SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the
X Securities Exchange Act of 1934
For the quarter ended January 31, 1999
Transition Report Pursuant to Section 13 or 15 (d) of the
Security Exchange Act of 1934
For the quarter ended January 31, 1999
Commission File Number 0-1678
BUTLER NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 41-0834293
(State of incorporation) (I.R.S. Employer Identification No.)
19920 West 161st Street, Olathe, Kansas 66062
(Address of Principal Executive Office)(Zip Code)
Registrant's telephone number, including area code: (913) 780-9595
Former Name, former address and former fiscal year if changed since last
report:
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months and (2) has been subject to such
filing requirements for the past ninety days: Yes X No ______
The number of shares outstanding of the Registrant's Common Stock, $0.01
par value, as of January 31, 1999, was 12,555,746 shares.
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION:
Page No.
Consolidated Balance Sheets - January 31, 1999
and April 30, 1998................................................3
Consolidated Statements of Income - Three
Months ended January 31, 1999 and 1998............................4
Consolidated Statements of Income - nine
Months ended January 31, 1999 and 1998............................4
Consolidated Statements of Cash Flows - Nine
Months ended January 31, 1999 and 1998............................5
Notes to Consolidated Financial Statements........................6
Management's Discussion and Analysis
Financial Condition and Results of Operations.....................8
PART II.
OTHER INFORMATION...................................................13
SIGNATURES..........................................................14
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS 01/31/99 4/30/98
(unaudited) (as restated)
Current Assets:
Cash $ 163,654 $ 160,598
Accounts receivable, net of allowance for
doubtful accounts of $78,736 at Jan. 31, 417,550 413,257
and $78,736 at April 30, 1998
Note receivable from Indian Gaming developments 450,000 408,333
Contracts in process - 551,610
Inventories:
Raw materials 1,796,683 1,469,324
Work in process 252,686 76,073
Finished goods 57,921 55,939
Aircraft 315,281 1,816,281
---------- ----------
2,422,571 4,951,415
Prepaid expenses and other assets 31,624 121,280
---------- ----------
Total current assets 3,485,399 5,072,695
Property, Plant and Equipment:
Land & Building 667,628 639,130
Machinery and equipment 1,055,657 973,504
Office furniture and fixtures 585,967 632,617
Leasehold improvements 33,959 33,958
---------- ----------
Total cost 2,343,211 2,279,209
Accumulated depreciation (1,214,499) (1,060,705)
---------- ----------
Net Property, Plant 1,128,712 1,218,504
and equipment
Supplemental Type Certificates 1,420,269 1,456,249
Indian Gaming:
Note receivable from Indian Gaming
developments 3,019,217 1,376,884
Advances for Indian gaming developments
(net of reserves of $2,718,928 and
$3,008,508 at Jan. 31 and April 30, 1998
respectively) 1,626,482 1,277,724
--------- ---------
Total Indian Gaming 4,645,699 2,654,608
Other Assets
Aircraft and aircraft parts - -
Other assets 355,714 468,389
---------- ----------
Total Other Assets 355,714 468,389
---------- ----------
Total assets $11,035,793 $10,870,445
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY 01/31/99 4/30/98
(unaudited) (as restated)
Current Liabilities:
Bank overdraft payable $ 148,614 $ 193,205
Promissory notes payable 340,208 695,718
Current maturities of long-term debt 299,915 63,849
Accounts payable 747,423 507,698
Customer Deposits 572,983 530,275
Accrued liabilities -
Compensation and compensated absences 99,358 170,110
Other 207,614 227,896
---------- ----------
Total current liabilities 2,416,115 2,388,751
Long-Term Debt, net of current maturities 2,392,995 1,926,412
Convertible debentures 650,000 650,000
Other liabilities - -
Commitments and contingencies
Liabilities of discontinued operations - 39,000
--------- ---------
Total liabilities 5,459,110 5,004,163
Shareholders' equity:
Preferred stock, par value $5:
Authorized, 20,000 shares, all classes
$1,000 Class B, 6%, convertible cumulative,
liquidation and redemption value $1,000,
issued and outstanding, 785 shares at
1/31/99 & 1,120 shares at 4/30/98 355,236 506,834
Common stock, par value $.01:
Authorized, 40,000,000 shares
Issued and outstanding 12,555,746 at
1/31/99 & 11,673,069 at 4/30/98 125,558 116,730
Common stock warrants 8,807 8,807
Capital contributed in excess of par 8,496,739 8,257,155
Note receivable from officer arising from
stock purchase agreement (20,184) (37,647)
Shares issued for future services - (286,824)
Treasury stock, at cost (No preferred at
01/31 & no preferred at 4/30 (1,069,240) (1,069,240)
and common 775,000 at 01/31 & 775,000
at 4/30)
Retained deficit (2,320,233) (1,629,533)
(deficit of $11,938,813 eliminated
October 31, 1992)
---------- ----------
Total shareholders' equity 5,576,683 5,866,282
---------- ----------
Total liabilities and shareholders'
equity $11,035,793 $10,870,445
========== ==========
The accompanying notes are an integral part of these balance sheets.
