David Drewitz – IR, Creative Options Communications Clark Stewart - President and CEO Craig Stewart - President of Aerospace Group

Martin Kaplan – Private Investor

Good morning, ladies and gentlemen. Today is Tuesday December 19, and welcome to the Butler National Corporation Second Quarter Fiscal 2018 Financial 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 Communications; Clark Stewart, President and CEO; Craig Stewart, President of Aerospace Group. I'll now turn the call over to Mr. Drewitz. You may begin.

Thank you, Erika, and good morning to everyone. Merry Christmas and happy holidays. Before Mr. Stewart begins, I'd 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's provision 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 in 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 technology 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 this -- 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. With that completed, I’m going to turn the call over to Mr. Clark Stewart. Mr. Stewart?

Thank you, Mr. Drewitz. Good morning, everyone. Thank you for taking your time to listen to us on the Butler National quarterly call. We know the holiday season is busy time and we will try to move this along. You should have all received or had access on EDGAR to the form 10-Q filed last week and you'll notice that we did make money. Our revenue is -- if you look at the last three years, '17, '16, and '15 for this quarter, revenue is kind of in the middle for the quarter. Six months to date, we are up a little over '15, we are down some from '16 and I’d like to say we're [technical difficulty] in the middle, but roughly close to the past -- to the middle of the three years. Our operating income is $317,000 compared to a big number last year of a $1,000,164, and of course year-to-date we're [963][ph] versus $1,000,875 and for 2015 with $1 million less revenue, we had a significant loss. So I think we're moving forward as expected. As you recall on the call -- last call, we had talking about the annual meeting I believe that the team asked a question about how we thought the next quarter was going to be and I was kind of hesitant to say how great it was going to be, because I had a feeling that we didn't have the timing quite right to get the revenue in this quarter that needed to be there to make it compared with last year. So that basically is the difference. The major difference is the timing of revenue and so the net income follows. If you look at our total assets, they declined some and as you can see they are depending upon the write-off of the STCs and depreciation and all that stuff that we’re writing off on a regular basis. You will notice our debt is down over the last since 2015, almost $3 million, which is a good thing. And it is a bad thing too, we would like to have $45 million on there to buy out that option, but we don't have that there. Stockholders' equity continues to increase and of course the book value per share has gone up from $0.39 to $0.42 to $0.44. And thanks to the working of the market the overall stock price has gone up $0.20, so that's an accomplishment. We hope we can keep it up there like that or maybe move it forward. If you look at the 10-Q and -- or the press release in detail, you will notice that professional services decreased about 5% in the three months ended October 31 and what's really happening is that it's awfully dry in Western Kansas, in the Permian Basin and all the way to the mountains in Colorado, including the mountains, and I think the attitude of the people was they just won't spend the money. So we have -- we're getting reasonable activity on the visitor count, but we're not getting the spend that we would like to have really. They come in, but they’re just not comfortable. And as we’ve discussed in the past, the marketing in the casino over the disposable income business is dependent upon the attitude of the people will they spend it or are they going to do something different. And in our case we think that is what's happening, we have not -- we don't seem to be losing customers or anything, it's just a matter of customer attitude. And of course we run promotions to try to turn that around, but sometimes they work and sometimes they don't. As far as Aerospace is concerned, like I said a while ago, it's the -- we're down 25% for the quarter and that's a big amount of dollars and of course, as a result, we don't make any money when they were down that much, when we we're geared up to perform at a higher revenue level. So that's really the -- only real concern in aerospace. I think we’re -- we shifted the cost around a little bit from marketing, to G&A, to cost of sales and stuff like that as the product line changes and also as we change marketing approaches in Dodge City, that also affects that. And as we are doing more international travel right now, so the traveling cost is going to be up and that always in the G&A side of the thing. So going on to the backlog, it is about $11.7 million, which means we've been able to maintain it at a relatively stable situation over the past couple of years. We have a strong backlog in Tempe and Avcon's is somewhat flexible just like it always is. It varies over the quarters and over the year from -- since we're dealing when relatively big-ticket items $500,000 to couple million dollars at a time that makes a big difference in the backlog. So that's the -- that's a good thing. We're comfortable with the backlog and like to have it higher, but we also want to ship it. So having said that, the only other item that that I want to discuss is trying to anticipate Tim's questions which he -- I’m sure he is here and going to ask them, is you will notice on Page 13 of the 10-Q itself. We're showing a 5% increase in costs of Professional Services and will -- and basically what we're doing here is ship - switching out of some marketing expense and some of the other items up into there and so we also have switches in the labor. We have more cost sometimes in the year and so on. So I won't try to make a lot of excuses, but that’s kind of how it is with the decrease in the revenue both at the Casino and at aerospace. As far as other items here on the cost side of it, costs overall were down 2% and operating income as you can see we're $963,000 for the six months and into October 2017. Other items on the list that I have is the Kansas climate. We are still waiting on the governor change. We haven't had anything happen yet. Unless it happened yesterday, anything -- so I don't know whether we’re going to change governors or not, but -- and in any case there are still changes of -- in the legislature that are looking forward to changing the way we do gaming Kansas in certain cases and we don't know whether that will happen or not, but we are watching it and looking at the possibility of getting our contract extended, which we talked about. We're also -- our partner is helping us to put a full-court press on the exercise of the option. We will see if we can get that accomplished here in the next six months. One lender would take 3.5 to 4 months to get it done, the others are probably at 2 months transaction. So we're moving on that, and I think everyone is pleased with that. I'm definitely pleased and Tim I hope you’re pleased. You asked me that question regularly, so I’m trying to answer it for you. Expanded gaming, like I say, the session appears to be a return of last year's session to the deal with the expanded gaming relative to horses, dogs, whatever else might come up, and see what else we have. I don't think I have anything else. It’s pertinent to the discussion, we're busy here and that's a great thing, especially in the airplane business and we were praying for rain, snow, any kind of moisture we can get. We got 3/10 of an inch last week that’s celebration. We should -- we were only about 5 inches behind. So having said that, I guess it's time for questions. David.

