BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

INDEX

	PAGE NO.
Item 1	Financial Statements (Unaudited)	~~PAGE NO.~~

	Condensed Consolidated Balance Sheets – ~~January~~July 31, 2019 ~~(unaudited)~~ and April 30, ~~2018 (audited)~~2019 (Audited)	3

	Condensed Consolidated Statements of Operations - Three Months Ended ~~January~~July 31, 2019 and 2018	4

	Condensed Consolidated Statements of ~~Operations~~Stockholders' Equity - ~~Nine~~Three Months Ended ~~January~~July 31, 2019 and 2018	5

	Condensed Consolidated Statements of Cash Flows - ~~Nine~~Three Months Ended ~~January~~July 31, 2019 and 2018	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	1011

Item 3	Quantitative and Qualitative Disclosures about Market Risk	2118

Item 4	Controls and Procedures	2119


~~PART II. OTHER INFORMATION~~

PART II. OTHER INFORMATION

Item 1	Legal Proceedings	2220

Item 1A	Risk Factors	2220

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2220

Item 3	Defaults Upon Senior Securities	2220

Item 4	Mine Safety Disclosures	2220

Item 5	Other Information	2220

Item 6	Exhibits	2220

Signatures		2321

Exhibit Index		2422

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of ~~January~~July 31, 2019 and and April 30, ~~2018~~2019

(in thousands except per share data)

	January 31, 2019			April 30, 2018			July 31, 2019			April 30, 2019
	(unaudited)							(unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	8,803		$	7,353		$	10,249		$	9,014
Accounts receivable		3,775			3,107
Income tax receivable, net		-			219
Accounts receivable, net of allowance for doubtful accounts								5,382			3,265
Asset held for sale, net of accumulated depreciation								-			447
Income tax receivable								-			27
Inventories
Parts and raw materials		6,766			5,858			7,507			7,370
Work in process		1,824			1,234			1,679			1,441
Finished goods		73			27			73			74
Total inventory net of allowances		8,663			7,119
Total inventory, net of allowance								9,259			8,885
Prepaid expenses and other current assets		1,407			978			1,746			1,646
Total current assets		22,648			18,776			26,636			23,284

PROPERTY, PLANT AND EQUIPMENT:
Finance lease right-to-use assets								43,680			1,699
Land and building		6,917			5,232			5,765			5,765
Aircraft		6,157			6,157			8,467			8,467
Machinery and equipment		4,001			3,922			4,075			4,075
Office furniture and fixtures		7,365			6,658			7,545			7,487
Leasehold improvements		4,032			4,032			4,032			4,032
		28,472			26,001			73,564			31,525
Accumulated depreciation		(16,485	)		(15,725	)		(17,824	)		(16,714	)
Total property, plant and equipment		11,987			10,276			55,740			14,811

SUPPLEMENTAL TYPE CERTIFICATES (net of accumulated amortization of $5,808 at January 31, 2019 and $5,164 at April 30, 2018)		6,510			6,597
SUPPLEMENTAL TYPE CERTIFICATES (net of accumulated amortization of $6,298 at July 31, 2019 and $6,054 at April 30, 2019)								6,163			6,407

OTHER ASSETS:
Deferred tax asset		193			193			295			295
Other assets (net of accumulated amortization of $9,136 at January 31, 2019 and $8,213 at April 30, 2018)		4,788			5,589
Other assets (net of accumulated amortization of $9,570 at July 31, 2019 and $9,370 at April 30, 2019)								3,905			4,105
Total other assets		4,981			5,782			4,200			4,400
Total assets	$	46,126		$	41,431		$	92,739		$	48,902

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Promissory notes	$	-		$	2,387
Current maturities of long-term debt		1,441			1,612		$	1,596		$	1,899
Current maturities of capital lease obligation		8			-
Current maturities of finance lease liability								1,070			8
Accounts payable		1,695			2,215			1,736			1,774
Customer deposits		3,260			1,396			2,948			2,758
Gaming facility mandated payment		975			1,219			975			1,280
Compensation and compensated absences		1,695			1,439			1,508			1,664
Deferred tax liability, current								236			236
Income taxes payable		996			-			735			-
Other current liabilities		310			162			245			230
Total current liabilities		10,380			10,430			11,049			9,849

Long-term debt, net of current maturities		686			1,735			1,823			2,076
Capital lease obligation, net of current maturities		1,691			-
Finance lease liability, net of current maturities								42,384			1,689
Deferred tax liability								944			944
Total long-term liabilities		2,377			1,735			45,151			4,709

