David Drewitz - Creative Options Communication Clark Stewart - President and CEO Craig Stewart - President of Aerospace Group Chris Reedy - VP, Secretary

Good morning ladies and gentlemen. Today is Friday, July 29, 2016, and welcome to the Butler National Corporation Fourth Quarter and Fiscal Year End 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 and Craig Stewart, President of Aerospace Group. I would now like to turn the call over to your host Mr. David Drewitz. Mr. Drewitz, you may begin.

Thank you very much. Thank you, and good Friday morning 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 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 share through competition or otherwise, the introduction of competing technologies by other companies or 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 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. Welcome everyone to the call regarding our annual report for April 30, 2016 and the fourth quarter ending April 30, 2016. As you all know, you should have in front of you the 10-K at this point as we filed with the SEC and the press release that we issued on July 27 regarding this telephone call and a kind of a summary of the information. Our revenue of course was down. We kind of expect it to be flat, but we were down about $3 million, $2.5 million and as a result we had a reduction in net income of about, let’s see $3000 - $3000, yes. I have with me here, Craig is on the phone and Mr. Reedy and Tad McMahon, our accounting people. So anyway, the margin down about 3%, now moving up in the Professional Services which is really the casino. Our margin down a little, our revenues down, as you all know in that part of the world out there, we have depressed agricultural prices, we have depressed oil prices. Sales tax collections in the surrounding areas down between 35% and 50% within 100 mile radius. So our market of our casino, we are real lucky to maintain a relatively leveled revenue. We have had some reasonably good luck in the last month and a half, two months we changed the marketing program and seem to be having a positive effect or looking forward to at least matching budget and beating last year, even in the current month. So, we think we’ve got maybe turn that around a little bit. We’ve had trouble with visitor count. We know have the visitor count up above last year. We just need to hold our normal percentage and we will probably get it turned around. But that’s been a tough deal. It’s been a tough economic situation out there. We’ve now have moisture and abundant crops and $2 prices. So, that’s the situation in the Professional Services side of the business. We kind of expect it to be up maybe 1% this next year. That’s our plan. We did a five-year plan and we think that the growth will be at least positive which is better than it has been. Craig if you’d like to cover the aerospace segment, we’ll let you do that at this time and then we’ve got to summarize this overall picture later on.

All right, thank you. Aerospace products, it’s been a rough year for the aerospace products. We are down 8% revenue, which has hurt the profitability of the aerospace products. We are encouraged with the recent activities. The quoting and the amount of calls and request for products that we’ve had been requests for quotes, we have had increased steadily over the past quarter, quarter and a half. We are finally starting to see some of those translate into orders. If you look at the backlog, the backlog jumped from $7.6 million as of April 30 up to $11.8 million as of July 22. That’s significant in terms of people actually signing orders and being ready to get airplanes then. We should see hopefully an uptick in the aerospace products category here over the next quarter to a couple quarters and that should go along well with the aerospace or with the Professional Services side of things. So we are hoping we can get everything going in the right direction here.

