lawsuit against the
Company, the President of the Company and various corporate subsidiaries
alleging the Company wrongfully terminated the individual's employment in
breach of the contract. The suit was filed in October, 1995, in State Court
in Johnson County, Kansas. The Company and the individual reached an
agreement to settle and release all claims and counterclaims on May 1, 1997.
The individual dismissed the lawsuit with prejudice. The terms of the
Settlement Agreement include payments by the Company to the individual during
fiscal 1998 and fiscal 1999 respectively.
5. On May 1, 1996, the Company acquired certain assets of Woodson Electronics,
Inc. (WEI). The Company received a portion of WEI's operating rights and
assets in exchange for 80,000 shares of stock with a fair market value of
$160,000. The Company also entered into a Non-Exclusive Consulting, Non-
Disclosure and Non-Compete Agreement with Thomas E. Woodson, which provides
for the issuance of 20,000 shares of the Company's common stock and $36,000
to be paid out over 24 months. WEI is engaged in the business of designing,
manufacturing, improving, marketing, maintaining, and providing, directly and
with the assistance of others, data acquisition, alarm monitoring and
reporting products and services related to such products. WEI supplies the
monitoring products to Butler National Services, Inc. During the first
quarter of fiscal 1997, the Company relocated its Woodson Avionics business
segment, along with the newly acquired operating rights and assets of WEI
to Phoenix, Arizona.
6. After completing a three year program of restructuring the Company's
operation on October 31, 1992, by using quasi reorganization accounting, the
Company was able to adjust the accumulated deficit to a zero balance thereby
affording the Company a "fresh start". No assets or liabilities required
adjustment in this process. The amount of accumulated deficit and capital
contributed in excess of par removed as of October 31, 1992, was $11,938,813.
7. Income per common and common equivalent share are based on the weighted
average number of common shares outstanding during the quarters ended January
31, 2000 and 1999. Stock options are included in 1999 and 1998 as common stock
equivalents to the extent that they are dilutive. The Convertible debenture
is included in fiscal 1998 and fiscal 1999 as a common stock equivalent since
the debenture is dilutive. The convertible preferred stock is included in
1999 since the convertible preferred stock is dilutive. Shares used in the
per share computations are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
January 31, January 31,
2000 1999 2000 1999
Common shares outstanding
beginning of period 22,171,908 12,009,635 17,217,875 10,436,549
Cumulative increase in 315,638 588,455 1,507,037 1,884,556
weighted average due to
Common Stock Equivalent
net of treasury stock
Cumulative increase in 35,608 - 1,628,151 -
weighted average due to
Convertible Debenture
Cumulative increase in - - - -
weighted average due to
issues per acquisition
and consulting agreements
Cumulative increase in 265,903 139,795 2,435,991 416,780
weighted average due to
Convertible Preferred
Cumulative increase in - - - -
weighted average due to
issues per Nonqualified
Stock Option Plans
---------- ---------- ---------- ---------
Weighted average shares,
end of period 22,789,054 12,737,885 22,789,054 12,737,885
8. The distribution of revenue and expense between the gaming and non-gaming
segments is shown below. Gaming revenue is the management fees due Butler
National Service Corporation under the terms of the Management Agreement with
the Indian tribes. Interest revenue exceeds interest expense because the note
receivable to the Company from the Stables exceeds the Company's debt to
Miller & Schroeder. The Stables is amortizing the note over the five year
contract term. These amounts are presented without an audit of the Company
or the Stables. The segment revenue and/or the distribution of costs between
the segments are subject to change as the individual segments are audited.