Total liabilities		12,757			12,165			56,200			14,558

COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY:
Butler National Corporation’s stockholders’ equity
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Butler National Corporation's stockholders' equity
Preferred stock, par value $5:
Authorized 50,000,000 shares, all classes
Designated Classes A and B 200,000 shares
$100 Class A, 9.8%, cumulative if earned liquidation and redemption value $100, no shares issued and outstanding		-			-			-			-
$1,000 Class B, 6%, convertible cumulative, liquidation and redemption value $1,000, no shares issued and outstanding		-			-			-			-
Common stock, par value $.01: authorized 100,000,000 shares issued 66,196,854 and outstanding 64,050,508 shares at January 31, 2019 and issued 66,196,854 and outstanding 64,743,317 shares at April 30, 2018		662			662
Common stock, par value $.01: authorized 100,000,000 shares issued 71,008,122 shares, and outstanding 68,160,250 shares at July 31, 2019 and issued 71,008,122 shares, and outstanding 68,281,071 shares at April 30, 2019								710			710
Capital contributed in excess of par		14,231			14,231			14,814			14,767
Treasury stock at cost, 2,146,346 shares at January 31, 2019 and 1,453,537 shares at April 30, 2018		(1,165	)		(951	)
Treasury stock at cost, 2,847,872 shares at July 31, 2019 and 2,727,051 shares at April 30, 2019								(1,430	)		(1,387	)
Retained earnings		13,630			10,060			15,974			13,913
Total stockholders' equity Butler National Corporation		27,358			24,002
Total Butler National Corporation's stockholders' equity								30,068			28,003
Noncontrolling interest in BHCMC, LLC		6,011			5,264			6,471			6,341
Total stockholders' equity		33,369			29,266			36,539			34,344
Total liabilities and stockholders' equity	$	46,126		$	41,431		$	92,739		$	48,902

The accompanying notes are an integral part of these unaudited condensed consolidated financial ~~statements.~~statements

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BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED ~~JANUARY~~JULY 31, 2019 AND 2018

(in thousands, except per share data)

(unaudited)

	THREE MONTHS ENDED January 31,						THREE MONTHS ENDED July 31,
	2019			2018			2019			2018
REVENUE:
Professional Services	$	7,617		$	7,559		$	8,116		$	7,948
Aerospace Products		6,675			3,451			8,900			5,456
Total revenue		14,292			11,010			17,016			13,404

COSTS AND EXPENSES:
Cost of Professional Services		4,996			4,747			3,850			4,812
Cost of Aerospace Products		3,642			2,636			4,969			4,130
Marketing and advertising		1,021			920			1,104			975
Employee benefits		532			480			547			505
Depreciation and amortization		415			362			1,239			388
General, administrative and other		1,873			1,426			1,786			1,693
Total costs and expenses		12,479			10,571			13,495			12,503

OPERATING INCOME		1,813			439			3,521			901

OTHER INCOME (EXPENSE):
Interest expense		(44	)		(83	)		(1,097	)		(70	)
Other income, net		-			1
Refund of sales/use tax		385			-			-			279
Gain on sale of airplane								529			-
Total other income (expense)		341			(82	)		(568	)		209

INCOME BEFORE INCOME TAXES		2,154			357			2,953			1,110

INCOME TAXES:
PROVISION FOR INCOME TAXES
Provision for income taxes		495			10			762			188

NET INCOME		1,659			347			2,191			922
Net income attributable to noncontrolling interest in BHCMC, LLC		(319	)		(327	)		(130	)		(413	)
NET INCOME ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION	$	1,340		$	20		$	2,061		$	509

BASIC EARNINGS PER COMMON SHARE	$	0.02		$	0.00		$	0.03		$	0.01

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION		63,976,255			64,506,986			68,270,565			64,743,042

DILUTED EARNINGS PER COMMON SHARE	$	0.02		$	0.00		$	0.03		$	0.01

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION		63,976,255			64,506,986			68,270,565			64,743,042

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~STOCKHOLDERS' EQUITY

FOR THE ~~NINE~~THREE MONTHS ~~MONTHS~~ ENDED ~~JANUARY 31,~~July 3~~2019~~1, 2019 AND 2018

(dollars in ~~thousands, except per share data)~~thousands)

(unaudited)

NINE MONTHS ENDED
January 31,

2019

2018

REVENUE:

Professional Services
$ 23,423 $ 22,340
Aerospace Products
19,570 11,476
Total revenue
42,993 33,816

COSTS AND EXPENSES:

Cost of Professional Services
14,735 14,344
Cost of Aerospace Products
12,102 8,469
Marketing and advertising
3,056 2,729
Employee benefits
1,518 1,416
Depreciation and amortization
1,198 1,344
General, administrative and other
5,852 4,112
Total costs and expenses
38,461 32,414

OPERATING INCOME
4,532 1,402

OTHER INCOME (EXPENSE):

Interest expense
(169
)
(250
)
Other income, net
- 1
Refund of sales/use tax
1,995 -
Total other income (expense)
1,826 (249
)

INCOME BEFORE INCOME TAXES
6,358 1,153

INCOME TAXES:

Provision for income taxes
1,320 191

NET INCOME
5,038 962
Net income attributable to noncontrolling interest in BHCMC, LLC
(1,468
)
(620
)
NET INCOME ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION
$ 3,570 $ 342

