-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IWSeDznYCpRBpnmnDQe2qUXZF4zuQtqiedaOXaQeoZrL7VYv9nQaSOk2SSwvHK8G R1jS4dVooC+GACQSeSZa7A== 0000015847-98-000023.txt : 19980317 0000015847-98-000023.hdr.sgml : 19980317 ACCESSION NUMBER: 0000015847-98-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980313 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUTLER NATIONAL CORP CENTRAL INDEX KEY: 0000015847 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 410834293 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-01678 FILM NUMBER: 98565459 BUSINESS ADDRESS: STREET 1: 1546 E SPRUCE RD CITY: OLATHE STATE: KS ZIP: 66061 BUSINESS PHONE: 9138888585 MAIL ADDRESS: STREET 1: 1546 E SPRUCE RD CITY: OLATHE STATE: KS ZIP: 66061 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL CONNECTOR CORP DATE OF NAME CHANGE: 19701009 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Quarterly Report Pursuant to Section 13 or 15(d) of the X Securities Exchange Act of 1934 For the quarter ended January 31, 1998 Transition Report Pursuant to Section 13 or 15 (d) of the Security Exchange Act of 1934 For the quarter ended January 31, 1998 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.) 1546 East Spruce Road, Olathe, Kansas 66061 (Address of Principal Executive Office) (Zip Code) Registrant's telephone number, including area code: (913) 780-9595 Former Name, former address and former fiscal year if changed since last report: Not Applicable. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months and (2) has been subject to such filing requirements for the past ninety days: Yes X No ______ The number of shares outstanding of the Registrant's Common Stock, $0.01 par value, as of January 31, 1998, was 9,504,470 shares. BUTLER NATIONAL CORPORATION AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION: Page No. Consolidated Balance Sheets - January 31, 1998 and April 30, 1997............................ 3 Consolidated Statements of Income - Three Months ended January 31, 1998 and 1997........ 4 Consolidated Statements of Income - Nine Months ended January 31, 1998 and 1997........ 5 Consolidated Statements of Cash Flows - Nine Months ended January 31, 1998 and 1997........ 6 Notes to Consolidated Financial Statements....... 7-8 Management's Discussion and Analysis Financial Condition and Results of Operations. 9-13 PART II. OTHER INFORMATION................................ 14-15 SIGNATURES....................................... 16 BUTLER NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS 01/31/98 4/30/97 (unaudited) Current Assets: Cash $ 261,417 $ 256,449 Accounts receivable, net of allowance for doubtful accounts of $360,709 at January 31, and $178,736 at April 30, 1997 964,942 1,289,571 Note receivable - current 83,400 - Contracts in process 261,000 1,123,673 Inventories: Raw materials 1,088,234 711,762 Work in process 124,785 121,687 Finished goods 830,735 596,158 -------------- -------------- 2,043,754 1,429,607 Prepaid expenses and other assets 131,320 122,409 -------------- -------------- Total current assets 3,745,833 4,221,709 Note receivable 125,100 - Supplemental Type Certificates 1,302,101 1,364,901 Property, Plant and Equipment: Building 150,240 138,809 Machinery and equipment 1,158,745 1,108,650 Office furniture and fixtures 543,307 498,830 Leasehold improvements 94,423 58,474 -------------- -------------- Total cost 1,946,715 1,804,763 Accumulated depreciation (1,084,816) (938,058) --------------- --------------- 861,899 866,705 Other Assets (Note 1): Deferred costs of Indian Gaming 3,081,848 1,539,893 Aircraft and aircraft parts 2,056,281 2,056,281 Deferred costs: Eisenbath Agreement - 808,994 Other assets 269,813 265,525 -------------- -------------- Total Other Assets 5,407,942 4,670,693 Total assets $11,442,875 $11,124,008 ========= ======== The accompanying notes are an integral part of these balance sheets. LIABILITIES AND SHAREHOLDERS' EQUITY 1/31/98 4/30/97 (unaudited) Current Liabilities: Bank overdraft payable $ - $ 150,306 Promissory notes payable 1,412,386 382,743 Current maturities of long-term debt 5,668 50,683 Accounts payable 734,688 904,559 Customer Deposits 335,735 1,520,035 Accrued liabilities - Compensation and compensated absences 117,402 312,812 Other 280,671 217,898 -------------- -------------- Total current liabilities 2,886,550 3,539,036 Long-Term Debt, net of current maturities 1,491,242 1,540,718 Convertible debenture 750,000 1,100,000 Settlement agreement 61,150 72,000 -------------- -------------- Total liabilities 5,188,942 6,251,754 Commitments and contingencies: Shareholders' equity: Preferred stock, par value $5: Authorized, 200,000 shares, all classes $1,000 Class B, 6%, cumulative if earned, liquidation and redemption value $1,000, issued and outstanding, 1,500 shares 7,500 100,000 Capital contributed in excess of par 1,082,459 1,900,000 Common stock, par value $.01: Authorized, 40,000,000 shares Issued 9,524,156 April 30, 1997 & 10,277,470 at January 31, 1998, 102,775 95,242 Common stock warrants 8,807 8,707 Capital contributed in excess of par 6,319,776 5,725,618 Note receivable arising from stock purchase agreement (63,012) (81,762) Unearned service contracts (187,761) (263,438) Treasury stock, at cost (common 775,000 at 1/31/98 (1,537,240) (2,337,240) and 175,000 at 4/30/97) Retained earnings 520,629 (274,973) (Deficit of $11,938,813 eliminated October 31, 1992) -------------- -------------- Total shareholders' equity 6,253,933 4,872,254 --------------- --------------- Total liabilities and shareholders' equity $11,442,875 $11,124,008 ========= ========
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED January 31, 1998 1997 (unaudited) (unaudited) Net sales $2,269,607 $4,946,796 Cost of sales 1,693,132 4,107,262 ---------------- ---------------- Gross profit 576,475 839,534 Selling, general and administrative expenses 439,861 1,199,889 ---------------- ---------------- Operating income 136,614 (360,355) Other income (expense): Interest expense (72,747) (66,766) Interest income 794 7,357 Net gain - Eisenbath Agreement - - Other 61,061 (11,722) ---------------- ---------------- Other income (10,892) (71,131) ---------------- ---------------- Income before taxes 125,722 (431,486) Provision for income tax 52,803 - ---------------- ---------------- Net income $ 72,919 $ (431,486) ========= ======== Net income per share $ .01 $ (0.05) ========= ======== Shares used in per share calculation 10,329,192 9,495,631 ========= ======== The accompanying notes are an integral part of these statements.
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME NINE MONTHS ENDED January 31, 1998 1997 (unaudited) (unaudited) Net sales $7,449,966 $16,371,584 Cost of sales 5,124,159 13,473,798 ---------------- ---------------- Gross profit 2,325,807 2,897,786 Selling, general and administrative expenses 1,852,557 3,071,922 ---------------- ---------------- Operating income 473,250 (174,136) Other income (expense): Interest expense (199,853) (189,863) Interest income 3,230 27,631 Net gain - Eisenbath Agreement - - Other 518,976 (25,746) ---------------- ---------------- Other income 322,353 (187,978) ---------------- ---------------- Income before taxes 795,603 (362,114) Provision for income tax 334,153 - ---------------- ---------------- Net income $ 461,450 $ (362,114) ======== ========= Net income per share $ .05 $ (0.04) ========= ========= Shares used in per share calculation 10,329,192 9,441,311 ========= ========= The accompanying notes are an integral part of these statements.
