-----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, OpGEkLnduUrltxGvLhLtbHyH+r33PeDb/T/r0dEfFS70iyR8t2J9/zVaTpAtcBh9 eeQXWBPKsb0BhqIQmMAwpA== /in/edgar/work/20000918/0000015847-00-000019/0000015847-00-000019.txt : 20000923 0000015847-00-000019.hdr.sgml : 20000923 ACCESSION NUMBER: 0000015847-00-000019 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000430 FILED AS OF DATE: 20000918 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUTLER NATIONAL CORP CENTRAL INDEX KEY: 0000015847 STANDARD INDUSTRIAL CLASSIFICATION: [5141 ] IRS NUMBER: 410834293 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-01678 FILM NUMBER: 724406 BUSINESS ADDRESS: STREET 1: 19920 W 161ST ST CITY: OLATHE STATE: KS ZIP: 66062 BUSINESS PHONE: 8167809595 MAIL ADDRESS: STREET 1: 19920 W 161ST ST CITY: OLATHE STATE: KS ZIP: 66062 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL CONNECTOR CORP DATE OF NAME CHANGE: 19701009 10-K 1 0001.txt 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 current assets 6,184 72,634 ----------- --------- Total current assets 4,643,442 4,154,414 PROPERTY, PLANT AND EQUIPMENT: Land and building 948,089 948,089 Machinery and equipment 1,159,154 1,198,541 Office furniture and fixtures 607,736 585,968 Leasehold improvements 4,249 33,959 ----------- --------- Total cost 2,719,228 2,766,557 Accumulated depreciation (1,401,922) (1,275,145) ----------- --------- 1,317,306 1,491,412 SUPPLEMENTAL TYPE CERTIFICATES 1,397,967 1,392,611 INDIAN GAMING: Note receivable from Indian Gaming 936,340 2,730,708 Advances for Indian Gaming Developments 1,780,094 1,722,636 (net of reserves of $2,718,928) ---------- ---------- Total Indian Gaming 2,716,434 4,453,344 OTHER ASSETS 196,837 236,910 ---------- ---------- Total assets $10,271,986 $11,728,691 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999 CURRENT LIABILITIES: Bank overdraft payable $ 76,234 $ 119,942 Promissory notes payable 615,174 471,575 Current maturities of long-term debt and 375,480 701,345 capital lease obligations Accounts payable 735,237 919,087 Customer deposits 620,673 582,314 Accrued liabilities - Compensation and compensated balances 137,496 99,190 Other 91,481 69,850 ---------- ---------- Total current liabilities 2,651,775 2,963,303 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, 2,939,821 3,064,639 NET OF CURRENT MATURITIES CONVERTIBLE DEBENTURES 273,000 650,000 COMMITMENTS AND CONTINGENCIES ---------- --------- Total liabilities 5,864,596 6,677,942 SHAREHOLDERS' EQUITY: Preferred stock, par value $5 Authorized, 200,000 shares, all classes $1,000 Class A, 9.8%, cumulative if earned, liquidation and redemption value $100, no shares issued and outstanding - - $1,000 Class B, 6%, convertible cumulative liquidation and redemption value $1,000 issued and outstanding, 283.5 shares in 2000 and 693 shares in 1999 112,136 313,603 Common stock, par value $.01: Authorized, 40,000,000 shares issued and outstanding 27,181,828 shares in 2000 and 15,212,087 in 1999 271,818 152,121 Capital contributed in excess of par 9,558,549 8,981,048 Treasury stock at cost (600,000 shares) (732,000) (732,000) Retained deficit (deficit of $11,938,813 (4,803,113) (3,664,023) eliminated October 31, 1992) ---------- ---------- Total shareholders' equity 4,407,390 5,050,749 Total liabilities and shareholders' equity' $10,271,986 $11,728,691 =========== ===========
The accompanying notes are an integral part of these financial statements BUTLER NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED APRIL 30, 2000, 1999 AND 1998 2000 1999 1998 (As Restated See Note 1) NET SALES $ 4,606,809 $ 6,612,121 $ 5,456,106 COST OF SALES 4,047,353 5,170,862 2,727,656 ---------- ---------- ---------- 559,456 1,441,259 2,728,450 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (1,661,584) (1,665,656) (2,073,756) ---------- ---------- ---------- Operating income (loss) (1,102,128) (224,397) 654,694 OTHER INCOME (EXPENSES) Interest expense (199,436) (238,519) (255,004) Interest revenue 165,492 201,928 3,584 Other - (20,726) 15,540 ---------- ---------- ---------- Other expense (33,944) (57,317) (235,880) ---------- ---------- ---------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES (1,136,072) (281,714) 418,814 PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS - - (19,880) ---------- ---------- ---------- INCOME (LOSS) FROM CONTINUING OPERATIONS (1,136,072) (281,714) 398,934 DISCONTINUED OPERATIONS Income (loss) from discontinued operations net of taxes - (1,698,379) 293,184 Loss on discontinued operations net of taxes - - (23,965) ----------- ----------- ---------- Total discontinued operations - (1,698,379) 269,219 ----------- ----------- ---------- NET INCOME (LOSS) (1,136,072) (1,980,093) 668,153 DEEMED DIVIDEND ASSOCIATED WITH BENEFICIAL CONVERSION FEATURE OF PREFERRED STOCK - - (650,000) DIVIDENDS TO PREFERRED STOCKHOLDERS - (54,398) - ----------- ----------- ---------- NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (1,136,072) $ (2,034,491) $ 18,153 =========== =========== ========== BASIC EARNINGS (LOSS) PER COMMON SHARE Continuing operations $ (0.06) $ (0.03) $ (0.03) Discontinued operations - (0.14) 0.03 ----------- ----------- ---------- $ (0.06) $ (0.17) $ 0.00 =========== =========== ========== Shares used in per share calculation 18,634,447 11,845,875 9,418,330 =========== =========== ========== DILUTED EARNINGS (LOSS) PER COMMON SHARE Continuing operations $ (0.06) $ (0.03) $ (0.03) Discontinued operations - (0.14) 0.03 ----------- ----------- ---------- $ (0.06) $ (0.17) $ 0.00 =========== =========== ========== Shares used in per share calculation 18,634,447 11,845,875 9,418,330 =========== =========== ==========
The accompanying notes are an integral part of these financial statements. BUTLER NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED APRIL 30, 2000, 1999, AND 1998 Preferred Common Stock Stock Balance, April 30, 1997 $2,000,000 $ 95,242 Reduction in note receivable from stock purchase agreement Acquisition of treasury stock Retirement of $100 Class A preferred treasury stock (2,000,000) Exercise of stock warrants 1,135 Issuance of stock - Other 2,970 Issuance of $1,000 Class B 1,315,959 6,416 preferred stock-Private Offering Conversions to common stock (809,125) 10,967 Value associated with beneficial conversion feature of conv. debt Deferred service contracts Amortization of service contracts Utilization of net operating losses Net income Deemed dividend associated with beneficial conversion feature of preferred stock --------- --------- Balance, April 30, 1998 $ 506,834 $ 116,730 ========= ========= Note Capital Receivable Contributed Arising in Excess of From Stock Par and Purchase Warrants Agreements Balance, April 30, 1997 $ 6,109,425 $ (81,762) Reduction in note receivable 44,115 from stock purchase agreement Acquisition of treasury stock Retirement of $100 Class A preferred treasury stock Exercise of stock warrants 89,765 Issuance of stock - Other 233,133 Issuance of $1,000 Class B 385,481 preferred stock-Private Offering Conversions to common stock 798,158 Value associated with beneficial 650,000 conversion feature of conv. debt Deferred service contracts Amortization of service contracts Utilization of net operating losses Net income Deemed dividend associated with beneficial conversion feature of preferred stock --------- --------- Balance, April 30, 1998 $ 8,265,962 $ (37,647) ========= ========= Shares Issued for Treasury Future Stock Services (Preferred) Balance, April 30, 1997 $ (263,438) $(2,000,000) Reduction in note receivable from stock purchase agreement Acquisition of treasury stock Retirement of $100 Class A 2,000,000 preferred treasury stock Exercise of stock warrants Issuance of stock - Other Issuance of $1,000 Class B preferred stock-Private Offering Conversions to common stock Value associated with beneficial conversion feature of conv. debt Deferred service contracts (101,250) Amortization of service contracts 77,864 Utilization of net operating losses Net income Deemed dividend associated with beneficial conversion feature of preferred stock --------- ---------- Balance, April 30, 1998 $ (286,824) $ - ========= ========== Treasury Retained Stock Earnings (Common) (deficit) Balance, April 30, 1997 $ (337,240) $(1,703,973) Reduction in note receivable from stock purchase agreement (732,000) Acquisition of treasury stock Retirement of $100 Class A preferred treasury stock Exercise of stock warrants Issuance of stock - Other Issuance of $1,000 Class B preferred stock-Private Offering Conversions to common stock Value associated with beneficial conversion feature of conv. debt Deferred service contracts Amortization of service contracts Utilization of net operating losses 56,287 Net income 668,153 Deemed dividend associated with (650,000) beneficial conversion feature of preferred stock ---------- ---------- Balance, April 30, 1998 $(1,069,240) $(1,629,533) ========== ========== Total Shareholders' Equity Balance, April 30, 1997 $ 3,818,254 Reduction in note receivable 44,115 from stock purchase agreement Acquisition of treasury stock (732,000) Retirement of $100 Class A - preferred treasury stock Exercise of stock warrants 90,900 Issuance of stock - Other 236,103 Issuance of $1,000 Class B 1,707,856 preferred stock-Private Offering Conversions to common stock - Value associated with beneficial 650,000 conversion feature of conv. debt Deferred service contracts (101,250) Amortization of service contracts 77,864 Utilization of net operating losses 56,287 Net income 668,153 Deemed dividend associated with (650,000) beneficial conversion feature of preferred stock ---------- Balance, April 30, 1998 $ 5,866,282 ==========
The accompanying notes are an integral part of these financial statements BUTLER NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED APRIL 30, 2000, 1999, AND 1998 Preferred Common Stock Stock Balance, April 30, 1998 $ 506,834 $ 116,730 Reduction in note receivable from stock purchase agreement Retirement of treasury stock (1,750) Conversions to common stock (193,231) 12,580 Issuance of stock - Other 23,532 Transfer of service contracts to advances for Indian Gaming developments Amortization of service contracts Dividends of Preferred Stock paid 1,029 by issuing common stock --------- --------- Balance, April 30, 1999 $ 313,603 $ 152,121 ========= ========= Note Capital Receivable Contributed Arising in Excess of From Stock Par Purchase Agreements Balance, April 30, 1998 $ 8,265,962 $ (37,647) Reduction in note receivable 37,647 from stock purchase agreement Retirement of treasury stock (335,490) Conversions to common stock 180,651 Issuance of stock - Other 816,556 Transfer of service contracts to advances for Indian Gaming developments Amortization of service contracts Dividends of Preferred Stock paid 53,369 by issuing common stock --------- ---------- Balance, April 30, 1999 $8,981,048 $ - ========= ========== Shares Issued for Treasury Future Stock Services (common) Balance, April 30, 1998 $ (286,824) $(1,069,240) Reduction in note receivable from stock purchase agreement Retirement of treasury stock 337,240 Conversions to common stock Issuance of stock - Other Transfer of service contracts to 185,573 advances for Indian Gaming developments Amortization of service contracts 101,251 Dividends of Preferred Stock paid by issuing common stock ---------- --------- Balance, April 30, 1999 $ - $ (732,000) ========== ========= Retained Total Earnings Shareholders' (deficit) Equity Balance, April 30, 1998 $(1,629,533) $ 5,866,282 Reduction in note receivable 37,647 from stock purchase agreement Retirement of treasury stock - Conversions to common stock - Issuance of stock - Other 840,088 Transfer of service contracts to 185,573 advances for Indian Gaming developments Amortization of service contracts 101,251 Dividends of Preferred Stock paid (54,397) - by issuing common stock Net loss (1,980,093) (1,980,093) --------- --------- Balance, April 30, 1999 $(3,664,023) $ 5,050,749 ========= =========
The accompanying notes are an integral part of these financial statements BUTLER NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED APRIL 30, 2000, 1999, AND 1998 Preferred Common Stock Stock Balance, April 30, 1999 $ 313,603 $ 152,121 Conversion to common stock (201,467) 51,393 Issuance of stock - Other 18,709 Conversion of Convertible 49,595 Debentures Dividends on Common Stock paid Net loss --------- --------- Balance, April 30, 2000 $ 112,136 $ 271,818 ========= ========= Capital Contributed Treasury in Excess of Stock Par (common) Balance, April 30, 1999 $8,981,048 $ (732,000) Conversion to common stock 150,074 Issuance of stock - Other 100,022 Conversion of Convertible 327,405 Debentures Dividends on Common Stock paid Net loss --------- --------- Balance, April 30, 2000 $9,558,549 $ (732,000) ========= ========= Retained Total Earnings Shareholders' (deficit) Equity Balance, April 30, 1999 $(3,664,023) $5,050,749 Conversion to common stock - Issuance of stock - Other 118,731 Conversion of Convertible 377,000 Debentures Dividends on Common Stock paid (3,018) (3,018) Net loss (1,136,072) (1,136,072) --------- --------- Balance, April 30, 2000 $(4,803,113) $ 4,407,390 ========= =========
The accompanying notes are an integral part of these financial statements BUTLER NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED APRIL 30, 2000, 1999 AND 1998 2000 1999 1998 (As Restated See Note 1) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(1,136,072) $(1,980,093) $ 668,153 Income (loss) from discontinued operations - (1,698,379) 269,219 --------- --------- --------- Income (loss) from continuing operations (1,136,072) (281,714) 398,934 Adjustments to reconcile net income (loss) to net cash provided by (used in) operations - Depreciation 226,370 223,157 147,228 Amortization 77,144 167,316 408,106 Provision for obsolete inventories 233,571 - - Amortization of shares issued for future services - 101,251 77,864 Noncash services and benefit plan contributions 118,731 540,088 91,353 Dividend of Subsidiary stock (3,018) - 56,287 Changes in assets and liabilities - Accounts receivable 198,305 (22,066) (171,811) Due from affiliate (308,181) - - Contracts in process 20,437 145,673 572,063 Inventories (1,004,443) 989,305 (667,621) Prepaid expenses and other current assets 66,450 48,646 83,152 Other assets and other 40,073 231,479 178,497 Accounts payable (227,558) 338,126 98,081 Customer deposits 38,359 52,039 (989,760) Settlement agreement - - (72,000) Accrued liabilities 59,937 (228,965) (33,341) --------- --------- --------- Cash provided by (used in) continuing operations (1,599,895) 2,304,335 177,032 Cash provided by (used in) discontinued operations - (1,737,379) 518,345 --------- --------- --------- Cash provided by (used in) operations (1,599,895) 566,956 695,377 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures, net (52,264) (221,854) (681,335) Advances for Indian Gaming Developments (57,458) (233,550) (1,773,248) Indian Gaming note receivable, net 486,726 (1,592,776) - Supplemental Type Certificates (82,500) (103,678) (499,454) --------- --------- --------- Cash (provided by) used in investing 294,504 (2,151,858) (2,954,037) activities CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings under promissory notes 143,599 (224,143) 312,975 Proceeds from long-term debt and capital lease obligations 1,669,769 3,494,322 502,603 Repayments of long-term debt and capital lease obligations (512,810) (1,718,599) (103,743) Repayment of officer note - 37,647 44,115 Issuance of Class B convertible preferred stock - - 1,315,959 Issuance of stock - - 90,900 --------- --------- --------- Cash provided by financing activities 1,300,558 1,589,227 2,162,809 --------- --------- --------- NET INCREASE (DECREASE) IN CASH (4,833) 4,325 (95,851) CASH, beginning of year 164,923 160,598 256,449 --------- --------- --------- CASH, end of year $ 160,090 $ 164,923 $ 160,598 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid $ 200,826 $ 237,128 $ 254,202 Income taxes paid - - 16,741