BASIC EARNINGS PER COMMON SHARE
$ 0.06 $ 0.01

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
64,356,380 64,531,138

DILUTED EARNINGS PER COMMON SHARE
$ 0.06 $ 0.01

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
64,356,380 64,531,138

Shares of
Common
Stock

Common
Stock

Capital
Contributed in
Excess of Par

Shares of
Treasury
Stock

Treasury
Stock at
Cost

Retained
Earnings

Total Stock-
holders’
Equity BNC

Non controlling
Interest in
BHCMC

Total Stock-
holders’
Equity

Balance, April 30, 2018
66,196,854 $ 662 $ 14,231 1,453,537 $ (951
)
$ 10,060 $ 24,002 $ 5,264 $ 29,266

Stock repurchase
- - - 25,277 (6
)
- (6
)
- (6
)

Net Income
- - - - - 509 509 413 922

Balance, July 31, 2018
66,196,854 $ 662 $ 14,231 1,478,814 $ (957
)
$ 10,569 $ 24,505 $ 5,677 $ 30,182

Shares of
Common
Stock

Common
Stock

Capital
Contributed in
Excess of Par

Shares of
Treasury
Stock

Treasury
Stock at
Cost

Retained
Earnings

Total Stock-
holders’
Equity BNC

Non controlling
Interest in
BHCMC

Total Stock-
holders’
Equity

Balance, April 30, 2019
71,008,122 $ 710 $ 14,767 2,727,051 $ (1,387
)
$ 13,913 $ 28,003 $ 6,341 $ 34,344

Stock repurchase
- - - 120,821 (43
)
- (43
)
- (43
)

Deferred compensation, restricted stock
- - 47 - - - 47 - 47

Net Income
- - - - - 2,061 2,061 130 2,191

Balance, July 31, 2019
71,008,122 $ 710 $ 14,814 2,847,872 $ (1,430
)
$ 15,974 $ 30,068 $ 6,471 $ 36,539

The accompanying notes are an integral part of these unaudited condensed consolidated financial ~~statements~~statements.

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BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~JANUARY~~JULY 31, 2019 AND 2018

(in thousands)

(unaudited)

	NINE MONTHS ENDED January 31,						THREE MONTHS ENDED July 31,
	2019			2018			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,038		$	962		$	2,191		$	922
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		2,377			2,608			1,555			750
Gain on sale of airplane								(529	)		-
Deferred compensation, restricted stock								47			-

Changes in assets and liabilities
Accounts receivable		(668	)		2,151			(2,117	)		(118	)
Income tax receivable								27			188
Inventories		(1,544	)		(1,163	)		(374	)		(391	)
Prepaid expenses and other current assets		(431	)		(124	)		(100	)		(462	)
Deferred tax asset		-			274
Income tax receivable		219			-
Accounts payable		(520	)		(494	)		(38	)		(288	)
Customer deposits		1,864			(150	)		190			1,340
Accrued liabilities		1,252			(909	)		(156	)		(181	)
Gaming facility mandated payment		(244	)		(322	)		(305	)		(282	)
Income tax payable								735			-
Other current liabilities		147			139			15			61
Net cash provided by operating activities		7,490			2,972			1,141			1,539

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(1,499	)		(1,834	)		(58	)		(227	)
Net cash used in investing activities		(1,499	)		(1,834	)
Proceeds from sale of airplane								975			-
Net cash provided by (used in) investing activities								917			(227	)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of promissory notes, net		(2,387	)		(109	)		-			(711	)
Repayments of long-term debt		(1,220	)		(1,795	)		(556	)		(401	)
Distribution to non-controlling member		(720	)		(360	)
Purchase of common stock		(214	)		(142	)
Reduction of finance lease liability								(224	)		(2	)
Repurchase of common stock								(43	)		(6	)
Net cash used in financing activities		(4,541	)		(2,406	)		(823	)		(1,120	)

NET INCREASE (DECREASE) IN CASH		1,450			(1,268	)
NET INCREASE IN CASH								1,235			192

CASH, beginning of period		7,353			6,389			9,014			7,353

CASH, end of period	$	8,803		$	5,121		$	10,249		$	7,545

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	172		$	250		$	1,096		$	71
Income taxes paid	$	105		$	609		$	-		$	-

SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES
Capital asset and lease obligation additions	$	1,699		$	-
NON CASH INVESTING AND FINANCING ACTIVITY
Finance lease right-of-use assets and finance lease liability							$	41,981		$	-

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

(unaudited)

1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the annual report on Form 10-K for the fiscal year ended April 30, ~~2018.~~2019. In our opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the three ~~and nine~~ months ended ~~January~~July 31, 2019 are not indicative of the results of operations that may be expected for the fiscal year ended April 30, ~~2019.~~

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 requires expanded disclosures about the nature and terms of lease agreements and is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.2020.

