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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K/A
(Mark One) Annual Report Pursuant to Section 13
or 15(d) of the
X Securities Exchange Act of 1934
(Fee Required)
For the fiscal year ended April 30, 2000
__ Transition Report Pursuant to Section
13 or 15(d) of the
Security Exchange Act of 1934 (No Fee Required)
For the Transition Period from __________ to __________.
Commission File Number 0-1678
BUTLER NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 41-0834293
(State of Incorporation)(I.R.S. Employer Identification No.)
19920 West 161st Street, Olathe, Kansas 66062
(Address of Principal Executive Office)(Zip Code)
Registrant's telephone number, including area code: (913) 780-9595
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months and (2)
has been subject to such filing requirements for the past ninety days:
Yes X No ____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10- K. [ ]
The aggregate market value of the voting stock held by
nonaffiliates of the Registrant was approximately $3,344,438 at
September 15, 2000, when the average bid and asked prices of such
stock was $0.13.
The number of shares outstanding of the Registrant's
Common Stock, $0.01 par value, as of September 15, 2000, was
26,581,828 shares.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
This Form 10-K consists of 57 pages (including exhibits). The index
to exhibits is set forth on pages 25-27.
PART I
Item 1. BUSINESS
Forward Looking Information
The information set forth below includes "forward-looking"
information as outlined in the Private Securities Litigation Reform Act
of 1995. The Cautionary Statements, filed by the Company as Exhibit
99 to this Form 10-K, are incorporated herein by reference and you are
specifically referred to such Cautionary Statements for a discussion of
factors which could affect the Company's operations and forward-
looking statements contained herein.
General
Butler National Corporation (the "Company" or "BNC") is a Delaware
corporation formed in 1960, with corporate headquarters at 19920
West 161st Street, Olathe, Kansas 66062.
Current Activities. The Company's current product lines and services
include:
Aircraft Modifications - principally includes the modification of
customer and company owned business-size aircraft from
passenger to freighter configuration, addition of aerial
photography capability, and stability enhancing modifications
for Learjet, Beechcraft, Cessna, and Dasault Falcon aircraft
along with other modifications. We provide these services
through our subsidiary, Avcon Industries, Inc. ("Aircraft
Modifications" or "Avcon"). Avcon also acquires, modifies
and resells aircraft, principally Learjets.
Avionics - principally includes the manufacture of airborne radio
and instrument switching units used in DC-9, DC-10, DC-
9/80, MD-80, MD-90 and the KC-10 aircraft. We provide
these services through our subsidiary, Butler National Corporation -
Tempe, Arizona ("Switching Units", "Avionics" or "WAI").
Gaming - principally includes business management services and
advances to Indian tribes in connection with the Indian
Gaming Regulatory Act of 1988. We provide these advances
through our subsidiary, Butler National Service Corporation
("Management Services", "Gaming" or "BNSC").
SCADA Systems and Monitoring Services - principally includes
the monitoring of water and wastewater remote pumping
stations through electronic surveillance for municipalities and
the private sector and related repair services. We provide
these services through our subsidiary, Butler National
Services, Inc. ("Monitoring Services" or "BNS").
Temporary Services - provides temporary employee services for
corporate clients. We provide these services through our
subsidiary, Butler Temporary Services, Inc. ("Temporary
Services" or "BTS").
Assets as of April 30, 2000 and Net Revenues for the year
ended April 30, 2000.
Industry Segment Assets Revenue
Aircraft Modifications 50.7% 69.7%
Avionics 4.7% 6.0%
Gaming 32.9% 0.0%
Monitoring Services 2.3% 24.3%
Temporary Services 0.0% 0.0%
Corporate Office 9.4% 0.0%
Regulations
Regulation Under Federal Aviation Authority: The Company's Avionics and
Modifications segments are subject to regulation by the Federal Aviation
Authority (the "FAA"). The Company manufactures products and parts under
FAA Parts Manufacturing Authority (PMA) requiring qualification and
traceability of all materials and vendors used by the Company. The
Company makes aircraft modifications pursuant to the authority granted by
Supplemental Type Certificates issued by the FAA. The Company repairs
aircraft parts pursuant to the authority granted by its FAA Authorized
Repair Station. Violation of the FAA regulations could be detrimental to
the Company's operation in these business segments.
Licensing and Regulation under Indian Law: Before commencing gaming
operations (Class II or Class III) on Indian Land, the Company must
obtain the approval of various regulatory entities. Gaming on Indian
Land is extensively regulated by Federal, State and Tribal governments
and authorities. Regulatory changes could limit or otherwise materially
affect the types of gaming that may be conducted on Indian Land. All
aspects of the Company's proposed business operations on Indian Lands are
subject to approval, regulation and oversight by the BIA, the Secretary of
the United States Department of the Interior (the "Secretary") and the
National Indian Gaming Commission. The Company's proposed management of
Class III gaming operations in Kansas and Oklahoma are also subject to
approval of a Class III Gaming Compact between the Indian Tribe and the
States of Kansas and/or Oklahoma. Failure of the Company to comply with
applicable laws or regulations, whether Federal, State or Tribal, could
result in, among other things, the termination of any management agreements
which would have a material adverse effect on the Company. Management
agreement terms are also regulated by the IGRA, which restricts initial
terms to five years and management fees to 30% of the net profits of the
casino, except in certain circumstances where the term may be extended to
seven years and the management fee increased to 40%. Management agreements
with Indian Tribes will not be approved by the Commission unless, among
other things, background checks of the directors and officers of the
manager and its ten largest holders of capital stock have been satisfactorily
completed. The Company will also be required to comply with background
checks as specified in Tribal-State Compacts before it can manage gaming
operations on Indian Land. Background checks by the Commission may take
up to 180 days, and may be extended to 270 days by written notice to the
Indian Tribe. There can be no assurance that the Company would be successful
in obtaining the necessary regulatory approvals for its proposed gaming
operations on a timely basis, or at all.
Licensing and Regulation under Kansas Law: Present and future shareholders
of the Company are and will continue to be subject to review by regulatory
agencies. In connection with the Company's proposed operation of a Class
III Shawnee Tribe casino or a Class III Miami Tribe casino in Kansas, the
Company, the appropriate Indian Tribe and the key personnel of all entities
may be required to hold Class III licenses approved in the respective state
prior to conducting operations. The failure of the Company or the key
personnel to obtain or retain a license in these states could have a
material adverse effect on the Company or on its ability to obtain or retain
Class III licenses in other jurisdictions. Each such State Gaming Agency has
broad discretion in granting, renewing and revoking licenses. Obtaining such
licenses and approvals will be time consuming and cannot be assured.
The State of Kansas has approved pari-mutuel dog and/or horse racing
for non-Indian organizations. The State of Kansas operates lottery and
keno games for the benefit of the State. There is no assurance that a
Tribal/State Compact between the Tribes and the State of Kansas can
be completed. If the Compact is not approved, there could be a
material adverse effect on the Company's plans for Class III gaming in
Kansas.
As a condition to obtaining and maintaining a Class III license, the
Company must submit detailed financial and other reports to the Indian
Tribe and the Agency. Any person owning or acquiring 5% or more of
the Common Stock of the Company must be found suitable by the
Agency, and the Agency has the authority to require a finding of
suitability with respect to any shareholder regardless of the percentage
of ownership. If found unsuitable by the Agency or the Indian Tribe,
the shareholder must offer all of the Ownership Interest held by such
shareholder to the Company for cash at the current market bid price
less a fifteen percent (15%) administrative charge and the Company
must purchase such Interest within ten days of the offer. The
shareholder is required to pay all costs of investigation with respect to
a determination of his/her suitability. In addition, each member of the
board of directors and certain officers of the Company are subject to a
finding of suitability by the Agency and the Indian Tribe.
Discontinued Operations
On April 14, 1998, the Company discontinued the operation of its food
distribution operations conducted by RF, Inc., and Valu Foods, Inc.,
wholly owned subsidiaries of the Company. These operations were
liquidated and we do not plan any future operations in the food
distribution industry.
The Company acquired RF, Inc., on April 21, 1994. The individuals
(Marvin J. Eisenbath, "MJE") who sold RF, Inc. to us had sought for
some time to reacquire the ownership of RF, Inc. MJE (the Employee)
filed a lawsuit against us seeking to rescind the sale of RF, Inc. stock
and for damages. We reached an agreement with MJE to settle and
release all claims and counterclaims effective April 30, 1997, (Release
Agreement). MJE dismissed the lawsuit with prejudice. In addition to
the releases, under the terms of the agreement, we received, on June
26, 1997, 600,000 shares of the Company's common stock and a
commitment for certain payments over the next three years. On June
21, 1997, we released MJE from the terms of his employment contract
and the April 24, 1994 Stock Purchase Agreement, including his
agreement not to compete with us in the food distribution industry.
Costs associated with this transaction totaled $1,054,000 and were
expensed in fiscal year 1997. As a result of resolving the dispute and
the ultimate release from the employment agreement, we received
compensation and recorded a gain of $1,043,000, restated herein,
(principally noncash) in the first quarter of 1998. See Footnote 1 of
Annual Report for further discussion.
On March 27, 1998, three companies filed a petition for involuntary
bankruptcy against RF, Inc. On May 12, 1998, the court determined
that RF, Inc. was bankrupt and a trustee was appointed on June 11,
1998. All the assets of RF, Inc. were pledged as security for the bank
line of credit.
The bank was to obtain control of all the assets of RF, Inc. and we
planned to cooperate in the collection of accounts receivable through a
law firm, the liquidation of the inventory and to purchase the fixed
assets, primarily office equipment, from the bank. The RF, Inc. bank
debt was approximately $638,000, plus interest and legal collection
costs. We believed that an orderly liquidation of the assets and the sale
of the fixed assets would allow the bank to recover the amount due on
the bank line of credit.
As of April 30, 1998, the operations of RF, Inc. have been
deconsolidated because of the Chapter 7 involuntary bankruptcy
liquidation. The entire investment in RF, Inc. was written-off through
the 1998 loss from discontinued operations. The assets and liabilities
of RF, Inc. at April 30, 1998, were comprised of accounts receivable
$716,478, inventory $359,103, other assets $44,423, bank liabilities
$637,947 and other accrued liabilities $397,903. The revenues
associated with RF, Inc. for the years ended 2000, 1999 and 1998 were
$0, $0, and $3,783,132 respectively.
We also discontinued the operation of its retail food store, Valu Foods,
Inc. We planned to liquidate the Valu Foods, Inc. assets in the ordinary
course of business and the store will close the sooner of the completion
of the inventory liquidation or on January 31, 1999, when the lease
expires. The loss on discontinued operations in fiscal 1998 is
approximately $23,965 (net of tax). The loss includes anticipated legal
costs, rental costs and payroll.
As of April 30, 1998, the operations of Valu Foods, Inc. have been
discontinued due to the planned closing of the wholly owned
subsidiary. The entire investment in Valu Foods, Inc. was written-off
through the 1998 loss from discontinued operations. The assets and
liabilities of Valu Foods, Inc. at April 30, 1998, were comprised of
property, plant and equipment including leasehold improvements of
$175,446 and inventory $24,779. The revenues associated with Valu
Foods, Inc., for the year ended 1998 were $143,550.
