UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarter ended July 31, 1995
Commission File Number 0-1678
BUTLER NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Minnesota 41-0834293
(State of incorporation) (I.R.S. Employer Identification No.)
1546 East Spruce Road, Olathe, Kansas 66061
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (913) 780-9595
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding twelve months and (2) has been subject to such
filing requirements for the past ninety days:
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
Common Stock, $0.01 par value - 8,507,100 shares as of July 31, 1995.
PART I. FINANCIAL INFORMATION
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS<F1>
7/31/95 4/30/95
(unaudited) (audited)
ASSETS
Current Assets
Cash $ 474,535 $ 212,799
Accounts receivable, net of
allowance for doubtful
accounts of $110,161 in 95 1,391,367 974,506
Contracts in process - 140,092
Inventories:
Raw materials 708,155 657,032
Work in process 273,818 177,672
Finished goods 240,817 188,864
__________ __________
1,222,790 1,023,568
Prepaid expenses and other assets 94,597 69,299
__________ __________
Total current assets 3,183,289 2,420,264
Property, Plant and Equipment:
Machinery and equipment 532,152 532,152
Office furniture and fixtures 378,767 375,111
Leasehold improvements 53,318 52,318
Building under construction 150,240 130,000
__________ __________
Total cost 1,114,477 1,089,581
Accumulated depreciation (815,266) (804,952)
__________ __________
299,211 284,629
Other Assets: 1,560,586 1,488,636
__________ __________
Total assets $5,043,086 $4,193,529
<FN>
<F1> See Accompanying Notes to FInancial Statements
</FN>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)<F1>
LIABILITIES AND SHAREHOLDERS' EQUITY 7/31/95 4/30/95
(Unaudited) (Audited)
Current Liabilities:
Bank overdraft payable $ 136,455 $ 112,814
Promissory notes payable 451,805 362,495
Current maturities long-term debt 37,696 37,506
Accounts payable 719,175 638,741
Customer Deposits 125,000 155,669
Accrued liabilities -
Compensation and compensated
absences 143,125 188,609
Other 43,250 44,067
__________ __________
Total current liabilities 1,656,506 1,539,901
Long-Term Debt, net of current
maturities 80,181 81,347
__________ __________
Total liabilities 1,736,687 1,621,248
Commitments and contingencies:
Shareholders' equity :
Preferred stock, par value $5 :
Authorized, 200,000 shares, all
classes $100 Class A, 9.8%, cumulative
if earned, liquidation and redemption
value $100, issued and outstanding,
20,000 shares 100,000 100,000
Capital contributed in excess of par 1,900,000 1,900,000
Common stock, par value $.01:
Authorized, 40,000,000 shares
Issued 8,231,015 shares April 30, 1995
& 8,507,100 at July 31, 1995, 85,071 82,310
Common stock warrants 8,707 8,707
Capital contributed in excess of par 4,257,779 3,645,342
Note receivable arising from stock
purchase agreement (27,004) (27,004)
Unearned service contracts (367,655) (422,185)
Treasury stock
(20,000 preferred & 30,000 common) (2,037,240) (2,037,240)
Retained earnings (613,259) (677,649)
(Deficit of $11,938,813 eliminated
October 31, 1992)
_________ _________
Total shareholders' equity 3,306,399 2,572,281
_________ _________
Total liabilities and shareholders'
equity $5,043,086 $4,193,529
<FN>
<F1> See Accompanyingn Notes to Financial Statements.
</FN>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)<F1>
THREE MONTHS ENDED
July 31,
1995 1994
Net sales $3,854,360 $3,338,938
Cost of sales 3,165,754 2,810,333
__________ __________
Gross profit 688,606 528,605
Selling, general and administrative
expenses 620,235 505,936
__________ __________
Operating income 68,371 22,669
Other income (expense):
Interest expense (12,797) (11,232)
Interest income 3,690 10,111
Other 5,126 4,573
__________ __________
Other income (3,981) 3,452
__________ __________
Income before taxes 64,390 26,121
Provision for income tax - -
__________ __________
Net income $ 64,390 $ 26,121
Net income per share $ .007 $ .003
Shares used in per share calculation 8,661,094 8,368,949
<FN>
<F1> The accompanying notes are an integral part of these statements.