For the quarter ended January 31, 2000
Non-gaming Gaming
Segments Segment Consolidated
Net sales 902,206 78,399 980,605
Cost of sales 857,851 - 857,851
_______________________________________
44,355 78,399 122,754
Selling, general and
administrative expenses 500,219 101,245 601,464
_______________________________________
Operating income (455,864) (22,846) (478,710)
Other income (expense):
Interest expense (55,439) (37,570) (93,009)
Interest revenue 327 79,484 79,811
Other income (expense) 13 500 513
_______________________________________
Other expense (55,099) 42,414 (12,685)
Income (loss) continuing
operations before taxes (510,963) 19,568 (491,395)
=======================================
For the nine months ended January 31, 2000
Non-gaming Gaming
Segments Segment Consolidated
Net sales 3,537,118 243,163 3,780,281
Cost of sales 2,782,115 - 2,782,115
_______________________________________
755,003 243,163 998,166
Selling, general and
administrative expenses 1,297,990 329,168 1,627,158
_______________________________________
Operating income (542,987) (86,005) (628,992)
Other income (expense):
Interest expense (125,347) (115,315) (240,662)
Interest revenue 335 224,562 244,897
Other income (expense) 351 2,545 2,896
_______________________________________
Other expense (124,661) 131,792 7,131
Income (loss) continuing
operations before taxes (667,648) 45,787 (621,861)
=======================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview: Consolidated sales were $3,780,281 for the nine months ended January
31, 2000, compared to $4,866,961 for the nine months ended January 31, 1999,
a decrease of 22.3%. Sales for the third fiscal quarter were $980,605
compared to $594,994 for the three months ended January 31, 1999. Sales for
the nine month period decreased in the Avionics segment (24%), and increased
in the Monitoring Services segments (24%), and decreased in the Aircraft
Modifications segment (37%).
The Company recorded a net (loss) of $(360,679) for the first nine months of
fiscal 2000 compared to a loss of $303,830 in the same period of fiscal 1999.
Income was a loss of $(285,009) in the current quarter compared to a loss of
$(336,258) in the comparable period of fiscal 1999.
Selling, General and Administrative expenses increased $18,535 in the current
quarter and increased $609,435 for the nine months ending January 31, 2000.
Aircraft Modifications (Avcon Industries, Inc.): Sales at Avcon Industries,
Inc. decreased $1,391,383 (37%) from $3,779,710 in the first nine months of
the prior year to $2,388,327 in the first nine months ending January 31,
2000. Gross profit decreased from $299,945 in the nine months ending January
31, 1999 to $235,756 in the nine months ending January 31, 2000. Third
quarter fiscal 2000 sales were $660,529 compared to $238,559 in fiscal 1999.
Third quarter gross profit was a loss of $(40,740) and a loss of $170,824,
respectively. The fiscal 1998 sales included the sale of a learjet for
$1,200,000.
Avionics (Woodson Avionics, Inc.): Avionics sales were $283,100 for the
nine months ended January 31, 2000 compared to $335,194 in the comparable
period of the preceding year, a decrease of 15%. The decrease was a result
of reduced sales to the Boeing McDonnell division. Operating earnings for
the nine months ended January 31, 2000, were $(99,803) compared to a loss of
$(25,634) for the nine months ended January 31, 1999. The Company believes
the sales volume will remain relatively stable with steady growth from new
projects for the next few years and hopes.
SCADA Systems and Monitoring Services (Butler National Services, Inc.):
Sales for the nine months ended January 31, 2000 were $886,595 compared to
sales of $713,079 for the comparable period of the prior year an increase of
24%. Sales were up when compared to the prior year because of a special
project completed in fiscal year 2000. Gross profit for the nine months
ended January 31, 2000, was $363,488 compared to $273,758 for the nine months
ended January 31, 1999. Sales for the third quarter of fiscal 2000 were
$193,203, a decrease of $43,761 from the same quarter of fiscal 1999.
Temporary Services (Butler Temporary Services, Inc.): This segment did not
recognize any revenue in the third quarter of fiscal 1999 and fiscal 2000.
When the Company and the Tribes open the Kansas Indian gaming facilities,
management expects that a majority of the personnel in the various Indian
gaming enterprises will be staffed by Temporary Services.
Indian Gaming Management: This segment earned net income of $19,568
during the current quarter and approximately $45,787 for the nine months.
(See comments under the Stables).
Management Services (Butler National Services Corporation):
-General-
The Company received approximately $243,163 in management fees, $244,561 of
interest income and reduced its debt by approximately $238,706 in the first
nine months of fiscal 2000 associated with its continued efforts to explore
service opportunities related to the Indian Gaming Act of 1988. Under the
terms of an intercompany management agreement, management services is charged
$33,333 per month for administrative costs.