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended January 31, 1998 1997 (unaudited) (unaudited) Cash flows from operating activities: Net income $ 461,449 $ (362,114) Adjustments to reconcile income to net cash used in operations: Deferred income taxes 334,153 - Depreciation 146,758 63,743 Application of Supplemental Type Certificates 198,478 - Provision for uncollectible accounts 181,971 - Provision for obsolete inventories 15,940 - Changes in assets and liabilities: Accounts receivable 142,656 (371,518) Contracts in process 862,673 (59,138) Inventories (Increase) (630,087) (553,729) Supplemental Type Certificates (Increase) (135,678) - Prepaid expenses and other current assets (Increase) (8,911) (92,457) Eisenbath Note 41,700 - Other assets (4,288) (608,873) Accounts payable (decrease) (169,871) (95,588) Customer deposits (decrease) (1,184,300) 175,683 Accrued liabilities (decrease) (89,486) (120,321) Settlement agreement (decrease) (54,000) - ----------------- ---------------- Total adjustments (352,292) (1,662,198) ------------------ ---------------- Cash provided by (used in) operations 109,157 (2,024,312) ----------------- ---------------- Cash flows from investing activities: Capital expenditures, net (141,951) (71,905) Deferred costs of Indian Gaming (1,541,955) - ----------------- ---------------- Cash provided by (used in) investing activities (1,683,906) (71,905) ----------------- ---------------- Cash flows from financing activities: Net borrowing under promissory notes 1,029,643 171,900 Proceeds from increase in line-of-credit - 250,000 Retirement of convertible debentures (350,000) - Repayments of long-term debt and lease obligations (94,491) (98,596) Proceeds from borrowings of debt - 100,000 Bank overdraft payable (150,306) (147,139) Amortization of service contracts 75,677 56,788 Debenture conversion and other common stock issues 620,441 1,324,582 Class B preferred issues 1,089,959 - Note receivable & redemption of common stock - Eisenbath Agreement (641,206) - ----------------- ----------------- Cash provided by (used in) financing activities 1,579,717 1,657,535 ----------------- ----------------- Net increase (decrease) in cash (4,968) (438,682) Cash, beginning of period 256,449 745,647 ---------------- ----------------- Cash, end of period $ 261,417 $ 306,965 ================ ================= Supplemental disclosures of cash flow information: Interest paid $ 199,853 $ 157,928 Income taxes 10,000 22,430 The accompanying notes are an integral part of these statements.
BUTLER NATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q of Regulation S-X and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the management of the Company, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the three months and nine months ended January 31, 1998 are not indicative of the results of operations that may be expected for the year ending April 30, 1998. For further information, refer to the Consolidated Financial Statements and Footnotes included in the Registrant's Annual Report on Form 10-K for the year ended April 30, 1997. 2. On June 26, 1996, the Company completed a private placement in which the Company issued a 8.0% cumulative convertible debenture due June 26, 1998 in the amount of $750,000. Interest to be paid at time of conversion either in cash or kind at the option of the Company. Net proceeds of the offering were $675,000, after deducting the expenses of the offering. The proceeds of the offering was utilized for relocation of the Avionics segment and additional aircraft product development. 3. The Company has capitalized approximately $3,081,848 and $1,539,893 at January 31, 1998 and April 30, 1997, respectively, of costs related to the anticipated construction of three Indian gaming facilities. These costs are included in other assets in the accompanying balance sheet. In the opinion of management, these costs will be recoverable through the gaming activities or, in the event the Company is unsuccessful in establishing such operations, these costs will be recovered through the liquidation of the associated assets. These costs include the following: A prepayment of $242,500 for construction services to be rendered. This prepayment was funded with 60,000 shares of the Company's common stock issued in the fiscal year 1994 and an additional 40,000 shares in fiscal year 1995. Payments of $87,622 for architectural and engineering services. These payments were also funded with stock issuances of 29,715 shares in fiscal year 1995. Payments of $50,000 for equipment. These payments were funded with stock issuances of 20,000 shares in fiscal year 1994. Cash payments of approximately $82,000, $172,000, $65,000 and $57,000 in 1997, 1996, 1995, and 1994, respectively, for architectural, engineering and construction services. Cash Advances to the Tribes of $190,000 in fiscal 1995 which the Tribes used for the acquisition of land. Acquisition of land by the Company in the amount of $82,000 in fiscal year 1997 and $225,000 in fiscal 1994. Advances to the Indian Tribes for construction costs under an approved Management Contract during fiscal 1998 of $1,541,955. 4. The Company had an employment agreement with an individual which the Company terminated in April 1995. This individual filed a lawsuit against the Company, the President of the Company and various corporate subsidiaries alleging the Company wrongfully terminated the individual's employment in breach of the contract. The suit was filed in October, 1995, in State Court in Johnson County, Kansas. The Company and the individual reached an agreement to settle and release all claims and counterclaims on May 1, 1997. The individual dismissed the lawsuit with prejudice. The terms of the Settlement Agreement include payments by the Company to the individual during fiscal 1998 and fiscal 1999. 5. On May 1, 1996, the Company acquired certain assets of Woodson Electronics, Inc. (WEI). The Company received a portion of WEI's operating rights and assets in exchange for 80,000 shares of stock with a fair market value of $160,000. The Company also entered into a Non-Exclusive Consulting, Non-Disclosure and Non-Compete Agreement with Thomas E. Woodson, which provides for the issuance of 20,000 shares of the Company's common stock and $36,000 to be paid out over 24 months. WEI is engaged in the business of designing, manufacturing, improving, marketing, maintaining, and providing, directly and with the assistance of others, data acquisition, alarm monitoring and reporting products and services related to such products. WEI supplies the monitoring products to Butler National Services, Inc. During the first quarter of fiscal 1997, the Company relocated its Woodson Avionics business segment, along with the newly acquired operating rights and assets of WEI to Phoenix, Arizona. 6. 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. The shares were purchased at prices ranging from $.70 to $1.00 per share. The largest aggregate amount of indebtedness outstanding was $367,000 during fiscal 1996. The amount outstanding at October 31, 1996, was $338,634. Interest is charged at the applicable federal rate and the loan is being amortized over five years. In fiscal 1997, the officer reduced the loan balance by $277,264 through expense reimbursement and the loan of 125,000 shares of common stock valued at $250,000. The loan balance is currently $63,012. During fiscal 1996, an officer of the Company sold 20,000 shares of the Company stock to the Company at fair market value. These shares are now held in the treasury. 7. After completing a three year program of restructuring the Company's operation on October 31, 1992, by using quasi reorganization accounting, the Company was able to adjust the accumulated deficit to a zero balance thereby affording the Company a "fresh start". No assets or liabilities required adjustment in this process. The amount of accumulated deficit and capital contributed in excess of par removed as of October 31, 1992, was $11,938,813. 8. Income per common and common equivalent share are based on the weighted average number of common shares outstanding during the quarters ended January 31, 1998 and 1997. Stock options are included in 1998 and 1997 as common stock equivalents to the extent that they are dilutive. The Convertible debenture is included in fiscal 1997 and fiscal 1998 as a common stock equivalent since the debenture is dilutive. Shares used in the per share computations are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED January 31, January 31, 1998 1997 1998 1997 Common shares outstanding beginning of period 9,739,160 9,400,412 9,524,156 9,280,890 Cumulative increase in weighted average due to Common Stock Equivalent net of treasury stock 412,449 - 389,627 - Cumulative increase in weighted average due to Convertible Debenture 173,342 95,219 411,168 31,740 Cumulative increase in weighted average due to issues per acquisition and consulting agreements 4,241 - 4,241 121,830 Cumulative increase in weighted average due to issues per Nonqualified Stock Option Plans - - - 6,851 ----------- ----------- ---------- ----------- Weighted average shares, end of period 10,329,192 9,495,631 10,329,192 9,441,311
