Good morning, ladies and gentlemen. Today is Monday, July 23, and welcome to the Butler National Corporation Fourth Quarter and Fiscal Year End 2018 Financial Results Conference Call. [Operator Instructions] Your call leader for today's call are David Drewitz, Creative Options Communications; 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. Please go ahead, David.

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 harbors 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 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 statement completed, I would like to turn the call over to Mr. Clark Stewart. Mr. Stewart? Clark D. Stewart: Good morning, ladies and gentlemen. Thank you for taking your time to join us on the Butler National annual report call on the 10-K. First of all, our trading looks like Friday at $0.23, which is about what it was a year ago, so we haven't made much progress there, but we do have some good and some not so good news to talk about today. Number one, that I would call your attention to the front of the press release, where you can see our operating income, our net revenue's down a couple of million dollars and our operating income and net income is also down. We have, however, increased the stockholders equity almost $1 million, and that's also true of the cash situation that it's increased substantially. That all relates to a lot of deferred tax asset changes. You will notice also in your analysis of the annual report that our effective tax rate is 61.3%, which is substantial. And of course, that's a result of the change in the tax rates from the 2017 to 2018 and our valuation of our deferred tax assets. So it's an accounting change caused by the changes in the tax law and that should stabilize in fiscal 2019. So having said that, we are down in -- at Avcon, the aerospace side of it is a little weaker than we'd like to see it. We have a stronger backlog, which we'll address in a minute, which is very good news. We've also had good luck in the casino business in Western Kansas, in spite of the drought and the oil and gas prices and the agriculture commodity prices. And I think that our market -- our direct marketing approach is effective. We seem to be holding our own or doing better than the other 3 casinos in Kansas. And so we're real pleased with our operations out there, marketing, management and everything else is really doing a great job. So we think that's a good strong thing. Given that, you can read the annual report and look at the cash flow. Right after the income statement, you can look at the balance sheet, all in the audited section. And audit footnote 3 is where you can look at the tax rates. And if you can figure all that out, you're doing a great job, that's a tough thing to handle. But anyway, it's there. And with that, I will ask Craig to discuss the backlog a little bit. It's a good favorable thing that we can talk about. And I will ask you to do that, Craig. Craig D. Stewart: All right, the backlog is probably as strong as I've ever seen it. We're at $13.2 million of backlog, as of April 30. Over the last 2.5 months, it's up to $15.2 million. What we've seen there is Avcon's been struggling, but the additional $2 million in backlog is predominantly an increase in the Avcon backlog, which is a good sign for Avcon having a turnaround here in fiscal 2019. We're excited about the prospects there. Arizona continues to go strong. We've had good luck with the Gun Control Units here over the last year. And it looks like, those should continue strong throughout fiscal 2019 as well. So the goal is to get the business back up at Avcon and maintain, and continue to grow the business in Tempe and things are looking pretty strong in Arizona. An uptick in Avcon will be good. Butler Avionics here in Kansas City has been going strong and the ADS-B is getting closer, which is -- deadline for that is -- I think, it's 2020 -- January, 2020. So we should continue to see strong business at Butler Avionics as well. Clark D. Stewart: Thank you, Craig. I guess one thing that I should say about Tempe, Tempe is a strong performer for us at this point. We have had some new product development there. We really can't talk about it because it's military related. And I just don't think that it'd be appropriate. But we have spent significant time, both management time and the technical side. And it appears that the new product is well on its way. So we'll see how that comes out. It's probably a year away from any significant revenue, but it is a very good thing. And it's an expansion of the Gun Control product line. So that's a good thing and it's all related. The backlog stands pretty much the same in Tempe as it was. And we've been asked to increase production every quarter, it seems like. So that's good, very good. Let's talk about buyout of the real estate options at Boot Hill. That's about $45 million transaction. We have legal documents in review at the bank and our own attorneys. We are thinking about waiting for the extension for the Kansas Primary, which is a couple of weeks away. Maybe a short-term loan as to how it will all work out. But it looks like that's moving along. I'm not going to tell you that's going to happen, but it all the indications are, this should happen. So it's a good thing that will make a significant difference in the net income. We worked on a stock repurchase program. If you notice in footnote 6 of the audit statements, we've purchased 723,191 shares at a price between $0.25 and $0.30. We have 531,000 remaining to purchase in the program and we will add to the program as needed. We plan to pursue that. Our problem really is, it's awfully hard for us to buy it in the market with all the rules we have. Not us. Not -- it's the SEC requirements, not the Butler requirements. So we try to buy it every time we get a chance and we -- like I said, we have been relatively successful. Do you want to add anything to that Craig? Craig D. Stewart: No, I think we'll continue to buy, both in the open market and private transactions, as those present themselves. And continue to try to reduce any dilution that is caused by the 401(k). Clark D. Stewart: We talk about a reverse spread each time. And at this point, we're not doing any work on that, unless somebody on the call or someone would like to have us do that, we're kind of waiting and seeing. When we get to the annual meeting, we can discuss it in the open discussion and see what everybody wants to do. I talked about the casino. I think we're good there. And I really am positive on where we're going. We've got a lot of new product development. We don't have revenue yet to show for it, but it is coming along and it's going to be strong. You will see in the annual report notes, there is discussion of sales tax and a number of other things. There is nothing can be determined any more than what we've said in the footnote that we will get a sales tax refund of some kind, and for some amount, which we don't know that amount. We have to receive some money, but it's inconclusive as to what they are really going to refund and what they are not going to refund. So it's a hard thing to say. But I would tell you there is some money coming, should be within the next couple of quarters. So with that, I'm done, David. Ready for questions. Is there anything we missed? Craig D. Stewart: No. Clark D. Stewart: Thank you, David.