Certain reclassifications within the condensed financial statement captions have been made to maintain consistency in presentation between years. These reclassifications have no impact on the reported results of operations. Financial amounts are in thousands of dollars except per share amounts.

2. Net Income Per Share: Butler National Corporation (“the Company”) follows ASC 260 that requires the reporting of both basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with ASC 260, any anti-dilutive effects on net earnings per share ~~are~~would be excluded. The number of potential common shares as of ~~January~~July 31, 2019 is ~~64,050,508.~~68,160,250.

3. Revenue Recognition: ~~Adoption of~~On May 1, 2018, the Company adopted ASC Topic 606, “Revenue from Contracts with Customers”

On May 1, 2018, the Company adopted Topic 606, using the modified retrospective transition method applied to those contracts which were not completed as of May 1, 2018. Results for reporting periods beginning after May 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under Topic 605. There was no adjustment to beginning accumulated deficit on May 1, 2018 due to the impact of adopting Topic 606..

Under ASC 606, revenue is recognized when a customer obtains control of promised services in an amount that reflects the consideration we expect to receive in exchange for those services. To achieve this core principal, the Company applies the following five steps:

Identify the contract, or contracts, with a customer

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

Identification of the performance obligations in the contract

At contract inception, an entity shall assess the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise to transfer to the customer. Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.

Determination of the transaction price

The transaction price is the amount that an entity allocates to the performance obligations identified in the contract and, therefore, represents the amount of revenue recognized as those performance obligations are satisfied. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer.

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Allocation of the transaction price to the performance obligations in the contract

Once a contract and associated performance obligations have been identified and the transaction price has been determined, ASC 606 requires an entity to allocate the transaction price to each performance obligation identified. This is generally done in proportion to the standalone selling prices of each performance obligation (i.e., on a relative standalone selling price basis). As a result, any discount within the contract generally is allocated proportionally to all of the separate performance obligations in the contract. The Company is applying the right to invoice practical expedient to recognize revenue. As a result, the entity bypasses the steps of determining the transaction price, allocating that transaction price and determining when to recognize revenue as it will recognize revenue as billed by multiplying the price assigned to the good or service, by the units.

Recognition of revenue when, or as, we satisfy a performance obligation

Revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Control transfers either over time or at a point in time. Revenue is recognized when control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

Aircraft modifications are performed under fixed-price contracts. Revenue from fixed-priced contracts are recognized on the percentage-of-completion method, measured by the direct labor incurred compared to total estimated direct labor.

Revenue from Avionics products are recognized when shipped. Payment for these Avionics products is due within 30 days of the invoice date after shipment. Revenue from Gaming Management and other Corporate/Professional Services is recognized as the service is rendered.

Regarding warranties and returns, our products are special order and are not suitable for return. Our products are unique upon installation and tested prior to their release to the customer and acceptance by the customer. In the rare event of a warranty claim, the claim is processed through the normal course of business and may include additional charges to the customer. In our opinion, any future warranty work would not be material to the consolidated financial statements.

Gaming revenue is the gross gaming win as reported by the Kansas Lottery casino reporting systems, less the mandated payments by and for the State of Kansas. Electronic games-slots and table games revenue is the aggregate of gaming wins and losses. Liabilities are recognized for chips and "ticket-in, ticket-out" coupons in the customers' possession, and for accruals related to anticipated payout of progressive jackpots. Progressive gaming machines, which contain base jackpots that increase at a progressive rate based on the number of coins played, are deducted from revenue as the value of jackpots increase. Food, beverage, and other revenue is recorded when the service is received and paid.

4. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to ~~the~~our consolidated financial statements. Significant estimates include assumptions about collection of accounts receivable, the valuation, and recognition of stock-based compensation expense, valuation for deferred tax assets and useful life of fixed assets.

4.5. Inventories: Inventories are priced at the lower of cost, determined on a first-in, first-out basis, or ~~market.~~net realizable value. Inventories include material, labor and factory overhead required in the production of our products.

Inventory obsolescence is examined on a regular basis. When determining our estimate of obsolescence, we consider inventory that has been inactive for five years or longer and the probability of using that inventory in future production. The obsolete inventory generally consists of Falcon and Learjet parts and electrical components. At ~~January~~July 31, 2019 and April 30, ~~2018,~~2019, the estimate of obsolete inventory was ~~$571~~$718 and ~~$571~~$718 respectively.

5.6. Research and Development: We invested in research and development activities. The amount invested in the ~~nine~~three months ended ~~January~~July 31, 2019 and 2018 was ~~$1,233~~$397 and ~~$1,336~~$318 respectively.

6.7. Debt: At ~~January~~July 31, 2019, the Company was utilizing a promissory note in the form of a line of credit totaling $5,000. The unused line at ~~January~~July 31, 2019 was $5,000. These funds are primarily used for the purchase of inventories and aircraft modification Supplemental Type Certificate ("STC") development costs for modifications and avionics. The line of credit is due on demand and is collateralized by the first and second positions on all assets of the Company.