The bankruptcy court ruled July 20, 1999, on the bankruptcy filing of
the creditors of RF, Inc. Subsequent to April 30, 1998, the bank was
not allowed to immediately assume control of the collateralized assets
for liquidation and as such, required us to pay the bank the amount due
and the court costs in total, including interest, aggregating $1,089,000.
An additional charge for the payment and other fees relating to RF,
Inc. totaling $1,698,379 was recorded in fiscal year 1999. At April 30,
2000 the remaining notes payable (including defered interest) totalled
$978,028.
Financial Information about Industry Segments
Information with respect to the Company's industry segments are found
at Note 14 of Notes to Consolidated Financial Statements for the year
ended April 30, 2000, located herein at page 52.
Narrative Description of Business
Aircraft Modifications: Our subsidiary, Avcon, modifies business
type aircraft at Newton, Kansas. The modifications include aircraft
conversion from passenger to freighter configuration, addition of aerial
photography capability, stability enhancing modifications for Learjets,
and other special mission modifications. Avcon offers aerodynamic
and stability improvement products for selected business jet aircraft.
Avcon makes these modifications on Company owned aircraft for
resale and customer owned aircraft.
Sales of the Aircraft Modifications product line are handled directly
through Avcon. Specialty modifications are quoted individually by
job. The Company is geographically located in the marketplace for
Aircraft Modifications products. The Company believes there are two
primary competitors (AAR of Oklahoma and Raisbeck Engineering) in the
industry in which the Aircraft Modifications division participates.
The Aircraft Modifications business derives its ability to modify
aircraft from the authority granted to it by the Federal Aviation
Administration ("FAA"). The FAA grants this authority by issuing a
Supplemental Type Certificate ("STC") after a detailed review of the
design, engineering and functional documentation, and demonstrated
flight evaluation of the modified aircraft. The STC authorizes Avcon
to build the required parts and assemblies and to perform the
installations on applicable customer-owned aircraft.
Avcon owns over 200 STC's. When the STC is applicable to a
multiple number of aircraft it is categorized as Multiple-Use STC.
These multiple-use STC's are considered a major asset of the
Company. Some of the Multiple-Use STC's include the Beechcraft
Extended Door, Learjet AVCON FINS, Learjet Extended Tip Fuel
Tanks, Learjet Weight Increase Package and Dasault Falcon 20 Cargo
Door.
On May 3, 1996, Avcon received approval from the Federal Aviation
Administration of a Supplemental Type Certificate ("STC") (no.
ST00432WI) for its AVCON FIN Modification for installation on
Learjet Model 35 and 36 Aircraft. FAA pilots thoroughly evaluated
the test aircraft, and determined that the fins substantially increase the
aerodynamic stability in all flight conditions. The AVCON FIN STC
eliminates the operational requirement for Yaw Dampers which are
otherwise required in both Learjet models to control adverse yaw
tendencies in certain flight conditions, particularly during approach
and landing. Learjets equipped with AVCON FINS exhibit the same
aerodynamic stability and improved operating efficiency offered on
newer Learjet models, while maintaining the outstanding range, speed
and load-carrying capabilities that made the Learjet Models 35 and 36
among the most popular Business Jets ever produced. Mounted like
the fins of an arrow on the rear of the aircraft, Learjets equipped with
AVCON FINS have a new look much the same as the current
production aircraft. This modification will give the Learjets produced
in the 1970's and 1980's the look of the 21st century.
Aircraft - Acquisition, Modification and Sales: The Company
through its Avcon subsidiary actively pursues airplanes, principally
Learjets, modifies the planes and sells the planes directly to customers
or receives a broker fee for finding a specific airplane. In fiscal 1999,
the Company sold a Learjet for $2,100,000.
Avionics - Switching Units: The Company has an agreement with
Boeing McDonnell Douglas to manufacture and repair airborne
switching systems for Boeing McDonnell Douglas and its customers.
The Company subcontracts with its wholly owned subsidiary, Butler
National Corporation - Tempe, Arizona, (formerly Woodson Avionics,
Inc.), for the manufacture and repair of Switching Units. Switching
Units are used to switch the presentation to the flight crew from one
radio system to another, from one navigational system to another and
to switch instruments in the aircraft from one set to another. The
Switching Units are designed and manufactured to meet Boeing
McDonnell Douglas and FAA requirements. Most Boeing McDonnell
Douglas commercial aircraft are equipped with one or more Butler
National Switching Units.
Marketing is accomplished directly between the Company and Boeing
McDonnell Douglas. Competition is minimal. However, sales are
directly related to Boeing McDonnell Douglas' production of DC-9,
DC-10, DC9/80, MD-80, MD-90, MD-11 and KC-10 tanker aircraft.
The current Boeing McDonnell Douglas contract has been extended
through fiscal year 1999. The customer stopped aircraft production in
the year 2000. The impact on our business of stopping production will
be minimal due to planning on this issue for many years. The
Company has received additional contracts for these products, which
has sustained our business.
Avionics provides new replacement units and overhaul service directly
to the major airlines using the aircraft manufactured by McDonnell
Douglas. This part of the Avionics business segment is growing to
offset the loss of sales from the original equipment units.
The Company sells to Boeing McDonnell Douglas on terms of 2% 10
days, net 30 days. This means that the terms offered to this customer
represent that if the entire invoice is paid within 10 days then there will
be a 2% discount. If not, then the total amount due is payable within
30 days.
Most payments have been and continue to be within those terms. The
Company has ordinary course of business purchase orders from the
commercial division (Douglas Aircraft Company) for products with
scheduled shipment dates into the fiscal year 2000. However, should
Boeing McDonnell Douglas financially reorganize or for some other
reason not accept shipment against these orders, the Company could
suffer significant loss of revenue. Boeing McDonnell Douglas
accounts for 11.7% of our avionics revenue.
Management Services: BNSC is engaged in the business of
providing management services to Indian tribes in connection with the
Indian Gaming Regulatory Act of 1988. The Company has three
management agreements in place; however, the performance of these
agreements is contingent upon and subject to approval by the Secretary
of Interior, Bureau of Indian Affairs, National Indian Gaming
Commission and the appropriate state, if required. Also, the Company
has signed consulting engagement letters with two tribes to study and
develop plans for Indian gaming. See Liquidity and Capital
Resources, Page 17.
The Management Agreement between the Indian tribe (the owner and
operator) and Butler National Service Corporation (the manager) is the
final approval document issued by the National Indian Gaming
Commission ("NIGC") before Indian gaming is authorized. The
Management Agreement or Contract is authorized and approved by the
NIGC pursuant to the Indian Gaming Regulatory Act of 1988, PL 100-
497, 102 Stat. 2467,25 U.S.C. 2701-2721 (sometimes referred to as
"IGRA"). Before the Management Agreement is approved by the
NIGC, all required contracts with other parties must be approved;
including, (a) the compact with the state for class III gaming, if
applicable, (b) compliance with the requirements of the National
Environmental Protection Agency ("NEPA"), (c) a Tribal Gaming
Ordinance approved by the NIGC, and (d) Indian land leases, if
applicable approved by the Bureau of Indian Affairs ("BIA").
The management consulting engagement letters provide for advances
of funds to the Indian tribes by BNSC for professional services, fees,
licenses, travel, administrative costs, documentation, procedure
manuals, purchases of property and equipment and other costs related
to the approval and opening of an establishment. These advances are
considered to be a receivable from the Tribe and to be repaid by the
Tribe from the funding to open the enterprise. The ability to collect the
funds related to these advances depends upon the opening of the
establishment or in the alternative the liquidation of the inventory and
receivable accumulated in the event the establishment is not opened.
However, if the collection and/or liquidation efforts are not successful,
BNSC may suffer a significant loss of asset value. See Liquidity and
Capital Resources, page 17.
Butler National Service Corporation is in the process of maintaining
and obtaining the required licenses for the opening and operation of
any future gaming establishments. BNSC follows the law and
regulations of the Indian Gaming Regulatory Act of 1988 and the state
laws as they may apply. At this time, BNSC does not foresee any
substantial risks associated with maintaining and obtaining any
required licenses needed to assist the Indian tribes.
During fiscal 1997, the Company received approval by the National
Indian Gaming Commission of the management agreement between the
Miami Tribe of Oklahoma, the Modoc Tribe of Oklahoma and its
subsidiary, Butler National Service Corporation, to construct and
manage a Class II (High Stakes Bingo) and Class III (Off-Track
Betting) establishment. Construction of this project, known as the
STABLES, was completed and opened in September 1998.
The services to be provided by the Company include consulting and
construction management for the Tribes. The Company provided the
necessary funds to construct the facilities and is being repaid the
principal plus interest out of the profits of the operation. The principal
amount of $3.5 million carries an interest rate of prime plus 2%.
Additionally, the Company is receiving a 30% share of the profits for
its management services. The Company has obtained construction and
operating financing of the establishment.
The Princess Maria Casino, an Indian gaming establishment, is under
construction and is expected to open for business in July 2001. The
Management Agreement between the Miami Tribe (the owner and
operator) and Butler National Service Corporation (the Manager)
originally filed in 1992 was approved January 7, 2000. The State of
Kansas has challenged the BIA's determination of Indian land.
However, the Miami Tribe expects a favorable determination by the
10th Circuit Court of Appeals.
The Shawnee 206 Casino, an Indian gaming establishment, is in the
land clearing and approval phase under the terms of a 1992 consulting
agreement between the Shawnee Tribe, the land owner members of the
Shawnee Tribe and Butler National Service Corporation. Approval of
this Management Agreement is expected in calendar year 2001.
The Company has other consulting agreements with other tribes and an
NIGC approved Management Agreement with the Modoc Tribe for
casino construction and openings scheduled after the opening of the
Princess Maria and the Shawnee 206.
The risk associated with advances of funds for assets and services on
behalf of the tribes under the consulting agreements is that a
Management Agreement will not be approved and the liquidation of
the assets and related services does not recover enough funds to cover
the advances. The Company has been involved in this business
segment since 1991 and has not experienced any project stopping
determinations by the federal courts or the regulatory agencies. All
Management Agreements submitted for approval have been approved
by the NIGC. There can be no assurance that future management
agreements will be approved and that Congress will not outlaw Indian
gaming. Should any of these events occur, the Company would choose
alternative uses of the Indian land in cooperation with the Tribes to
recover the advances to the Tribes.
SCADA Systems and Monitoring Services: BNS is engaged in the
sale of monitoring and control equipment and the sale of monitoring
services for water and wastewater remote pumping stations through
electronic surveillance by radio or telephone. BNS contracts with
government and private owners of water and wastewater pumping
stations to provide both monitoring and preventive maintenance
services for the customer.
We expect a high percentage of BNS business to come from
municipally owned pumping stations. Currently, BNS is soliciting
business in Florida only. While the Company has exposure to
competitive forces in the monitoring and preventive maintenance
business, management believes the competition is limited.