9. The Company acquired RF, Inc. on April 21, 1994. The Company exchanged 650,000 shares of the Company's common stock for 100% of the issued and outstanding shares of RF, Inc. The individuals who sold RF, Inc. to the Company have sought for some time to reacquire from the Company the ownership of RF, Inc. The Company and the individual reached an agreement to settle and release all claims and counterclaims effective April 30, 1997, ("Eisenbath Agreement"). The individual dismissed the lawsuit with prejudice. In addition to the releases, under the terms of the agreement, the Company received on June 26, 1997, 600,000 shares of the Company's common stock and certain payments over the next three years. The Company released the individual from the terms of his employment contract and the April 24, 1994, Stock Purchase Agreement. These documents released the individual from his agreement not to compete with the Company in the food distribution industry. The Company recorded a net gain (principally noncash) during the first quarter of 1998 per the terms of the April 30, 1997, agreement. 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 fully completed until June 1997. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Overview: Consolidated sales were $7,449,966 for the nine months ended January 31, 1998, compared to $16,371,584 for the nine months ended January 31, 1997, a decrease of 55%. Sales for the third fiscal quarter were $2,269,606 compared to $4,946,796 for the three months ended January 31, 1997. Sales for the nine month period increased in the Avionics segment (100%), the Aircraft Modifications segment (41%) and the Monitoring Services segments (14%). Sales decreased in the Food Distribution segment (73%). The Company recorded a net income of $461,449 for the first nine months of fiscal 1998 compared to a loss of $362,114 in the same period of fiscal 1997. Income was $72,919 in the current quarter compared to a loss of $431,486 in the comparable period of fiscal 1997. Aircraft Modifications (Avcon Industries, Inc.): Sales at Avcon Industries, Inc. increased $726,224 (41%) from $1,765,320 in the first nine months of the prior year to $2,491,544 in the first nine months ending January 31, 1998. Gross profit increased from $510,859 in the nine months ending January 31, 1997 to $1,055,075 in the nine months ending January 31, 1998. Third quarter fiscal 1998 sales were $887,145 compared to $725,551 in fiscal 1997. Third quarter gross profit was $304,913 and $217,854, respectively. This segment is experiencing increased sales volume from the sale of Falcon 20 Cargo Doors, AVCON FINS and fin related modifications. This segment is continuing to work on the development of new products and expects to see an increase in sales and gross margin in the coming quarters of fiscal 1998. Avionics (Woodson Avionics, Inc.): Avionics sales were $444,624 for the nine months ended January 31, 1998 compared to $221,648 in the comparable period of the preceding year, an increase of 100%. Operating earnings for the nine months ended January 31, 1998, were $66,061 compared to a loss of $61,069 for the nine months ended January 31, 1997. A portion of the loss relates to expenses incurred due to the relocation of the facility to Phoenix, Arizona. The increase in revenue is due to a closer location to major customers like Boeing (McDonnell Douglas) and the increased marketability of the new location. The Company believes the sales volume will remain relatively stable with steady growth for the next few years and hopes the relocation will allow this segment to expand and serve additional customers. SCADA Systems and Monitoring Services (Butler National Services, Inc.): Sales for the nine months ended January 31, 1998 were $901,581 compared to sales of $794,108 for the comparable period of the prior year an increase of 14%. Gross profit for the nine months ended January 31, 1998, was $334,264 compared to $303,540 for the nine months ended January 31, 1997. Sales for the third quarter of fiscal 1998 were $210,053, a decrease of $1,920 from the same quarter of fiscal 1997. This segment was awarded the contracts with three additional municipalities to provide, install and maintain Telemetry Systems to be performed totaling $500,000 during fiscal 1997 and 1998. Additionally, each of the contracts allow for the continued maintenance of the systems which could be renewed on an annual basis. This work is in addition to the sales to its current customers. The Company believes with the acquisition of Woodson Electronics, Inc. operating rights and assets, this segment will continue to develop and expand its customer base. Food Distribution R F, Inc.): Revenues from the Food Distribution business segment decreased 73% from $13,589,037 in the first nine months of fiscal 1997 to $3,631,051 in the first nine months of fiscal 1998. The third quarter revenues were $3,872,099 and $999,639 respectively. As a result of the redirection of the business toward the VALU FOODS® concept and the Eisenbath Agreement, RFI is being changed to emphasize the brand name concept in the distribution of seconds, overruns, etc. Gross profit decreased from $1,608,942 in the nine months ending January 31, 1997, to $693,669 in the nine months ending January 31, 1998. These changes have not yet been successful and the segment operated with no net income contribution for the nine months and a loss of $11,579 for the third quarter. The Company has evaluated the operations of this segment over the past twelve months and has attempted to implement policies and procedures to return the segment to an acceptable level of profitability. At the end of the current quarter, the Company determined that the wholesale part of this segment, R F, Inc.(Redi-Foods), should liquidate the inventories not related to the brand name concept and discontinue operations in the wholesale market. The Company is not able to determine if adequate reserves have been provided to cover the cost of the inventory liquidations and possible inability to collect receivables during the fourth quarter of fiscal 1998. Temporary Services (Butler Temporary Services, Inc.): This segment did not recognize any revenue in the third quarter of fiscal 1997 and fiscal 1998. When the Company and the Tribes open the Indian gaming facilities, management expects that a majority of the personnel in the various Indian gaming enterprises will be staffed by Temporary Services. Management Services (Butler National Services Corporation): -General- The Company received no revenue and incurred $29,569 in expenses in the first nine months of fiscal 1998 and $345,000 in the first nine months of fiscal 1997 for general and administrative expenses associated with its continued efforts to explore service opportunities related to the Indian Gaming Act of 1988. Additionally, the Company amortized $75,677 and $56,788 in the first nine months of 1998 and 1997, respectively, related to shares issued for services rendered to the Company in that regard. The Company has invested $3,081,848 in land, land improvements, professional design fees and construction costs related to the development of Indian Gaming facilities. Included in this investment is 160 acres of land, located adjacent to the Linn Valley Lakes resort and residential development in Linn County, Kansas and a house on four acres of land in Johnson County, Kansas. The Company believes that these tracts could be developed and sold for residential and commercial use other than Indian gaming if the gaming enterprise does not open. Additional improvements including access roads, water and sewer services, etc. are planned for this land. After these improvements, the land may be sold in small tracts. These development opportunities and the NIGC approved Management Contract for construction and operation of the STABLES may allow the Company to recover the majority, if not all, of the $3,081,848 investment. -Princess Maria Casino- In 1992, the Company