At ~~January~~July 31, 2019, there was one note with an interest rate of ~~5.75%~~6.25% collateralized by aircraft security agreements totaling ~~$158.~~$2.1 million. This note was used for the purchase and modifications of collateralized aircraft. This note matures in January ~~2020.~~2023.

At January 31, 2019, there are three notes at a bank totaling $51 collateralized by real estate located in Olathe, Kansas and Tempe, Arizona. The interest rates on these notes range from 3.36% to 4.46%. The due date for the notes is March 2019.

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~~At January~~July 31, 2019, there is one note totaling ~~$246~~$238 collateralized by real estate in Dodge City, Kansas. The interest rate on this note is 6.25%. This note matures in June ~~2019.~~2024.

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At ~~January~~July 31, 2019, there is one note collateralized by equipment with a balance of ~~$66.~~$57. The interest rate on this note is 4.5%. This note matures in April 2022.

At ~~January~~July 31, 2019, there is one note at a bank totaling ~~$1,606~~$1.0 million with an interest rate of 4.89%. The proceeds were used primarily to pay off obligations with BHCI (a non-controlling owner of BHCMC, LLC). This note matures in May 2020.

We are not in default of any of our notes as of ~~January~~July 31, 2019.

We believe that our current banks will provide the necessary capital for our business operations. However, we continue to maintain contact with other banks that have an interest in funding our working capital needs to continue our growth in operations in 2019 and beyond.

7.8. Other Assets: Our other asset account includes assets of $5,500 related to the Kansas Expanded Lottery Act Management Contract privilege fee, ~~$5,546~~$5,646 of gaming equipment we were required to pay for ownership by the State of Kansas Lottery, and JET autopilot intellectual property of $1,417 and miscellaneous other assets of ~~$1,461.~~$912. BHCMC expects the $5,500 privilege fee to have a value over the remaining life of the Management Contract with the State of Kansas which will end in December 2024. There is no assurance of the Management Contract renewal. The Managers Certificate asset for use of gaming equipment is being amortized over a period of three years based on the estimated useful life of gaming equipment. The JET intellectual property is being amortized over a period of 15fifteen years.

8.9. Stock Options and Incentive Plans: ~~At January 31, 2019 we had no outstanding stock options.~~

In November 2016, the shareholders approved and adopted the Butler National Corporation 2016 Equity Incentive Plan. The maximum number of shares of common stock that may be issued under the Plan is 12.5 million.

On April 12, 2019, the Company granted 2.5 million restricted shares to employees. These shares have voting rights at date of grant and become fully vested and nonforfeitable on April 11, 2024. The restricted shares were valued at $0.38 per share, for a total of $950. The deferral compensation of $950 will be expensed on the financial statements over the five year vesting period. No other equity awards have been made under the plan.

For the three months ended July 31, 2019 and July 31, 2018, the company expensed $47 and $0, respectively.

9.10. Stock Repurchase Program

The Board of Directors approved a stock purchase program authorizing the repurchase of up to ~~$750~~$2,225 of its common stock. The timing and amount of any share repurchases will be determined by Butler National’s management based on market conditions and other factors. The program is currently authorized through May 1, ~~2019.~~2020.

The table below provides information with respect to common stock purchases by the Company through ~~January~~July 31, 2019.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs		Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
Program authorization							$	750							$	500
Quarter ended January 31, 2017 (a)		49,920	$	0.20		49,920	$	740
Quarter ended April 30, 2017		80,426	$	0.27		80,426	$	718
Quarter ended July 31, 2017		-	$	-		-	$	718
Shares purchased in prior periods										130,346	$	0.25		130,346	$	468
Quarter ended October 31, 2017		8,607	$	0.30		8,607	$	715		8,607	$	0.30		8,607	$	465
Quarter ended January 31, 2018 (a)		536,058	$	0.26		536,058	$	576		536,058	$	0.26		536,058	$	326
Quarter ended April 30, 2018 (a)		178,526	$	0.25		178,526	$	531		178,526	$	0.25		178,526	$	281
Increase in program authorization April 2018 (b)										-	$	-		-	$	531
Quarter ended July 31, 2018 (a)		25,277	$	0.26		25,277	$	525		25,277	$	0.26		25,277	$	525
Quarter ended October 31, 2018 (a)		480,805	$	0.30		480,805	$	381		480,805	$	0.30		480,805	$	381
Quarter ended January 31, 2019 (a)		186,727	$	0.34		186,727	$	317		186,727	$	0.34		186,727	$	317
Quarter ended April 30, 2019 (a)										580,705	$	0.38		580,705	$	94
Increase in program authorization April 2019 (c)										-	$	-		-	$	1,569
Quarter ended July 31, 2019 (a)										120,821	$	0.35		120,821	$	1,526
Total		1,546,346	$	0.28		1,546,346				2,247,872	$	0.31		2,247,872

~~(a) These shares of common stock purchased were purchased through private transactions.~~

(a)	These shares of common stock purchased were purchased through a private transaction
(b)	Board of Directors increased program authorization from $500 to $750
(c)	Board of Directors increased program authorization from $750 to $2,225

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~~10. Capital~~11. Finance Lease Right-of-Use

~~The~~On May 1, 2019, the Company ~~leases~~adopted ASU 2016-02 Leases – Topic 842. ASU 2016-02 requires that on the balance sheet a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.