[Operator Instructions] Our first question comes from [ Tony Prescoto ].

Just a quick question, one of my pet peeves. So we've gone over several times and I've always been told well, we'll get back to you on that. And I think now being the 10-K conference call, I think, it's time to get back to it. About 8 months ago, I believe, it was about 8 months ago, we registered -- we -- the company registered the 12.5 million shares for issuance and nothing has been said or done since then. Number one, I would like to know why the stock was registered? And the fact that, that overhang is, in my opinion anyway and in others opinion, the main overhang that's keeping the price of the stock down. I did a little homework this weekend and here's -- this is the context in which I'm asking the question. 10 years ago, today, 10 years ago, the price of Butler's common stock was $0.51 a share. During that 10 years, the United States stock markets have had arguably the best performance it's ever had in a 10-year period. Butler's stock is down 60% in that same 10-year period. At the same time, executive compensation in this company has gone up approximately 100%. Under what circumstance do you see that stock ever being issued and just why? Why was it registered and why are we keeping a major lid on the price of the stock? Now I will shut up and you can answer my question. Craig D. Stewart: Well, Tony, that's good analysis. I would say that we issued those shares because CBIZ, we went out and did a study, we've done 2 of them. CBIZ said, we should have that many of them issued or have that many of them registered and we should grant them. The reason that we haven't done anything with it is that we plan to do that over a 3- to 5-year period, and we haven't really had -- that has not been on top of the list to issue a bunch more shares. But that's where we are. And that...

You do realize that if someone out there, an investor, a long-term investor, a 10-year investor, were interested in taking a position in Butler's common equity, that they would do so with the Sword of Damocles hanging over their head, that's if management woke up on the wrong side of the bed 1 day, that their entire position would be diluted by 20%. Now I don't know that many funds that would commit to a potential 20% dilution overnight. I mean, do you see where I'm coming from? Craig D. Stewart: Yes, we will define that probably before the annual meeting as to what's really going to happen there. And it's supposed to be incentive-based, and that is according to the outside report and we will develop a plan that we will show you before the annual meeting or at the annual meeting. And that way, everybody knows what's supposed to be happening to that. What our advisers say we should be doing with that extra set of shares. And it's supposed to be incentive-based, which is what we're doing. And we'll get that resolved and I appreciate you bringing up the question. It's a very good question, and it's something we should do and I hadn't really thought about it as a big overhang on the price. But it -- I see what you're saying and it's probably correct.

[Operator Instructions] Our next question comes from Sam Ribowsky from SCR Management.