Thank you, Craig. We kind of leave out the – as a part of that is the Tempe operations with the military-related products. We are pursuing expansion of the gun control usage with ATK to expand it into the more U860s and more vehicles as a part of an integrated system and that’s in testing in the first week of August in Yuma and we will see how that works. I don’t know that we need to project anything. It’s probably a couple of years away, but that is a significant move forward and that would increase the revenue down there in Tempe significantly. But that’s just future hopes, I guess, is I would say, but it is real and people are working on it and it is moving forward. It integrates our system into a much bigger system. So it’s a good thing. As far as overall operations as we show, our assets are up about 2.6%, our debt is down, we continue to reduce it as we have been doing. Equity is up. Our R&D cost as we spend about 10% less this last year, because we just didn’t have the cash, because revenue weren’t there. We like to spend about $2 million a year on that and we didn’t quite get that done this year. I think that we should be able to recover, because of the ADSD which is the transmission between the airplane and the control air traffic control systems worldwide and it just gives a lot more information. It sends information, control information up to the airplane as well as transmitting direction position how to deal with back to the ground. So that is required by more than 10,000 airplanes by 2020. That will be an advantage like the RVSM that we did a few years ago and except that it will be probably double that as far as we are concerned. We have airplanes now of what are we, three years away through the end of the year, we are going to await this. So, we are starting to get interest in the strength of that R&D is definitely going to pay us long-term, but it’s hard to spend the money on it now when you don’t have that much money. That’s what’s got to happen. So, backlog is really as Craig mentioned. You’ll get a feel now with the airplane business, backlog swinging $5 million three or four months. It will do the same thing on the other end, that’s about four months. But just it’s a challenge. As far as other comments, I think our Professional Service side, which is by far the biggest percentage of the revenue is definitely positive, teams all lined up there, beat last year and beat the budget and really making impact on the marketplace and we are just waiting for a little bit of agriculture and oil and gas turnaround, we’ll be there. So, that’s a good thing. On the bad side, we do have competition thinking about moving into the Oklahoma Panhandle. We got to extend our contract eventually and all those things are the negative side, the positive side though far outlays those negatives. So with that, David I think we are done with the overall comments and if we have questions, we’ll deal with those.

Sorry, Craig.

Sorry, Rob, go ahead.

Okay. [Operator Instructions] Our first question comes from Tony Prescott [Ph]. Please go ahead, Tony.

Good morning, Clark. Good morning Craig.

Good morning, Tony.

Good morning, Tony.

Just a couple of more or less housekeeping questions here. I was going through the 10-K last night and I know – just a couple of things stuck up to me. The roughly 40% of our Board of Directors, which is only two people, Mr. Bradley Hoffman and Mr. Michael Tamburelli have each been on the Board for over six years and they comprise two-thirds of the compensation committee. I also noticed that these two individuals over six years have accumulated zero shares of Butler National stock. Now we’ve sort of discussed this in the past in a general mode where, personally I have never been involved in the company before where 40% of the Board of Directors own zero shares of stock. Is there a reason for this? And I know in the past, we’ve discussed the possibility of making it a criteria for individuals to join the Board of Directors that they must make a personal commitment to make and invest a tangible investment in the company. And I remember that was brought up a couple of conference calls ago and “we were going to look into it”. Has anything been done along those lines or do you share my observation and the concern that we may have that 40% of our Board does not have the commitment to the company to at least participate in the ownership of the stock?

Tony, I thank you for bringing that up, because I - in those terms, because I really hadn’t focused on that to tell you the truth. I hadn’t thought about or gee they don’t have any shares. They aren’t high…

Especially and the fact that they comprise two-thirds of the compensation committee when they have no skin in the game, could that distort their enthusiasm, shall we say?

Well, I don’t think it, I don’t think, we haven’t seen that. But I think you have a very good point and we need to address that, because…

Okay.

I don’t…

My suggestion might be, I believe that these guys that your members of the Board are bringing on their stipend is approximately I am guessing $20,000 a year or something like that.

I think that is correct. Yes.

All right, $20,000 a year in the current market.

You made the point, we will…

Okay.

We can fix it. I really do appreciate it. I am not getting you.

It’s all right. One of the other points I’d like to bring up and it’s really more just purely a question, I am sure there is nothing untoward on this, I just wanted to bring up the question. Every year for the last several years, another member of the Board, David Hayden has been listed as receiving $135,000 a year from the company has a “consulting fee”. Can you go into that?

Yes, well that’s – they are the former owners of Kings Avionics in our original purchase contract, we had that provision in there and they do – they work full-time on that project in that company. And so that’s what we are paying him basically, that’s the consulting fee.

Okay, all right.

And that’s – they are not – it’s not like they are working indefinitely – they work full-time, they are on call 24/7. The problems with the airplanes or AOG and stuff like that.

Okay, all right.

So, it’s not like…

I have absolutely any problems with that now. Is David Hayden listed as an independent director or an inside director?