signed a management agreement with the Miami Tribe to provide management services to the Miami Tribe. The Miami Tribe requested a compact with the State of Kansas for Class III Indian full-casino Indian gaming on Indian land known as the Maria Christiana Miami Reserve No. 35 located in Miami County, Kansas, on July 9, 1992. The Miami Tribe's 1992 compact was the subject of a lawsuit filed in February 1993, by the Miami Tribe in the Federal District Court, alleging the failure to negotiate a compact in good faith by the State of Kansas. This case has been dismissed. The United States District Court dismissed the Miami Tribe's failure to negotiate a compact suit against the State of Kansas as a result of the United States Supreme Court's ruling in Seminole v. State of Florida. The Supreme Court ruled that the provision of the IGRA did not allow an Indian tribe to compel a state by litigation to negotiate a compact. In February, 1993, former Kansas Governor Finney requested a determination of the suitability of the Miami Indian land for Indian Gaming under the IGRA from the Bureau of Indian Affairs (the "BIA"). In May, 1994, the NIGC again requested the same determination. Finally, in May, 1995, an Associate Solicitor within the BIA issued an opinion letter stating the Miami Tribe has not established jurisdiction over the Miami land in Kansas. This is the first definitive statement received from the central office of the BIA in three years. The latest opinion is contrary to a September, 1994, opinion of the Tulsa Field Solicitor, in an Indian probate stating that the Miami Tribe has jurisdiction over the Miami Indian land in Kansas. On July 11, 1995, the U.S. Department of Justice issued a letter to the Associate Solicitor expressing 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 is 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 the newly adopted tribal amendment. On February 22, 1996, the BIA approved the Miami Tribe's constitution and the membership of the heirs. The Tribe has resubmitted the management agreement, no approval has yet been received by the NIGC. 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. In July 1997, the NIGC, again, found the land not suitable for gaming, based upon the BIA's determination that Reserve No. 35 is not "Indian land" pursuant to IGRA. On August 11, 1997, the Miami Tribe filed another action to define the Indian land in the Federal District Court. The Company and the Tribe believe the land is in compliance with all laws and regulations. There can be no assurance that the Tribe will win in court. -Stables Bingo and Off-Track Betting- In 1994, the Company signed a Management Agreement with the Miami and Modoc Tribes. A class III Indian Gaming Compact for a joint-venture by the Miami and Modoc Tribes, both of Oklahoma, has been approved by the State of Oklahoma and by the Assistant Secretary, Indian Affairs for the U.S. Department of the Interior. The Compact was published in the Federal Register on February 6, 1996, and is therefore, deemed effective. The Compact authorizes Class III (Off-Track Betting "OTB") along with Class II (high stakes bingo) at a site within the City of Miami, Oklahoma. The NIGC approved management contract between the Company and the Tribes to direct the development, the construction and to manage the joint-venture gaming enterprise (the STABLES) for the Tribes. The proposed facility is planned to be approximately 28,000 square-feet and to be located directly south of the Modoc Tribal Headquarters building in Miami. As currently designed and under construction, the complex will contain off-track betting windows, a bingo hall, and a restaurant. Under the Management Agreement as approved, the Company, as manager, is to receive a 30% share of the profits and reimbursement of the development costs. -Shawnee Reserve No. 206- Since 1992, the Company 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 assistance with the defense of the property against adverse possession by one family member in exchange for being named the manager for any Indian gaming enterprises that may be established on the land. As a result of the Company's assistance, the Owners are in the process of becoming the undisputed beneficial owners of approximately 72 acres of the Shawnee Reserve No. 206 as ordered by the United States District Court for the District of Kansas. The Company has purchased options for an additional 17 acres and purchased a four acre tract contiguous to the Indian land. Shawnee Reserve No. 206 has been a part of the Shawnee Reservation in Kansas Territory since 1831 and was reserved as Indian land and not a part of the State of Kansas when Kansas became a state in 1861. Within the boundaries of Johnson County, Kansas and the Kansas City metro area, the Indian land is located on west 83rd Street approximately 25 road miles southwest from downtown Kansas City, Missouri. In addition, the Company maintains a relationship and agreement to manage the proposed establishment as a part of the Owners' desire to work with 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 federal recognition of the Cherokee Nation of Oklahoma. The Indian Owners of Shawnee Reserve No. 206 have federal Indian membership cards showing them as Cherokee-Shawnee members of the Cherokee Nation of Oklahoma. The Shawnee and the Cherokee are currently working to reaffirm the Shawnee's jurisdiction over the Indian land and to open a high stakes Indian Bingo enterprise. 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 and that any Indian gaming will ever be established on the Shawnee Reserve or that the Company will be the Management Company. -Modoc Bingo- The Company has an NIGC approved management contract with the Modoc Tribe, to construct and operate a Class II Indian gaming facility on Modoc Reservation lands in Eastern Oklahoma. The Tribe is working to acquire additional Indian land before this project can be started. -Other Gaming- The Company is currently reviewing other potential Indian gaming opportunities with other tribes. These discussions are in the early stages of negotiation and there can be no assurance that these gaming opportunities will be successful. The various management agreements have not yet been approved by the various governing agencies and therefore are not filed as exhibits to the document. COSTS AND EXPENSES The consolidated gross profit percentage improved to 31.2% for the nine months and 25.4% for the three months ended January 31, 1998, from 18% for the nine months and 17% for the three months ended January 31, 1997. This increase is related to the relative mix of sales volume between the higher profit business segments and the lower profit food distribution segment. Operating expenses (selling, general and administrative) in the nine months ended January 31, 1998, were $1,852,557 or 24.9% of sales compared to $3,071,922 or 18.8% of sales for the nine months ended January 31, 1997, a decrease of $1,219,365 or 39.6%. Costs for the three month period were $439,861 in fiscal 1998 and $1,199,899 in fiscal 1997. The majority of the decreased expenses directly relate to the decreased activity at the Food Distribution segment. Interest expense for the nine months ended January 31, 1998, was $199,853 compared to the first nine months of the prior year of $157,928. The Company continues to use its line of credit to maintain operations. The Company acquired a Lear 35 during fiscal 1996 for debt on an inventory floor plan of $1,500,000, the majority of the increase in interest expense relates to this acquisition and the related debt and the increased borrowing on the credit line to finance inventory levels at the Food Distribution segment.. Other income(expense) is income of $333,244, primarily from the Eisenbath deal, in the nine months ended January 31, 1998, versus expense of $25,746 for the nine months ended January 31, 1997. The Company employed 73 people at January 31, 1998, and 79 people at January 31, 1997. EARNINGS The Company recorded a profit of $461,449 after a provision for income taxes of $334,153 in the nine months ended January 31, 1998. This is comparable to a loss of $362,114 in the nine months ended January 31, 1997. Income per share is $.05 and a loss per share of $.04 for the nine months ending January 31, 1998, and January 31, 1997, respectively. Third quarter earnings were $72,919 ($0.01 per share) in fiscal 1998 and a loss of $431,486 ($0.05 per share) in fiscal 1997. CAPITAL RESOURCES The Company had no material commitment for capital expenditures as of January 31, 1998, except for the advances to the