</FN>
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS<F1>
(Unaudited)
Three Months Ended
July 31,
1995 1994
Cash flows from operating activities:
Net income $ 64,390 $ 26,121
Adjustments to reconcile income to
net cash used in operations:
Depreciation 10,314 25,245
Amortization of shares issued for
service contracts 54,530 19,125
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable (416,861) 270,155
(Increase) decrease in contracts in
process 140,092 (23,121)
(Increase) decrease in inventories (199,222) 11,580
(Increase) decrease in prepaid expenses
and other current assets (25,298) (14,266)
(Increase) decrease in other assets (71,950) (99,059)
Increase (decrease) in accounts payable 80,434 (176,265)
Increase (decrease) in customer deposits (30,669) 70,500
Increase (decrease) in accrued
liabilities (46,301) (486,974)
__________ __________
Total adjustments (504,931) (403,080)
Cash provided by (used in) operations (440,541) (376,959)
__________ __________
Cash flows from investing activities:
Capital expenditures, net (24,896) (13,507)
__________ __________
Cash provided by (used in) investing
activities (24,896) (13,507)
Cash flows from financing activities:
Net borrowings under line-of-credit
agreement 89,310 (12,805)
Bank overdraft payable 23,641 -
Repayments of long-term debt and
lease obligations (976) (2,852)
Proceeds from Stock Issuances, Net 615,198 65,168
__________ __________
Cash provided by (used in)
financing activities 727,173 49,511
__________ __________
Net increase (decrease) in cash 261,736 (340,955)
Cash, beginning of period 212,799 1,436,254
__________ __________
Cash, end of period $ 474,535 $1,095,299
Supplemental disclosures of
cash flow information:
Interest paid $ 12,358 $ 10,011
Income taxes 9,500 6,650
<FN>
<F1> The accompanying notes are an integral part of these statements.
</FN>
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 ended July 31, 1995 are not
indicative of the results of operations that may be expected for the year
ending April 30, 1996.
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, 1995.
2. On May 25, 1995, the Company consummated an off-shore private placement
of its securities pursuant to Regulation S promulgated under the Securities
Act of 1933, as amended. The Company sold 259,985 shares, resulting in
gross proceeds to the Company of approximately $650,000, and net proceeds of
approximately $570,000 after deducting the expenses of the offering.
3. The Company has capitalized approximately $1,027,500 at July 31, 1995,
of costs related to the anticipated construction of three Indian gaming
facilities. These costs are included in other assets in the accompanying
balance sheet. In addition, the Company has included a prepayment for
construction services to be rendered in connection with the Indian bingo
facility in the amount of $242,500. The Company issued 100,000 shares of
its common stock as payment for the construction services.
The Company has invested $1,027,500 in land, land development and
professional design fees related to the development of three Indian gaming
facilities. Included in this investment is 228 acres of land, of which 160
acres is located adjacent to the Linn Valley Lakes resort and residential
development in Linn County, Kansas. The Company believes that the Kansas
tract could be developed and sold for residential and commercial use other
than Indian gaming, if the gaming enterprise does not open. Additional
improvements including roads, water and sewer services, etc. are planned for
this land. This may allow the Company to recover the majority, if not all,
of the $1,027,500 investment, since there can be no assurance the
management agreements will be approved and the success of the Indian gaming
facilities are dependent upon their approval.
4. The Company maintains ownership of a 31,560 square foot building in
Overton, Nebraska. The Company was unable to complete the negotiated sale
of this building in fiscal 1995 and no longer leases the building. Therefore,
the Company has recorded this asset at its net realizable value.