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
Jan 31,
1999 1998
(unaudited) (unaudited
as restated)
Net sales $ 594,994 $1,211,434
Cost of sales 573,450 818,752
---------- ----------
21,544 392,682
Selling, general and
administrative expenses 556,796 183,279
---------- ----------
Operating income (loss) (535,252) 209,403
Other income (expense):
Interest expense (74,466) (85,065)
Interest revenue 87,799 794
Settlement gain (4,616) -
(loss) and other - 135,255
---------- -----------
Other expense 8,717 50,984
---------- -----------
Income (loss)
from continuing operations before
taxes (526,535) 260,387
Provision for income taxes from
continuing operations - -
----------- -----------
Income (loss) from
continuing operations $ (526,535) $ 260,387
=========== ===========
Discontinued operations:
Income (loss) from discontinued
operations, net of taxes - -
Loss on discontinued operations,
net of taxes - -
Total discontinued operations - -
---------- ----------
Net income (loss) $ (526,535) $ 260,387
========== ==========
Basic earnings (loss) per common share:
Continuing operations (.05) .03
Discontinued operations - -
---------- ----------
$ (.05) $ .03
========== ==========
Shares used in per share calculation 11,302,885 9,275,637
Diluted earnings (loss) per common share
Continuing operations (.04) (.03)
Discontinued operations - -
---------- ---------
$ (.04) $ (.03)
========== =========
Shares used in per share calculation 11,302,885 9,275,637
The accompanying notes are an integral part of these statements.
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED
Jan. 31,
1999 1998
(unaudited) (unaudited
as restated)
Net sales $4,832,284 $3,718,693
Cost of sales 4,010,753 2,119,180
---------- ----------
821,531 1,599,513
Selling, general and
administrative expenses 1,162,308 1,066,714
---------- ----------
Operating income (loss) (340,777) 532,799
Other income (expense):
Interest expense (162,693) (175,026)
Interest revenue 119,285 3,230
Settlement 8,813 -
loss and other - 506,155
---------- ----------
Other expense (34,595) 334,359
---------- ----------
Income (loss)
from continuing operations before taxes (375,372) 867,158
Provision for income taxes from
continuing operations - -
---------- ----------
Income (loss) from
continuing operations $ (375,372) $ 867,158
========== ==========
Discontinued operations:
Income (loss) from discontinued
operations, net of taxes (315,328) 329,440
Loss on discontinued operations,
net of taxes - -
--------- ---------
Total discontinued operations (315,328) 329,440
--------- ---------
Net income (loss) $ (690,700) $ 1,196,598
========= =========
Basic earnings (loss) per common share:
Continuing operations (.03) .09
Discontinued operations (.03) .04
--------- --------
Shares used in per share calculation (.06) .13
========= ========
Shares used in per share calculation 11,302,885 9,275,673
Diluted earnings (loss) per common share
Continuing operations (.03) .09
Discontinued operations (.03) .04
---------- ---------
(.06) .13
========== ==========
Shares used in per share calculation 11,302,885 9,275,673
The accompanying notes are an integral part of these statements.