Miami Tribe and Modoc Tribe for the construction of the gaming establishment. The Company has advanced approximately $1,750,000 under the approved management contract. Funds were provided from Company operations and the sale of Class B Preferred Stock. The Company is working with investment bankers and potential investors to fund the remaining $1,750,000 to complete the opening. LIQUIDITY Borrowed funds have been used primarily for working capital. Bank debt is $1,412,386 at January 31, 1998, and was $723,334 at January 31, 1997. The Company's unused line of credit was approximately $537,614 as of January 31, 1998, and approximately $26,666 as of January 31, 1997. The interest rate on the Company's line of credit is prime plus two, as of March 13, 1997, the interest rate is 10.50%. The Company plans to continue using the promissory notes payable due in May, 1998, as working capital. The Company believes the extensions will continue and does not anticipate the repayment of these notes in fiscal 1998. The extensions of the promissory notes payable is consistent with prior years. If the Bank were to demand repayment of the notes payable the Company currently does not have enough cash to pay off the notes without materially adversely affecting the financial condition of the Company. The Company has issued stock at fair market value for various legal, marketing and consulting services, in lieu of cash payments. During fiscal 1995, the Company issued 95,000 share of stock at a value of $219,668 for professional services to be provided in the future. The Company did not issue shares for professional services to be provided in the future in fiscal 1996. The Company issued 135,000 shares for consulting services related to the acquisition of the operating rights and assets of WEI in fiscal 1997 and 12,722 shares have been issued for consulting services during the first nine months of fiscal 1998. The Company is operating a retail market test under its registered trade name, VALU FOODS®, of the products being distributed by RFI. Two or more test stores are planned in smaller communities. Capital to finance this planned test marketing of approximately $500,000 may be required during fiscal 1999. Depending upon the development schedules, the Company, through BNSC, will need additional funds to complete its currently planned Indian gaming opportunities. The Company will use current cash available and these additional funds for the start up and construction of gaming facilities. The Company anticipates initially obtaining these funds from two sources: internally generated working capital from non-gaming operations and the proceeds from an anticipated private placement of the Company's common stock. 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. The Company is working with an investment banking firm to finance the remainder of the construction and opening costs for the STABLES through an issue of debt secured by the cash generation of the establishment. This financing is planned to be completed during the fourth quarter of fiscal 1998. FORWARD LOOKING INFORMATION The information set forth above may include "forward-looking" information as outlined in the recently enacted Private Securities Litigation Reform Act of 1995. The Cautionary Statements filed by the Company as Exhibit 99 to this filing are incorporated herein by reference and investors are specifically referred to such Cautionary Statements for a discussion of factors which could affect the Company's operations and forward-looking statements contained herein. PART II. OTHER INFORMATION Responses to items 1, 3, and 5 are omitted since these items are either inapplicable or the response thereto would be negative. Item 2. Changes in Securities On November 30, 1997, the Company issued 127,569 shares of common stock, $.01 par value, for the convertible debenture in the amount of $100,000 face value plus interest. The shares were issued to an accredited investor. The transaction was executed in reliance upon the exemption from registration afforded by Regulation S as promulgated by the Securities and Exchange Commission, under the Securities Act of 1933, as amended. On December 1, 1997, the Company issued 12,722 shares of restricted common stock, $.01 par value, to two individuals for consulting services valued at $11,450. On December 16, 1997, the Company issued 200,000 shares of restricted common stock, $.01 par value, to allow the retirement of the unregistered $100 Class A, 9.8% convertible preferred stock in the amount of $226,000 face value. The shares were issued to an accredited investor with potential conversion rights under the class A preferred. On December 16, 1997, the Company issued 1,500 shares of unregistered, $1,000 Class B, 6% Preferred Stock $5 par value to five investors in the amount of $1,500,000 face value with conversion rights into common stock, $.01 par value. Net proceeds to the Company were $1,089,959 after expenses, fees, and the retirement of the class A preferred described above. The transaction was executed in reliance upon the exemption from registration afforded by Regulation S as promulgated by the Securities and Exchange Commission, under the Securities Act of 1933, as amended. On December 16, 1997, the Company completed the issue of unregistered Class AA Warrants to purchase 150,000 shares of restricted common stock, $.01 par value, at a purchase price of $1.13 per share, expiring December 5, 2000. On December 16, 1997, the Company entered into an agreement with a Financial Consulting Company to issue a potential 750,000 shares of common stock, $.01 par value, for services to be rendered and as options to be exercised at purchase prices from $1.00 to $1.75 per share. Item 4. Submission of Matters to Vote of Security Holders None. Item 6. Exhibits and reports on Form 8-K. (A) Exhibits. Exhibit 1(a). Pursuant to Rule 601 4v. Attached is the Certificate To Set Forth Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative Rights of Series B 6% Cumulative Convertible Preferred Stock, $5.00 Par Value Per Share. Articles of Incorporation, as amended are incorporated by reference to Exhibit B of the Company's Proxy Statement dated August 16, 1996. Bylaws, as amended, are incorporated by reference to Exhibit C of the Company's Proxy Statement dated August 16, 1996. Exhibit Number 99. Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995, are incorporated by reference to Exhibit 99 of the Form 10-Q for the quarter ended January 31, 1997. The Company agrees to file with the Commission any agreement or instrument not filed as an exhibit upon the request of the Commission. (B) Reports on Form 8-K. The Company filed a Form 8-K dated November 30, 1997, reporting under Item 9. Sales of Equity Securities pursuant to Regulation S. The Company filed a Form 8-K dated December 16, 1997, reporting under Item 9. Sales of Equity Securities pursuant to Regulation S. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BUTLER NATIONAL CORPORATION (Registrant) March 13, 1998 /S/ Clark D. Stewart Date Clark D. Stewart, (President and Chief Executive Officer) March 13, 1998 /S/ Edward J. Matukewicz Date Edward J. Matukewicz, (Treasurer and Chief Financial Officer) EX-1.A 2 Exhibit 1(a) Pursuant to Rule 601 4.v attached is the following Certificate to set forth designations, voting powers, preferences, limitations, restrictions, and relative rights of Series B 6% cumulative convertible preferred stock, $5.00 par value per share. EXHIBIT 1(a) to Form 10-Q Filed March 13, 1998 - ---------------------------------------------- CERTIFICATE TO SET FORTH DESIGNATIONS, VOTING POWERS, PREFERENCES, LIMITATIONS, RESTRICTIONS, AND RELATIVE RIGHTS OF SERIES B 6% CUMULATIVE CONVERTIBLE PREFERRED STOCK, $5.00 PAR VALUE PER SHARE It is hereby certified that: I. The name of the corporation is Butler National Corporation (the "Corporation"),a Delaware corporation. II. Set forth hereinafter is a statement of the voting powers, preferences, limitations, restrictions, and relative rights of shares of Series B 6% Cumulative Convertible Preferred Stock hereinafter designated as contained in a resolution of the Board of Directors of the Corporation pursuant to a provision of the Articles of Incorporation of the Corporation permitting the issuance of said Series B 6% Cumulative Convertible Preferred Stock by resolution of the Board of Directors: Series B 6% Cumulative Convertible Preferred Stock, $5.00 par value 1. Designation: Number of Shares The Corporation shall have 3,000 shares designated as Series B 6% Cumulative Convertible Preferred Stock, $5.00 par value, as part of the authorized class of preferred shares (the "Series B Preferred Stock"). Each share of Series B Preferred Stock shall have a stated value equal to $1,000 (as adjusted for any stock dividends combinations or splits with respect to such shares)(the"Stated Value"). 