The Company advances funds under the management consulting agreements with
the Indian Tribes. Funds advanced for the tribes were used to purchase land,
land improvements, and professional design fees related to the development of
Indian Gaming facilities. Included in this receivable is 160 acres of land,
located adjacent to the Linn Valley Lakes resort and residential development
in Linn County, Kansas, and a group of selected lots within the resort
development. The Company has a net receivable value of $2,192,127 on the
balance sheet as deferred advances under Indian Gaming agreements related to
projects other than the Stables. The Company believes that in the event that
the Indian tribes were unable to repay the advances, that this tract could be
developed and sold for residential and commercial use, other than Indian
gaming. Additional improvements, including access roads, water and sewer
services, etc. are planned for this land. After these improvements, the land
may be sold in small tracts. In the event of default, this may allow the
Company to recover the majority, if not all, of the $2,192,127 advancement.
-Princess Maria Casino-
The Company entered into a consulting agreement with the Miami Tribe on June
11, 1992. As a part of this agreement the Company has a management agreement
with the Miami Tribe to provide management services to the Miami Tribe. The
Tribe requested a compact with the State of Kansas for Class III Indian
gaming, on Indian land, known as the Maria Christiana Miami Reserve No. 35,
located in Miami County, Kansas, on July 9, 1992.
The Miami Tribe's 1992 compact was the subject of a lawsuit filed in February
1993, in the Federal District Court, by the Miami Tribe, alleging the failure
to negotiate a compact in good faith by the State of Kansas. The United States
District Court dismissed the Miami Tribe's suit against the State of Kansas,
citing the United States Supreme Court's ruling in Seminole v. State of
Florida. The Supreme Court ruled that the "failure to negotiate" provision
of the IGRA did not allow an Indian tribe to compel a state by litigation to
negotiate a compact.
In February, 1993, former Kansas Governor Finney requested a determination of
the suitability of the Miami Indian land for Indian Gaming, under the IGRA,
from the Bureau of Indian Affairs (the "BIA"). In May, 1994, the NIGC again
requested the same determination. Finally, in May, 1995, an Associate
Solicitor within the BIA issued an opinion letter stating that the Miami
Tribe has not established jurisdiction over the Miami land in Kansas. This
was the first definitive statement received from the central office of the
BIA in three years. The latest opinion is contrary to a September, 1994
opinion of the Tulsa Field Solicitor, in an Indian probate, stating that the
Miami Tribe has jurisdiction over the Miami Indian land in Kansas. On July
11, 1995, the U.S. Department of Justice issued a letter to the Associate
Solicitor expressing concern about the conclusions reached, based upon the
analysis of the case.
The Miami Tribe challenged this opinion in Federal Court. To prove and
protect the sovereignty of the Miami Tribe, and other Indian tribes, relating
to their lands, on April 11, 1996, the Court ruled that the Miami Tribe did
not have jurisdiction because the BIA had not approved the Tribal membership
of the Princess Maria heirs, at the time the management agreement was
submitted; therefore, the Court ordered that the NIGC's determination (that
Reserve No. 35 is not "Indian land", pursuant to IGRA) was affirmed. However,
the Court noted in its ruling that nothing precludes the Tribe from
resubmitting its management agreement to the NIGC, along with evidence of the
current owners' consent, and newly adopted tribal amendments. On February
22, 1996, the BIA approved the Miami Tribe's constitution and the membership
of the heirs. The Tribe resubmitted the management agreement. Although the
Court noted that the Tribe could resubmit the management agreement, the Court
did not pass on whether or not a new submission will obtain approval.
The Tribe resubmitted the management agreement and the land question to the
NIGC in June, 1996. In July, 1996, the NIGC again requested an opinion from
the BIA. On July 23, 1997, the Tribe and the Company were notified that the
BIA had again determined that the land was not suitable for gaming, for
political policy reasons, without consideration of the membership in the
Miami Tribe or recent case law, and the NIGC had to again deny the management
agreement. The Tribe filed a suit in the Federal District Court in Kansas
City, Kansas. On May 15, 1998 the Court determined that the land was
suitable for gaming and remanded the case to the BIA for the documentation.
Therefore, even though the Company and the Tribe believe the BIA will agree
with the Court that the land is "Indian land", and in compliance with all
laws and regulations, for a variety of reasons, there is no assurance that
the management agreement will be approved.