The accompanying notes are an integral part of these financial statements. BUTLER NATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 2000 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES: The accompanying consolidated financial statements include the accounts of Butler National Corporation (BNC) and its wholly- owned subsidiaries, Avcon Industries, Inc., Cansas International Corporation, Butler National Engineers, Inc., Butler National Services, Inc., Butler Temporary Services, Inc., Butler National Service Corporation (for 1999 and 1998 - see note 2), Woodson Avionics, Inc. and Butler National, Inc., (collectively, The Company). Cansas International Corporation and Butler National Corporation Consulting Engineers, Inc., were inactive during the years ended April 30, 2000, 1999 and 1998. The operations of RF, Inc., a wholesale food distribution company were discontinued in April 1998. All significant intercompany transactions have been eliminated in consolidation. Avcon Industries, Inc. modifies business category aircraft at its Newton, Kansas facility. Modifications can include passenger-to- freighter configuration, addition of aerial photography capability, and stability enhancing modifications. Avcon also acquires airplanes, principally Learjets, to refurbish and sell. Woodson Avionics, Inc. is primarily engaged in the manufacture of airborne switching units used in Boeing McDonnell Douglas aircraft. Butler National Services is principally engaged in monitoring remote water and wastewater pumping stations through electronic surveillance. Butler National Service Corporation in 1999 and 1998 (See Note 2) and Butler Gaming division in 2000 is a management consulting and administrative services firm providing business planing and financial coordination to Indian tribes interested in owning and operating casinos under the terms of the Indian Gaming Regulatory Act of 1988. Restatement Subsequent to the issuance of the Company's consolidated financial statements for the fiscal years ended April 30, 1998, it was determined that the reported results for 1998 were in error, primarily as follows: 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 seventy percent (70%) of the common stock bid price (the average of the ending common stock price bid five (5) days prior to issuance of the preferred stock or the ending common stock bid price 45 days after issuance of the preferred stock). The financial statements for the period ended April 30, 1998, have been restated to reflect the accounting recognition of the value attributable to this beneficial conversion feature as a deemed dividend and an increase to capital contributed in excess of par of $650,000. The accounting above is consistent with the accounting requirements outlined in Topic D-60 of the Emerging Issues Task Force (EITF), issued in March 1997, and what was agreed to by the EITF in their final deliberations for Issue 98-5 on May 20, 1999. RF, Inc. Gain: As further discussed in Note 4, the Company settled a dispute with a former employee in June 1997, effective April 30, 1997. The Company initially recorded a net gain on the settlement of approximately $433,000 in June 1998. Costs aggregating approximately $1,054,000 that had been deferred as of April 30, 1997, more appropriately should have been recognized as period costs. The financial statements have been restated to expense these costs as part of loss from discontinued operations in fiscal 1997. In addition, the value assigned to the 600,000 shares of company stock received as part of the consideration of the settlement was reduced from $2 per share (stock price at April 30, 1997) to $1.22 per share (stock price on June 26, 1997 the date the shares were received). The net effect of this transaction on the fiscal 1998 financial statements is to change the previously reported loss from discontinued operations of $172,281 to income from discontinued operations of $269,219. The following reflects selected financial information and the effects of the aforementioned restatements: 1998 1998 As previously As reported restated Total assets $10,799,656 $10,870,445 Total shareholders' equity 5,861,860 5,866,282 Total net sales 5,546,106 5,456,106 Income (loss) from operations Operations 250,012 398,934 Discontinued operations (172,281) 269,219 Net income 77,731 668,153 Net income available for common shareholders 77,731 18,153 Basic EPS $ 0.01 $ - Fully diluted EPS $ 0.01 $ -
a. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. b. Inventories: Inventories are priced at the lower of cost, determined on a first-in, first-out basis, or market. Inventories include material, labor and factory overhead required in the production of the Company's products. c. Property and Related Depreciation: Machinery and equipment are recorded at cost and depreciated over their estimated useful lives. Depreciation is provided on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the term of the lease. The lives used for the significant items within each property classification are as follows: Life in Years Building 23 to 39 Machinery and equipment 5 to 17 Office furniture and fixtures 5 to 17 Leasehold improvements 3 to 20
Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of assets retired are removed from the accounts and any resulting gains or losses are reflected as income or expense. Included in machinery and equipment and office furniture and fixtures are capital lease items totalling $303,900 and $251,636 at April 30, 2000 and 1999 respectively. Accumulated amortization on capital lease items at April 30, 2000 and 1999 was $97,800 and $43,900 respectively. d. Long-Lived Assets: Long-lived assets and identifiable intangibles to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment is measured by comparing the carrying value of the long-lived asset to the estimated undiscounted future cash flows expected to result from use of the assets and their eventual disposition. The Company determined that as of April 30, 2000, there had been no impairment in the carrying value of long-lived assets. e. Indian Gaming: The Company is advancing funds for the establishment of Indian gaming. These funds have been capitalized in accordance with Statements of Financial Accounting Standards (SFAS) 67 "Accounting for Costs and Initial Rental Operations of Real Estate Projects." Such standard requires costs associated with the acquisition, development, and construction of real estate and real estate- related projects to be capitalized as part of that project. The realization of these advances is predicated on the ability of the Company and their Indian gaming clients to successfully open and operate the proposed casinos. There is no assurance that the Company will be successful. The inability of the Company to recover these advances could have a material adverse effect on the Company's financial position and results of operations Advances to the tribes and for gaming developments are capitalized and recorded as receivables from the tribes. These receivables, shown as Advances for Indian Gaming Development on the balance sheet, represent costs to be reimbursed to the Company pending approval of Indian gaming in several locations. The Company has agreements in place which require payments to be made to the Company for the respective projects upon opening of Indian gaming facilities. Once gaming facilities have gained proper approvals, the Company will enter into note receivable arrangements with the Tribe to secure reimbursement of advanced funds to the Company for the particular project. The Company currently has one note receivable shown as Note Receivable From Indian Gaming Development on the balance sheet. Reserves were recorded for Indian gaming development costs that cannot be determined whether reimbursement from the tribes will occur. There are agreements with the Tribes to be reimbursed for all costs incurred to develop gaming when the facilities are constructed and opened. Because the Stables represents the only operations opened, there is uncertainty as to whether reimbursement on all remaining costs that have been reserved will occur. It is the Company's policy therefore, to reduce the respective reserves as reimbursement from the Tribes is collected. Capitalized costs totalled approximately $4,499,022 and $4,441,564 at April 30, 2000 and April 30, 1999, respectively, related to the development of Indian gaming facilities. These amounts are net of reserves of $2,718,928 in 2000 and 1999, which were established to reserve for potentially unreimburseable costs. In the opinion of management, the net advances will be recoverable through the gaming activities. Current economic projections for the gaming activities