5. 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.
6. Income per common and common equivalent share are based on the weighted
average number of common shares outstanding during the quarters ended July
31, 1995 and 1994. Stock options are included in 1995 and 1994 as common
stock equivalents because they are dilutive. Shares used in the per share
computations are as follows:
THREE MONTHS ENDED
------------------
1995 1994
Common shares outstanding beginning of period 8,231,015 7,888,467
Cumulative increase in weighted average
due to Common Stock Equivalent 231,089 451,500
Cumulative increase in weighted average
due to issues per bank agreement 189,337 -
Cumulative increase in weighted average due to
issues per legal and consulting agreements - 14,411
Cumulative increase in weighted average due to
issues per Nonqualified Stock Option Plans 9,653 14,571
_________ _________
Weighted average shares, end of period 8,661,094 8,368,949
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview: First quarter consolidated sales increased $515,422 or 15.4% from
$3,338,938 for the three months ended July 31, 1994 to $3,854,360 for the
three months ended July 31, 1995. Increased sales occurred in the Food
Distribution division (71.2%), Aircraft Modifications division (5.8%) and
Monitoring Services division (5.7%). Switching unit sales decreased 63.8%
and the Temporary Services segment did not recognize any revenue in the first
quarter of fiscal 1996. The Company recorded a profit of $64,390 in the
current quarter compared to a $26,121 profit in the comparable period of
the prior year.
Food Distribution (R F, Inc.): Revenues from the Food Distribution business
segment increased 71.2% from $1,841,299 in the prior quarter to $3,152,039
in the current year. Revenue continues to increase due to an increasing
customer base and additional sales personnel. Contribution to earnings
increased from $121,292 in the quarter ending July 31, 1994, to $152,271
in the quarter ending July 31, 1995.
Aircraft Modifications (Avcon Industries, Inc.): Sales at Avcon Industries,
Inc. increased $27,042 (5.8%) from $464,008 in the first quarter of the
prior year to $491,050 in the quarter ending July 31, 1995. Additionally,
contribution to earnings increased from $142,988 in the quarter ending July
31, 1994 to $162,550 in the quarter ending July 31, 1995. This segment has
maintained a relatively stable sales volume. The Company does price each
job specifically and depending on the type of modifications performed each
quarter, the range of sales will vary, along with the gross margin.
Switching Units (Woodson Avionics, Inc.): Switching unit sales were $23,683
in the three months ended July 31, 1995 versus $65,474 in the comparable
period of the preceding year, a decrease of 63.8%. Earnings for the three
months ended July 31, 1995 were a loss of $12,471 compared to a loss of $360
for the three months ended July 31, 1994. The decrease in sales is due to
both a decrease in sales to McDonnell Douglas and sales to other customers.
Sales to McDonnell Douglas continue to decrease due to a reduced volume of
sales at McDonnell Douglas. The Company believes the decrease in revenue to
be a continuing trend.
SCADA Systems and Monitoring Services (Butler National Services, Inc.): Sales
for the three months ended July 31, 1995 were $187,588 compared to sales of
$177,510 for the comparable period of the prior year an increase of 5.7%.
Earnings for the three months ended July 31, 1995 were $60,439 compared to
$40,277 for the three months ended July 31, 1994. This segment continues to
maintain a relatively level volume of sales due to long-term contracts with
municipalities.
Temporary Services (Butler Temporary Services, Inc.): This segment did not
recognize any revenue in the first quarter of fiscal 1996. If and when the
Company is able to open Indian gaming facilities, management expects that a
majority of the personnel in the various Indian gaming enterprises will be
staffed by Temporary Services.
