David Drewitz – Investor Relations Clark Stewart – President and Chief Executive Officer Craig Stewart – Vice President, President-Aerospace and Chief Financial Officer

Tim McMillan – Private Investor Michael Melby – Private Investor

Good morning, ladies and gentlemen. Today is Wednesday, September 16, 2015. And welcome to the Butler National Corporation First Quarter and Fiscal 2016 Finance Results Conference Call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] Your call leaders for today’s call are David Drewitz, Creative Options Communication; Clark Stewart, President and CEO; Craig Stewart, President of Aerospace Group. I will now turn the call over to Mr. David Drewitz. Mr. Drewitz, you may begin.

Thank you, Erica, and thank you, and good morning to everyone. Before Mr. Stewart begins, I would like to draw your attention to, except for historical information contained herein, the statements in this conference call are forward-looking and made pursuant to the Safe Harbor provisions as outlined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Butler National’s actual results and future periods to differ materially from forecasted results. Those risks include among other things the loss of market shares through competition or otherwise, the introduction of competing technologies by other companies, new governmental safety health and environmental regulations, which could require Butler to make significant capital expenditures. The forward-looking statements included in this conference call are only made as of the date of this call and Butler National undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, but are not limited to, factors described under the caption Risk Factors in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. So, with that completed, I would like to turn the call over to Mr. Clark Stewart. Mr. Stewart?

Thank you, Mr. Drewitz. Good morning, ladies and gentlemen and thank you for taking your time to join us this morning. I would just add one more cautionary statement and that one is that in the forward-looking information, we are planning on the obsolescence of anymore airplanes like we did for the Lear 20 series, because that does hurt us and that is a risk that we having over [ph]. All the markets we deal with some regulation puts out of business. So that’s another factor, but basically we are – we are basically flat as far as revenue at the casino and the Professional Services Group we’re down about 14% in the Aerospace Group, so our total revenues down 6%, profits down to $361,000, our net is $19,000 after taxes and all those miscellaneous adjustments. We’re happy with what’s happening at the casino, I would have to say that we’re not excited because we would like to have the revenue going up, I think, we’re reaching out in the marketplace further and that’s a reason it’s flat and we may spend a lot of money on marketing to generate those visitors and increase the spend per visit. So that’s a casino side. The aerospace side is – has a big backlog and that’s primarily Tempe almost 60% of the backlog is in Tempe and that’s, so we’ve got to make sure that there is a contract starts here in September that we make money on the transaction for the next couple of years, which is what that really is. And I have gone is struggling a little we think that we will – it’s not because we don’t have quotes, we have lots of quotes, but we are not getting orders right now that a lot of that depends upon the international economic situation and where the U.S. Government and the other governments are relative to security. And we think we’re quoting enough jobs that we should have a strong year, but so far we haven’t seen them come in the door. Overall, shareholder equity is up about 2% over the last couple of years, we have almost $2 million increase in that. And that’s really because we’ve reduced our debt about $3 million over that same time period. And we’ve switched some of debt to much lower interest. So I think that’s really what you’re seeing there. Number of shares outstanding did not change from one quarter to the next and we’re looking at the match of the – of the 401(k), see if we can do that in cash, assuming we have the funds and the question of course is do we have the funds. Well the aerospace Tempe come through like we think they should, we should generate funds, if they don’t in their level, then we won’t have that cash. Services at little more, we did a $5.5 million refinance. And that will help the BHCMC cash generation ability which, I think, that would – that might provide us cash. And of course aerospace in Avcon, is really Avcon and Butler Avionics after that and what we’re looking at there is the noise suppression, that’s a mandatory requirement for the remaining Lear 20 Series airplanes as of January 1. That we’re trying to figure out how many more units we buy and all that kind of thing try to match the supply we add to the market. The other thing that’s coming up is the ADS-B, which is a reporting requirement for the airplanes in 2020. And we’re working on obsolete products in the field of not only Learjets, but a number of other met brands of airplanes that we have STCs either in hand or in process to allow us to do that replacement of the obsolete products and also to comply with the ADS-B. That’s why we’re spending so much money on the R&D and we expect that to payoff in the years, calendar year 2016 through 2020. So that’s kind of give you feeling of the cash situation, we hope that we can generate enough cash so that we can do the match of the 401(k) in December. The BHCMC acquisition project is still moving forward we’re pending an appraisal of the assets for the operation in the land and the building and that should be coming here in the month of October. The appraisers have all the necessary information to do that. And we’re moving forward in that area. The partners that are considering selling to us are meeting this month and we should have a little more defined position hopefully by end of October, middle of November and we’re might be working hard to maintain our credit status so that we have enough money available to do whatever transaction we have end up in doing. As we talked, our backlogs running at about $9.3 million, which is about $5 million and $6 million in Arizona and the rest of it at Avcon and Butler Avionics and we’ve just got to focus on making profit in those projects. We’re looking at an annual meeting somewhere in December, January depending on what happens with all the negotiation on the acquisitions and of course depending on how that all comes out, we’ll know how much time it takes for the proxy. So I guess I’m pleased in working hard and trying to get all the stuff done here by the end of the year, but whether that happens or not, we don’t know. So with that David, I don’t have any other comments. Is anybody else in here, Craig, do you have anything?