indicate adequate future cash flows to recover the advances. In the event the Company and its Indian clients are unsuccessful in establishing such operations, these net recorded advances will be recovered through the liquidation of the associated assets. The Company has title to land purchased for Indian gaming. These tracts, currently owned by the Company, could be sold to recover costs in the projects. As a part of a Management Contract approved by the National Indian Gaming Commission (NIGC) on January 14, 1997, between the Company's (then) wholly owned subsidiary, Butler National Service Corporation, and the Miami Tribe of Oklahoma and the Modoc Tribe of Oklahoma (the Tribes), the Company agreed to convert their current unsecured receivable from the Tribes to a secured note receivable with the Tribes of $3,500,000 at 2 percent over prime, to be repaid over five years, for the construction of the Stables gaming establishment and reimbursement for previously advanced funds. Security under the contract includes the Tribes' profits from all tribal gaming enterprises and all assets of the Stables except the land and building. In conjunction with the dividend of Butler National Services Corporation (BNSC) shares to Company shareholders in May, 1999 $1,607,642 of the note was an asset of BNSC and $1,770,351 was an asset of the Company. The Company is currently receiving payments on the note on the Stables' operation. Amounts to be received on the notes are 2001 - $347,285; 2002 - $382,800; 2003 - $428,000 and 2004 - $125,540. f. Supplemental Type Certificates: Supplemental Type Certificates (STCs) are authorizations granted by the Federal Aviation Administration (FAA) for specific modification of a certain aircraft. The STC authorizes the Company to perform modifications, installations and assemblies on applicable customer-owned aircraft. Costs associated with obtaining these STCs from the FAA are capitalized and subsequently amortized against revenues being generated from aircraft modifications associated with the STC. The costs are expensed as services are rendered on each aircraft through costs of sales using the units of production method. Current company estimates of future orders indicate the life for these costs to be approximately five years. The legal life of these STCs is indefinite. Consultant costs, as shown below, include costs of engineering, legal and aircraft specialists. Components of the capitalized costs are as follows: 2000 1999 Direct labor $ 206,752 $ 206,752 Direct materials 187,129 187,129 Consultant costs 1,453,920 1,371,420 Labor overhead 326,669 326,669 --------- --------- Subtotal 2,174,470 2,091,970 Less- Amortized costs 776,503 699,359 --------- --------- Net STC balance $ 1,397,967 $ 1,392,611 ========= =========
The recoverability of these costs are dependent upon the Company's ability to obtain and sustain future orders. Failure to gain these orders and subsequently recover these costs could have a material adverse impact on the Company's financial position and results of operations. g. Bank Overdraft Payable: The Company's cash management program results in checks outstanding in excess of bank balances in the general disbursement account. When checks are presented to the bank for payment, cash deposits in amounts sufficient to fund the checks are made from funds provided under the terms of the Company's promissory notes agreement. h. Financial Instruments: The carrying value of the Company's cash and cash equivelants, short-term investments, accounts receivable, accounts payable, accrued expenses and accrued employee costs approximate fair value because of the short- term maturity of these instruments. Fair values are based on quoted market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of perceived risk. Based upon borrowing rates currently available to the Company with similar terms, the carrying value of notes payable long-term debt and capital lease obligations approximate fair value. i. Revenue Recognition: The Company performs aircraft modifications under fixed-price contracts. Revenues from fixed-price contracts are recognized on the percentage-of- completion method, measured by the direct labor costs incurred compared to total estimated direct labor costs. At April 30, 2000, there were three (3) contracts in process. j. Earnings Per Share: Earnings per common share is based on the weighted average number of common shares outstanding during the year. Stock options, convertible preferred, and convertible debentures have been considered in the dilutive earnings per share calculation, but not used in 2000 and 1999 because they are anti-dilutive. k. New Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. SFAS No. 133 requires that derivative instruments used to hedge be identified specifically to assets, liabilities, unrecognized firm commitments or forecasted transactions. The gains or losses resulting from changes in the fair value of derivative instruments will either be recognized in current earnings or in other comprehensive income, depending on the use of the derivative and whether the hedging instrument is effective or ineffective when hedging changes in fair value or cash flows. This Statement, as amended, is effective for fiscal years beginning after June 15, 2000. Management believes that the adoption of this Statement will not have a material effect on the Company's consolidated financial position, results of operations or cash flows. In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". This SOP provides guidance on accounting for certain costs in connection with obtaining or developing computer software for internal use and requires that entities capitalize such costs once certain criteria are met. The Company adopted SOP 98-1 as of January 1, 1999. The adoption of this SOP did not have a material effect on the Company's consolidated financial position, results of operations or cash flows. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities". This SOP requires that entities expense start-up costs and organization costs as they are incurred. The Company adopted SOP 98-5 as of January 1, 1999. As the Company has expensed these costs historically, the adoption of this SOP did not have a material effect on the Company's consolidated financial position, results of operations or cash flows. In November 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 100, "Restructuring and Impairment Charges". In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in Financial Statements". SAB No. 100 expresses the views of the SEC staff regarding the accounting for and disclosure of certain expenses not commonly reported in connection with exit activities and business combinations. This includes the accrual of exit and employee termination costs and the recognition of impairment charges. SAB No. 101 expresses the views of the SEC staff in applying accounting principles generally accepted in the United States to certain revenue recognition issues. The Company does not anticipate that these SAB's will have a material impact on its financial position, results of operations or cash flows. l. Stock-based Compensation: The Company accounts for non- employee stock-based awards in which goods or services are the consideration received for the equity instruments issued in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force No. 96-18, "Accounting for Equity Instruments that are Issued to Employees for Acquiring, or in Conjunction with Selling, Goods or Services". m. Income Taxes: Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred taxes, which arise principally from temporary differences between the period in which certain income and expense items are recognized for financial reporting purposes and the period in which they affect taxable income, are included in the amounts provided for income taxes. Under this method, the computation of deferred tax assets and liabilities give recognition to enacted tax rates in effect in the year the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to amounts that the Company expects to realize. n. Cash and Cash Equivalents: Cash and cash equivalents consist primarily of cash and investments in a money market fund. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits. o. Concentration of Credit Risk: The Company extends credit to customers based on an evaluation of their financial condition and collateral is not required. The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts. p. Research and Development: The Company charges to operations research and devlopment costs. The amount charged in the year ended April 30, 2000 was approximately $539,427. q. Reclassifications: Certain reclassifications within the financial statement captions have been made to maintain consistency in presentation between years. 2. DIVIDEND OF SUBSIDIARY STOCK TO SHAREHOLDERS On May 4, 1999 the Company announced it would distribute to its shareholders the stock in the subsidiary Butler National Service Corporation (BNSC). The assets of the subsidiary totalled approximately $1,623,000 and liabilities totalled approximately $1,620,000. The distribution will be made when the filings are approved by the Security and Exchange Commission. BNSC holds a contract to manage an Indian Gaming facility (The Stables) and will manage all Indian Gaming facilities when there is a contract between the Tribe and BNSC. 3. DEBT: Principal amounts of debt at April 30, 2000 and 1999, consist of the following: Promissory Notes 2000 1999 Interest at prime plus 2% $ 615,174 $ 471,575 (11.0% at April 30, 2000), due August 25, 2000, collateralized by a first or second position on all assets of the Company. The Company has promissory notes in which it may borrow a maximum of $500,000 and an extension agreement allowing borrowing of $200,000. The notes matured in August, 2000, and were renewed under similar terms for another quarter. The weighted-average interest rates were 10.5% and 10% for the years ended 2000 and 1999 respectively. Other Notes Payable and Capital Lease Obligations Note payable, interest at prime plus 2%, $1,619,964 $239,051 (11.0% at April 30, 2000) due May 24, 2004 collateralized by Aircraft Security Agreements. Note payable, interest at prime plus 2% - 1,607,641 (11.0% at April 30, 2000) due August 1, 2003 (Note is part of BNSC - see Note 2). Note payable, interest at prime plus 1%, 380,918 388,291 (11.0% at April 30, 2000) due March 1, 2001 collateralized by real estate. Note payable, interest at prime plus 2% 103,000 187,000 (11.0% at April 30, 2000) collateralized by a first or second position on all of the Company. Note payable, interest at prime plus 2% 978,028 1,089,040 (11.0% at April 30, 2000) due May 13, 2009, collateralized by a first or second position of all assets of the Company. Other Notes Payable and Capital Lease Obligations 233,391 254,961 --------- ---------- 3,315,301 3,765,984 Less: Current maturities 375,480 701,345 --------- --------- $ 2,939,821 $3,064,639 ========= =========
Maturities of long-term debt and capital lease obligations are as follows: Year Ending 30-Apr Amount 2001 $ 375,480 2002 345,000 2003 1,488,000 2004 230,000 2005 218,000 Thereafter 658,821 --------- $ 3,315,301 =========
4. 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 the Company does not plan any future operations in the food distribution industry. The Company acquired RF, Inc., on April 21, 1994. The individuals who sold RF, Inc. to the Company had sought for some time to reacquire the ownership of RF, Inc. The individual (the Employee) filed a lawsuit against the Company seeking to rescind the sale of RF, Inc. stock and for damages. The Company and the Employee reached an agreement to settle and release all claims and counterclaims effective April 30, 1997. The Employee 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 a commitment for certain payments over the next three years. On June 21, 1997, the Company released the Employee from the terms of his employment contract and the April 24, 1994 Stock Purchase Agreement, including his agreement not to compete with the Company 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, the Company received compensation and recorded a gain of $1,043,000, restated herein, (principally noncash) in the first quarter of 1998. 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 the Company 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. The Company 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. were 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 year ended 1998 was $3,783,132. The Company also discontinued in 1998 the operation of its retail food store, Valu Foods, Inc. The loss on discontinued operations in fiscal 1998 was $23,965 (net of tax). The loss includes anticipated legal costs, rental costs and payroll. The bankruptcy court ruled July 20, 1999, on the bankruptcy filing of the Company. Subsequent to April 30, 1998, the bank was not allowed to immediately assume control of the collateralized assets for liquidation and as such, required the Company to pay the bank the amount due and the court costs in total, including interest, aggregating $1,089,000. An additional charge for this payment and other fees relating to RF, Inc. totalling $1,698,379 was recorded in fiscal year 1999. At April 30, 2000 the remaining notes payable (including deferred interest) totalled $978,028. 5. CONVERTIBLE DEBENTURES: The Company completed a private placement on June 26, 1996, in which the Company issued an eight percent (8.0%) cumulative convertible debenture due June 26, 1998, in the amount of $750,000. Net proceeds of the offering were $675,000. The debenture is convertible only to common stock at 70 percent of the average closing price of the common stock for the five (5) days prior to issuance of the debenture. At June 26, 1998, the end of the two-year term, the balance not yet converted must be converted to common stock. The eight percent (8.0%) interest is payable in stock or cash at the option of the Company. The Company completed a private placement on November 1, 1996, in which the Company issued an eight percent (8.0%) cumulative convertible debenture due November 1, 1998, in the amount of $500,000. Net proceeds of the offering were $450,000. The debenture is convertible only to common stock at seventy percent (70%) of the average closing bid price of the common stock for the five days prior to issuance of the debenture. At November 1, 1998, the end of the two-year term, the balance not yet converted must be converted to common stock. The eight percent (8.0%) interest is payable in stock or cash at the option of the Company. On January 25, 1999, a change was made to the issuance documents changing the conditions of the conversions. The face value at the time of this agreement was $650,000 allowing $65,000 per month to be converted under the plan at a conversion price equal to 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 20 percent or $130,000 of outstanding principal amount of Debentures. All transactions are being handled through one broker and all activity is reported on a weekly basis. The Holders also received 325,000 three-year warrants to purchase restricted common stock at $1.45 per share, and all past and future interest payments were rescinded. At April 30, 2000, based on a bid price of $.115 of the Company stock, the number of shares the debentures could be converted into totalled 2,967,391. 6. INCOME TAXES: Deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provision of the enacted tax laws. The Company has net operating loss carryforwards and cumulative temporary differences, which would result in the recognition of net deferred tax assets. A valuation allowance has been provided which reduces the net deferred tax asset to zero. At April 30, 2000, the Company had approximately $6.5 million of net operating losses, which expire in 2002 to 2014. The tax benefit of net operating losses generated prior to the quasi reorganization in 1992 and utilized after the reorganization are reflected as additions to capital contributed in excess of par (See Note 7). The deferred taxes are comprised of the following components: April 30, 2000 April 30,1999 Current deferred taxes - Current assets $ 429,000 $ 373,000 Current liabilities - - --------- --------- Total current deferred taxes 429,000 373,000 Noncurrent deferred taxes - Non current assets 3,043,000 3,095,000 Non current liabilities (267,000) (309,000) --------- --------- Total non current deferred taxes 2,776,000 2,786,000 Total deferred taxes 3,205,000 3,159,000 Less - Valuation allowance (3,205,000) (3,159,000) --------- --------- Total deferred taxes, net $ - $ - ========= =========