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended Jan. 31,
1999 1998
(unaudited) (unaudited
as restated)
Cash flows from operating
activities:
Net income (loss) $(690,700) $1,196,598
Income (loss) from discontinued operations (315,328) 329,440
Income from continuing operations (375,372) 867,158
Adjustments to reconcile net income
(loss) to net cash (used in) operations:
Depreciation 153,794 109,480
Amortization 35,980 198,478
Gain on retirement of fixed assets - -
Provision for uncollectible accounts - 81,971
Provision for obsolete inventories - 15,940
Amortization of shares - 75,677
issued for future services
Noncash services and benefit plan
contributions - -
Convertible debt beneficial conversion feature - -
Other noncash expenses 286,824 -
Gain on discontinued investment - (329,440)
Changes in assets and liabilities:
Accounts receivable (4,293) 15,417
Contracts in process 551,610 862,673
Inventories 1,235,046 (356,834)
Prepaid expenses and other current assets 89,656 (8,911)
Other assets and other (127,325) 161,864
Accounts payable 239,725 (71,932)
Customer deposits 42,708 (1,184,300)
Settlement agreement - (54,000)
Accrued liabilities 61,441 15,923
Note receivable - 125,100
Cash provided by (used in) continuing
operations - -
Cash provided by (used in) discontinued - -
operations
---------- -----------
Cash provided by (used in) operations 1,874,466 853,704
---------- -----------
Cash flows from investing activities:
Capital expenditures, net (64,002) (59,736)
Indian Gaming Developments (2,032,758) (1,541,955)
Advances for Supplemental Type Certificates - (135,678)
Aircraft and aircraft parts - -
---------- ------------
Cash used in investing activities (2,096,760) (1,737,639)
---------- ------------
Cash flows from financing activities:
Net borrowings under promissory note (355,510) 391,026
Proceeds from long-term debt 1,899,649 -
Repayments of long-term debt and lease
obligations (1,433,066) (199,782)
Repayment of officer note 17,463 -
Issuance of Class B convertible
preferred stock - 1,089,959
Issuance of warrants/stock 96,814 (370,765)
---------- ----------
Cash provided by
financing activities 225,350 910,438
---------- ----------
Net increase (decrease) in cash 3,056 26,773
Cash, beginning of period 160,598 208,761
---------- ----------
Cash, end of period $ 163,654 $ 235,534
Supplemental disclosures of cash flow
information:
Interest paid $ 162,690 $ 175,026
Income taxes paid 10,000 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, 1999 are not indicative of the results of operations that may be
expected for the year ending April 30, 1999.
Certain reclassifications within the financial statement captions have
been made to maintain consistency in presentation between years.
For further information, refer to the restated Consolidated Financial
Statements and Footnotes included in the Registrant's Annual Report on Form
10-K/A for the year ended April 30, 1998 filed with the Securities and
Exchange Commission on March 24, 2000.
2. 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 70 percent 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 70 percent 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 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: 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.
The following reflects selected financial information and the effects of
the aforementioned restatements:
April 30, 1998 April 30, 1997
As previously As As previously As
reported restated reported restated
Total assets $10,799,656 $10,870,445 $11,124,008 $10,070,008
Total shareholder's
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 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 .01 .00 .02 (.13)
Fully divided EPS .01 .00 .02 (.13)
3. On September 14, 1998, Arthur Andersen LLP informed the Company that it
has declined to stand for reelection. A new independent auditor has not been
engaged by the Company for fiscal 1999. Appointment of a new independent
auditor will be selected by an action of the Board of Directors. The Audit
Committee is receiving prospective candidates and expects to engage an auditor
during the fourth quarter of fiscal 1999.
4. 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.
We record reserves for Indian Gaming Development costs that cannot be
determined whether reimbursement from the Tribes will occur. We have
agreements with the Tribes to be reimbursed for all costs incurred by us
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 our policy therefore, to reduce the respective reserves as
reimbursement from the Tribes is collected.