In the fall of 1998, the United States District Court for the District of
Kansas ruled that the Princess Maria Miami Reserve No. 35 was suitable for
Indian gaming under the IGRA. As a result of this determination and the
final approval of the Management Agreement on January 7, 2000, the reserve
of the advances to the Miami Tribe of Oklahoma under the consulting
agreement and management agreement was reduced $650,846. Increases
and decreases to a reserve for each Indian gaming consulting engagement are
reported as expenses or income of the gaming segment. The total advances to
the engagements less the balance of the reserves are reported as net on the
consolidated financial statements.
-Stables Bingo and Off-Track Betting-
Additionally, the Company has a signed Management Agreement with the Miami
and Modoc Tribes. A class III Indian Gaming Compact for a joint-venture by
the Miami and Modoc Tribes, both of Oklahoma, has been approved by the State
of Oklahoma and by the Assistant Secretary, Indian Affairs for the U.S.
Department of the Interior. The Compact was published in the Federal
Register on February 6, 1996, and is therefore, deemed effective. The
Compact authorizes Class III (Off-Track Betting "OTB") along with Class II
(high stakes bingo) at a site within the City of Miami, Oklahoma.
The Company provides consulting and construction management services in the
development of the facility and manages the joint-venture operation for the
tribes. The STABLES facility is approximately 22,000 square-feet and located
directly south of the Modoc Tribal Headquarters building in Miami. The
complex contains off-track betting windows, a bingo hall, sports bar, and a
restaurant. The Company's Management Agreement was approved by the NIGC on
January 14, 1997. Under the Management Agreement, as approved, the Company,
as manager, receives a 30% share of the profits and reimbursement of advances.
Construction on the STABLES began with the ground breaking on March 27, 1997
and opened September 21, 1998. The project cost was approximately $3,500,000.
Funds have been provided from the Company's operations and long-term financing
for the project was arranged through Miller & Schroeder Investments
Corporation. The loan is in the amount of $1,850,000 at a rate of Prime plus
2%. Commencing on September 1, 1998 through August 1, 2003 monthly
installments of principal and interest are being made to amortize the note.
As a part of the Management Contract approved by the NIGC on January 14, 1997,
between the Company's wholly owned subsidiary, Butler National Service
Corporation, and the Miami Tribe of Oklahoma and the Modoc Tribe of Oklahoma
(the "Tribes"); the Company agreed to loan the Tribes $3,500,000 at 2% over
prime, to be repaid over five years, for the construction and operation of
the Stables gaming establishment. At April 30, 1999, the Company had advanced
a total of $3,500,000 to the Tribes under the contract and reported $647,285
current note receivable and $2,730,708 long-term note receivable. Security
under the contract includes the Tribes' profits from all tribal gaming
enterprises and all assets of the Stables except the land and building. The
Stables grand opening was October 1, 1998. Since opening, the Company has
received payments from the Stables to reduce the Company's loan from Miller &
Schroeder by approximately $481,064 and interest income of $446,202. During
the third quarter of fiscal 2000, $78,400 of undistributed management fee
revenue was recognized.
-Shawnee Reserve No. 206-
In 1992, the Company signed a consulting agreement and has maintained a
business relationship with approximately seventy Indian and non-Indian heirs
(the "Owners") of the Newton McNeer Shawnee Reserve No. 206 ("Shawnee Reserve
No. 206"). This relationship includes advances for assistance in the defense
of the property against adverse possession (by one family member) in exchange
for being named the manager for any Indian gaming enterprises that may be
established on the land. As a result of the Company's assistance, the Owners
are in the process of becoming the undisputed beneficial owners of
approximately 72 acres of the Shawnee Reserve No. 206, as ordered by the
United States District Court for the District of Kansas. The Company has
advanced funds to purchase an additional 9 acres contiguous to the Indian
land providing access.
Shawnee Reserve No. 206 has been a part of the Shawnee Reservation in Kansas
Territory since 1831 and was reserved as Indian land and not a part of the
State of Kansas, when Kansas became a state in 1861. The Indian land is
located on West 83rd Street, within the boundaries of Johnson County, Kansas
and the Kansas City metro area, approximately 25 miles southwest from
downtown Kansas City, Missouri.