April 30, 2000 1999 Accounts receivable reserves $ 10,000 $ 27,000 Inventory reserve 399,000 309,000 Net operating loss 2,523,000 2,575,000 Depreciation (154,000) (174,000) Indian gaming development 520,000 520,000 Accrued interest (113,000) (135,000) Other 20,000 37,000 --------- --------- Net deferred tax items $ 3,205,000 $ 3,159,000 ========= =========
A reconciliation of the provision for income taxes to the statutory federal rate for continuing operations is as follows: 2000 1999 1998 Statutory federal income tax rate -34.0% -34.0% 34.0% Changes in valuation allowances 32.4% 33.0% -36.7% Beneficial conversion feature 0.0% 0.0% 0.0% Nondeductible expenses 1.6% 1.0% 2.2% State taxes 0.0% 0.0% 5.3% ---- ---- ---- Effective tax rate 0.0% 0.0% 4.8% ==== ==== ====
7. SHAREHOLDERS' EQUITY: Quasi Reorganization After completing a three-year program of restructuring the Company's operation, on October 31, 1992, the Company adjusted the accumulated deficit (earned surplus benefit) to a zero balance thereby affording the Company a "fresh start." No assets or liabilities required adjustment in this process as they had been recorded at fair value. The amount of accumulated deficit eliminated as of October 31, 1992, was $11,938,813. Upon consummation of the reorganization, all deficits in the surplus accounts were eliminated against paid-in capital. Common Stock Transactions During the year ended April 30, 2000, the Company issued 134,600 shares of stock valued at $10,212 in various non-cash transactions; 1,736,302 shares valued at $108,519 were issued as the match to the Company's 401(k) plan; 5,139,345 were issued under the exchange provisions of the Preferred Stock and 4,959,494 were issued under the exchange provisions of the Convertible Debentures. During the year ended April 30, 1999, the Company issued 3,713,658 shares of stock valued at $894,485 in various non-cash transactions: 2,089,126 shares valued at $732,787 were issued for services rendered; 264,124 shares valued at $107,300 were issued as the Company match to the employee 401-K plan; 1,258,012 shares were issued under exchange provisions of the Preferred Stock; and 102,396 shares valued at $54,398 were issued for Preferred Stock dividends. During the year ended April 30, 1998, the Company issued 2,035,453 shares of stock valued at $1,437,126 in various non-cash transactions: 193,000 shares valued at $144,750 were issued for services to be rendered in the future; 91,318 shares valued at $79,903 were issued as the Company match to the employee 401-K plan; 12,722 shares valued at $11,450 were issued for services rendered; and 1,738,413 shares were issued under the exchange provisions of the convertible and preferred debentures for $1,201,023 in face value plus interest. Shares Issued for Future Services In fiscal 1998, the Company issued 193,000 shares of common stock, at a value of $144,750, for professional services to be received in the future. The deferred portion of these service contracts were being recognized over the service period, (generally 24-60 months) and was reflected as a reduction in equity until such time as the services are received. Effective May 1, 1998, the unamortized balances of the issue cost of the shares issued were expensed or transferred as advances to the gaming related projects. These amounts are recoverable under the terms of the approved management agreements. Convertible Preferred Stock The Company completed a private placement on December 16, 1997, to issue Series B, 6 percent Convertible Preferred Stock in the amount of $1,500,000. Dividends when declared, are payable quarterly at 6 percent of stated value per share. Net proceeds of the offering were $1,315,959. The terms of conversion allow the holder, at its option, at any time commencing 45 days after issuance of the preferred stock to convert the preferred stock into shares of the Company's Common Stock, at a conversion price equal to seventy percent (70%) of the common stock bid price (the average of the ending common stock bid price five days prior to issuance of the preferred stock or the ending bid price of the common stock 45 days after issuance of the preferred stock. The shares are subject to a mandatory, 24-month conversion feature at the end of which all shares outstanding will be automatically converted. Liquidation rights upon dissolution are equal to the stated value per share and all unpaid dividends. The preferred shareholders have no voting rights. The aforementioned security includes a nondetachable conversion feature that is "in the money" at the date of issuance. This feature, known as beneficial conversion features, allows for securities to be convertible into common stock at a fixed discount to the common stock's market price at the date of conversion. This feature is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of this feature to additional paid-in capital. This amount is calculated as the difference between the conversion price and the fair value of the common stock into which the security is convertible, multiplied by the number of shares into which the security is convertible. The allocation of the proceeds is considered to be analogous to a dividend to the preferred security holder and is recognized over the minimum period in which the security holders can realize that return. The beneficial conversion feature included in the convertible preferred stock debt issuances has a value of $650,000. Because the conversion period and thus the minimum realized return period is very limited, the entire amount was amortized and recorded in fiscal year 1998. See footnote 1 for further discussion. On January 25, 1999, Butler National reached an agreement with the Holders of the Class B Convertible Preferred Stock to change the conversion conditions of the preferred stock. 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 30 percent 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 70 percent of the average bid price for the previous five (5) 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 week's trading volume. The Company issued 102,396 shares of its stock valued at $54,398 in lieu of any past or future dividends. At April 30, 2000 based on a bid price of $.115 of the Company stock the number of shares the outstanding Preferred Stock could be converted into totalled 3,521,739. 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, (subsequently adjusted to $1.16 resulting from the dividend of BNSC - see Note 2). 8. STOCK OPTIONS AND INCENTIVE PLANS: The Company has established nonqualified stock option plans to provide key employees and consultants an opportunity to acquire ownership in the Company. Options are granted under these plans at exercise prices equal to fair market value at the date of the grant, generally exercisable immediately and expire in 10 years. All options terminate if the employee leaves the Company. The Company accounts for these plans under Accounting Principles Board Opinion No. 25 under which no compensation cost has been recognized. Had compensation cost been recognized in accordance with Financial Accounting Standards Board Statement No. 123, Accounting for Stock Based Compensation, the Company's operating income would have been effected as follows: 2000 1999 1998 Dividend yield 0% 0% 0% Weighted average expected stock volatility 13.6% 4.50% 98.00% Weighted average risk free interest rate 6.35% 4.78% 6.07% Expected option lives 10 years 10 years 10 years Weighted average fair value per option $ .03 $ .19 $ 1.06 Pro forma expense $ 144,730 $ 459,420 $ 565,000 Pro forma net loss $ (144,730) $(459,420) $(546,847) Basic EPS effect $ (.01) $ (.04) $ (0.06) Fully diluted EPS effect $ (.01) $ (.04) $ (0.06)
The following table summarizes the Option Plans. Shares Weighted Average Price Oustanding at April 30, 1997 3,157,900 $2.50 Granted 6,223,800 0.90 Canceled (3,005,900) 2.50 --------- ---- Outstanding at April 30, 1998 6,375,800 0.90 Granted 2,418,000 0.50 Exercised (600,000) 0.50 Canceled (2,514,500) 0.90 --------- ---- Outstanding at April 30, 1999 5,679,300 0.77 Granted 4,195,000 0.08 Canceled (299,000) 0.51 Exercised - - --------- ---- Outstanding at April 30, 2000 9,575,300 0.38 ========= ====