Management Services (Butler National Services Corporation): The Company has
a management agreement with the Miami Tribe of Oklahoma to provide management
services in connection with the Indian Gaming Regulatory Act. The Miami
Tribe requested a compact 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 State of Kansas has approved three Kansas Gaming
Compacts for Indian gaming within the boundaries of the State. Two compacts
were signed by the Governor of Kansas, approved by the Legislature on April
29, 1995, and approved by the Secretary of the Interior pursuant to the
Indian Gaming Regulatory Act ("the IGRA"). A third compact was signed by the
Governor, approved by the Legislative Coordinating Council ("LCC") and
forwarded to the Secretary of the Interior for approval. A fourth was signed
by the Governor and is pending approval by the LLC.
The Miami Tribe's 1992 compact is 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. This case has
been stayed pending an appeal to the United States Supreme Court of the Tenth
Circuit Court's determination, relating to two of the tribes whose compacts
have now been approved, that the State is bound to negotiate with the Indian
tribes with Indian land within the boundaries of the State.
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 National
Indian Gaming Commission ("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 no established jurisdiction over the Miami
lands in Kansas. This is 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 concerns about the conclusions reached
based upon the analysis of the case.
The Miami Tribe has indicated that it will challenge this opinion if it
remains the opinion of the BIA in Federal Court to prove and protect the
sovereignty of the Miami Tribe and other Indian tribes relating to their
lands. The ultimate approval of Butler's management agreement with the Miami
Tribe depends upon the successful challenge by the Miami Tribe of the
Associate Solicitor's opinion. Even though the Company believes that it and
the tribe are in compliance with all regulations, there is no assurance that
the management agreement will be approved.
The Company incurred $125,000 in general and administrative expenses in the
current fiscal year associated with its continued efforts to explore service
opportunities related to the Indian Gaming Act of 1988. Additionally, the
Company amortized $54,530 and $19,125 in the first quarter of 1996 and 1995,
respectively, related to shares issued for services rendered to the Company
in that regard.
The Company has invested $1,027,500 in land, land improvements and
professional design fees related to the development of three Indian Gaming
facilities. Included in this investment is 228 acres of land. The Kansas
land (160 acres) is located adjacent to the Linn Valley Lakes resort and
residential development in Linn County, Kansas. The Company believes that
the Kansas tract could be developed and sold for residential and commercial
use other than Indian gaming if the gaming enterprise does not open.
Additional improvements including access roads, water and sewer services,
etc. are planned for this land. After these improvments, the land may be
sold in small tracts. This may allow the Company to recover the majority,
if not all, of the $1,027,500 investment.
COSTS AND EXPENSES
The consolidated gross profit percentage is 17.86% for the three months
ended July 31, 1995 and 15.83% for the three months ended July 31, 1994.
Operating expenses (selling, general and administrative) in the three months
ended July 31, 1995 were $620,235 or 16.1% of sales compared to $505,936 or
15.2% of sales for the three months ended July 31, 1994, an increase of
$114,299 or 2.9%. The majority of the increased expenses are due to increased
sales staff at the Food Distribution division.
Interest expense for the three months ended July 31, 1995 increased $2,786
from $10,011 in the first quarter of the prior year to $12,797. The company
continues to use its line of credit to maintain operations however, the line
has not been increased.
Other income is $5,126 in the quarter ended July 31, 1995 versus $4,573 in
the quarter ended July 31, 1994.
The Company employed 67 at July 31, 1995, and 54 at July 31, 1994.
EARNINGS
The Company recorded a profit of $64,390 in the three months ended July 31,
1995. This is comparable to a profit of $26,121 in the three months ended
July 31, 1994. Income per share is $.007 and income per share is $.003
for the three months ending July 31, 1995 and July 31, 1994, respectively.
CAPITAL RESOURCES
The Company had no material commitment for capital expenditures as of July
31, 1995.
LIQUIDITY
Borrowed funds have been used primarily for working capital. Bank debt is
$451,805 at July 31, 1995, and was $392,546 at July 31, 1994.
The Company's unused line of credit was approximately $48,195 as of July 31,
1995 and approximately $107,454 as of July 31, 1994.