The Company has capitalized approximately $5,156,044 and $3,062,941 at
January 31, 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 fiscal year 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. At January
31, 1999, the Company had advanced $3,516,501 to the Tribes under the
contract and has reported $445,000 as a current note receivable and
$3,019,217 as a long-term note receivable. Security under the contract
includes the Tribes' profits from all tribal gaming enterprises and all
assets of the Stables except the land and building. The Company is
currently receiving payments on the note and its management fee on the
Stables' operation.
5. Convertible Securities: 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 80 percent 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.
6. Aircraft: The Company buys aircraft, modifies the aircraft and resells
the aircraft as a part of the aircraft modification business segment.
During the quarter ended July 31, 1998, a modified Lear 35 aircraft was sold
for approximately $2.1 million. This aircraft was carried as inventory
for approximately $1,500,000 on the Balance Sheet. The Company plans to
continue the business of purchase, modify and sale of applicable aircraft
and is now recording the the carrying cost of these airplanes as Aircraft
Inventory on the Balance Sheet.
7. 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.
8. 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 amortized 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.
9. New Accounting Standards: The American Institute of Certified Public
Accountants has issued SOP 98-5, "Reporting on the costs of start-up
activities." This standard provides a change in the capitalization policy for
start up costs. The standard is required for the Company's fiscal year-end
1999. The Company has evaluated this standard and concluded its adoption will
have no material effect to the financial statements.
10. An outstanding current loan to an officer was reduced $37,647 to zero
before April 30, 1999.
11. Income per common and common equivalent share are based on the weighted
average number of common shares outstanding during the quarters ended January
31, 1999 and 1998. Stock options are included in 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 diluted per share computations are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
January 31, January 31,
1999 1998 1999 1998
Common shares outstanding
beginning of period 10,714,430 8,925,123 9,418,330 9,411,168
Cumulative increase in
weighted average due to
Common Stock Equivalent
net of treasury stock 588,455 319,310 1,884,556 (151,369)
Cumulative increase in
weighted average due to
Convertible Debenture - - - -
Cumulative increase in
weighted average due to
Convertible Preferred - - - -
Cumulative increase in
weighted average due to
issues per acquisition
and consulting agreements - 4,241 - 13,145
Cumulative increase in
weighted average due to
issues per Nonqualified
Stock Option Plans - - - 2,729
-------- -------- -------- --------
Weighted average shares,
end of period 11,302,805 9,275,637 11,302,885 9,275,637
The convertible debentures ($650,000) and the convertible preferred stock
($355,236) are dilutive on a percentage basis of the common stock price. For
purposes of the weighted average shares calculation, a $1.00 price has been
assumed for the dilution calculations for future conversions.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Third quarter fiscal 1999 compared to restated third quarter fiscal 1998
Overview: Consolidated sales were $4,832,284 for the nine months ended January
31, 1999, compared to $3,718,693 for the nine months ended January 31, 1998,
an increase of (30%). Sales for the third fiscal quarter were $594,994
compared to $1,211,434 for the three months ended January 31, 1998. Sales for
the nine month period decreased in the Avionics segment (31.8%), the Aircraft
Modifications segment (51%), and decreased in the Monitoring Services segment
(40.1%). Sales for the first nine months included a sale by the Aircraft
Modifications segment of an aircraft after modification for approximately $2.1
million.
The Company recorded a net loss from continuing operations of $(526,535) in
the current quarter compared to a profit of $260,837 in the comparable period
of fiscal 1998.
Selling, General and Administrative expenses were $556,796 for the current
quarter, compared to $183,279 from the prior year. Expenses for the nine
months were $1,162,308 in fiscal 1999 compared to $1,066,714 in fiscal 1998 an
increase of (9%).
Discussion of the specific changes by operation at each business segment
follows:
Aircraft Modifications: Sales from the Aircraft Modifications business
segment were $3,779,709 for the first nine months (51.7%) up from $2,491,544
in the prior year. Gross profit decreased from $1,377,575 in the nine months
ending January 31, 1998 to $381,207 in the nine months ending January 1999.
Third quarter fiscal 1999 sales were $238,559 compared to $887,145 in fiscal
1998. Third quarter gross profit was a loss of $(143,739) and a profit of
$412,413, respectively. The fiscal 1999 sales included the sale of a learjet
for $2,100,000.