The prices of options were adjusted by 20% in May, 2000 resulting from the dividend of the subsidiary company to shareholders - see note 2. The options exercised in 1999 are included in shares issued for services in Note 7 as the exercise price was exchanged for services provided by the optionholder. 9. COMMITMENTS: Lease Commitments The Company leases space under operating leases with initial terms of three (3) years. Total rental expense incurred for the years ended April 30, 2000, 1999 and 1998, was $139,000, $259,000 and $187,905, respectively. Minimum lease commitments under noncancelable operating leases for the next five (5) years are as follows: Year Ending 30-Apr Amount 2001 $ 144,000 2002 142,000 2003 92,000 2004 - 2005 - Thereafter -
10. CONTINGENCIES: 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 include payments of $122,000 and $72,000 by the Company to the individual during fiscal 1998 and fiscal 1999, respectively. The entire $194,000 was accrued in fiscal 1998. The Company is involved in various lawsuits incidental to its business. Management believes the ultimate liability, if any, will not have an adverse effect on the Company's financial position or results of operations. Due to the Company's financial condition, and the need to reduce expenses, the board of directors approved the elimination of product liability insurance in August, 1989. 11. RELATED-PARTY TRANSACTIONS: During fiscal 2000 and 1999, the Company paid consulting fees of approximately $172,324 and $135,443 to board members and board member's consulting companies for business consulting services. In fiscal 1999 the Company advanced as part of the Indian Gaming Advances $350,320 to board members and board members consulting companies for business consulting services. In fiscal 2000 the Company received administrative fees from an affiliate (BNSC - see note 2) of $318,000. 12. 401(K) SAVINGS PLAN The Company has a defined contribution plan authorized under Section 401(k) of the Internal Revenue Code. All benefits-eligible employees with at least one year of service are eligible to participate in the plan. Employees may contribute up to twelve percent of their pre-tax covered compensation through salary deductions. The Company contributed 100 percent of every pre-tax dollar an employee contributes. Employees are 100 percent vested in the employer's contributions after five years of service. All employer contributions are tax deductible by the Company. The Company's matching contribution expense in 2000 and 1999 was approximately $108,519 and $107,300. 13. COMMON SHARES USED IN EARNINGS PER SHARE CALCULATIONS: The following table shows the amounts used in computing earnings per share and the effect on income and weighted average number of shares of potential dilutive common stock. 2000 1999 1998 (As Restated See Note 1) Earnings (losses) available for Common shares $ (1,136,072) $(1,980,093) $ 18,153 Convertible debentures - - - Preferred dividend - (54,398) - --------- --------- --------- Earnings (losses) available for common shares after assumed $ (1,136,072) (2,034,491) $ 18,153 conversion of dilutive securities ========= ========= ========= Earnings (loss) per share - Basic - Earnings from continuing operations $ (0.06) $ (0.03) $ (0.03) Income (loss) from/on discontinued operations - (0.14) 0.03 --------- --------- --------- Earnings (loss) available for common shares $ (0.06) $ (0.17) $ 0.00 ========= ========= ========= Earnings (loss) per share - Diluted - Earnings from continuing operations $ (0.06) $ (0.03) $ (0.03) Income (loss) from/on discontinued operations - (0.14) 0.03 --------- --------- --------- Earnings (loss) available for common shares $ (0.06) $ (0.17) $ 0.00 ========= ========= ========= Weighted average number of common shares used in Basic EPS 18,634,447 11,845,875 9,418,330 Per share effect of dilutive securities Convertible debenture securities - - - Convertible preferred securities - - - Options - - - ---------- ---------- ---------- Weighted number of common shares and dilutive potential common shares used in dilutive EPS 18,634,447 11,845,875 9,418,330 ========== ========== ==========
14. INDUSTRY SEGMENTATION AND SALES BY MAJOR CUSTOMER: Industry Segmentation The Company's operations have been classified into six segments in 2000, 1999 and 1998. 1. Avionics - principally includes the manufacture of airborne switching units used in DC-9, DC-10, DC- 9/80, MD-80, MD- 90 and the KC-10 aircraft. 2. Aircraft Modifications - principally includes the modification of business type aircraft from passenger to freighter configuration, addition of aerial photography capability, stability enhancing modifications for Learjets, and other modifications. 3. Aircraft Sales - acquires and sells aircraft, principally Learjets. 4. Gaming - business management services to Indian tribes in connection with the Indian Gaming Act of 1988. 5. Monitoring Services - principally includes the monitoring of water and wastewater remote pumping stations through electronic surveillance, for municipalities and the private sector. 6. Temporary Services - provides temporary employee services for corporate clients. Year ended April 30, 2000 Gaming Avionics Modifications Net Sales - $ 274,335 $ 3,130,835 Depreciation - 45,689 99,009 Operating profit (loss)(a) - (117,658) (667,939) Capital Expenditures $ 57,458 - - Interest, net Loss from continuing operations Income taxes Net loss Identifiable assets $ 3,383,232 $ 485,742 $ 3,747,388 ========= ========== ========= Services Aircraft Corporate Net Sales $ 1,118,081 $ - $ 83,558 Depreciation 24,775 - 56,897 Operating profit (loss)(a) (5,836) - (310,695) Capital Expenditures 30,495 - 21,769 Interest, net Loss from continuing operations Income taxes Net loss Identifiable assets $ 235,221 $ 1,455,666 $ 964,737 ========= ========= ========= Consolidated(b) Net Sales $ 4,606,809 Depreciation 226,370 Operating profit (loss)(a) (1,102,128) Capital Expenditures 109,722 Interest, net (33,944) Loss from continuing operations (1,136,072) Income taxes - --------- Net loss $ (1,136,072) ========== Identifiable assets $ 10,271,986 ========== Year ended April 30, 1999 Gaming Avionics Modifications Net Sales - $ 465,830 $ 3,117,138 Depreciation - 33,667 110,469 Operating profit (loss)(a) $ 52,765 (46,370) (284,709) Capital Expenditures 1,704,319 - 140,034 Interest, net Other expense Loss from continuing operations Income taxes Loss from discontinued operations Net loss Identifiable assets $ 5,131,363 $ 594,496 $ 4,371,602 ========= ========= ========= Services Aircraft Corporate Net Sales $ 929,153 $ 2,100,000 $ - Depreciation 23,851 - 55,170 Operating profit (loss)(a) 14,809 600,000 (560,892) Capital Expenditures 16,867 - 64,953 Interest, net Other expense Loss from continuing operations Income taxes Loss from discontinued operations Net loss Identifiable assets $ 225,742 $ 295,281 $ 1,110,207 ========= ========= ========= Consolidated(b) Net Sales $ 6,612,121 Depreciation 223,157 Operating profit (loss)(a) (224,397) Capital Expenditures 1,926,173 Interest, net (36,591) Other expense (57,317) Loss from continuing operations (281,714) Income taxes - Loss from discontinued operations (1,698,379) --------- Net loss $ (1,980,093) ========== Identifiable assets $ 11,728,691 ========== Year ended April 30, 1998 (Restated) Gaming Avionics Modifications Net Sales - $ 484,518 $ 3,874,490 Depreciation - 12,870 91,075 Operating profit (loss)(a) $ (322,129) 146,744 1,274,320 Capital Expenditures 1,773,248 - 8,871 Interest, net Other income Income from continuing operations Income taxes Income from discontinued operations Net income Identifiable assets $ 3,062,941 $ 1,068,999 $ 3,874,974 ========= ========= ========= Services Aircraft Corporate Net Sales $1,097,098 $ - - Depreciation 10,831 - $ 32,453 Operating profit (loss)(a) 228,488 - (672,729) Capital Expenditures 23,904 - 648,560 Interest, net Other income Income from continuing operations Income taxes Income from discontinued operations Net income Identifiable assets $ 135,629 $ 1,816,281 $ 911,621 ========= ========= ========= Consolidated(b) Net Sales $ 5,456,106 Depreciation 147,229 Operating profit (loss)(a) 654,694 Capital Expenditures 2,454,583 Interest, net (251,420) Other income 15,540 Income from continuing operations 418,814 Income taxes 19,880 Income from discontinued operations 269,219 ---------- Net income $ 668,153 ---------- Identifiable assets $ 10,870,445 ==========