2. Dividends. (a) The holders of outstanding shares of Series B Preferred Stock shall be entitled to receive preferential dividends in cash out of any funds of the Corporation legally available at the time for declaration of dividends before any dividend or other distribution will be paid or declared and set apart for payment on any shares of any Common Stock or other class of stock junior to the Series B Preferred Stock, including Series A Preferred Stock (the Common Stock and such junior stock being hereinafter collectively the "Junior Stock") at the rate of 6% simple interest per annum on the Stated Value per share payable quarterly when as and if declared; provided however that dividend payments may be made in the sole discretion of the Board of Directors of the Corporation in additional fully paid and non-assessable shares of Series B Preferred Stock at a rate of one share of Series B Preferred Stock for each $1,000 of such dividend not paid in cash, and the issuance of such additional shares shall constitute full payment of such dividend. (b) The dividends on the Series B Preferred Stock at the rates provided above shall be cumulative whether or not earned so that if at any time full cumulative dividends at the rate aforesaid on all shares of the Series B Preferred Stock then outstanding from the date from and after which dividends thereon are cumulative to the end of the quarterly dividend period next preceding such time shall not have been paid or declared and set apart for payment, or if the full dividend on all such outstanding Series B Preferred Stock for the then current dividend period shall not have been paid or declared and set apartment for payment, the amount of the deficiency shall be paid or declared and set apart for payment (but without interest thereon) before any sum shall be set apart for or applied by the Corporation or a subsidiary of the Corporation to the purchase redemption or other acquisition of the Stock ("Parity Stock") and before any dividend or other distribution shall be paid or declared and set apart for payment on any Junior Stock and before any sum shall be set aside for or applied to the purchase, redemption or other acquisition of Junior Stock. (c) Dividends on all shares of the Series B Preferred Stock shall begin to accrue and be cumulative from and after the date of issuance thereof A dividend period shall be deemed to commence on the day following a quarterly dividend payment date herein specified and to end of the next succeeding quarterly dividend payment date herein specified. 3. Liquidation Rights. (a) Upon the dissolution, liquidation or winding-up of the Corporation, whether voluntary or involuntary, the holders of the Series B Preferred Stock shall be entitled to receive before any payment or distribution shall be made on the Junior Stock, out of the assets of the Corporation available for distribution to stockholders, the Stated Value per share of Series B Preferred Stock and all accrued and unpaid dividends to and including the date of payment thereof. Upon the payment in full of all amounts due to holders of the Series B Preferred Stock of the holders of the Common Stock of the Corporation and any other class of Junior Stock shall receive all remaining assets of the Corporation legally available for distribution. If the assets of the Corporation available for distribution to the holders of the Series B Preferred Stock shall be insufficient to permit payment in full of the amounts payable as aforesaid to the holders of Series B Preferred Stock upon such liquidation, dissolution or winding-up, whether voluntary or involuntary, then all such assets of the Corporation shall be distributed to the exclusion of the holders of shares of Junior Stock ratably among the holders of Series B Preferred Stock. (b) Neither purchase nor the redemption by the Corporation of shares of any class of stock nor the merger nor consolidation of the Corporation with or into any other corporation or corporations nor the sale or transfer by the Corporation of all or any part of its assets shall be deemed to be a liquidation, dissolution or winding-up of the Corporation for the purposes of this paragraph 3. 4. Conversion into Common Stock. Shares of Series B Preferred Stock shall have the following conversion rights and obligations: (a) Subject to the further provisions of this paragraph 4, each holder of shares of Series B Preferred Stock shall have the right at any time and from time to time after forty (40) days' from the date on which a share of Series B Preferred Stock was issued, to convert some or all such shares into fully paid and non-assessable shares of Common Stock of the Corporation (as defined in paragraph 4(i) below) determined in accordance with the Conversion Rate. provided in paragraph 4(b) below (the "Conversion Rate"); provided, that the aggregate Stated Value to be converted shall be at least $25,000 (unless if at the time of such conversion the aggregate Stated Value of all shares of Series B Preferred Stock registered to the Holder is less than $25,000, then the whole amount may be converted). (b) The number of shares of Common Stock issuable upon conversion of each share' of Series B Preferred Stock shall equal (I) the sum of (A) the Stated Value per share and (B) accrued and unpaid dividends on such share, divided by (ii) the Conversion Price. The Conversion Price shall be equal to the lesser of- (i) the average of the Closing Bid Price (as hereinafter defined) of the Corporation's Common Stock for the five (5) trading days immediately preceding the date of issuance of the Series B Preferred Stock; or (ii) seventy percent (70%) of the 'average of the Closing Bid Price for the five trading days immediately preceding conversion of the Series B Preferred Stock. The Closing Bid Price shall mean the closing bid price of the Corporation's Common Stock as reported from the NASDAQ SmallCap Market (or if not reported by NASDAQ as reported by such other exchange or market where traded). (c) The bolder of any certificate for shares of Series B Preferred Stock desiring to e9nvert any of such shares may give notice of its decision to convert the shares into common stock by telecopying an executed and completed notice of conversion to the Corporation and delivering within three business days thereafter, the original notice of conversion and the certificate for the Preferred Stock properly endorsed for or accompanied by duly executed instruments of transfer (and such other transfer papers as said Transfer Agent may reasonably require) to the Corporation. Each date on which a notice of conversion is telecopied to and received by the Corporation in accordance with the provisions hereof shall be deemed a Conversion Date. The Corporation will transmit the certificates representing the shares of common stock issuable upon conversion of any Preferred Stock (together with the Preferred Stock representing the shares not converted) to the Holder via express courier, or otherwise, for receipt by the holder within three business days after receipt by the Corporation of the original notice of conversion and the Preferred Stock representing the shares to be converted. The holder of the shares so surrendered for conversion shall be entitled to receive (except as otherwise provided herein) a certificate or certificates which shall be expressed to be fully paid and non-assessable for the number of shares of Common Stock to which such stockholder shall be entitled upon such conversion registered in the name of such holder or in such other name or as such stockholder in writing may specify. In the case of any Series B Preferred Stock which is converted in part only the holder of shares of Series B Preferred Stock shall upon delivery of the certificate or certificates representing Common Stock also receive a new share certificate representing the unconverted portion of the shares of Series B Preferred Stock. 