He is – I think, he is an inside director. I don’t know that.

I mean, it would appear that that should be the case, I just wanted to make sure.

I think, that is in fact the case. I think the only people that are Tamburelli and Hoffman and probably Warren at this point, since we no longer pay him.

Those are your independents.

Right.

Okay, that’s fine.

There is really three independents and then Dave and I are the – we both receive compensation, so.

Okay. Now, the next point and this will be very short. We still maintain I guess, what is known as the architectural division. Mr. Shenkel, who I believe is a related party is pulling down a salary of $179,000, which is approximately six times what the company earned last year, the overall company earned $27,000. Now, again, I know we are talking about pretax, post-tax. What does the architectural division really do? And…

Well, I guess, let me answer that a little bit. The architectural division deals with architectural changes out in Dodge City and they also on the casino side, we do them for the company on hangers and all that comes up that doesn’t build any revenue, but we are negotiating two different contracts with the city or city county here in late and went down with the city. And that’s a lot of architectural stuff. They want to build new buildings and we got to do new drawings. So we probably – he probably spends well over half of his time non-billable working on this kind of projects. I suppose we can gross up the revenue to show that, but we choose not to do that. I would rather not inflate the prices. But that’s probably, at least half of his time or more and that’s all non-billable expense if you will and – but it’s necessary to deal with the municipalities and all that.

Okay, that’s fine. I can accept that.

I guess, what you’d say, he is the in-house architect. We could call him putting on as his make him staff and worrying about the architecture revenue, because…

Right.

That’s really what’s happening and it is a significant thing we have. And we never – every quarter we have a stack of paper work that we have to deal with. The other thing we also have that same problem with our Corporate Secretary, Mr. Reedy, he spends a lot of time reviewing those contracts. It’s just the bureaucratic process.

Right.

It’s getting out of hand. Let’s say.

Right. Now I understand that.

That’s what…

It’s just – every – I think the overarching comment question that I have and maybe this is more directed toward Craig is that a prominent feature in each of the 10-Qs and 10-Ks in your statement Clark is that, one of the overriding issues of the company or one of the overriding priorities of the company is to enhance shareholder value. Well, they basically why you can do that, number one, dividend, return of capital, that’s not going to happen at least in the foreseeable future. The stock buybacks, which is another form of return of capital and increased true value of the shares in other words, capital gains on the shares which doesn’t seem to have been very successful over the last five or ten years. Can you sort of lay out for those of us on the call as to, what is the plan to accomplish the goal of enhanced shareholder value? And why have not we’ve been able to wee the company than able to facilitate insider buying in the stock? I know, it’s been now three or four years since your attorneys have told you, oh no, there is too many big things happening, they exactly just can’t buy stock. I watch the company pretty carefully and I haven’t seen any of these big things happening yet. When do you think that excuse should vein out?

I’ll handle some of this and that’s a fair point, Tony that – the things that we talk about internally versus the things that have actually, happened and been able to get done to where we can announce them to the shareholders are two different sets of conversations. Now I am kind of with you a little bit on the side of things that if we can – if we are talking about them and it’s not happening is it really – isn’t likely that it’s going to happen then and what point does it become a situation of, well, we’ve been talking about this internally for four years and it hadn’t happened yet. So, if it happens right after, we do a – if I personally bought stock or set up a plan to buy stock and then something like this happened, am I covered. Is it’s something that is okay, because we’ve been talking about this for four years. It hadn’t happened and then the likelihood of it happening right after I buy stock, what’s the situation there.

No it would obviously be Murphy’s law.

Absolutely.