Great. Mr. Stewart, let’s open-up to questions. Erika, can you open it up?

[Operator Instructions] Our first question come from Tony [Piscata] [ph] Please state your question.

Good morning, Clark, Craig. I’ve just a -- it's somewhat of an unusual question, but I guess I’m noted for those. The 12.5 million share overhang that was voted on by the shareholders, roughly a year-ago I'm sure you all took note that when that stock was registered that 12.5 million shares represents approximately 20% of the outstanding equity in the company. And I'm sure you all noted that when that stock was registered within about 72 hours, the price of the stock dropped by 20%. My question isn't necessarily for the -- for either of you. It's really more for someone like a Warren Waggoner who is the Chairman of the Board. The Board of Directors of course is the direct representative of the shareholders and the governance of the company. I’m very curious as to why the Board of Directors felt as though a potential 20% haircut is in the best interest of the current shareholders and why he voted his 4 million shares in favor of this deal. Now I'm sure that Warren hopefully is on this call. He is one of the three largest shareholders of the company and he's the Head of the Board of Directors who represents the shareholders directly. If he by any chance is not on the call I'm sure that there have to be other members of the Board on this call. I'd like to hear their response to this question and it would be very easy, all they have to do is click in as a questioner and give us that response. I’m not the only one who wants the answer to this. Thanks.

Thank you for the question, Tony. I guess I’m waiting for the response if there is any. Q – Unidentified Analyst: I guess, if he just hit Star One he will get into the queue. And my question is over, so if the operator wants to click on to the next questioner. Really looking forward to hearing Warren's response. Thank you.

Our next question comes from Martin Kaplan. Please state your question.

Yes. This is I guess, a follow-up regarding the Board of Directors. The Board of Directors has a distinct responsibility to the welfare of the company. And this issue has been raised before, but there are directors who do not own -- don’t have current shareholder information, but either no or very few shares and it just seems from a fiduciary standpoint if they are collecting Board of Director fees and do not have a commitment a personal, financial commitment, hard bucks on the table, to the company, it seems that they shouldn’t be on the Board. There are individuals who have substantial investment in the stock who might be interested in serving on the Board and would better represent the rest of the shareholders. Thank you.

Martin, I would say -- thank you for the question. I would tell you that last year the Board of Directors elected to take a part of their compensation in shares instead of cash. So every shareholder now does have or every Board of Directors does have skin in the game.

But is it substantial? A – Craig Stewart: They elected to take their compensation in shares instead of cash a couple of quarters or at least one of the quarter last year.

Can you tell me what annual directors fees are? A – Craig Stewart: I think each director gets $5,000 a quarter and Chairman gets $10,000 a quarter.

Well, I personally don’t think $5,000 is much of a commitment, but that’s my opinion. So thank you very much.

Appreciate it.

[Operator Instructions]

Doesn’t sound -- David, doesn’t sound like we have any more questions.

Does not. Mr. Stewart, you have any closing remarks?

Yes, I wish everybody happy holiday season and thank you for taking the time and Tony on your question. We have not taken any action on the 12.5 million shares. I think that’s a significant point. And we don’t intend to issue those all once or anything like it. So I think it's just a matter of we need that kind of thing out there to retain employees and we need to be able to do something with it. But as far as we don’t have -- we haven’t had time to analyze that with all the compensation committee requirements that we have and whatever else to try to determine what to be done.

And we did have an outside consultant come in and look at the total compensation packages of Executives and spent twice and I think in the last 3 or 4 years, and that was one of their recommendations was involving shares to the executives for retention and incentives. So it's not something the Board of Directors cooked up on their own.

And it has not been on the top of the priority list, that I know of. So I thank you for your patience and [sorry if] [ph] we couldn’t answer all your questions. Have a great holiday. Thank you.

Thank you everyone.

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