I would say on the, from a modification segment, the noise suppressors from for the Lear 20 series we’re seeing significant demand on those at this point, predominantly because we don’t have any competition that competitors that have been promising hush kits for the last few months or for the last few years, still don’t have a supplemental type certificates and so now that demand is coming and people are starting to get concerned that they won’t be able to fly as of January 1, if they don’t have them settled. That’s a positive we’re starting to see significant phone calls, five, six a week from that standpoint.

So I guess we’re finished. David? Why don’t you see if we have questions? Thank you very much.

Ladies and gentlemen, at this time we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Tim McMillan. Please state your question.

Good morning, gentlemen. Just, can you comment on the difference to Butler, once you are able to buy the casino building and complete that part of the transaction as to the interest saving versus the rent you will be saving? What’s the difference in cash flow once this happens is that something you can comment on?

I can comment, but I have to tell you Tim, I don’t know for sure – I don’t have a real good feel of how much it is, but it’s in the – it’s a six figures a month number. Let’s say that.

Okay.

And I don’t know what it is depending on what terms we end up with the bank versus what terms we have with the current lease. Current lease is about 12% rate and the bank is about say, 5%.

Okay.

And so you can calculate, the problem is, the only thing you don’t know is what do you multiple that by.

As far as how much you’re going to lend and so forth.

Yes, how much we’re going to lend and how much we’re going to have to pay.

That’s what we are trying to resolve by sometime in November actually.

Are you worried about any appraisal problems or anything like that or is that just part of the process that just has to be completed? You…

I’m always concerned, I mean, the facts are the appraisal that was done a few years ago for the building and land is basically the same appraisal we’re doing now. And it evaluates the total value of the casino establishment as a unit is what it really does. And so we don’t know, we hopefully…

Hopefully it will go up equal to the amount of our Phase II addition, but, I might be honest with you I don’t know think it really will, I’d like to see it go up that much, but I don’t think it will go up $10 million, but…

It will still be a significant cash flow addition once this is completed.

Yes, it will be at least $100,000 a month Tim.

Craig, you mentioned on these noise suppressors again, what did those roughly sell for?

Less price on those about $125,000 per set, so it’s one for each engine installed.

In a low to high range, what do you think you might see between now and end of December? Acting like there, you see indicators significant demand. I mean, what kind of numbers are you looking at potentially from a low level and a high level?

I think you are somewhere between 10 and 15 between now and end of the year.

Okay.

I would say to you, Tim, there’re going to be a few hangovers at the end.

Okay.

I mean there’s going to be…

Another 10 to 15.

Yes, I think that’s what we’re trying to figure out.

I think 30 on the high side is probably – by the time we get all settled down six months from now or nine months from now, it’s a little different than RVSM, where RVSM and the Mandate came down, they could still fly the airplane, but they just couldn’t fly it between 29 and 41. This is a no fly deal. So if these are airplanes, that are actively flying and the owners planned to continue to fly them, they are going to have to do it. Though once it will drag out into next year, once that are probably airplanes that are setting in on the market. And as those sell, if they sell in countries where the noise is a problem, then they will have to get that done prior to the airplane planning. I think you can do one ferry flight to get it done within the United States.

And this is ADS-B that’s required by 2020 and Clark you’d indicated you will start receiving orders in 2016 at calendar year, is that correct?

Well, no, that’s true. We’re actually installing ADS-B now and I don’t know, Chris how many have we done, half a dozen, three or four?

Four of them.

Four of them.

And what is the…

We’re doing them now.

And how much is it fixed on that and Clark what you are doing out on that to fix [ph]?

It depends so much Tim on how much Avionics change, they make at the time they do this. It could be as low as $50,000 or as much as $300,000.

And these are pretty good margins in this product.

It’s not as good as Avcon margins, but – and is not as good as Tempe margins, because you got a high component cost.

In other words, you are putting in columns or you’re putting in [indiscernible] equipment.

Yes, so…

Sometimes, some Honeywell stuff in that, the margins aren’t near as good there on equipment side of it.

And you look for the Tempe projections to be – though they are not coming in this year, we have a reasonable degree of confident, you’ll start seeing them in the next several months, is that what you are thinking or…

We hope so, we’re waiting on first article inspection now, which should come sometime in the end of this month first next.

Well, would it be reasonable to assume that your latter quarters in this fiscal year should be much better than your first quarter?