But again, we’ve had this discussion several times and I keep bringing up this 10b5-1 program which insulates you from any timing issue where if and I’ll just use for round numbers, if an executive anonymous executive files a 10b5-1 program to buy 100,000 shares because that these will be the visible, 100,000 shares over a period of a year. The purchasing of that stock is done on a regulated basis pretty much on the same day of every month for that year. So, if there is an announcement ten minutes after he buys stock, he is covered, because the commitment that he made was to buy on the – let’s just say the 15th of the month or the second Thursday of the month. And that insulates you against any liability concerning timing of purchases. Has there any – and I know we’ve discussed this before and it was “ going to be looked into”. Have you mentioned that to your attorney? Is he familiar with the 10b5-1 program? I mean, because this is the way most executives, the vast majority of executives purchase stock. I mean, look at somebody like Jeff Immelt at GE. He buys stock all the time and you can’t tell that GE is not in constant negotiation with thousands of other companies doing deals everyday. And he had never been questioned because he does it on a 10b5-1.

Tony…

As a shareholder, I honestly – I think the – I think you can make a note of the level of frustration here that we are looking – we as shareholders are looking for a tangible example of the commitment by management to deliver on enhanced shareholder value. It sounds really good when I read on the – in the 10-Qs and 10-Ks. But we are waiting for tangible evidence. I am sorry, go ahead.

But that only we had a half a day discussion with the attorneys in the last – I don’t know, 60, 70 days on this 10b5 situation. And the conclusion out of all that, after we reviewed all the information that we have current relative to things that would make - relative to General Electric, and the percentage if they had transactions like these are, that would be half of General Electric, all right.

All right.

And so, and we have four of them laying on the table. And we cannot – I don’t, they just are not at all comfortable doing that with this kind of stuff sitting out there. And I don’t know how to handle it any other way than the way we are doing it. Now, we can – yes, we just said, okay, how do we buy the stock even if we didn’t have a 10b-5 and they are basically saying, you better not do it and the companies we are talking to, Tony are GE size companies.

All right.

So, I am telling you, we can’t – we just can’t talk about it and we can’t do anything with it. The problem is, is when does that stuff take place, I don’t know. I mean, for example, we get a call, we say, we are interested in this. We want to buy this from you. And so, we go see him. They say, well, okay, let’s give the confidentiality agreement. We get one of those. We say, all right, now what you want to see? Well, we wait two or three months and then maybe we’ll get a question or two or we get visits from international companies overseas. Been to see as three times and some of it is research as to how we do things.

Right.

And all of that kind of thing, we don’t disclose that if – unless there is serious money on the table. And, so it’s a tough thing to deal with, especially with the attorneys sitting there are saying, you can’t sell half the company and not be have inside information, you know?

Right, right. Sorry.

That part of…

That’s understood and it’s…

That’s what we are facing and…

Yes.

I wish that we could tell you something different than that, but love to share all the stuff and get your advice, but I really can’t do it without making union.

Right, no, I understand that, totally understand that. There are a lot of things that I don’t want to know, believe me, because…

I know that.

In order to tweak whatever I am doing.

That’s what I am saying.

But in other words, just to sort of sum it up, if we ever do, and this is really not meant as a comical comment, but if we ever do see any buying by insiders in the stock, we can pretty – we as shareholders can pretty much rest assured that there is not a damn thing going on.

That’s probably a good saying.

Okay, so in other words buying of insider stock in Butler National is really a negative situation.

I shouldn’t – last, but that is probably the case.

Okay, all right.

And I just can’t – I don’t know what else we do. There is – and we have – like I say, we have had three or four meetings on this same question with two different law firms and we get the same answers.

All right.

So, I don’t know.

There is a desire, Tony, there is a desire, Tony and it’s, yes, it’s come up recently there has been those meetings is not only the discussions from shareholders, but discussions internally from our people saying how and when can we buy stock. And so that’s where there has been so many conversations about this is the combination of those two factors and we keep getting the same answers.

Very good. Guys, thanks very much. You all have a good day.

Thank you, Tony. Very pleased with your comments.

Thanks, Tony.

We have any other comments?

Yes, our next question comes from Tim McMillan. Please go ahead Tim.

Good morning. Is there much you can tell us at all about or any direction with the partners as far as any progress, I know you can’t probably saying exact details, but if that’s still out there returning to do it and as far as buy the partners out or refinance the debt on the casino and so forth?