Avionics: Avionics unit sales were $263,410 for the nine months ended January
31, 1999 compared to $386,343 in the comparable period of the preceding year,
a decrease of (31.8%). The decrease resulted from lower sales of switching
units to our primary customer. Operating profits for the nine months ended
January 31, 1999, were a loss of $23,066 compared to a profit of $77,946 for
the nine months ended January 31, 1998. The Company believes the sales volume
will remain relatively stable with some growth from new projects for the next
few years.
SCADA Systems and Monitoring Services: Sales for the nine months ended
January 31, 1999 were $699,387 compared to sales of $901,580 for the
comparable period of the prior year a decrease of 22.4%. Sales decreased when
compared to the prior year because of a special project winding down.
Operating profit for the nine months was $3,164 compared to $64,478 for the
nine months ended January 31, 1998. Sales for the third quarter of fiscal
1999 were $233,667, an increase of $23,614 from the same quarter of fiscal
1997. Fluctuations above the basic service business revenues are expected
from quarter to quarter and year to year.
Temporary Services: This segment did not recognize any revenue in the third
quarter of fiscal 1999 and fiscal 1998. 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.
Management Services:
-General-
Indian Gaming Management: This segment did not receive any revenue and
incurred $2,556 in expenses during the current quarter and $1,700 in the third
quarter of fiscal 1998 for general and administrative expenses associated with
its continued efforts to explore service opportunities related to the Indian
Gaming Act of 1988.
The Company has advanced and invested a total of $7,874,627 reported as notes
receivable of $3,469,217 and net of a reserve of $2,718,928, 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 full-casino 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 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, 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 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 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
January 31, 1999, was $639,068. 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 Court 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 December 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.
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 plus 2% 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 2% over prime, to be repaid over five years, for the
construction and operation of the Stables gaming establishment. At January
31, 1999, the Company had advanced $3,636,990 under the contract and reported
$450,000 current note receivable, $3,019,217 long-term note receivable after
repayments of $60,054 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 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.
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. 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 as Cherokee-Shawnee members of the Cherokee Nation of Oklahoma. The
Shawnee and the Cherokee are currently working to reaffirm the Shawnee's
jurisdiction over the Indian land and to obtain federal recognition for the
Shawnee Tribe.
The Company believes 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
January 31, 1999 was $722,872. 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, 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.
The total advances and investment related to the Modoc Tribe at January 31,
1999 was $210,613. This amount is net of a reserve of $337,436, which
represents the current net realizable value of the advanced receivable. The
Tribe is working to acquire additional Indian land before this project can be
started.
-Other Gaming-
The Company is currently reviewing other potential Indian gaming opportunities
with other tribes. These discussions are in the early stages of negotiation
and there can be no assurance that these gaming opportunities will be
successful.
The various management agreements have not yet been approved by the various
governing agencies and therefore are not filed as exhibits to the document.
The total advances and investment related to other gaming at January 31, 1999,
was $6,469. This amount is net of a reserve of $58,324 which represents the
current net realizable value of the advanced receivable.
COSTS AND EXPENSES
Operating expenses (selling, general and administrative): Expenses in the nine
months ended January 31, 1999, were $1,162,308 or 24% of sales compared to
$1,066,714 or 28.7% of sales for the nine months ended January 31, 1998, an
increase of $95,594 or 9%.
Interest expense for the nine months ended January 31, 1999, decreased $12,333
from $175,026 in the third quarter of the prior year to $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. The Company sold the Learjet model 35 resulting in reduced interest
cost for the first quarter of fiscal 1999. The Company plans to use the
inventory floor plan to acquire a model 25 for modification and resale during
fiscal 1999.
Other income(expense) is income of $128,098 in the nine months ended January
31, 1999, versus income of $509,385 in the nine months ended January 31, 1998.
The fiscal 1998 settlement gain of $426,947 is related to Note 2.
The Company employed 67 at January 31, 1999, and 73 at January 31, 1998.