We lease the casino as well as hangar and office space ~~under a long-term lease.~~with initial lease terms of two, five, twenty-five and fifty years.

July 31, 2019

Right-of-use assets
$ 43,680
Less accumulated depreciation
693
Total
$ 42,987

~~Included in land and building are the following assets held under capital lease:~~

January 31, 2019

Building
$ 1,699
Less accumulated depreciation
3
Total
$ 1,696

Future minimum lease payments for assets under capital leases at ~~January~~July 31, 2019 are as follows:

2020	$	93	$	5,195
2021		93		5,242
2022		93		5,241
2023		93		5,293
2024		93		5,333
Thereafter		4,159		60,365
Total minimum lease payments		4,624		86,669
Less amount representing interest		2,925		43,215
Present value of net minimum lease payments		1,699		43,454
Less current maturities of capital lease obligation		8
Long-term capital lease obligation	$	1,691
Less current maturities of finance lease liability				1,070
Finance lease liability, net of current maturities			$	42,384

~~11. Contingency~~
~~On December 29, 2017, BHCMC, received~~The adoption of ASU 2016-02 had a ~~ruling from the Kansas Supreme Court in the Matter of the Appeal of BHCMC, LLC d/b/a Boot Hill Casino & Resort, concerning the request~~negative impact on our financial statements for refund for sales/use taxes paid for slot machines owned by the Kansas Lottery. The Kansas Department of Revenue appealed from a Board of Tax Appeals summary decision granting a compensating use tax refund to BHCMC. The Kansas Supreme Court addressed “whether such a tax can be imposed on Boot Hill (BHCMC) for electronic gaming machines it does not—and, under the law and its management agreement with Kansas Lottery, cannot—own”. The Court ruled that “Boot Hill did not exercise a right or power incident to ownership of personal property in order to be subject to a compensating use tax for that property.” Because BHCMC has not exercised such a power or right, the Court affirmed Board of Tax Appeals' refund decision and the ruling of the Kansas Court of Appeals panel decision. Management makes no assurances related to collection of, or the timeliness of, any actions realizing any direct monetary effects, if any, of the ruling. Therefore, the Company’s accounting of these sales/use tax refunds will be recognized as other income when payment is received from the State of Kansas.
~~For the nine months ended January 31, 2019, $2.0 million was reported as a refund of sales/use tax, including $385 in~~ the three months ended ~~January~~July 31, ~~2019, in the consolidated statement of operations in connection with the above ruling.~~2019. The impact is summarized below:
Increase in depreciation
$ 693
Increase in interest expense
1,035
Decrease in rent expense
(1,218 )
Decrease in net income for the three months ended July 31, 2019
$ 510

12. Subsequent Events:

The Company evaluated its ~~January~~July 31, 2019 financial statements for subsequent events through the filing date of this report. ~~In February 2019, the Company purchased an aircraft for $2.9 million. The Company financed the purchase with a four year note for $2.3 million. The interest rate on the note is 6.25%.~~ The Company is not aware of any ~~other~~ subsequent events that would require recognition or disclosure in the financial statements.

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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS

THROUGHOUT THIS ITEM 2 ALL NON TABULAR FINANCIAL RESULTS ARE PRESENTED IN THOUSANDS OF U.S. DOLLARS EXCEPT WHERE MILLIONS OF DOLLARS IS INDICATED.

Forward-Looking Statements

Statements made in this report, other reports and proxy statements filed with the Securities and Exchange Commission, communications to stockholders, press releases, and oral statements made by representatives of the Company that are not historical in nature, or that state the Company or management intentions, hopes, beliefs, expectations or predictions of the future, may constitute "forward-looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements can often be identified by the use of forward-looking terminology, such as "could," "should," "will," "intended," "continue," "believe," "may," "expect," "hope," "anticipate," "goal," "forecast," "plan," "guidance" or "estimate" or the negative of these words, variations thereof or similar expressions. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties, and assumptions. It is important to note that any such performance and actual results, financial condition or business, could differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A (Risk ~~Factors)~~Facotrs) of the Annual Report on Form 10-K for the fiscal year ended April 30, ~~2018,~~2019, and elsewhere herein or in other reports filed with the SEC. Other unforeseen factors not identified herein could also have such an effect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time.