Let me tell you this, Tim. It’s moving. I’ve probably spent half time for the last four weeks working on that transaction. So, with banks and with everybody, so, I don’t know exactly how much of it’s really going to work like we think it is. But I guess, I am positive on it. I think something going to happen and it’s got to happen relatively soon if it’s going to happen. So I think that’s all I can really tell you.

We do agree that, if you don’t get all of it done, but some of it done, it’s still a better position than what we are in now.

There is no doubt about it. We will take any piece of it.

Okay.

And so, we are not trying to be – we have the option that’s defined the purchase of the equity as not necessarily as well defined. So I mean, any piece of it so we can get done is what we need to happen.

You mentioned previously Clark and there is four – several things that are very large that could happen with the company. Again, do you consider a little more aggressive stands on trying to get the company out there and knowing better since there are some things that could be pretty larger. Right now, we absolutely have – it didn’t appear to be any kind of sponsorship or any kind of plan to get the company known. Agreed in the last two to three years, we’ve not had any earnings to crow about. But you start something in case – start some kind of promotion to a small extent to get the company out, just given the fact you said there is four things out there that are huge, it can happen, and you saw no wins.

Yes, I guess, Tim, my reaction to that is, yes, there are those things out there and I could – all happen or none of them happen. It’s kind of like the business of the airplane world, you know. It’s a cycle of five years, one, the backlog went from $4 million, $5 million is overnight type situation. And it’s the same kind of deal here. And the people that call us and want to do this stuff are legitimate people. They have money. They are big companies operating in the international market. And it’s our – those things don’t move fast. And so, I don’t know it’s just the backlog. Here is a stack of a backlog or not backlog, of respective orders quotes, I would say, here is a stack of quotes. And sometime in the next five years, that is going to happen and I guess, some of this stuff that I am talking about maybe a year away, maybe five years away. So, I just hesitate to have it out there on – to have somebody out trying to promote that in a variable situation like that, because that’s where we end up making the stock go up and come down and everybody gets mad at as because the stock went down. They are not happy enough to sell it when it goes up. So we end up back in the same place we were. Now the shareholders – they were before. So, I don’t know how to address that without other than just leave it alone until we get something done. How is that? I guess, that’s the best answer.

Yes, excuse me.

Well, Tim let me expand on that a little bit. I think the biggest thing is that we can’t – until we’ve got what we’ve learned the last time that it is unless there is a broader story than even just earnings and revenue growth that it’s a tough sell out there with institutional guys. Yes, that’s where you are really talking kind of sponsorship and we did make some inroads when we went out and did it with individual shareholders. But I think what we’ve got – what we’ve got to have defined is more of a long-term story to go out and show them that got to be tangible things that you are very confident are going to happen if you are going to go out and do that after having done it once before. I think there is some real opportunity in doing that when the time is right and when the story is in place.

Well, it’s you can imagine, there is some of us been in the stock for a number of years and it’s quite discouraging to be blunt and here we are at $0.18, $0.19 after all these years and that’s where the level of frustration is deep and we just don’t know, even with this call, we can’t put our hand on when will something actually happen and that’s the frustrating part of the situation. And unfortunately, with the ESOP, we are getting diluted some and – but it’s a situation that it’s very difficult from an investor’s viewpoint when the market is at near all-time highs and the stock price is virtually where it was in March of 2009 when we were deep in a recession. That’s the problem. Yes, you had a move up there, but it didn’t last long. But that’s what concerning to any investor and I am sure you can understand that.

Absolutely.

Yes, we understand it, Tim. Thank you for the questions.

All right. Thank you.

And at this time, there are no further questions.

Very good. Thank you all for joining us this morning, spent 40 minutes with us. We appreciate your time. Thank you very much. We will address Tony’s question and Tim’s question as best we can given the advice we are getting. So we appreciate that. We hope we can make one of these things occur… [Call Ends Abruptly]