Could you, sort of, explain the $45 million buyout of Boot Hill? Where do you get the cash to do that? And is this property significantly more than $45 million? And how does this save you money and how does this -- what is this $45 million, if it did occur -- produce? Craig D. Stewart: Well, let's say we had an option to purchase that. When we signed the original agreement with our partners BHC Investment and BHC Development. And that was in the original contract, we could purchase a land and a building. And that is, at this point, probably equal to or less than the reconstruction cost of the property, as it stands today. The appraisals are significantly higher than that number. And since that is an option price, we can go ahead and do that. The difference between the actual detail option is a couple of million dollars of outstanding working capital loan that we have there that will be added to the numbers. It costs about $1 million to get something like that financed. So that's how you get to $45 million. And we think that we're definitely substantially under the appraised values.

So what is the appraised value range? Craig D. Stewart: I can't tell you that number, but it's substantially different.

I mean, is it a $10 million? Craig D. Stewart: No, no but it's close.

Okay. So if you purchase it, would you sell it after? What do you do to finance it? And is this desired way, is this property to be developed more than you're utilizing it? What do you do with the property, if it's worth substantially more and you buy it, et cetera? Craig D. Stewart: We're running at... Clark D. Stewart: I think that's the building where -- in the property where the casino in Dodge City is. We're currently paying rent to our partners on that. The financing cost of that property, once we get it financed, will be less than the rent we're paying today, which is where you would see the cost savings to the company.

And would you want to sell the property or is it -- I mean, if there is such a substantial benefit, if's it so much cheaper, do you want to be a real estate -- it's basically putting a lot of money into the real estate. Clark D. Stewart: All right, it's a question of trade-off between putting it in the leaseholders -- into the leaseholder's pocket or the lessor's pocket or putting it into the shareholders pocket. And I guess, I'd rather put it in the shareholders pocket than pay the rent. And since the rent is -- it's a 25-year lease. We have substantial amount of obligation there that is substantially more than the bank loan.

Okay. You threw out a number may be less than $100 million, would you say it's, sort of, $75 million, where you're talking about a $30 million difference? I'm trying to... Craig D. Stewart: I can't really talk to you about that number because it hasn't been published and it probably won't be, the bank would be upset, if we did that, and it's just not...

Well, clearly, if there's a substantial differences, it would appear, it makes sense to buy the property and that would sort of be beneficial to the stockholders. Now as far as the Avionics business, the $15.3 million, and you spent, I think, about $1 million for R&D and development, where do you see this going and when do you see significant profits coming out of this side -- size of the business? Clark D. Stewart: As you -- if you look at our history in that side of the business, that is -- that's a 5-year cycle and 1- or 2-year fluctuations, you get substantial differences in the income from 1 year to the next. You might lose money 1 year and make twice as much -- a lot of money the next year. And the business is just not as stable as the casino business. So you -- casino, you can pretty much determine where it's going. But you can't on the Avionics or the modification business. Modification is worse because you got big sales amount $500 million, $2 million orders. And the problem is, it takes 4, 5 years to get them negotiated. They might show up on your doorstep and say, well, here's purchase order and the airplane and here's money, you get to work. And you can't do anything with that for a while until you get the capacity to do it. That is the kind of business we have in the Avionics business and in the modification business. Airplanes just show up there on the ramp, just ready to go to work. And that screws up schedules, it screws up everything. But it is a very volatile business to be in. And it's hard to say, what's going to happen next year. Like, we didn't know that the backlog was going to increase $3 million in the last 90 days, just happened. And of course, we've got 5-year worth of quotes out there, but that doesn't mean they're going to come in. So that's the problem with that kind of business.

Do you have more quotes out there now than you had 3 months, a year ago? Clark D. Stewart: I don't know Aric, do we?

The answer is yes. Economy is a lot stronger in that modification business, yes.