The Company maintains a relationship and has a consulting agreement to assist
with the proposed establishment. This agreement is signed by the owners and
the Shawnee Tribe of Oklahoma. The Shawnee Tribe of Oklahoma is not a
federally recognized tribe. The tribe, sometimes known as the Loyal Shawnee
Tribe, is a tribe organized by a 1960 federal resolution operating within and
as a part of the federally recognized Cherokee Nation of Oklahoma. The
Indian Owners of Shawnee Reserve No. 206 have federal Indian membership cards
showing them to be Cherokee-Shawnee members of the Cherokee Nation of
Oklahoma. The Shawnee and the Cherokee are currently working to reaffirm the
Shawnee's jurisdiction over the Indian land and to obtain federal recognition
for the Shawnee Tribe.
The Company believes that there is a significant opportunity for Indian
gaming on the Shawnee Reserve No. 206. However, none of the above agreements
have been approved by the BIA, or the Cherokee Nation, or any other
regulatory authority. There can be no assurance that these or future
agreements will be approved nor that any Indian gaming will ever be
established on the Shawnee Reserve, or that the Company will be the
Management Company.
-Modoc Bingo-
The Company signed a consulting agreement with the Modoc Tribe on April 21,
1993. As a part of this project the Company has a management agreement with
the Modoc Tribe to construct and operate an Indian gaming facility on Modoc
Reservation lands in Eastern Oklahoma. The Management Agreement was filed
with the NIGC on June 7, 1994, for review and approved on July 11, 1997. The
Tribe and the Company have not determined a schedule for this project. There
is no assurance that further action will be taken until the Stables is in
operation and well established or if ever. A total of $548,048 has been
advanced under this engagement, $399,713 has been reserved leaving a net
receivable of $148,335. The receivable is secured by 68 acres of land in
Eastern Oklahoma and Western Missouri.
-Other Gaming-
The Company is currently reviewing other potential Indian gaming opportunities
with other tribes. These discussions are in the early stages of negotiation
and there can be no assurance that these gaming opportunities will be
successful.
The various management agreements have not yet been approved by the various
governing agencies and therefore are not filed as exhibits to this document.
COSTS AND EXPENSES
The consolidated gross profit percentage increased by 29% for the nine months
and 314% for the three months ended January 31, 2000, from a decline of 15.8%
for the nine months and .9% for the three months ended January 31, 1999.
Operating expenses (selling, general and administrative) in the nine months
ended January 31, 2000, were $1,627,159 or 43% of sales compared to
$1,017,724 or 20.9% of sales for the nine months ended January 31, 1999, an
increase of $609,435 or 59%. Costs for the three month period were $601,464
in fiscal 2000 and $582,929 in fiscal 1999. These increased costs are
directly related to the development of new products for the Avionics segment.
Interest expense for the nine months ended January 31, 2000, was $240,662
compared to the first nine months of the prior year of $162,693. The Company
continues to use its line of credit to maintain operations. The Company
acquired a Lear 35 during fiscal 1996 for debt on an inventory floor plan of
$1,500,000, the majority of the increase in interest expense relates to this
acquisition and the related debt and the increased borrowing on the credit
line.
Other income(expense) is income of $2,897 in the nine months ended January 31,
2000, versus income of $24,520 for the nine months ended January 31, 1999.
The Company employed 60 people at January 31, 2000, and 67 people at January
31, 1999.
EARNINGS
The Company recorded a loss of $(360,679) in the nine months ended January 31,
2000. This is comparable to a loss of $(303,830) in the nine months ended
January 31, 1999. Income per share is a loss of ($.02) per share and ($.02)
for the nine months ending January 31, 2000, and January 31, 1999,
respectively. Third quarter earnings were $(285,009) ($0.01 per share) in
fiscal 2000 and a $(336,258) ($0.03 per share) in fiscal 1999.
CAPITAL RESOURCES
The Company had no material commitment for capital expenditures as of January
31, 2000, except for the contingent advances to the Miami Tribe and Modoc Tribe
for the construction of the gaming establishment. The Company has advanced
approximately $3,500,000 under the approved management contract.