The forward-looking statements in this report are only predictions and actual events or results may differ materially. In evaluating such statements, a number of risks, uncertainties and other factors could cause actual results, performance, financial condition, cash flows, prospects and opportunities to differ materially from those expressed in, or implied by, the forward-looking statements. These risks, uncertainties and other factors include those set forth in Item 1A (Risk Factors) of the Annual Report on Form 10-K for the fiscal year ended April 30, ~~2018,~~2019, including the following factors:

●

extensive regulation across our industries;

●

evolving government regulations and law;

●

the geographic location of our casino;

●

customer concentration risk;

●

risks associated with the potential acquisition of land at the Boot Hill Casino;

●

industrial business cycles;

●

market competition;

●

marketability restrictions of our common stock;

●

stock dilution caused by the annual employer match to our 401(k) plan;

●

the possibility of a reverse-stock split;

●

executive officers are family members;

●

non-renewal of certain casino management contracts;

●

changes in regulations of financial reporting;

●

fluctuating fuel and energy costs;

●

fixed-price contracts;

●

development, production, testing and marketing of new products;

●

the stability of credit markets;

●

cyber-security threats;

●

acts of terrorism and war;

●

inclement weather and natural disasters;

●

loss of key personnel;

●

risks associated with international sales;

●

future acquisitions and investments;

●

change of control restrictions;

●

potential impairment losses;

●

extensive taxation;

Except as expressly required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this report.

Results of operations in any past period should not be considered indicative of the results to be expected for future periods. Fluctuations in operating results may also result in fluctuations in the price of the Company's common stock.

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Investors should also be aware that while the Company, from time to time, communicates with securities analysts; it is against its policy to disclose any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the Company has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of Butler National Corporation.

~~Table of Contents~~

Management Overview

Management is focused on increasing long-term shareholder value from increased cash generation, earnings growth, and prudently managing capital expenditures. We plan to do this by continuing to drive increased revenue from product and service innovations, strategic acquisitions, and targeted marketing programs.

We have two separate reporting segments: Aerospace Products and Professional Services. Aerospace Products and Professional Services do not share the same customers and suppliers and have substantially distinct businesses. The Aerospace Products operating segment provides products and services in the aerospace industry. Companies in Aerospace Products derive their revenue from system design, engineering, manufacturing, integration, installation, repairing, overhauling, servicing and distribution of aerostructures, avionics, aircraft components, accessories, subassemblies and systems. The Professional Services operating segment provides services in the gaming industry. Professional Services companies manage a gaming and entertainment facility and provide architectural and engineering services. These reporting segments operate through various subsidiaries and affiliates listed in the Company’s fiscal year ~~2018~~2019 Annual Report on Form 10-K.

Aerospace Products. The Aerospace Products segment includes the manufacture, sale and service of electronic equipment and systems and technologies to enhance and support products related to aircraft. Additionally, we also operate several Federal Aviation Administration (the "FAA") Repair Stations. Companies in Aerospace Products concentrate on Learjets, Beechcraft King Air, Cessna turbine engine, Cessna multi-engine piston and Dassault Falcon 20 aircraft. Specifically, the design, distribution and support for products for older aircraft, or “Classic” aircraft are areas of focus for companies in Aerospace Products.

Products. The products that the companies within this group design, engineer, manufacture, integrate, install, repair and service include:

●	Aerial surveillance products	●	GARMIN GTN Global Position System Navigator with Communication Transceiver

●	Aerodynamic enhancement products	●	J.E.T autopilot products

●	Airspeed and altimeter systems	●	~~Load sharing~~Electrical systems and switching equipment

●	Avcon Fins	●	Noise suppression systems

●	ADS-B (transponder) systems	●	Rate gyroscopes

●	Conversion of passenger configurations to cargo	●	Replacement vertical accelerometers

●	Cargo/sensor carrying pods	●	~~Transient suppression devices~~Provisions for external stores

●	Electronic navigation instruments, radios and transponders	●	Attitude heading reference systems

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Modifications. The companies in Aerospace Products have authority pursuant to Federal Aviation Administration Supplemental Type Certificates (“STCs”) and Parts Manufacturer Approval (“PMA”), ~~issued by the Federal Aviation Administration,~~ to build required parts and subassemblies and to make applicable installations. Companies in Aerospace Products perform modifications in the aviation industry including:

●	Aerial photograph capabilities	●	Extended tip fuel tanks

●	Aerodynamic improvements	●	Radar systems

●	Avionics systems	●	~~Reduced vertical separation minimums~~ISR – Intelligence Surveillance Reconnaissance

●	Cargo doors	●	Special mission modifications

●	Conversion from passenger to freighter configuration	●	Stability enhancements

●	Extended doors	●	Traffic collision avoidance systems

~~Table of Contents~~

Special Mission Electronics. We supply defense-related, commercial off-the-shelf products to various commercial entities and government agencies and subcontractors in order to update or extend the useful life of aircraft with older components and technology. These products include:

●	Cabling	●	HangFire Override Modules

●	Electronic control systems	●	Test equipment

●	Gun Control Units for Apache and Blackhawk helicopters	●	Gun Control Units for land and sea based military vehicles

Professional Services. The Professional Services segment includes the management of a gaming ~~facilities~~facility and related dining and entertainment facilities in ~~Kansas and Oklahoma. We currently manage a gaming and entertainment facility.~~Dodge City, Kansas. Boot Hill Casino and Resort features approximately 640 slot machines and 20 table games. Companies in Professional Services also provide licensed architectural services, including commercial and industrial building design, and engineering services.