'Nothing herein shall be construed to give any holder of Series B Preferred Stock surrendering the same for conversion the right to receive any additional shares of Common Stock or other property which results from an adjustment in conversion rights under the provision of paragraph (d) or (e) of this paragraph 4 until holders of Common Stock are entitled to receive the shares or other property giving rise to tile adjustment. In the case of the exercise of the conversion rights set forth in paragraph 4(a) the conversion privilege shall be deemed to have been exercised and the shares of Common Stock issuable upon such conversion shall be deemed to have been issued upon the date of receipt by such Transfer Agent for conversion of the certificate for such shares of Series B Preferred Stock. The person or entity entitled to receive Common Stock issuable upon such conversion shall, on the "date such conversion privilege is deemed to have been exercised and thereafter, be treated for all purposes as the record holder of such Common Stock and shall on the same date cease to be treated for any purpose as the record holder of such shares of Series B Preferred St6ck to be converted. Notwithstanding the foregoing, if the stock transfer books are closed on the date such shares are received by the Transfer Agent, the conversion privilege shall be deemed to have been exercised and the person or entity shall be treated as a record holder of shares 6f Common Stock on the next succeeding date on which the transfer books are open, but the Conversion Rate shall be that in effect on the date such conversion privilege was exercised. The Corporation shall not be required to deliver certificates for shares of its Common Stock or new certificates for unconverted shares of its Series B Preferred Stock while the stock transfer books for such respective classes of stock are duly closed for any purpose; but the right of surrendering shares of Series B Preferred Stock for conversion shall not be suspended during any period that the stock transfer books of either of such classes of stock are closed. Upon the conversion of any shares of Series B Preferred Stock no adjustment or payment shall be made with respect to such convened shares on account of any dividend on shares of such stock or on account of any dividend on the Common Stock, except that the holder of such converted shares shall be entitled to be paid any dividends declared on shares of Common Stock after conversion thereof. The Corporation shall not be required in connection with any conversion of Series B Preferred Stock to issue a fraction of a share of its Common Stock nor to deliver any stock certificate representing a fraction thereof For administrative efficiency and simplicity, in the event the number of shares issuable to a shareholder results in a fractional share, said number shall be rounded up to the next higher whole number of shares. No cash shall be paid for any fractional share. (d) The Conversion Rate shall be subject to adjustment from time to time as follows: (i) In case the Corporation shall at any time (A) declare any dividend or distribution on its Common Stock or other securities of the Corporation other than the Series B Preferred Stock, (B) split or subdivide the outstanding Common Stock, (C) combine the outstanding Common Stock into a smaller number of shares, or (I)) issue by reclassification of its Common Stock any shares or other securities of the Corporation, then in each such event the Conversion Rate shall be adjusted proportionately so that the holders of Series B Preferred Stock shall be entitled to receive the kind and number of shares or other securities of the Corporation which such holders would have owned or have been entitled to receive after the happening of any of the events described above had such shares of Series B Preferred Stock been converted immediately prior to the happening of such event (or any record date with respect thereto). Such adjustment shall be made whenever any of the events listed above shall occur. An adjustment made to the Conversion pursuant to this paragraph 4(d)(i) shall become effective immediately after the effective date of the event retroactive to the record date, if any, for the event. (e) The Conversion Rate shall also be subject to adjustment from time to time as follows: (i) In case of any merger of the Corporation with or into any other corporation (other than a merger in which the Corporation is the surviving or continuing corporation and which does not result in any reclassification, conversion, or change of the outstanding shares of Common Stock) then as part of such merger lawful provision shall be made so that holders of Series B Preferred Stock shall thereafter have the right to convert each share of Series B Preferred Stock into the kind and amount of shares of stock and/or other securities or property receivable upon such merger by a holder of the number of shares of Common Stock into which such shares of Series B Preferred Stock might have been converted immediately prior to such consolidation or merger. Such provision shall also provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in paragraph (d) of this paragraph 4. The foregoing provisions of this paragraph 4(e) shall similarly apply to successive mergers. (ii) In case of any sale or conveyance to another person or entity of the property of the Corporation as an entirety, or substantially as an entirety, in connection with which shares or other securities or cash or other property shall be issuable, distributable, payable, or deliverable for outstanding shares of Common Stock; then, unless the right to convert such shares shall have terminated, lawful provision shall be made so that the holders of Series B Preferred Stock shall thereafter have the right to convert each share of the Series B Preferred Stock into the kind and amount of shares of stock or other securities or property that shall be issuable, distributable, payable, or deliverable upon such sale or conveyance with respect to each share of Common Stock immediately prior to such conveyance. (f) : Subject to the provisions of this section, if the Corporation at any time shall issue any shares of Common Stock prior to the conversion of the entire Stated Value of the Series B Preferred Stock (otherwise than as: (i) provided in paragraphs (d) and (e) of this paragraph 4; or (ii) pursuant to options, warrants, or other obligations to issue shares, outstanding on the date hereof as described in public filings made by the Corporation prior to the date hereof with the Securities and Exchange Commission and a warrant to be issued to European Equity Partners, Inc. or its designees, 9ptions to Michael Markow, and other than the recent increase in the number of options available for issuance under the Corporation's option plans; [(i) and (ii) above, are hereinafter referred to as the "Existing Option Obligations"] for a consideration less than the Conversion Price that would be in effect at the time of such issue, then, and thereafter successively upon each such issue, the Conversion Price shall be reduced as follows (i) the number of shares of Common Stock outstanding immediately prior to such issue shall be multiplied by the Conversion Price in effect at the time of such issue and the product shall be added to the aggregate consideration, if any, received by the Corporation upon such issue of additional shares of Common Stock; and (ii) the sum so obtained shall be divided by the number of shares of Common Stock outstanding immediately after such issue. Except for the Existing Option Obligations and options that may be issued under any employee incentive stock option and/or any qualified stock option plan adopted by the Company, for purposes of this adjustment, the issuance of any security of the Corporation carrying the right to convert such seurity into shares of Common Stock or of any warrant, right or option to purchase Common Stock shall result in an adjustment to the Conversion Price upon the issuance of shares of Common Stock upon exercise of such conversion or purchase rights. (g) Whenever the number of shares to be issued upon conversion of the Series B Preferred Stock is required to be adjusted as provided in this paragraph 4, the Corporation shall forthwith compute the adjusted number of shares to be so issued and prepare a certificate setting forth such adjusted conversion amount and the facts upon which such adjustment is based, and such certificate shall forthwith be filed with the Transfer Agent for the Series B Preferred Stock and the Common Stock; and the Corporation shall mail to each holder of record of Series B Preferred Stock notice of such adjusted conversion price. (h) In case at any time the Corporation shall propose: (i) To pay any dividend or distribution payable in shares upon its Common Stock or to make any distribution (other than cash dividends) to the holders of its Common Stock; or (ii) To offer