And the percentages of your success on the quotes of achieving what you're bidding on, would you say that's you're more successful compared to your competitor in getting your bids, getting the contract? Clark D. Stewart: Let's talk about that a minute. First of all, for most of our modules, we have no competitor. Secondly, these quotes that we have are anywhere from a year from now to 5 years from now. The odds of us getting them sometime in the next 5 years is probably 75%, 80%. The problem is, we don't know the timing and the product mix of a given modification, is liable to fluctuate 50% to 75% of the dollar amount we originally quote. In other words, making it easy. If we quoted $1 million, airplane shows up, it's really a $2 million job. Or we quoted $2 million, and the airplane shows up and they really want $750,000. And it all has to do with the special missions, the state of the military world around -- the military status around the world and how much everybody is watching each other. And -- so I mean that's the, kind of, business that is. And it's -- the probability is good if you look at over 5 years. Probability next week, hard to tell.

Okay. And the capacity utilization of your facilities, what would that number be? Clark D. Stewart: I don't know Craig, you and Aric tell us what that...

Out in Arizona we're working continually to try to increase capacity because we're nearing 100% capacity in Arizona with where we stand today. But we're increasing capacity out there to meet customer demand. I think, in aviation or in -- at Avcon, we're probably 75%, 80% of capacity with the ability to increase capacity, if we need to. Craig D. Stewart: Yes. We have space there to increase the active -- the capacity if we need to do it.

Okay. And what are the assets in your balance sheet, the aircraft. I think, the gross amount is $5 million, $6 million, what is the fully depreciated value and what are these airplanes used for, aircraft? Clark D. Stewart: Well, we're the owner of the jet autopilots for the Learjet. And we're in the process of transferring that from L3 to us. And that's been a 5-year or 6-year process so far of getting all the supporting documentation and all that. It turns out these airplanes that we have are old airplanes, but they have those autopilots of different models in them. And in order for us to really support our customers, we need to have that stuff available. We don't fly them very much. I mean, they're pretty much there as what we need to support the product lines. And we are the, probably, the only person out there with Learjet support for those older airplanes, the legacy airplanes, if you will. We work closely with Learjet and with L3 to try to maintain those and keep the customer satisfied with the level of service. So we have -- we have a number of them, but they are not. That's what they are for and that's why we have to be able to do it. We own the STCs on some of them and we've got to be able to support the customers on that, because no one else is doing that.

So what is the depreciated value that's carried on the balance sheet? Clark D. Stewart: How much is it?

We have to take the time to look that up. If you got questions on that, call back in and ask for Tad McMahon. He's our, CFO and Tad can go through those with you.

[Operator Instructions] And Sam is back on with the question.

As far as the gaming in the various states, there's been some freedom of betting within states. Have you seen any impact on the Boot Hill, your operation, and what's your expectations of the -- for your betting et cetera that's going on? Clark D. Stewart: You must be talking about sports book.

Yes. Clark D. Stewart: The legalized sports book. We're working with the state of Kansas to figure out how the state wants to approach to that. And we don't have a definition of exactly what's going to happen yet. But I'm sure that the 4 casinos in the state will be involved as well as the Kansas Lottery. As you know, the Kansas Lottery is the only person in the State of Kansas that can gamble. So we all have to be a part of that or that's a constitutional requirement of the State of Kansas. So as that unfolds, I'm sure we'll all know how it fits together. But that's what's going on.

Okay. Is it active? Craig D. Stewart: Yes. I say that is active within the legislative branch of the state government.

Okay. And you've indicated that you know about the $45 million after the elections, what dates are we looking at before we make a decision? Clark D. Stewart: I don't know. I would've told you last spring, we'd already have it done. But that's -- I couldn't tell you unless within the Fall, how's that?

[indiscernible] And it's not before November, I mean with the elections that you're looking at Clark D. Stewart: No, we're talking about primary elections.

Yes, So you're looking -- are they September or they... Clark D. Stewart: They are in August, but we don't know for sure that everything is going to happen like it needs to happen to make all this work in August. But we're -- how elections work, you never know what you are going to get.

I do. Clark D. Stewart: So we -- the answer is, we don't have the answer.

Okay, okay. All right. Look, I see you've been basically paying an average of $0.26 for the stock. So you're a believer of having more stock purchased in the market. And presumably, if you produce more earnings or do something that frees up the value of this $45 million, that you could quantify the benefit to shareholders that should, sort of, help increase the value.

And at this time, there are no further questions. Clark D. Stewart: David, it sounds like we're finished. Thank you all for participating in the call. And then, thank you for the questions. We appreciate it. Thank you very much. Have a great day.

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