(a) Operating expenses not specifically identifiable are allocated based upon sales, costs of sales, square footage or other factors as considered appropriate. (b) Segment of Temporaries had no activity in the three year period ended April 30, 2000. Major Customers: Sales to major customers (10 percent or more of consolidated sales) were as follows: 2000 1999 1998 Aircraft modifications (GFD) - 14% 16% Monitoring services (Plantation) 14% - 12% Aircraft sales (Private corporation) - 32% - --- --- --- Total major customers 14% 56% 28% === === ===
SCHEDULE II BUTLER NATIONAL CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED APRIL 30, 2000, 1999 AND 1998 (1998 RESTATED) Additions Balance at Charged to Balance Beginning Costs and at End Description of Year Expenses Deductions of Year Year ended April 30, 2000 Allowance for doubtful accounts $ 68,886 $ - $ 42,386 $ 25,600 Reserve for inventory obsolescence 74,562 233,571 - 308,133 Reserve for loss on note receivable 27,327 - 27,327 - Reserve for Indian gaming development 2,718,928 - - 2,718,928 Deferred interest (1) 351,000 - 58,000 293,000 Income tax valuation allowance 3,159,000 46,000 - 3,205,000 Year ended April 30, 1999 Allowance for doubtful accounts $ 78,736 $ - $ 9,850 $ 68,886 Reserve for inventory obsolescence 74,562 - - 74,562 Reserve for loss on note receivable 27,327 - - 27,327 Reserve for Indian gaming development 3,008,508 - 289,580 2,718,928 Deferred interest (1) - 351,000 - 351,000 Income tax valuation allowance 2,699,762 459,238 - 3,159,000 Year ended April 30, 1998 Allowance for doubtful accounts $ 78,736 $ - $ - $ 78,736 Reserve for inventory obsolescence 74,562 - - 74,562 Reserve for loss on note receivable 27,327 - - 27,327 Reserve for Indian gaming development 2,845,629 162,879 - 3,008,508 Income tax valuation allowance 2,518,271 237,778 56,287 2,699,762
(1) Interest to be paid as part of the note payable on discontinued operations. EX-21 2 0002.txt Exhibit 21 Subsidiaries Avcon Industries, Inc., a Kansas Corporation Butler National Services, Inc., a Florida Corporation, formerly Lauderdale Services, Inc. Butler National Corporation Consulting Engineers, Inc., a Kansas Corporation, formerly HSD, Inc. Butler National, Inc., a Nevada Corporation Butler Temporary Services, Inc., a Missouri Corporation Butler National Corporation, a Nebraska Corporation, formerly Woodson Avionics, Inc. Cansas International Corporation, a Delaware Corporation EX-23 3 0003.txt Exhibit 23.1 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our report included and incorporated by reference in this Form 10-K/A, into the company's previously filed Form S-8 Registration Statements, File Numbers, 033-65256, 033-65254, 033- 65890, 333-07735, 333-46791, 333-46795, 333-46797, and 333- 46809. It should be noted that we have not audited any financial statements of the Company subsequent to April 30, 2000 or performed any audit procedures on any financial statements of the Company subsequent to the April 30, 2000 financial statements and subsequent to date of our report. WEAVER & MARTIN, LLC Kansas City, Missouri, September 15, 2000 EX-23 4 0004.txt Exhibit 23.2 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our report included and incorporated by reference in this Form 10-K/A, into the company's previously filed Form S-8 Registration Statements, File Numbers, 033-65256, 033-65254, 033- 65890, 333-07735, 333-46791, 333-46795, 333-46797, and 333- 46809. It should be noted that we have not audited any financial statements of the Company subsequent to April 30, 1998 or performed any audit procedures on any financial statements of the Company subsequent to the April 30, 1998 financial statements and subsequent to date of our report. ARTHUR ANDERSEN LLP Kansas City, Missouri, September 15, 2000 EX-99 5 0005.txt Exhibit 99 CAUTIONARY STATEMENTS FOR PURPOSE OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Company desires to take advantage of the new "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and is filing this exhibit in order to do so. The following important factors, among others, could effect the Company's actual results and could cause such results to differ materially from those expressed in the Company's forward-looking statements: - -The General Governmental Regulation of Gaming Operations - The Company's approved and proposed gaming management operations will be subject to extensive gaming laws and regulations, many of which were recently adopted and have not been the subject of definitive interpretations and are still subject to proposed amendments and regulation. The political and regulatory environment in which the Company is and will be operating, with respect to gaming activities on both non-Indian and Indian land, is dynamic and rapidly changing. Adoption and/or changes in gaming laws and regulations could have a materially adverse effect on the Company. Interference with the execution of the steps defined by the gaming laws and regulations by interested third parties, although not included by the regulations, may significantly slow the approval process. - -Key Personnel - The Company's inability to retain key personnel may be critical to the Company's ability to achieve its objectives. Key personnel are particularly important in maintaining relationships with Indian Tribes and with the operations licensed by the FAA. Loss of any such personnel could have a materially adverse effect on the Company. - -Competition - Increased competition, including the entry of new competitors, the introduction of new products by new and existing competitors, or price competition, could have a materially adverse effect on the Company. Additionally, because of the rapid rate at which the gaming industry has expanded and continues to expand, the gaming industry may be at risk of market saturation, both as to specific areas and generally. Overbuilding of gaming facilities at particular sites chosen by the Company may have a material adverse effect on the Company's ability to compete and on the Company's operations. - -Major Customers - The termination of contracts with major customers or renegotiation of these contracts at less cost-effective terms, could have a materially adverse effect on the Company. - -Product Development - Difficulties or delays in the development, production, testing and marketing of products, could have a materially adverse effect on the Company. The Company's aviation business is subject, in part, to regulatory procedures and administration enacted by and/or administered by the FAA. Accordingly, the Company's business may be adversely affected in the event the Company is unable to comply with such regulations and/or if any new products and/or services to be offered by the Company can or may not be formally approved by such agency. Moreover, the Company's proposed new aviation modification products will depend upon the issuance by the FAA of a supplemental type certificate with related parts manufacturing authority and repair station license, the issuance of which no assurances can be given. - -Adverse Actions - Adverse actions by customers, competitors and/or professionals engaged to serve the Company may cause project delays and excessive administrative costs not controllable by the Company. - -Administrative Expenditures - Higher service, administrative or general expenses occasioned by the need for additional legal, consulting, advertising, marketing, or administrative expenditures may decrease income to be recognized by the Company. EX-27 6 0006.txt ARTICLE 5 FIN DATA SCHEDULE FOR 4TH QTR
5 1 12-MOS APR-30-2000 APR-30-2000 160,090 0 262,618 25,600 3,199,184 4,643,442 2,719,228 1,401,922 10,271,986 2,651,775 2,939,821 271,818 0 112,136 4,295,254 10,271,986 4,606,809 4,606,809 4,047,353 5,708,937 0 0 199,436 (1,136,072) 0 (1,136,072) 0 0 0 (1,136,072) (.06) (.06)
-----END PRIVACY-ENHANCED MESSAGE-----