for subscription to the holders of in Common Stock any additional shares of any class or any other rights; or (iii) Any capital reorganization or reclassification of its shares or the merger of the Corporation with another corporation (other than a merger in which the Corporation is the surviving or continuing corporation and which does not result in any reclassification, conversion, or change of the outstanding shares of Common Stock);or (iv) The voluntary dissolution, liquidation or winding-up of the Corporation; then, and in any one of more of said cases, the Corporation shall cause at least fifteen (15) days prior, notice of the date on which (A) the books of the Corporation shall close or a record be taken for such stock dividend, distribution, or subscription rights, or (B) such capital reorganization, reclassification, merger, dissolution, liquidation or winding-up shall take place, as the case may be, to be mailed to the Transfer Agent for the Series B Prefwed Stock and for the Common Stock and to the holders of record of the Series B Preferred Stock. (i) So long as any shares of Series B Preferred Stock shall remain outstanding and the holders thereof shall have the right to convert the same in accordance with provisions of this paragraph 4 the Corporation shall at all times reserve from the authorized and unissued shares of its Common Stock a sufficient number of shares to provide for such conversions. (j) The term Common Stock as used in this paragraph 4 shall mean Common Stock of the Corporation as such stock is constituted at the date of issuance thereof or as it may from time to time be changed or shares of stock of any class of other securities and/or property into which the shares of Series B Preferred Stock shall at any time become convertible pursuant to the, provisions of this paragraph 4. (k) The Corporation shall pay the amount of any and all issue taxes (but not income taxes) which may be imposed in respect of any issue or delivery of stock upon the conversion of any shares of Series B Preferred Stock, but all transfer taxes and income taxes that may-be payable in respect of any change or ownership of Series B Preferred Stock or any rights represented thereby or of stock receivable upon conversion thereof shall be paid by the person or persons surrendering such stock for conversion. 5. Mandatory Conversion. (a) Subject to the provisions of paragraph 5(e) below, the shares of Series B Preferred Stock not previously convened into shares of Common Stock shall be converted into share's of Common Stock without further action of the Holder on the date that is two years from the date of issuance thereof; at the Conversion Price and on the conversion terms specified in paragraph 4(b). (b) Notice of conversion of Series U Preferred Stock by the Corporation pursuant to this paragraphs shall be given by mail or in such other manner as may be' prescribed by resolution of the Board not less than thirty (30) days prior to the applicable date of mandatory conversion (the "Mandatory Conversion Date"). As applicable, the notice shall specify the number of shares to be converted, the date fixed for conversion, and the conversion price per share. (c) The holder of any certificate for shares of Series B Preferred Stock that is converted pursuant to this Section 5 shall surrender such certificate at the principal office of any transfer agent for said stock (the "Transfer Agent") properly endorsed for or accompanied by duly executed instruments of transfer (and such other transfer papers as said Transfer Agent may reasonably require). The holder of the shares so surrendered for conversion shall be entitled to receive (except as otherwise provided herein) a certificate or certificates which shall be expressed to be fully paid and non-assessable for the number of shares of Common Stock to which such stockholder shall be entitled upon such conversion registered in the name of such holder or in such other name or names as such stockholder in writing may specify. (d) On and after the applicable Mandatory Conversion Date (subject to paragraph 5(e) below), and notwithstanding that any certificate for shares of Series B Preferred Stock so called for conversion shall not have been surrendered for cancellation, all dividends on the Series B Preferred Stock called for conversion shall cease to accrue and the shares represented thereby shall no longer be deemed outstanding and all rights of the holders thereof as stockholders of the Corporation shall cease and terminate, except the right to receive the shares of Common Stock upon conversion as provided herein. (e) In no event shall a Mandatory Conversion occur at any time unless the Common Stock to be delivered upon conversion will be unlegended, freely tradable, and freely transferable on the transfer books of the Corporation. 6. Event of Default. The occurrence of any of the following events of default ("Event of Default") including a Material Adverse Event, as defined in section 5(g), shall cause the dividend rate of 6% described in paragraph 4 hereof to become 16% from and after ten (10) days after the occurrence of such event and at the option of the Holder, the Series B' Preferred Stock shall be redeemed by the Corporation at its Stated Value and accrued dividends. (a) The Corporation fails to pay any dividend payment required to be paid pursuant to the terms of paragraph 2 hereof and such failure continues for a period of ten (10) days after written notice to the Corporation from the holder. (b) The Corporation breaches any covenant or other term or condition of the Subscription Agreement entered into between the Corporation and holder relating to Series B Preferred Stock (the "Subscription Agreement") and such breach continues for a period of seven (7) days after written notice to the Corporation from the holder. (c) Any representation or warranty of the Corporation made in the Subscription Agreement, or in any agreement, statement or certificate given in writing pursuant thereto shall be false or misleading. (d) The Corporation shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed. (e) Any money judgment, writ or similar process shall be entered or filed against the Corporation or any of its property or other assets for more than $100,000, and shall remain unvacated, unbonded or unstayed for a period of forty-five (45) days. (f) Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Corporation. (g) The occurrence of a Material Adverse Event involving the Corporation shall mean (i) delisting of the Common Stock from the NASDAQ SmallCap Market; (ii) a concession by the Company of a default under any one or more obligations in an aggregate monetary amount in excess of $100,000; and (iii) an SEC stop trade order or NASDA,Q trading suspension, if either applies for a period of ten days or longer. (h) The Corporation's failure to timely deliver Common Stock to the holder pursuant to paragraph 4 hereof and section 9 of the Subscription Agreement in the form of free-trading, unlegended shares of Common Stock freely transferable on the books and records of the Corporation, and with such opinions and approvals so that the Common Stock will be immediately transferable by Corporation's transfer agent. 7. Voting Rights. The shares of Series B Preferred Stock shall not have voting rights. 8. Status of Converted Stock. In case any shares of Series B Preferred Stock shall be converted to paragraph 4 hereof or otherwise repurchased or reacquired, the shares so converted, or reacquired shall resume the status of authorized but unissued shares of Preferred Stock and shall no longer be designated as Series B Preferred Stock. 9. Additional Restrictions. For as long as any shares of the Series B Preferred Stock are outstanding, the Corporation will not issue any preferred stock that is senior to the Series B Preferred Stock, and will not amend the terms of the Series B Preferred Stock without the consent of the holders of the Series B Preferred Stock. Signed on this _________day of December, 1997. BUTLER NATIONAL CORPORATION /s/ Clark D. Stewart By:________________________ Clark D. Stewart President and CEO ATTEST: /s/ Edward J. Matukewicz ___________________________ Assistant Secretary EX-27 3 ARTICLE 5 FIN DATA SCHEDULE FOR 3RD QTR 10-Q
5 1 3-MOS APR-30-1998 JAN-31-1998 261,417 0 1,325,651 360,709 2,043,754 3,745,833 1,946,715 1,084,816 11,442,875 2,886,550 2,241,242 102,775 0 7,500 6,143,658 11,442,875 2,269,607 2,269,607 1,693,132 2,132,993 61,061 0 71,953 125,722 52,803 72,919 0 0 0 72,919 .01 .01
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