The Company plans to continue using the promissory notes payable due in
August, 1995, as working capital. The promissory notes payable maturities
have been extended to February, 1996. The Company believes the extensions
will continue and does not anticipate the repayment of these notes in fiscal
1996. 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.
Prior to 1991, the Company incurred significant operating losses, which
resulted in reduced working capital, cash flow problems, and a net capital
deficiency. Accordingly, the Company began a process of voluntarily
reorganizing and financially restructuring its financial position. As a
result, the Company was successful in settling substantially all past due
liabilities from vendors and governmental taxing authorities on satisfactory
terms.
The Company recorded income from the Favorable settlement of liabilities of
$234,603 in fiscal 1992, $78,842 in fiscal 1993 and $71,230 in fiscal 1995.
This income relates to the write off of vendor payables which had been accrued
for in prior years at amounts greater than the actual cost of settlement.
During fiscal 1991, many of these vendors accepted a portion of the debt owed
in stock and a portion to be paid off over a three year period. During
fiscal 1993, many of these same vendors forgave the remaining payments due to
the significant increase in the value of the stock received and the fact that
the Company was continuing to restructure and incurring cash flow problems.
During fiscal 1995, the Company wrote off the rest of the vendor payables
related to prior to 1989 which were not settled by the restructuring.
The Company continued in fiscal 1995 to issue 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 acquired RFI on April 21, 1994. The Company exchanged 650,000
shares of the Company's common stock for 100% of the issued and outstanding
shares of RFI. At the date of acquisition, RFI's total assets were
$565,605, consisting of cash of approximately $200,000, accounts receivable of
approximately $280,000, and inventory of approximately $60,000. RFI's
liabilities included approximately $260,00 of vendor payables, and
$115,000 of accrued payroll and payroll taxes.
The Company does not expect nor has it incurred any substantial costs
associated with integrating RFI's operations. The Company expects that the
majority of RFI's operations will continue to operate as it did under
previous management. The Company does plan to expand the customer base of
RFI, by hiring additional sales personnel in various locations. The
additional costs of personnel should be more than offset by the additional
contribution margin recognized. The Company hired five (5) additional sales
personnel at various locations in fiscal 1995.
The Company has entered into a letter of intent to purchase the operating
rights and assets of Woodson Electronics, Inc. If the transaction is
consummated under the terms of the letter of intent, the Company anticipates
a purchase price of approximately 100,000 shares of the Company's common
stock, $.01 par value, and cash payments totalling approximately $34,000,
over a period of two (2) years. This transaction has not yet been finalized,
but is expected to be finalized in fiscal 1996.
The Company had an employment agreement with an individual in which the
Company terminated the relationship in April 1995. Although a lawsuit has
not been filed, the individual has asserted a significant claim for
damages, and has proposed a settlement offer for $500,000. It is
management's opinion that the Company will defend the claim vigorously.
From a longer term perspective, the Company, through BNSC, will need
additional funds to complete its currently planned Indian gaming
opportunities. The Company will use current cash available and these
additional funds for the start up and construction of gaming facilities.
The Company anticipates initially obtaining these funds from two sources:
internally generated working capital from non-gaming operations and the
proceeds from an anticipated private placement of the Company's common stock.
After a few gaming facilities become operational, the gaming operations
will generate additional working capital for the start up and construction of
other additional 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.
PART II.
OTHER INFORMATION
Responses to items 1 through 5 are omitted since these items are either
inapplicable or the response thereto would be negative.
Item 6. Exhibits and reports on Form 8-K.
(A) Exhibits.
None.
(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 30, 1995 CLARK D. STEWART
Date Clark D. Stewart
(President and Chief Executive Officer)
August 30, 1995 STEPHANIE S. RUSKEY
Date Stephanie S. Ruskey
(Vice President, Chief Financial Officer and
Principal Accounting Officer)