EARNINGS
The Company recorded a loss of $690,700 in the nine months ended January 31,
1999. This is comparable to a profit of $1,196,598 (see note 2) in the nine
months ended January 31, 1997. Earnings per share is a loss of $.06 and
income per share is $.13 for the nine months ending January 31, 1999, and
January 31, 1998, respectively.
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 $340,208 at
January 31, 1999, and was $695,718 at January 31, 1998.
The Company's unused line of credit was approximately $159,792 as of January
31, 1999 and approximately $54,282 as of January 31, 1998. The interest rate
on the Company's line of credit is prime plus two, as of January 31, 1999, the
interest rate is 9.75%.
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.
The Company does not, as of January 31, 1999, have any material
commitments for other capital expenditures other than the Management Services
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 Management
Services, will need additional funds to complete its currently planned Indian
gaming opportunities. The Company will use current cash available, and
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 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.
On September 14, 1998, Arthur Andersen LLP informed the Company that it has
declined to stand for reelection. A new independent auditor has not been
engaged by the Company for fiscal 1999. Appointment of a new independent
auditor will be selected by an action of the Board of Directors. The Audit
Committee is receiving prospective candidates and expects to engage an auditor
during the fourth quarter of fiscal 1999.
During the first nine months of fiscal 1999, 742,722 shares were issued to
reduce the convertible preferred stock by $335,000. In addition, the Company
issued 140,225 shares to purchase claims related to the discontinued
operations of $140,225.
The Company 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 and is listed on the NASDAQ
Small Cap Market under the symbol "BUKS." Since the initial filing of the
report on Form 10-K for the period ending April 30, 1998, the Company's common
stock has been delisted from the small cap category effective January 1, 1999
and is now listed in the over-the-counter (OTCBB) category.
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.
PART II.
OTHER INFORMATION
Responses to items 3 nd 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
Item 1. Legal Proceedings
On September 30, 1998, the Trustee for the RF, Inc. involuntary
bankruptcy filed suit in the U.S. Bankruptcy Court, Western District of
Missouri, against the Company and the Directors alleging improper
transfer of funds of approximately $1,500,000 to the Company and its
subsidiaries from RF, Inc. since April 21, 1994 asking that these funds
be returned to RF, Inc. The Company believes that all transfers were
proper. The Company is vigorously defending its position in bankruptcy
court.
On July 7, 1998 the Company stopped the conversion from Convertible
Preferred Stock to Common stock because it believed the holders of the
Preferred Stock had violated the agreement with the Company. The
Company and the holders of the Preferred Stock reached an agreement to
settle this dispute in February 1999 on terms favorable to the Company.
The original suit was reported in Item 3. of the Company's Annual
Report on Form 10-K/A for the fiscal year ending April 30, 1998.
Item 2. Changes in Securities
None
Item 4. Submission of Matters to Vote of Security Holders
The Company held a special meeting of the shareholders on January 4,
1999 that did not have enough shares represented in person or by proxy
to declare a quorum present. The meeting was adjourned. The purpose
of the meeting was to consider action on a proposal to reverse split
the Company's Common Stock.
Item 6. Exhibits and reports on Form 8-K.
(A) Exhibits.
3.1 Articles of Incorporation, as amended are incorporated
by reference to Exhibit 3.1 of the Company's Form 10-K for
the year ended April 30, 1988
3.2 Bylaws, as amended, are incorporated by reference to
Exhibit 3.2 of the Company's Form 10-K
for theStatement dated August 16, 1996.
99 Exhibit Number 99.
Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation
Reform Act of 1995, are incorporated by reference to Exhibit 99
of the Form 10-K for the fiscal year ended April 30, 1998.
27.1 Financial Data Schedule (EDGAR version only). Filed herewith.
The Company agrees to file with the Commission any
agreement or instrument not filed as an exhibit upon the
request of the Commission.
(B) Reports on Form 8-K.
None
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)
August 7, 2000 /S/ Clark D. Stewart
Date Clark D. Stewart,
(President and Chief Executive Officer)
August 7, 2000 /S/ Robert E. Leisure
Date Robert E. Leisure
(Chief Financial Officer)