Temporary Services: BTS provides managed temporary personnel to
corporate clients to cover personnel shortages on a short and/or long
term basis. This service is being marketed in Kansas and Missouri.
Currently, this Company is inactive. BTS plans to provide contract
staffing for the Princess Maria establishment planned to open in 2001.
Raw Materials: Raw materials used in the Company's products are
currently available from several sources. Certain components, used in
the manufacture of the Switching Units, are long lead time components
and are single sourced.
Patents: There are no patents, trademarks, licenses, franchises, or
concessions held by us that need to be held to do business other than
the FAA, PMA and Repair Station licenses. However, we maintain
certain airframe alteration certificates, commonly referred to as
Supplemental Type Certificates ("STC's"), issued to us by the FAA,
for the Aircraft Modification and Avionics businesses. The STC,
PMA and Repair Station licenses are not patents or trademarks. The
FAA will issue an STC to anyone, provided that the person or entity
documents and demonstrates to the FAA that a change to an aircraft
configuration does not endanger the safety of flight. The PMA and
Repair Station licenses are available to any person or entity, provided
that the person or entity maintains the appropriate
documentation and follows the appropriate manufacturing, repair
and/or service procedures. The FAA requires the aircraft owner to
have the STC document in the aircraft log after each modification is
complete.
Seasonality: Our business is generally not seasonal. Demand for the
Falcon 20 cargo aircraft modifications is related to seasonal activity of
the automotive industry in the United States. Many of these modified
aircraft are used to carry automotive parts to automobile manufacturing
facilities. The peak modification demand occurs in late spring and
early summer. Peak usage of the modified aircraft is from June to
December. Future changes in the automotive industry could result in
the fluctuation of revenues at the Aircraft Modifications Division.
Customer Arrangements: Most of our products are custom-made.
Except in isolated situations no special inventory-storage
arrangements, merchandise return and allowance policies, or extended
payment practices are involved in the Company's business. We are not
dependent upon any single customer except for Switching Units.
Switching Units are sold to Boeing McDonnell Douglas and Douglas
Aircraft Company customers. We have required deposits from our
customers for aircraft modification production schedule dates.
Backlog: Our backlog as of April 30, 2000, 1999, and 1998, was as
follows:
Industry segment 2000 1999 1998
Aircraft Modifications 1,653,000 2,274,000 5,747,505
Avionics 145,000 295,000 173,174
Monitoring Services 362,238 504,736 1,124,191
Corporate 47,500 - -
Total backlog $2,207,738 $3,073,736 $7,044,870
Our backlog as of September 15, 2000, totaled $3,743,376; consisting
of $2,889,000, $35,000, $767,126 and $52,250 respectively, for
Aircraft Modifications, Avionics, Monitoring Services, and Temporary
Services. The backlog includes firm orders, which may not be
completed within the next twelve months. Backlog that we expect not
to be filled within the next year totals $500,000; consisting of $500,000,
$0, $0, and $0. These numbers represent firm orders that may not
be completed within the year. This is standard for the industry in
which modifications and related contracts may take several months or
years to complete. Such actions force backlog as additional customers
request modifications, but must wait for other projects to be
completed.
Our backlog in Monitoring Services increased due to our annual
contract with a customer (City of Plantation) being extended to a five-
year contract. Three years remain on this contract.
Employees: We employed 62 people on April 30, 2000, compared to
59 people on April 30, 1999, and 66 people on April 30, 1998. As of
September 15, 2000, we employed 66 people. None of our employees
are subject to any collective bargaining agreements.
"Year 2000": Historically, certain computerized systems have had
two digits rather than four digits to define the applicable year, which
could result in recognizing a date using "00" as the year 1900 rather
than the year 2000. This could result in major failures or
miscalculations and is generally referred to as the "Year 2000 issue."
We recognized that the impact of the Year 2000 issue extended beyond
traditional computer hardware and software to automated plant systems
and instrumentation, as well as to third parties. The Year 2000 issue
was addressed within our company by its individual business units,
with no material issues noted.
We committed resources to conduct risk assessments and have taken
corrective action, where required, within each of the following areas:
information technology, plant systems and external parties.
Information technology includes telecommunications as well as
traditional computer software and hardware in the mainframe,
midrange and desktop environments. Plant systems include all
automation and embedded chips used in plant operations. External
parties include any third party with whom we interact. In all three areas
no material issues have arisen.
The remaining costs of the Year 2000 activities were not expected to
be material to our operations, liquidity or capital resources. Costs are
being managed within each business unit. We purchased and replaced
our central computer system and all operating and application software
with Year 2000 compatible products in the summer of 1998. The cost
of this replacement was approximately $200,000.
Financial Information about Foreign and Domestic Operations,
and Export Sales: Information with respect to Domestic Operations
may be found at Note 14 of Notes to Consolidated Financial
Statements for the year ended April 30, 2000, located herein at page
52. There are no foreign operations.
Distribution of the Indian Gaming business. On May 14, 1999 we
reported that on May 4, 1999 the Board of Directors determined that
the interests of the shareholders would be best served by distributing
the common stock of our Indian Gaming Subsidiary ("IGS") to the
shareholders. This would allow the management of each business to
focus solely on that business segment. This would also provide
incentives to the employees directly related to the profitable operation
of the business segment and enhance the access to financing by
allowing the financial community to focus on the business activities
and opportunities of the business segment.
We announced plans to distribute the IGS common stock to the
shareholders of record owning our common stock at the close of
business on May 24, 1999. The shares of the IGS were planned to be
distributed to the shareholders at a ratio of one share of common stock
of the IGS for each share of our stock owned at the close of business
on May 24, 1999. The original date of an Information Statement and
distribution was expected to be July 31, 1999. Distribution will be
made as soon as the Form 10 is completed and approved by the SEC.
Item 2. PROPERTIES
Our corporate headquarters are located in a 9,000 square foot owned
facility for office and storage space at 19920 West 161st Street, in
Olathe, Kansas. The facilities are adequate for current and anticipated
operations.
Our Company's Aircraft Modifications Division is located at the
municipal airport in Newton, Kansas, in facilities occupied under a
long-term lease extending to March 31, 2003, at an annual rent of
$66,000. The lease is renewable for an additional five-year term.
These facilities are adequate for current and anticipated operations.
Our wholly owned subsidiary, Butler National Services, Inc. has its
principal offices in Ft. Lauderdale, Florida, in facilities occupied under
a three-year lease ending March 31, 2002. The annual rental is
approximately $30,330. The facilities are adequate for current and
anticipated operations.
Our wholly owned subsidiary, Butler National Corporation - Tempe,
Arizona (formerly Woodson Avionics, Inc.), had its principal offices
and manufacturing operations in Arkansas. During May 1996, the
Company relocated to 4816 South Ash Avenue, Tempe, Arizona. As
of January 1, 2000, the Company rents 8,300 square foot of space for
$3,906 per month. The lease expires December 31, 2003. The
facilities are adequate for current and anticipated operations.
Item 3. LEGAL PROCEEDINGS
We had an employment agreement with an individual (Brenda
Shadwick "BBS"), whom the Company terminated in April 1995.
BBS filed a lawsuit against the Company, the President of the
Company, and various corporate subsidiaries, alleging the Company
wrongfully terminated BBS's employment in breach of the contract.
The suit was filed in October 1995 in State Court in Johnson County,
Kansas.
We reached an agreement with BBS to settle and release all claims and
counterclaims on May 1, 1997. BBS dismissed the lawsuit with
prejudice. The terms of the settlement required monthly payments by
us to BBS in the amount of $6,000 per month during fiscal 1998 and
fiscal 1999, which were made.
We acquired RF, Inc. from Marvin and Donna Eisenbath (MJE) on
April 21, 1994. We exchanged 650,000 shares of the Company's
common stock for 100% of the issued and outstanding shares of RF,
Inc. The Eisenbaths sought for some time to reacquire from us the
ownership of RF, Inc. MJE filed a lawsuit against us seeking to
rescind the sale of RF, Inc. stock and for damages.
We reached an agreement with MJE to settle and release all claims and
counterclaims effective April 30, 1997, ("Release Agreement"). MJE
dismissed the lawsuit with prejudice. In addition to the releases, under
the terms of the agreement, we received on June 26, 1997, 600,000
shares of the Company's common stock and certain payments over the
next three years. We released MJE from the terms of his employment
contract and the April 24, 1994, Stock Purchase Agreement. These
documents released MJE from his agreement not to compete with us in
the food distribution industry.
We recorded a gain (principally noncash) of approximately $1,043,000
in the first quarter of 1998 for this transaction. Although the effective
date of the transaction as agreed to by both parties is April 30, 1997,
the transfer of the stock and related proceeds was not completed until
June 1997, see also Item 1, General, Discontinued Operations, page 3,
regarding the bankruptcy of RF, Inc.
On September 20, 1998, the RFI bankruptcy trustee filed an action
alleging a number of claims against Butler National and its officers
including a claim for repayment of preferential payments to the
bankruptcy estate. Butler National settled the lawsuit on July 26,
1999, by the payment of $250,000 to the court.
In December 1997, we sold Convertible Preferred Stock to certain
offshore investors. Beginning in February 1998, these investors began
converting the Preferred Stock into Common Stock and the price of
our stock declined. As reported earlier, we received notice from
NASDAQ stating that the Common Stock of the Company would be
delisted by NASDAQ if the price did not trade at a bid price of $1.00
or more for ten business days prior to August 6, 1998. The delisting of
the Company's Common Stock would be a default under the terms of
the Convertible Preferred Stock, as well as under the terms of certain
Convertible Debentures previously issued. We considered a number of
alternative actions including a reverse stock split, a repurchase of
common shares on the open market and/or the repurchase of the
convertibles at a premium to increase the price of the Common Stock.
After evaluation of various alternatives and as a result of what we
believed were inappropriate actions and representations by the holders
of the Convertible Preferred Stock and the Convertible Debentures, we
announced plans to stop conversions of the Convertible Preferred
Stock and Convertible Debentures at prices below $2.75 per share. On
July 17, 1998, two of the holders of the Convertible Preferred Stock
filed a lawsuit (the "Action") against us in Chancery Court in Delaware
alleging among other things, breach of contract, violation of Delaware
law and violation of the terms of the Convertible Preferred Stock. The
Action seeks an injunction to force us to convert the Convertible
Preferred Stock in accordance with its terms and for unspecified
monetary damages.
On January 25, 1999 Butler National announced that an agreement had
been reached with the Holders of the Class B Convertible Preferred
Stock to settle the lawsuit against the Company. Under the agreement,
the Holders of the Preferred are allowed to convert up to ten percent
(10%) of the face value of the Preferred into common stock in any
month until the entire issue is converted. The face value at the time of
settlement was $785,000 allowing $78,500 per month to be converted
under the plan. However, if the bid price is above $1.45 for three
trading days, the Holders will be allowed to convert up to a total of
thirty percent (30%) per month or $235,500 of face value of the
Preferred. The conversion amount will increase five percent (5%) for
each $.20 increase in market price. The agreed conversion price is
seventy percent (70%) of the average bid price for the previous five
trading days.
