Butler National Corp – ‘8-K/A’ for 8/23/99 – EX-17

On:  Monday, 8/23/99   ·   For:  8/23/99   ·   Accession #:  15847-99-17   ·   File #:  0-01678

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Amendment to Current Report   —   Form 8-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K/A       Amendment to Current Report                            3     11K 
 2: EX-17       Letter re: Departure of Director                       3±    14K 

EX-17   —   Letter re: Departure of Director

EXHIBIT 16        

[LETTERHEAD OF GRANT THORNTON]          

August 19, 1999                                                                 

Office of the Chief Accountant                                                  
Securities and Exchange Commission                                              
450 Fifth Street, NW                                                            
Washington, DC 20519                                                            

Dear Sir/Madam:                                                                 

We have read Item 4 included in the Form 8-K of Butler National Corporation     
(Butler) filed with the Securities and Exchange Commission on August 10, 1999   
and are in agreement with the statements contained therein.  Since August 10,   
1999, we have communicated to the Company our belief that following Grant       
Thornton LLP's engagement on March 30, 1999 as Butler's independent auditors    
and during the two most recent fiscal years through the date of this letter     
there have been no disagreements between the Company and Grant Thornton LLP     
(Grant or Grant Thornton) on any matter of accounting principles or practices,  
financial statement disclosure or auditing scope or procedure, which            
disagreement, if not resolved, would have caused Grant Thornton to make         
reference thereto in our report on the consolidated financial statements of     
the Company for such years.                                                     

However, information came to our attention that, if investigated further, may   
materially impact the fairness and reliability of Butler's financial            
statements to be issued for the fiscal year ending April 30, 1999 and perhaps   
also the fiscal year ending April 30, 1998.  In essence, the nature of the      
accounting issues and the reaction of senior management to our audit inquiries  
led us to conclude that we would have been unable to obtain sufficient          
evidential matter to complete an audit in accordance with Generally Accepted    
Auditing Standards (GAAS).  We therefore resigned from our engagement to audit  
the consolidated financial statements of Butler and its subsidiaries as of      
April 30, 1999.  We consider the circumstances leading to our resignation to    
be reportable events.                                                           

Three elements of the Company's financial statements are at issue:              
Discontinued Operations, Indian Gaming costs and Supplemental Type              
Certificates (STCs).                                                            

Discontinued Operations                                                         

In fiscal 1999 Butler was reflecting a loss from Discontinued Operations of     
approximately $1.995 million, a significant increase from the $148,316 reported 
in fiscal 1998.  One significant component of this loss was the                 
reclassification of approximately $801,000 of General and Administrative        
Expense (G&A) to Discontinued Operations; $801,000, it bears noting, equals     
approximately one-half of the G&A costs for this 1999 fiscal year.  To satisfy  
ourselves that this estimate was not arbitrary, we informed the company that    
any allocation to Discontinued Operations would have to be supported by a       
methodology and evidential matter that we could audit.  Although we understand  
that Butler was prepared to undertake a review of the extent of its allocation  
of G&A costs to Discontinued Operations, we also are aware that any estimate    
of the amount of G&A costs attributable to Discontinued Operations is heavily   
dependent upon management's judgment.                                           

A second significant element of Butler's $1.995 million loss from Discontinued  
Operations involved a guarantee of subsidiary debt for which the Company        
recognized an expense of $700,000 in 1999.  We raised the question as to        
whether this loss should have been recognized in the year ended April 30,       
1998.  Although we resigned before we were able to pursue this issue, it is     
nonetheless clear to us that we would have needed to consult with the           
Company's former accountants to gain an understanding of events in the prior    
year in order to conclude upon the appropriate treatment of this debt.          

Indian Gaming Costs                                                             

Butler's accounting for its Indian Gaming costs presented us with three         
accounting and auditing issues.  First, we had questions about the              
collectibility of a $3.5 million note representing advances to Miami-Modoc      
Indian Tribe Joint Venture for costs associated with an operating casino.       
Second, we considered that the deferral of "Other Costs" totaling $2.1 million  
in 1999 called for further scrutiny.  And third, we had doubts about the        
propriety of putting back on the books, as deferred assets, costs that had      
previously been written off -- namely, $650,000 in 1999 and $280,000 in 1998.   
Each of these issues, in our view, would have required us to discuss with the   
Company's former auditors the bases, in the prior fiscal year, for              
capitalizing the deferred gaming costs, recording the $3.5 million note at      
full value and putting previously expensed items back on the books.             

Although we resigned before speaking about these issues with the prior          
auditors, we had discussions with the Company's president-chief executive       
officer, as summarized below.                                                   

STCs                                                                            

At April 30, 1999, Butler had on its books $1.392 million of capitalized costs  
associated with the development of STCs.  We queried Butler's president-chief   
executive officer regarding the appropriateness and support for these           
capitalized costs.  Moreover, since our concerns extended to the initial        
capitalization in a prior fiscal year we indicated that we would have to        
discuss the matter with the Company's former auditors.  We resigned, however,   
before we were able to have those discussions.                                  

Response of Senior Management                                                   

To address adequately each of these accounting issues would have necessitated   
a significant expansion of the scope our audit.  In considering whether to      
undertake such an expansion, we deemed it appropriate to factor in the          
response of the Company's president-chief executive officer to our inquiries    
-- especially those relating to the treatment of Indian Gaming costs and        
capitalizations of STCs.  With respect to the rebooking of Indian Gaming costs  
previously written off, the president had said we "had to find a way to keep    
them on the books."  He also commented that Butler and its prior auditors       
would face a number of lawsuits if we forced a write-off of the Indian Gaming   
costs and deferred STC costs.  When we informed him that the SEC was likely to  
review Butler's treatment of the deferred Indian Gaming costs, he informed us   
for the first time that the Company had received a comment letter from the SEC  
on its 1998 Form 10-K and that in response it had filed an amended Form 10-K    
on April 30, 1999.  When we then asked why the company did not tell us about    
this comment letter and amended 10-K report, he simply said, "you did not       
ask."  A review of the Commission's comment letter, it bears noting, disclosed  
that the Commission's staff was focused on some of the same issues as we were.  

Each of the accounting and auditing issues we identified involves significant   
estimates by management upon whose representations an auditor would have to     
rely.  Given the response of the company's president-chief executive officer    
to our questions, we concluded in our professional judgment that we would be    
unable to obtain sufficient evidential matter to enable us to complete the      
audit in accordance with GAAS.                                                  

Very truly yours,                                                               

//Grant Thornton LLP//                                                          

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘8-K/A’ Filing		Date		Other Filings
Filed on / For Period End:		8/23/99
		8/19/99
		8/10/99		8-K
		4/30/99		10-K,  10-K/A,  10-Q/A,  NT 10-K
		3/30/99		8-K
		4/30/98		10-K,  10-K/A,  DEF 14A
				List all Filings