LIQUIDITY
Borrowed funds have been used primarily for working capital. Bank debt is
$4,066,144 at January 31, 2000, and was $2,308,094 at January 31, 1999. The
Company's unused line of credit was approximately $61,964 as of January 31,
2000, and approximately $159,793 as of January 31, 1999. The interest rate
on the Company's line of credit is prime plus two, as of January 31, 2000,
the interest rate is 10.5%.
The Company plans to continue using the promissory notes payable due in
February, 2000, as working capital. The Company believes the extensions
will continue and does not anticipate the full repayment of these notes in
fiscal 2000. The extensions of the promissory notes payable is consistent
with prior years. If the Bank were to demand repayment of the notes payable
the Company currently does not have enough cash to pay off the notes without
materially adversely affecting the financial condition of the Company.
The Company has issued stock at fair market value for various legal,
marketing and consulting services, in lieu of cash payments. During fiscal
1995, the Company issued 95,000 share of stock at a value of $219,668 for
professional services to be provided in the future.
The Company did not issue shares for professional services to be provided in
the future in fiscal 1996.
The Company issued 20,000 shares for consulting services related to the
acquisition of the operating rights and assets of WEI in fiscal 1997 and
88,034 shares to reduce the convertible debt by $150,000.
During fiscal 1998, the Company issued 460,722 shares for consulting,
professional services and expenses in lieu of cash payments. To reduce the
$380,000 of convertible debt, 860,647 shares as a result of conversion were
issued. Convertible debt was reduced by $450,000 in exchange for the issue
of 641,726 shares.
During the first nine months of fiscal 2000, 3,299,131 shares were issued to
reduce the convertible preferred stock by $256,500.
The Company's common stock is registered with the NASDAQ market system under
the symbol BUKS. The stock was listed as a small cap stock until January 20,
1999. The stock was delisted from the small cap category and now is listed in
the over-the-counter (OTCBB) category. Since the delisting, the stock
continues to trade and to be offered by twelve (12) market makers. The
Company has not experienced a change in liquidity as a result of the
delisting. However, the Company's depressed stock price, resulting from the
constant selling pressure of the conversion shares may reduce the liquidity
of the Company's stock in the market and therefore, the ability to raise
capital through the issue of equity securities.
FORWARD LOOKING INFORMATION
The information set forth above may include "forward-looking" information as
outlined in the recently enacted Private Securities Litigation Reform Act of
1995. The Cautionary Statements filed by the Company as Exhibit 99 to this
filing are incorporated herein by reference and investors are specifically
referred to such Cautionary Statements for a discussion of factors which
could affect the Company's operations and forward-looking statements
contained herein.
PART II.
OTHER INFORMATION
Responses to items 3 and 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
The Company issued 1,967,015 and 1,300,000 shares of common
stock for the convertible preferred and convertible debentures
respectively during the 3rd quarter of fiscal 2000.
The Company retired $337,240 of its Treasury Stock.
The Company issued 125,000 shares of common stock in lieu of
cash payment.
Item 4. Submission of Matters to Vote of Security Holders
None
Item 6. Exhibits and reports on Form 8-K.
(A) Exhibits.
3.1 Articles of Incorporation, as amended are incorporated by
reference to Exhibit 3.1 of the
Company's Form 10-K for the year ended April 30, 1988.
3.2 Bylaws, as amended, are incorporated by reference to Exhibit
3.2 of the Company's Form 10-K for Statement dated August
16, 1996.
99 Exhibit Number 99.
Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995, are incorporated by reference to Exhibit 99 of the Form
10-K for the fiscal year ended April 30, 1998.
27.1 Financial Data Schedule (EDGAR version only) filed herewith.
The Company agrees to file with the Commission any agreement or
instrument not filed as an exhibit upon the request of the
Commission.
(B) Reports on Form 8-K.
On November 1, 1999 the Company reported under Item 4, the
engagement of its new auditor.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUTLER NATIONAL CORPORATION
(Registrant)
March 10, 2000 /S/ Clark D. Stewart
Date Clark D.Stewart, President
and Chief Executive Officer)
March 10, 2000 /S/ Robert E. Leisure
Date Robert E. Leisure,
Chief Financial Officer