With the exception of 30,000 common shares owned at settlement by
the Holders, sales of the previous converted common shares, 148,849
shares, plus any newly converted common shares, will be limited to the
greater of $30,000 or twenty-five percent (25%) of the previous weeks
trading volume. Additionally, accrued dividends ($54,397) on the
Preferred Stock will be paid in shares of common stock. The holders
agreed to waive all future dividends. All transactions are being
handled through one broker and all activity is reported on a weekly
basis. The Holders also received 770,000 three-year warrants to
purchase restricted common stock at $1.45 per share.
On April 30, 1999 Butler National entered into an agreement with the
Holders of the Convertible Debentures similar to the agreements with
the Holders of the Convertible Preferred. The face value at the time of
this agreement was $650,000 allowing $65,000 per month to be
converted under the plan at a conversion price equal to eighty percent
(80%) of the five (5) day average closing bid for the five (5) trading
days prior to the conversion, provided, however, that if the closing
price increases to $1.45 per share or more for three (3) consecutive
trading days, the Holder will have the option to convert an additional
twenty percent (20%), or $130,000 of outstanding principal amount of
Debentures. All transactions are being handled through one broker
and all activity is reported on a weekly basis. The Holders also
received 325,000 three-year warrants to purchase restricted common
stock at $1.45 per share.
We used an outside engineering firm to assist with the Aircraft
Modification Avcon Fin project and the related STC's. The individual
filed suit against us for final payment under the contract. However, we
did not feel that all work products had been delivered. On October 19,
1998, the case was settled when we made final payment and the work
products were delivered.
A lawsuit was filed in the United States District Court for the District
of Kansas by the State of Kansas against us, the United States, the
Business Committee members of the Miami Tribe and others on
October 14, 1999, challenging the determination by the Department of
the Interior and the United States District Court for the District of
Kansas that the Miami Princess Maria Reserve No. 35 was Indian
Land. The State of Kansas requested an order by the Court preventing
further development on the Indian land by us and further discussions
about the Indian land by us or Mr. Stewart, our President.
All of the defendants have asked the Courts to dismiss the case because
they believe the determination of Indian land is a power reserved for
the United States by the constitution of the United States. A ruling by
the court is expected in the winter of 2000.
As of September 15, 2000, there are no other known legal proceedings
pending against the Company. The Company considered all such
unknown proceedings, if any, to be ordinary litigation incident to the
character of the business. The Company believes that the resolution of
those unknown claims will not, individually or in the aggregate, have a
material adverse effect on the financial position, results of operations,
or liquidity of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security
holders during the fourth quarter of fiscal 2000.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
COMMON STOCK (BUKS):
(a) Market Information: The Company was initially listed in the
national over-the-counter market in 1969, under the symbol
"BUTL." Effective June 8, 1992, the symbol was changed to
'BLNL.' On February 24, 1994, the Company was listed on the
NASDAQ Small Cap Market under the symbol "BUKS." The
Company's common stock has been delisted from the small cap
category effective January 20, 1999 and is now listed in the over-
the-counter (OTCBB) category. Approximately twelve (12)
market makers offer and trade the stock.
The range of the high and low bid prices per share of the
Company's common stock, for fiscal years 2000 and 1999, as
reported by NASDAQ, is set forth below. Such market quotations
reflect intra-dealer prices, without retail mark-up, markdown or
commissions, and may not necessarily represent actual
transactions.
Year Ended April 30, 2000 Year Ended April 30, 1999
High Low High Low
First Quarter 23/32 1/8 3/4 3/8
Second Quarter 3/16 7/128 5/8 3/8
Third Quarter 1/8 3/64 3/4 5/16
Fourth Quarter 19/64 7/64 9/16 15/64
(b) Holders: The approximate number of holders of record of the
Company's common stock, as of September 15, 2000, was 2,900.
(c) Dividends: The Company has not paid any cash dividends on its
common stock, and the Board of Directors does not expect to
declare any cash dividends in the foreseeable future.
SECURITIES CONVERTIBLE TO COMMON STOCK:
As of September 15, 2000, the status of the convertible securities
issued is as follows:
Convertible Security Face Value Conversion Equivalent Common
Outstanding Discount Shares at Market
Percent Price of $0.115 per
Common Share
Debenture $ 273,000 20% 2,967,391
Class B Preferred $ 283,500 30% 3,521,739
Total $ 556,500 6,489,130
Item 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" and with the Consolidated Financial Statements
and related Notes included elsewhere in the report.
Year Ended April 30
(In thousands except per share date)
2000
Net Sales $4,606
Income (Loss) from Continuing Operations (1,136)
Income (Loss) from/on Discontinued Operations -
Net Income (Loss) ($1,136)
Basic Per Share
Income (Loss) from Continuing Operations $(0.06)
Income (Loss) from/on Discontinued Operations -
Net Income (Loss) $(0.06)
Selected Balance Sheet Information
Total Assets $10,272
Long-term Obligations (excluding current maturities) $ 2,940
Cash dividends declared per common share None
1999
Net Sales $6,612
Income (Loss) from Continuing Operations (282)
Income (Loss) from/on Discontinued Operations (1,698)
Net Income (Loss) ($1,980)
Basic Per Share
Income (Loss) from Continuing Operations $(0.03)
Income (Loss) from/on Discontinued Operations (0.14)
Net Income (Loss) $(0.17)
Selected Balance Sheet Information
Total Assets $11,729
Long-term Obligations (excluding current maturities) $ 3,065
Cash dividends declared per common share None
1998
(Restated)
Net Sales $5,456
Income (Loss) from Continuing Operations 399
Income (Loss) from/on Discontinued Operations 269
Net Income (Loss) $ 668
Basic Per Share
Income (Loss) from Continuing Operations $ 0.03
Income (Loss) from/on Discontinued Operations (0.03)
Net Income (Loss) $ 0.00
Selected Balance Sheet Information
Total Assets $ 10,870
Long-term Obligations (excluding current maturities) $ 1,926
Cash dividends declared per common share None
1997
(Restated)
Net Sales $ 4,062
Income (Loss) from Continuing Operations (575)
Income (Loss) from/on Discontinued Operations (688)
Net Income (Loss) $(1,263)
Basic Per Share
Income (Loss) from Continuing Operations $ (0.06)
Income (Loss) from/on Discontinued Operations (0.07)
Net Income (Loss) $ (0.13)
Selected Balance Sheet Information
Total Assets $ 10,070
Long-term Obligations (excluding current maturities) $ 1,541
Cash dividends declared per common share None
1996
Net Sales $3,653
Income (Loss) from Continuing Operations (658)
Income (Loss) from/on Discontinued Operations 802
Net Income (Loss) $ 144
Basic Per Share
Income (Loss) from Continuing Operations $ (0.07)
Income (Loss) from/on Discontinued Operations 0.09
Net Income (Loss) $ 0.02
Selected Balance Sheet Information
Total Assets $ 8,261
Long-term Obligations (excluding current maturities) $ 57
Cash dividends declared per common share None
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Company has restated its financial statements for April 30, 1998
and 1997. These financial statements were restated primarily as a
result of two errors as follows:
Beneficial Conversion Features: The Company issued convertible
preferred stock on December 16, 1997, which contained beneficial
conversion features. Those features allow the holder of the security to
convert the preferred stock into the Company's common stock at 70%
of the common stock bid price (the average of the ending common
stock price bid five days prior to issuance of the preferred stock or the
ending common stock bid price 45 days after issuance of the preferred
stock). The financial statements for the period ended April 30, 1998,
have been restated to reflect accounting recognition of the value
attributable to this beneficial conversion feature as a deemed dividend
and an increase to capital contributed in excess of par of $650,000.
The accounting above is consistent with the accounting requirements in
Topic D-60 of the Emerging Issues Task Force (EITF), issued in
March 1997, and what was agreed to by the EITF in the final
deliberations for Issue 98-5 on May 20, 1999.
RF, Inc. Gain: The Company settled a dispute with a former employee in
June 1997, effective April 30, 1997. The Company initially recorded a net
gain on the settlement of approximately $433,000 in June 1998. Costs
aggregating approximately $1,054,000 that had been deferred as of April 30,
1997, more appropriately should have been recognized as period costs. The
financial statements have been restated to expense these costs as part
of loss from discontinued operations in fiscal 1997. In addition, the
value assigned to the 600,000 shares of company stock received as part
of the consideration of the settlement was reduced from $2 per share
(stock price at April 30, 1997) to $1.22 per share (stock price on June
26, 1997 - the date the shares were received). The net effect of this
transaction on the fiscal 1998 financial statements is to change the
previously reported loss from discontinued operations of $172,281 to
income from discontinued operations of $269,219.
Fiscal 2000 compared to restated fiscal 1999
The Company's sales for fiscal 2000 were $4,606,809, a decrease of
30.3% from fiscal 1999 sales of $6,612,121. Discussion of specific
changes by operation follows.
Aircraft Modification: Sales from the Aircraft Modifications
business segment decreased 40.4%, from $5,217,138 in fiscal 1999, to
$3,130,835 in 2000. This segment had an operating loss of $667,939
in 2000, compared to $315,291 profit in 1999. Primarily product sales
decreased from 1999 due to the efforts to produce a new Supplemental
Type Certificates ("STC").
As previously noted on page 4, (Item 1. Business), on May 3, 1996 the
Company subsidiary, Avcon Industries, Inc., received approval from
the Federal Aviation Administration of a Supplemental Type
Certificate (no. ST00432WI) for its AVCON FIN Modification for
installation on Learjet Model 35 and 36 Aircraft. The STC authorizes
Avcon to build the required parts and assemblies and to perform the
installations on applicable customer-owned Learjets. The Company
believes the potential market for fin installations to be approximately
1,000 aircraft and that approximately 500 fin installations will be
performed over the next several years. The Company plans to market
the fin installation with related options. The installed package price
for eleven AVCON FIN packages installed in fiscal 2000 averaged
approximately $150,000 per aircraft.
Switching Units: Sales from the Avionics Switching Unit business
segment decreased 41%, from $465,830 in fiscal 1999, to $274,335 in
fiscal 2000. Sales to the major OEM customer decreased 67% due to
the phase out schedule of this type of aircraft. Sales for aircraft repair
and refurbishment increased 4%, from fiscal 1999 to fiscal 2000.
Operating profits decreased from ($46,370) in fiscal 1999 to ($68,797)
in fiscal 2000. Management expects this business segment to continue
to be stable in future years due to the additional orders the Company
has received.
SCADA Systems and Monitoring Services: Revenue from
Monitoring Services increased from $929,153 in fiscal 1999 to
$1,118,081 in fiscal 2000, an increase of 20%. During fiscal 2000, the
Company maintained a relatively level volume of long-term contracts
with municipalities. Revenue fluctuates due to the introduction of new
products and services and the related installations of these products.