I don’t know, you would make that assumption, where that’s our plan Tim. There’s a whole lot of variables, and that’s what we are looking at, that’s what I told you I’m trying to pay cash to the 401(k). How is that?

Well, that’s right, because I’d tell you Clark, those shares going up, it’s burdensome to everybody especially shareholders. And, I’ll tell you what, you had – you spent a lot of money in R&D and hopefully this will pay off soon. And in the process you have peers, you’re always going to spend a lot of money in R&D and…

Yes, there’s no question about it. You got to remember, we’re in the special mission type business, where you’ve got to create a new product to sell, most of the time as the technology evolves.

I know.

And so, if you don’t do that you’re not going to be in business, so it’s just that easy. And that’s what all this stuff is. If you went back and looked at the history of all this, we’re creating this stuff as you go along and adopting to the – or adapting, I guess, the correct word is to the marketplace and the technology improvements. So that’s really the business we’re really in.

Well very good. Thank you, Clark.

Thank you, Tim.

Our next question comes from Michael Melby. Please state your question.

Hi, Clark, hi, Craig, good morning.

Good morning.

My question pay you back from the last caller, but you spent a lot of money in the last year on R&D and the Avcon business, can you provide a little more color or confidence on when you think the natural results for that division will improve.

The pay off on all of this money is going to come in the 2016 through 2020. I mean that’s and its dead line is in 2020. How many airplanes are out there that we could address? Thousands if not hundreds. So I mean its – I don’t know the answer to your question, but I can tell you that’s the perspective.

Right, and I guess 2016 would be much better than 2020, but my calculations you spend $5.5 million to $6 million in the last year on R&D and CapEx, if you will for STCs. And that’s half the market cap of the company. So it would be helpful if you can provide maybe a little more confidence on that large amount of money is going to be returned in profitability and cash flow going forward. And just curious to hear your thoughts or a conviction though what you have, given the large amount of cash, you’ve been out the door on developing these technologies.

We’re pretty much convinced we’re going to get some return on it. We also know another factor, Mr. Melby is that we’re going to have to continue to spend another $300,000 to $400,000 a quarter to continue to develop this thing. So I mean this is not a – this is not something you spend all the money and then you gather in all the profits that’s not how it works. And so what we’re going to have is we’re going to continue to develop this stuff. If we’re going to address 1,000 airplanes that’s what we’re talking about, but now I don’t know that, we’re probably in a position with the STCs we have right now to address 100 to 200 of them. And as we go along each of those different airplane models we got to go through the hoops and get a STC with a modification to address or add another model and because they are different manufacturers, different size the airplanes, different weights, takeoff weights all this kind of stuff and we’ve got be in a position where we can deal with that. So as far as – yes, we’re confident, we’re definitely confident, we will get a return on that – on the investment and how soon it’s going to start coming is we’re getting calls every day on the ADS-B, we’re getting and those are from a wide range of customers, it’s not just Learjet customers are they given one we’re getting a wide range of phone calls and that way the sales departments busy, they get something to do that way. Answer no calls, but yes, we are having activity we don’t know exactly how fast it’s really going to materialize. Lot of people want to see us in at the National Business Aircraft Association convention in Las Vegas in October and so we’ll – November I guess it is not October off a month. But we’ll see – see what it looks like then but we are getting interest from people, we’ve never had as customers in the past never income close to. So I think it’s positive saying I’m excited about how quick we can capitalize on it but that’s – that’s the risk of being in the aerospace business as you got to do the R&D and then you see if you can sell the products. I don’t know if that answers your question but that’s about as good as we can tell you today.

Sure, I appreciate it. Maybe Craig from your standpoint as kind of CFO you could comment as well but the concern I think I have as a shareholder is that you are spending a lot of money and you are not going to get it all paid back and you are going to continue to spending money on the business which might not get a payback or so.

I guess we’d observe one thing as we continue to reduce our debt; we’re not going out financing this stuff.

And we’re confident that there will be a return on the – all the money we’re spending.

Yes, I appreciate that. I’d encourage you to if you can provide I think in the press release you say it may improve results to spend this type of money for a small company I’d encourage you to be very, very, very confident that this cash out flow will be returned both the principle plus a return going forward, so that’s why I would like to highlight. Thank you.

You bet.

Thank you.

[Operator Instructions] At this time, we have no further questions.

Well, David, it sounds like we’re finished.

Any – yes sir, I believe sir. Any closing statements, Clark

You bet, I appreciate everybody – everyone spending your time this morning to listen to our challenges and opportunities. And I thank you for that time that you spend and I thank you Tim and Mike for your questions. We appreciate those who help us focus a little more on what we are doing. So thank you very much. And wish everybody have a good three months. Thank you.

Thank you, everyone.

That concludes today’s conference call. Thank you for attending.