The Company's contracts with its two largest customers have been
renewed for fiscal 2001. An operating loss of $5,836 in Monitoring
Services was recorded in fiscal 2000, compared to fiscal 1999
operating profit of $14,809.
The Company believes the service business of this segment will
continue to grow at a moderate rate. This segment has experienced
general increases over the past few years and the Company expects this
trend to continue.
Temporary Services: BTS provides managed temporary personnel to
corporate clients to cover personnel shortages on a short and/or long
term basis. This service is being marketed in Kansas and Missouri.
Currently, this Company is inactive. BTS plans to provide contract
staffing for the Princess Maria establishment planned to open in early
2001.
Management Services
-General-
The Company has advanced and invested a total of $7,999,022 in land,
land improvements, professional design fees and other consulting and
legal costs related to the development of Indian Gaming facilities.
Included in these advances and investments are lands and other areas
located adjacent to residential developments. The Company believes
that these tracts could be developed and sold for residential and
commercial use, other than Indian gaming, if the gaming enterprises do
not open. Additional improvements, including access roads, water and
sewer services, etc. are planned for these lands. After these
improvements, these lands may be sold in small tracts. This would
allow the Company to recover the majority, if not all, of the land
investments and other gaming costs.
-Princess Maria Casino-
The Company has a management agreement with the Miami Tribe to
provide management services to the Miami Tribe. On July 9, 1992,
the Tribe requested a compact with the State of Kansas for Class III
Indian gaming, on Indian land, known as the Maria Christiana Miami
Reserve No. 35, located in Miami County, Kansas.
The Miami Tribe's 1992 compact was the subject of a lawsuit filed in
February 1993, in the Federal District Court, by Miami Tribe, alleging
the failure to negotiate a compact in good faith by the State of Kansas.
The United States District Court dismissed the Miami Tribe's suit
against the State of Kansas, citing the United States Supreme Court's
ruling in Seminole v. State of Florida. The Supreme Court ruled that
the "failure to negotiate" provision of the IGRA did not allow an
Indian tribe to compel a state by litigation to negotiate a compact.
In February 1993, former Kansas Governor Finney requested a
determination of the suitability of the Miami Indian land for Indian
Gaming, under the IGRA, from the Bureau of Indian Affairs (the
"BIA"). In May 1994, the NIGC again requested the same
determination. Finally in May 1995, an Associate Solicitor within the
BIA issued an opinion letter stating that the Miami Tribe has not
established jurisdiction over the Miami land in Kansas. This was the
first definitive statement received from the central office of the BIA in
three years. The latest opinion is contrary to a September 1994
opinion of the Tulsa Field Solicitor, in an Indian probate, stating that
the Miami Tribe has jurisdiction over the Miami Indian land in Kansas.
On July 11, 1995, the U.S. Department of Justice issued a letter to the
Associate Solicitor expressing concern about the conclusions reached,
based upon the analysis of the case.
The Miami Tribe challenged this opinion in Federal Court. To prove
and protect the sovereignty of the Miami Tribe, and other Indian tribes,
relating to their lands, on April 11, 1996, the Court ruled that the
Miami Tribe did not have jurisdiction because the BIA had not
approved the Tribal membership of the Princess Maria heirs, at the
time the management agreement was submitted; therefore, the Court
ordered that the NIGC's determination (that Reserve No. 35 is not
"Indian land", pursuant to IGRA) was affirmed. However, the Court
noted in its ruling that nothing precludes the Tribe from resubmitting
its management agreement to the NIGC, along with evidence of the
current owners' consent, and newly adopted tribal amendments. On
February 22, 1996, the BIA approved the Miami Tribe's constitution
and the membership of the heirs. The Tribe resubmitted the
management agreement. Although the Court noted that the Tribe could
resubmit the management agreement, the Court did not pass on
whether or not a new submission will obtain approval.
The Tribe resubmitted the management agreement and land question to
the NIGC in June 1996. In July 1996, the NIGC again requested an
opinion from the BIA. On July 23, 1997, the Tribe and the Company
were notified that the BIA had again determined that the land was not
suitable for gaming, for political policy reasons, without consideration
of the membership in the Miami Tribe or recent case law, and the
NIGC had to again deny the management agreement. The Tribe filed a
suit in the Federal District Court in Kansas City, Kansas. On May 15,
1998, the Court determined that the land was suitable for gaming and
remanded the case to the BIA for the documentation. Therefore, even
though the Company and the Tribe believe the BIA will agree with the
Court that the land is "Indian land", and in compliance with all laws
and regulations, for a variety of reasons, there is no assurance that the
Management Agreement will be approved. Subsequent to April 30,
1998, the NIGC approved the management agreement on January 7,
2000. Under the Management Agreement, as approved, the Company,
as manager, is to receive a 30% share of the profits and reimbursement
of development costs.
The total advances and investment related to the Princess Maria at
April 30, 2000, was $780,431. 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 Courts to dismiss the case because
they believe the determination of Indian land is a power reserved for
the United States by the constitution of the United States. A ruling by
the courts is expected in the winter of 2000.
-Stables Bingo and Off-Track Betting-
Additionally, the Company has a signed Management Agreement with
the Miami and Modoc Tribes. A Class III Indian Gaming Compact for
a joint venture by the Miami and Modoc Tribes, both of Oklahoma,
has been approved by the State of Oklahoma and by the Assistant
Secretary, Bureau of Indian Affairs for the U.S. Department of the
Interior. The Compact was published in the Federal Register on
February 6, 1996, and is, therefore, deemed effective. The Compact
authorizes Class III (Off-Track Betting "OTB") along with Class II
(high stakes bingo) at a site within the City of Miami, Oklahoma.
The Company is providing consulting and construction management
services in the development of the facility and 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, 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 two percent (2%) over prime, to be
repaid over five (5) years, for the construction and operation of the
Stables gaming establishment. The Company declared a dividend in
May 1999, of all of the shares of BNSC. The note payable to Miller &
Schroeder is a liability of BNSC. An offsetting ($1,607,642) note
receivable from the Tribes is an asset of BNSC. At April 30, 2000, the
Company has a $1,283,625 note receivable for Indian gaming
development. Security under the contract includes
the Tribes' profits from all tribal gaming enterprises and all assets of
the Stables except the land and building.
-Shawnee Reserve No. 206-
In 1992, the Company signed a consulting agreement and has
maintained a business relationship with approximately seventy Indian
and non-Indian heirs (the "Owners") of the Newton McNeer Shawnee
Reserve No. 206 ("Shawnee Reserve No. 206"). This relationship
includes advances for assistance in the defense of the property against
adverse possession (by one family member) in exchange for being
named the manager of any Indian gaming enterprises that may be
established on the land. As a result of the Company's assistance, the
Owners are in the process of becoming the undisputed beneficial
owners of approximately 72 acres of the Shawnee Reserve No. 206, as
ordered by the United States District Court for the District of Kansas.
The Company has advanced funds to purchase an additional 9 acres
contiguous to the Indian land providing access.
Shawnee Reserve No. 206 has been a part of the Shawnee Reservation
in Kansas Territory since 1831 and was reserved as Indian land and not
a part of the State of Kansas, when Kansas became a state in 1861.
The Indian land is approximately 25 miles southwest from downtown
Kansas City, Missouri.
The Company maintains a relationship and has a consulting agreement
to assist with the proposed establishment. This agreement is signed by
the owners and the Shawnee Tribe of Oklahoma. The Shawnee Tribe
of Oklahoma is not a federally recognized tribe. The tribe, sometimes
known as the Loyal Shawnee Tribe, is a tribe organized by a 1960
federal resolution operating within and as a part of the federally
recognized Cherokee Nation of Oklahoma. The Indian Owners of
Shawnee Reserve No. 206 have federal Indian membership cards
showing them to be Cherokee-Shawnee members of the Cherokee
Nation of Oklahoma. The Shawnee and the Cherokee are currently
working to reaffirm the Shawnee's jurisdiction over the Indian land and
to obtain federal recognition for the Shawnee Tribe.
The Company believes that there is a significant opportunity for Indian
gaming on the Shawnee Reserve No. 206. However, none of the above
agreements have been approved by the BIA, or the Cherokee Nation,
or any other regulatory authority. There can be no assurance that these
or future agreements will be approved nor that any Indian gaming will
ever be established on the Shawnee Reserve, or that the Company will
be the Management Company.
The total advances and investment related to Shawnee Reserve No.
206 at April 30, 2000, was $799,725. This amount is net of a reserve
of $849,222, which represents the current net realizable value of the
advanced receivable.
-Modoc Bingo-
The Company signed a consulting agreement with the Modoc Tribe on
April 21, 1993. As a part of this project, the Company has a
management agreement with the Modoc Tribe to construct and operate
an Indian gaming facility on Modoc Reservation lands in Eastern
Oklahoma. The Management Agreement was filed with the NIGC on
June 7, 1994 for review and approved on July 11, 1997. The Tribe
and the Company have not determined a schedule for this project.
There is no assurance that further action will be taken until the Stables
is in operation and well established, if ever.
The total advances and investment related to Modoc Tribe at April 30,
2000, was $148,336. This amount is net of a reserve of $337,436,
which represents the current net realizable value of the advanced
receivable.
- Other Opportunities -
The Company is currently reviewing other potential Indian gaming
opportunities with other tribes. These discussions are in the early
stages of negotiation and there can be no assurance that these gaming
opportunities will be successful.
The various management agreements have not yet been approved by
the various governing agencies and therefore are not filed as exhibits to
this document.
The total advances and investment related to Other Gaming at April
30, 2000, was $18,112. This amount is net of a reserve of $58,324
which represents the current net realizable value of the advanced
receivable.
Selling, General and Administrative (SG&A): Expenses decreased
$4,072 (.3%) in fiscal year 2000. These expenses were $1,661,584, or
36.1% of revenue, in fiscal 2000, and $1,665,656, or 25.2% of revenue
in fiscal 1999.
Other Income (Expense): Other expense decreased from $57,317 in
fiscal 1999 to $33,944 in fiscal 2000. This decrease is a result of
increased interest revenue from the Stables gaming contract.
Fiscal 1999 compared to restated fiscal 1998
The Company's sales for fiscal 1999 were $6,612,121, an increase of
21.2% from fiscal 1998 sales of $5,456,106. Discussion of specific
changes by operation follows.
Aircraft Modification: Sales from the Aircraft Modifications
business segment increased 34.7%, from $3,874,490 in fiscal 1998, to
$5,217,138 in 1999. This segment earned an operating profit of
$315,291 in 1999, compared to $1,274,320 in 1998. Primarily product
sales increased due to the expanded business base related to the
purchase, modification and sale of Learjet using the multiple-use
Supplemental Type Certificates ("STC") developed by the Company.
As previously noted on page 4, (Item 1. Business), on May 3, 1996 the
Company subsidiary, Avcon Industries, Inc., received approval from
the Federal Aviation Administration of a Supplemental Type
Certificate (no. ST00432WI) for its AVCON FIN Modification for
installation on Learjet Model 35 and 36 Aircraft. The STC authorizes
Avcon to build the required parts and assemblies and to perform the
installations on applicable customer-owned Learjets. The Company
believes the potential market for fin installations to be approximately
1,000 aircraft and that approximately 500 fin installations will be
performed over the next several years. The Company plans to market
the fin installation with related options. The installed package price
for eleven AVCON FIN packages installed in fiscal 1999 averaged
approximately $150,000 per aircraft.
In fiscal 1998, the Company invested $499,454 to design, engineer,
build, and demonstrate to the FAA, flight characteristics of Avcon
products; thereby adding to its ownership of multiple-use STC's. The
Company's direction is to continue to invest in activities that expand
the aircraft modification market. The Company believes that the
increased modification-market, through STC's for the Learjet and the
Beechcraft KingAir, will enable this segment to be an even greater
contributor to the overall growth of the Company. In fiscal 1999, the
Company invested approximately $104,000.
Switching Units: Sales from the Avionics Switching Unit business
segment decreased 3.8%, from $484,518 in fiscal 1998, to $465,830 in
fiscal 1999. Sales to the major OEM customer increased 28.6% due to
the phase out schedule of this type of aircraft. Sales for aircraft repair
and refurbishment decreased 6.5%, from fiscal 1998 to fiscal 1999.
Operating profits decreased from $146,744 in fiscal 1998 to ($46,370)
in fiscal 1999.
SCADA Systems and Monitoring Services: Revenue from
Monitoring Services decreased from $1,097,098 in fiscal 1998 to
$929,153 in fiscal 1999, a decrease of 15.3%. During fiscal 1999, the
Company maintained a relatively level volume of long-term contracts
with municipalities. Revenue fluctuates due to the introduction of new
products and services and the related installations of these products.
The Company's contracts with its two largest customers have been
renewed for fiscal 2000. An operating profit of $14,809 in Monitoring
Services was recorded in fiscal 1999, compared to fiscal 1998
operating profit of $228,488.
Temporary Services: BTS provides managed temporary personnel to
corporate clients to cover personnel shortages on a short and/or long
term basis. This service is being marketed in Kansas, Missouri and
Oklahoma. Currently, this Company is inactive.
Selling, General and Administrative (SG&A): Expenses decreased
$408,100 (19.7%) in fiscal year 1999. These expenses were
$1,665,656, or 25.2% of revenue, in fiscal 1999, and $2,073,756, or
38% of revenue in fiscal 1998.
Other Income (Expense): Other expense decreased from $235,880 in
fiscal 1998 to $ 57,317 in fiscal 1999. This decrease is a result of
increased interest income from the Stables gaming contract.
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 $615,174 at April 30, 2000, and $471,575 at April 30, 1999.
The Company's unused line of credit at April 30, 2000 was $84,826.
As of September 15, 2000, the Company's unused line of credit was
$2,000. The Company's line of credit is $700,000. The interest rate
on the Company's line of credit is prime plus two as of September 15,
2000, the interest rate is 11.5%.
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
2001. 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 April 30, 2000, have any material
commitments for other capital expenditures other than the
Management segment's requirements under the terms of the Indian
gaming Management Agreements. These requirements are further
described in this section.
Depending upon the development schedules, the Company will need
additional funds to complete its currently planned Indian gaming
opportunities. The Company will use current cash available as well as
additional funds, for the start up and construction of gaming facilities.
The Company anticipates initially obtaining these funds from internally
generated working capital and borrowings. After a few gaming
facilities become operational, gaming operations will generate
additional working capital for the start up and construction of other
gaming facilities. The Company expects that its start up and
construction financing of gaming facilities will be replaced by other
financial lenders, long term financing through debt issue, or equity
issues.
Analysis of Cash Flow
During fiscal 2000, the Company's cash position decreased by $4,833.
A majority of the cash flow in fiscal 2000 is due to the proceeds of the
outside loans.
Operating Activities: Modification customer's deposits increased
approximately $38,359 from the sales of new projects. These funds
are fully earned upon completion of the projects. Inventories increased
$1,004,443 because of a purchase of an aircraft financed through the
aircraft floor plan.
Investing Activities: The $486,726 decrease in the note receivable are
advances under the note from the Miami and Modoc tribes for funding
to the Stables bingo facility which was completed in fiscal 1999.
The remaining cash used in investing activities is due to the use of
approximately $57,458 related to the development of Indian gaming;
approximately $52,264 to purchase tooling and equipment at
Modifications and Services, and approximately $82,500 was used in
the completion of STC's at Modification.
Changing Prices and Inflation
The Company did not experience any significant pressure from
inflation in 2000.
Item 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
The table below provides information about the Company's other
financial instruments that are sensitive to changes in interest rates
including debt obligations.
For debt obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates. Weighted
average variable rates are based on implied forward rates based upon
the rate at the reporting date.
Expected Maturity Date
(Dollars in thousands)
2001 2002 2003 2004 2005 Total Fair
Value
Assets
Note receivable:
Variable rate $ 347 $ 383 $ 428 $ 125 $ - $1,283 $1,283
Average
interest rate 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0%
Liabilities
Long-term debt:
Variable rate $ 375 $ 345 $ 1,488 $ 230 $ 218 $2,656 $2,656
Average
interest rate 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0%
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Financial Statements of the Registrant are set forth on pages 30
through 50 of this report.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company reported on Form 8-K on September 16, 1998 that on
September 14, 1998, Arthur Andersen LLP informed the Company that
it has declined to stand for reelection. The reports of Arthur Andersen
LLP on the Company's consolidated financial statements for each of
the two fiscal years ended April 30, 1997 and April 30, 1998, did not
contain any adverse opinion or disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope or accounting
principles.
The Company reported on Form 8-K on March 31, 1999 that Grant
Thornton LLP was engaged to audit fiscal year 1999.
The Company reported on Form 8-K on August 10, 1999 that on
August 3, 1999, Grant Thornton LLP informed the Company that it has
resigned as auditors for Butler National Corporation and its
subsidiaries and from their engagement to audit the consolidated
financial statements of Butler National Corporation and its subsidiaries
as of April 30, 1999.
As previously reported on Form 8-K on March 31, 1999 Grant
Thornton LLP was engaged on March 30, 1999 as Registrant's
independent auditors in connection with an audit of the Registrant's
financial statements for the year ending April 30, 1999. The reports of
the prior independent auditor, Arthur Andersen LLP on the Company's
consolidated financial statements for each of the two fiscal years ended
April 30, 1997 and April 30, 1998, contained no adverse opinion or
disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles. The Company
believes there are no disagreement with Grant Thornton LLP or
reportable events as that term is defined in Item 304(a)(1)(v) of
Regulation S-K.
The Company has requested Grant Thornton LLP to provide the
Company with specific information regarding the existence, if any, of
any disagreements with Grant Thornton LLP on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to
the satisfaction of Grant Thornton LLP, would have caused Grant
Thornton LLP to make reference to the subject matter of the
disagreements in connection with their reports. The Company has
requested Grant Thornton LLP to provide the Company with specific
information regarding the existence, if any, of any "reportable events"
as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
Grant Thornton responded to the requests. The response did not
disclose any disagreements or reportable events and was filed as an
attachment to a Form 8-K/A on August 23, 1999.
Subsequent to the Grant Thornton LLP resignation, the Company
engaged Kelly & Company to audit fiscal year 1999, as reported on
Form 8-K November 1, 1999. Kelly & Company was dismissed by the
Company as reported on Form 8-K on June 27, 2000, as a result of a
fee dispute. A Form 8-K filed June 30, 2000 Kelly & Company
reported no disagreements or reportable events.
On a Form 8-K, filed July 11, 2000 the Company reported the
engagement of Weaver & Martin LLC to audit fiscal 1999 and 2000.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the directors, their principal occupations for at
least the past five years are set forth below, based on information
furnished to the Company by the directors.
Name of Nominee and Director and Age:
Clark D. Stewart (60)
Served Since:
1989
Principal Occupation for Last Five Years and Other Directorships:
President of the Company from September 1, 1989 to present.
President of Tradewind Systems, Inc. (consulting and computer sales)
1980 to present; Executive Vice President of RO Corporation
(manufacturing) 1986 to 1989; President of Tradewind Industries, Inc.
(manufacturing) 1979 to 1985.
Name of Nominee and Director and Age:
R. Warren Wagoner (48)
Served Since:
1986
Principal Occupation for Last Five Years and Other Directorships:
Chairman of the Board of Directors of the Company since August 30,
1989 and President of the Company from July 26, 1989 to September
1, 1989. Sales Manager of Yamazen Machine Tool, Inc. from March,
1992 to March, 1994; President of Stelco, Inc. (manufacturing) 1987
to 1989; General Manager, AmTech Metal Fabrications, Inc.,
Grandview, MO 1982 to 1987.
Name of Nominee and Director and Age:
William E. Logan (62)
Served Since:
1990
Principal Occupation for Last Five Years and Other Directorships:
Vice President and Treasurer of WH of KC, Inc. (Wendy's franchisee)
June, 1984 to present. Vice President and Treasurer of Valley Foods
Services, Inc. (wholesale food distributor) June, 1988 to April, 1993.
Professional practice as a Certified Public Accountant 1965 to 1984.
Name of Nominee and Director and Age:
William A. Griffith (53)
Served Since:
1990
Principal Occupation for Last Five Years and Other Directorships:
Secretary of the Company, President of Griffith and Associates
(management consulting) since 1984. Management consultant for
Diversified Health Companies (management consulting) from 1986 to
1989 and for Health Pro (health care) from 1984 to 1986. Chief
Executive Officer of Southwest Medical Center (hospital) from 1981
to 1984.
Name of Nominee and Director and Age:
David B. Hayden (54)
Served Since:
1996
Principal Occupation for Last Five Years and Other Directorships:
Co-owner and President of Kings Avionics, Inc. since 1974 (avionics
sales and service). Co-owner of Kings Aviation LLP (aircraft fixed
base operation and maintenance) since 1994. Field Engineer for King
Radio Corporation (avionics manufacturing) 1966 to 1974.
The executive officers of the Company are elected each year at the
annual meeting of the Board of Directors held in conjunction with the
annual meeting of shareholders and at special meetings held during the
year. The executive officers are as follows:
Name Age Position
R. Warren Wagoner 48 Chairman of the Board of Directors
Clark D. Stewart 60 President and Chief Executive Officer
Larry W. Franke 56 President of Avcon Industries, Inc.,
a wholly-owned subsidiary of the Company
Jon C. Fischrupp 60 President of Butler National Services, Inc.,
a wholly-owned subsidiary of the Company
Robert E. Leisure 45 Chief Financial Officer
William A. Griffith 53 Secretary
R. Warren Wagoner was General Manager, Am-Tech Metal
Fabrications, Inc. from 1982 to 1987. From 1987 to 1989, Mr.
Wagoner was President of Stelco, Inc. Mr. Wagoner was Sales
Manager for Yamazen Machine Tool, Inc. from March 1992 to March
1994. Mr. Wagoner was President of the Company from July 26,
1989, to September 1, 1989. He became Chairman of the Board of the
Company on August 30, 1989.
Clark D. Stewart was President of Tradewind Industries, Inc., a
manufacturing company, from 1979 to 1985. From 1986 to 1989, Mr.
Stewart was Executive Vice President of RO Corporation. In 1980,
Mr. Stewart became President of Tradewind Systems, Inc. He became
President of the Company in September 1989.
Larry W. Franke was Vice President and General Manager of Kansas
City Aviation Center from 1984 to 1992. From 1993 to 1994 he was
Vice President of Operations and Sales for Marketlink, an aircraft
marketing company. Mr. Franke joined the Company in July 1994 as
Director of Marketing and was promoted in August 1995 to Vice
President of Operations and Sales. Mr. Franke is currently Vice
President of Aircraft Modifications at Avcon.
Jon C. Fischrupp was President of Lauderdale Services, Inc. ("LSI")
from June 14, 1978, until May 1, 1986, at which time the Company
acquired LSI and he became President of LSI (now known as Butler
National Services, Inc.).
Robert E. Leisure was a certified public accountant with the firm of
Agler & Gaeddert from 1995 to 1997. Mr. Leisure joined the
Company in December 1997 as Director of Accounting. Mr. Leisure
became the Chief Financial Officer in February 1999.
William A. Griffith was Chief Executive Officer of Southwest Medical
Center (hospital) from 1981 to 1984. Mr. Griffith was a management
consultant for Health Pro from 1984 to 1986 and for Diversified
Health Companies from 1986 to 1989. Mr. Griffith has been President
of Griffith and Associates, management consulting, since 1984. Mr.
Griffith became Secretary of the Company in 1992.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16(a)-3(e) during the most
recent fiscal year and Form 5 and amendments thereto furnished to the
Company with respect to the most recent fiscal year, the Company
believes that no person who at any time during the fiscal year was a
director, officer, beneficial owner of more than 10% of any class of
equity securities registered pursuant to Section 12 of the Exchange Act
failed to file on a timely basis reports required by Section 16(a) of the
Exchange Act during the most recent fiscal year or prior fiscal years.
Item 11. EXECUTIVE COMPENSATION
SUMMARY
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the
Company's Chief Executive Officer and each of the other most highly
compensated executive officers of the Company whose salary and
bonus exceeded $100,000 (determined as of the end of the last fiscal
year) for the fiscal years ended April 30, 2000, 1999 and 1998:
SUMMARY COMPENSATION TABLE
Name and Principal Position: Clark D. Stewart, President and CEO, Director
Annual Compensation Year: 2000
Salary ($): 237,986
Bonus ($): 0
Other Annual Compensation ($): 0
Long Term Compensation
Awards
Restricted Stock Award(s) ($): 0
Securities Underlying Options (#) (1): 575,000
Payouts
LTIP Payouts ($): 0
All Other Compensation ($): 0
Name and Principal Position: Clark D. Stewart, President and CEO, Director
Annual Compensation Year: 99
Salary ($): 218,743
Bonus ($): 0
Other Annual Compensation ($): 0
Long Term Compensation
Awards
Restricted Stock Award(s) ($): 0
Securities Underlying Options (#) (1): (820,000)
Payouts
LTIP Payouts ($): 0
All Other Compensation ($): 0
Name and Principal Position: Clark D. Stewart, President and CEO, Director
Annual Compensation Year: 98
Salary ($): 226,997
Bonus ($): 0
Other Annual Compensation ($): 0
Long Term Compensation
Awards
Restricted Stock Award(s) ($): 0
Securities Underlying Options (#) (1): 1,050,000
Payouts
LTIP Payouts ($): 0
All Other Compensation ($): 0
(1) Represents options granted or (cancelled) pursuant to the Company's
Nonqualified Stock Option Plans 575,000 in 2000; (820,000) in 1999; and
1,050,000 in 1998.
OPTION GRANTS, EXERCISES AND HOLDINGS
The following table provides further information concerning grants of
stock options pursuant to the 1989 Nonqualified Stock Option Plan
during the fiscal 2000 year to the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Name and Position: Clark D. Stewart
Number of Securities Underlying Options Granted (#): 575,000
Percent of Total Options Granted to Employees in Fiscal Year: 13.7%
Exercise or Base Price ($/Sh): .0625 to .25
Expiration Date: 11/01/2010
Potential Realizable Value at Assumed Annual Rates of Stock Price
Appreciation for Option Term: 0
(1) Except in the event of death or retirement for disability, if Mr.
Stewart ceases to be employed by the Company, his option shall terminate.
Upon death or retirement for disability, Mr. Stewart (or his representative)
shall have three months or one year, respectively, following the date of
death or retirement, as the case may be, in which to exercise such options.
All such options are immediately exercisable.
The following table provides information with respect to the named
executive officers concerning options exercised and unexercised
options held as of the end of the Company's last fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Name: Clark D. Stewart, Chief Executive Officer
Shares Acquired on Exercise (#): 0
Value Realized ($): 0
Number of Securities Underlying Unexercised Options at FY-End (#)
Exercisable/Unexercisable: 1,975,000/0
Value of Unexercised In-the-Money Options at FY-End ($)
Exercisable/Unexercisable: 0/0
COMPENSATION OF DIRECTORS
Each non-officer director is entitled to a director's fee of $100 for
meetings of the Board of Directors which he attends. Officer-directors
are not entitled to receive fees for attendance at meetings.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
On May 6, 1997, the Company extended the March 17, 1994,
employment agreement with Clark D. Stewart under the terms of which
Mr. Stewart was employed as the President and Chief Executive
Officer of the Company at an initial minimum annual salary of
$198,000 and a minimum salary of $208,000, $218,500, $229,500 and
$241,000, respectively, in years two through five. The extended
contract provides a minimum annual salary of $253,100, $265,700,
$278,900, $292,900, $307,600, respectively in years six through ten.
In the event Mr. Stewart is terminated from employment with the
Company other than "for cause," Mr. Stewart shall receive as
severance pay an amount equal to the unpaid salary for the remainder
of the term of the employment agreement. Mr. Stewart was also
granted an automobile allowance of $600 per month.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is comprised
of Mr. Wagoner, Mr. Stewart, Mr. Griffith and Mr. Logan. Mr.
Wagoner is the Chairman, Mr. Stewart is the President and Chief
Executive Officer of the Company and Mr. Griffith is the Secretary of
the Company.
During fiscal 2000, the consulting firm of Griffith & Associates was
paid for business consulting services rendered to the Company in the
approximate amount of $92,374. William A. Griffith, who is a director
for the Company, is a principal at Griffith & Associates. It is
anticipated that Griffith & Associates will continue to provide services
for the Company.
During fiscal 2000, the Company paid consulting fees of
approximately $0 to Mr. Logan for business consulting services. It is
anticipated that Mr. Logan will continue to provide services for the
Company. Mr. Logan was granted an option to purchase 500,000
shares of common stock at an exercise price of $0.50 per share on
November 2, 1998. Mr. Logan exercised this option by agreeing to
provide consulting services to the Company for an additional three
years without receiving any further cash payments other than for out of
pocket expenses. The cost of the consulting services are charged to
various projects including advances under the Indian consulting
agreements.
During fiscal 2000, the consulting firm of Butler Financial Corporation
was paid for business consulting services rendered to the Company in
the approximate amount of $80,000. R. Warren Wagoner, who is a
director for the Company, is a principal at Butler Financial
Corporation. It is anticipated that Butler Financial Corporation will
continue to provide services for the Company.
During fiscal 1998, the Company filed Form-8 registration statements
concerning the 1989, 1993-I, 1993-II, and 1995 Non-Qualified Stock
Option Plans. The plans were amended to increase the number of
shares authorized by 8,000,000; 4,500,000; 3,500,000; and 3,500,000
respectively. The expiration dates were also amended to reflect
December 31, 2010 as the expiration date for all four plans. As a part
of the amendment process all eligible outstanding options were
canceled and reissued at the current market price of $0.90.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, with respect to the Company's common
stock (the only class of voting securities), the only persons known to be
beneficial owners of more than five percent (5%) of any class of the
Company's voting securities as of September 15, 2000.
Name and Address of Beneficial Owner: Clark D. Stewart
19920 West 161st Street
Olathe, KS 66062
Amount and Nature of Beneficial Ownership (1): 2,714,420(2)
Percent of Class: 7.51%
(1) Unless otherwise indicated by footnote, nature of beneficial ownership
of securities is direct, and beneficial ownership as shown in the table
arises from sole voting power and sole investment power.
(2) Includes 1,975,000 shares which may be acquired by Mr. Stewart pursuant
to the exercise of stock options which are exercisable.
The following table sets forth, with respect to the Company's common
stock (the only class of voting securities), (i) shares beneficially owned
by all directors and named executive officers of the Company, and (ii)
total shares beneficially owned by directors and officers as a group, as
of April 30, 2000.
Name of Amount and Nature of
Beneficial Owner Beneficial Ownership(1) Percent of Class
Larry B. Franke 320,600(6) .9%
William A. Griffith 533,700(5) 1.5%
David B. Hayden 547,500(7) 1.5%
William E. Logan 1,235,000(3) 3.4%
Clark D. Stewart 2,714,420(2) 7.5%
R. Warren Wagoner 1,175,000(4) 3.2%
All Directors and Executive Officers
as a Group (12 persons) 7,070,981(8) 19.6%
(1) Unless otherwise indicated by footnote, nature of beneficial
ownership of securities is direct and beneficial ownership as shown
in the table arises from sole voting power and sole investment
power.
(2) Includes 1,975,000 shares, which may be acquired by Mr. Stewart
pursuant to the exercise of stock options, which are exercisable.
(3) Includes 685,000 shares, which may be acquired by Mr. Logan
pursuant to the exercise of stock options which are exercisable.
(4) Includes 1,075,000 shares, which may be acquired by Mr. Wagoner
pursuant to the exercise of stock options, which are exercisable.
(5) Includes 475,000 shares, which may be acquired by Mr. Griffith
pursuant to the exercise of stock options, which are exercisable.
(6) Includes 320,600 shares, which may be acquired by Mr. Franke
pursuant to the exercise of stock options, which are exercisable.
(7) Includes 525,000 shares, which may be acquired by Mr. Hayden
pursuant to the exercise of stock options, which are exercisable.
(8) Includes 5,590,600 shares for all directors and executive officers
as a group, which may be acquired pursuant to the exercise of stock
options, which are exercisable.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 11, Executive Compensation pages 23-24. During fiscal
1996, the President and CEO, Clark D. Stewart, exercised his option to
purchase 400,000 shares of the Company's common stock under the
terms of the 1989 Nonqualified Stock Option Plan through a loan by
the Company. During fiscal 1997, Mr. Stewart delivered to the
Company 125,000 shares of common stock valued at $250,000 to the
Company and made cash reductions, a total of $277,265, on the loan.
The shares were purchased at prices ranging from $.70 to $1.00 per
share. The largest aggregate amount of indebtedness outstanding was
$359,027 during fiscal 1996. Interest was charged on the outstanding
balance at the prime rate during fiscal 2000. There was not an amount
outstanding at April 30, 2000.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed As Part of Form 10-K Report.
(1) Financial Statements:
Description Page No.
Report of Independent Accountants 29-30
Consolidated Balance Sheet as of April 30, 2000 and 1999 31
Consolidated Statements of Operations for
the years ended April 30, 2000, 1999 and 1998 (restated) 32
Consolidated Statements of Shareholders' Equity
for the years ended April 30, 2000, 1999 and 1998 (restated) 33-35
Consolidated Statements of Cash Flows for
the years ended April 30, 2000, 1999 and 1998 (restated) 36
Notes to Consolidated Financial Statements 37-57
(2) Financial Statement Schedules:
Schedule Description Page No.
II. Valuation and Qualifying Accounts and
Reserves for the years ended April 30,
2000, 1999 and 1998 (restated) 53
All other financial statements and schedules not listed have been
omitted because the required information is inapplicable or the
information is presented in the financial statements or related notes.
(3) Exhibits Index:
No. Description Page No.
3.1 Articles of Incorporation, as amended, are incorporated
by reference to Exhibit 3.1 of the Company's Form 10-K
for the year ended April 30, 1988 *
3.2 Bylaws, as amended, are incorporated by reference to
exhibit 3.2 of the Company's Form 10-K for year ended
April 30, 1989. *
4.1 Certificate of Rights and Preferences of $100 Class A
Preferred Shares of the Company, are incorporated by
reference to Exhibit 4.1 of the Company's Form 10-K/A,
as amended, for the year ended April 30, 1994. *
4.2 Certificate to Set Forth Designations, Voting Powers,
Preferences, Limitations, Restrictions, and Relative
Rights of Series B 6% Cumulative Preferred Stock, $5.00
Par Value Per Share, is incorporated by reference to
Exhibit 4.1 of the Company's Form 10Q/A, as amended,
for the quarter ending January 31, 1998. *
4.3 Private Placement of Common Stock, as afforded by
Reg S, dated November 27, 1996, is incorporated by
reference to the Company's Form 8-K filed on December
12, 1996. *
10.1 1989 Nonqualified Stock Option Plan is incorporated
by reference to the Company's Form 8-K filed on
September 1, 1989 *
10.2 Nonqualified Stock Option Agreement dated September
8, 1989 between the Company and Clark D. Stewart is
incorporated by reference to the Company's Form 8-K
filed on September 1, 1989 *
10.3 Agreement dated March 10, 1989 between the
Company and Woodson Electronics, Inc. is
incorporated by reference to the Company's Form 10-K
for the fiscal year ended April 30, 1989 *
10.4 Agreement of Stockholder to Sell Stock dated January
1, 1992, is incorporated by reference
to the Company's Form 8-K filed on January 15, 1992 *
10.5 Private Placement of Common Stock pursuant to
Regulation D, dated December 15, 1993, is *
incorporated by reference to the Company's Form 8-K
filed on January 24, 1994
10.6 Stock Acquisition Agreement of RFI dated April 21,
1994, is incorporated by reference to Company's Form
8-K filed on July 21, 1994 *
10.7 Employment Agreement between the Company and Brenda
Lee Shadwick dated July 6, 1994, are incorporated by
reference to Exhibit 10.7 of the Company's Form 10-K/A,
as amended, for the year ended April 30, 1994.** *
10.8 Employment Agreement between the Company and
Clark D. Stewart dated March 17, 1994,
are incorporated by reference to Exhibit 10.8 of the
Company's Form 10-K/A, as amended,
for the year ended April 30, 1994.** *
10.9 Employment Agreement among the Company, R.F.,
Inc. and Marvin J. Eisenbath dated
April 22, 1994, are incorporated by reference to
Exhibit 10.9 of the Company's Form 10-K/A,
as amended, for the year ended April 30, 1994.** *
10.10 Real Estate Contract for Deed and Escrow Agreement
between Wade Farms, Inc. and the
Company, are incorporated by reference to Exhibit
10.10 of the Company's Form 10-K/A,
as amended, for the year ended April 30, 1994. *
10.11 1993 Nonqualified Stock Option Plan, are
incorporated by reference to Exhibit 10.11 of
the Company's Form 10-K/A, as amended, for the
year ended April 30, 1994. *
10.12 1993 Nonqualified Stock Option Plan II, are
incorporated by reference to Exhibit 10.12
of the Company's Form 10-K/A, as amended, for the
year ended April 30, 1994. *
10.13 Industrial State Bank principal amount of $500,000
revolving credit line, as amended, are
incorporated by reference to Exhibit 10.13 of the
Company's Form 10-K/A, as amended,
for the year ended April 30, 1994. *
10.14 Bank IV guaranty for $250,000 dated October 14,
1994, are incorporated by reference to
Exhibit 10.14 of the Company's Form 10-K/A, as
amended, for the year ended April 30, 1994 *
10.15 Bank IV loan in principal amount of $300,000 dated
December 30, 1993, are incorporated
by reference to Exhibit 10.15 of the Company's Form
10-K/A, as amended, for the year ended April 30, 1994. *
10.16 Letter of Intent to acquire certain assets of Woodson
Electronics, Inc., is incorporated by
reference to Exhibit 10.16 of the Company's Form 10-
K, as amended for the year ended April 30, 1995. *
10.17 Asset Purchase Agreement between the Company and
Woodson Electronics, Inc. dated May 1,
1996, is incorporated by reference to Exhibit 10.17 of
the Company's Form 10-K, as amended for the year ended
April 30, 1996. *
10.18 Non-Exclusive Consulting, Non-Disclosure and Non-
Compete agreement with Thomas E. Woodson dated May 1,
1996, is incorporated by reference to Exhibit 10.18
of the Company's Form 10-K, as amended for the
year ended April 30, 1996. *
10.19 1995 Nonqualified Stock Option Plan dated
December 1, 1995, is incorporated by
reference to Exhibit 10.19 of the Company's Form 10-
K, as amended for the year ended April 30, 1996. *
10.20 Settlement Agreement and Release - Marvin J.
Eisenbath and the Company dated
April 30, 1997, is incorporated by reference to Exhibit
10.20 of the Company's Form 10-K,
as amended for the year ended April 30, 1997 *
10.21 Settlement Agreement and Release - Brenda Shadwick
and the Company dated May 1, 1997,
is incorporated by reference to Exhibit 10.21 of the
Company's Form 10-K, as amended for the
year ended April 30, 1997. *
21 List of Subsidiaries 54
23.1 Consent of Independent Public Accountants 55
23.2 Consent of Independent Public Accountants 56
27.1 Financial Data Schedule (EDGAR version only).
Filed herewith. *
99 Cautionary Statement for Purpose of the "Safe Harbor"
Provisions of the Private Securities
Reform Act of 1995. 57
* Incorporated by reference
** Relates to executive officer employment compensation
(b) Reports On Form 8-K.
Change in Registrant's Certifying Accountant is *
incorporated by reference to the Company's
Form 8-K filed on September 16, 1998.
Change in Registrant's Certifying Accountant is *
incorporated by reference to the Company's
Form 8-K filed on March 3, 1999.
Change in Registrant's Certifying Accountant is *
incorporated by reference to the Company's
Form 8-K filed on August 10, 1999.
Change in Registrant's Certifying Accountant is *
incorporated by reference to the Company's
Form 8-K filed on November 1, 1999.
Change in Registrant's Certifying Accountant is *
incorporated by reference to the Company's
Form 8-K filed on June 27, 2000.
Change in Registrant's Certifying Accountant is *
incorporated by reference to the Company's
Form 8-K filed on July 11, 2000.
(c) Exhibits.
Reference is made to Item 14(a)(3).
(d) Schedules.
Reference is made to Item 14(a)(2).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
September 15, 2000
BUTLER NATIONAL CORPORATION
/s/ Clark D. Stewart
Clark D. Stewart, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates indicated:
Signature Title Date
/s/ Clark D. Stewart
Clark D. Stewart President, Chief September 15, 2000
Executive Officer
and Director (Principal
Executive Officer)
/s/ R. Warren Wagoner
R. Warren Wagoner Chairman of the Board September 15, 2000
and Director
/s/ William A. Griffith
William A. Griffith Director September 15, 2000
/s/ William E. Logan
William E. Logan Director September 15, 2000
/s/ David B. Hayden
David B. Hayden Director September 15, 2000
/s/ Robert E. Leisure
Robert E. Leisure Chief Financial Officer September 15, 2000
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS
AS OF APRIL 30, 2000
TOGETHER WITH AUDITORS' REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Butler National Corporation:
We have audited the accompanying consolidated balance sheets of
Butler National Corporation (a Delaware corporation) and Subsidiaries
as of April 30, 2000 and 1999 and the related consolidated statements
of operations, shareholders' equity, and cash flows for each of the two
years in the period ended April 30, 2000. These financial statements
and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements and the schedule based on our audit.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Butler National
Corporation and Subsidiaries as of April 30, 2000 and 1999 and the
results of their operations and cash flows for each of the two years in
the period ended April 30, 2000, in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II for each of the two
years in the period ended April 30, 2000, is presented for purposes of
complying with the Securities and Exchange Commission rules and is
not a required part of the basic financial statements. This information
has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, is fairly stated in all
materials respects in relation to the basic financial statements taken as
a whole.
WEAVER & MARTIN, LLC
Kansas City, Missouri,
September 15, 2000
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS
AS OF APRIL 30, 1998
TOGETHER WITH AUDITORS' REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Butler National Corporation:
We have audited the accompaning consolidated statements of
operations, shareholders' equity, and cash flows of Butler National
Corporation (a Delaware Corporation) for the year ended April 30,
1998 (restated - See Note 1). The financial statements and the
schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Butler National Corporation and Subsidiaries, for the year ended April 30,
1998, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. Schedule II for the year
ended April 30, 1998 (restated), is presented for purposes of
complying with the Securities and Exchange Commission rules and is
not a required part of the basic financial statements. This information
has been subjected to the auditing procedures applied in our audit of
the basic financial statements and, in our opinion, is fairly stated in all
materials respects in relation to the basic financial statements taken as
a whole.
ARTHUR ANDERSEN LLP
Kansas City, Missouri,
February 11, 2000
BUTLER NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
as of April 30, 2000 and 1999
2000 1999
ASSETS
CURRENT ASSETS:
Cash $160,090 $164,923
Accounts receivable, net of allowance for doubtful 237,018 435,323
accounts of $25,600 in 2000 and $68,900 in 1999
Due from affiliate 308,181 -
Note receivable from Indian Gaming developments 347,285 647,285
Contracts in process 385,500 405,937
Inventories -
Raw materials 1,524,391 1,754,444
Work in process 132,699 333,399
Finished goods 86,428 45,188
Aircraft 1,455,666 295,281
----------- ---------
3,199,184 2,428,312
Prepaid expenses and other curren