Boot Hill. ~~BNSC,~~Butler National Service Corporation (“BNSC”), via BHCMC, LLC (“BHCMC”), a company in Professional Services, has managed The Boot Hill Casino and Resort in Dodge City, Kansas (“Boot Hill”) since 2009 pursuant to the Lottery Gaming Facility Management Contract, by and among BNSC, BHCMC and the Kansas Lottery, originally dated December 8, 2009, as subsequently amended (“Boot Hill Agreement”). As required by Kansas law, all games, gaming equipment and gaming operations at Boot Hill are owned and operated by the Kansas Lottery.

The Stables. ~~Since~~From 1998 until 2018, Butler National Service Corporation, a company in Professional Services and our wholly-owned subsidiary, ~~has~~ managed a Modoc Tribe of Oklahoma owned casino known as The Stables Casino in Miami, Oklahoma (“The Stables”) pursuant to the Stables Management Agreement originally dated December 12, 1996 and approved by the NIGC on January 14, 1997 as subsequently amended (the “Stables Agreement”). Under the terms of the Stables Agreement, BNSC received twenty percent (20%) of the net profits from The Stables. The Stables Agreement expired on September 30, 2018, and was not renewed.

Architectural and Engineering Services. Companies in Professional Services provide licensed architectural, including commercial and industrial building design, and engineering services.

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Results Overview

The ~~nine~~three months ending ~~January~~July 31, 2019 revenue increased 27% to ~~$43.0~~$17.0 million compared to ~~$33.8~~$13.4 million in the ~~nine~~three months ending ~~January~~July 31, 2018. In the ~~nine~~three months ending ~~January~~July 31, 2019 the professional services revenue was ~~$23.4~~$8.1 million compared to ~~$22.3~~$7.9 million in the ~~nine~~three months ending ~~January~~July 31, 2018, an increase of 5%2%. In the ~~nine~~three months ending ~~January~~July 31, 2019 the Aerospace Products revenue was ~~$19.6~~$8.9 million compared to ~~$11.5~~$5.5 million in the ~~nine~~three months ending ~~January~~July 31, 2018, an increase of ~~71%~~63%.

The ~~nine~~three months ending ~~January~~July 31, 2019 net income increased to ~~$3.6~~$2.1 million compared to a net income of ~~$342~~$509 in the ~~nine~~three months ending ~~January~~July 31, 2018. The ~~nine~~three months ending ~~January~~July 31, 2019, operating income increased to ~~$4.5~~$3.5 million, from an operating income of ~~$1.4 million~~$901 in the ~~nine~~three months ending ~~January~~July 31, 2018.

RESULTS OF OPERATIONS

~~NINE~~THREE MONTHS ENDING ~~JANUARY~~JULY 31, 2019 COMPARED TO ~~NINE~~THREE MONTHS ENDING ~~JANUARY~~JULY 31, 2018

(dollars in thousands)

Nine
Months
Ended
January 31,
2019

Percent
of Total
Revenue

Nine
Months
Ended
January 31,
2018

Percent
of Total
Revenue

Percent
Change
2018-2019

Revenue:

Professional Services
$ 23,423 54
%
$ 22,340 66
%
5
%
Aerospace Products
19,570 46
%
11,476 34
%
71
%
Total revenue
42,993 100
%
33,816 100
%
27
%

Costs and expenses:

Costs of Professional Services
14,735 34
%
14,344 42
%
3
%
Cost of Aerospace Products
12,102 28
%
8,469 25
%
43
%
Marketing and advertising
3,056 7
%
2,729 9
%
12
%
Employee benefits
1,518 3
%
1,416 4
%
7
%
Depreciation and amortization
1,198 3
%
1,344 4
%
-11
%
General, administrative and other
5,852 14
%
4,112 12
%
42
%
Total costs and expenses
38,461 89
%
32,414 96
%
19
%
Operating income
$ 4,532 11
%
$ 1,402 4
%
223
%
(dollars in thousands)

Three
Months
Ended
July 31,
2019

Percent
of Total
Revenue

Three
Months
Ended
July 31,
2018

Percent
of Total
Revenue

Percent
Change
2018-2019

Revenue:

Professional Services
$ 8,116 48
%
$ 7,948 59
%
2
%
Aerospace Products
8,900 52
%
5,456 41
%
63
%
Total revenue
17,016 100
%
13,404 100
%
27
%

Costs and expenses:

Costs of Professional Services
3,850 23
%
4,812 36
%
-20
%
Cost of Aerospace Products
4,969 29
%
4,130 31
%
20
%
Marketing and advertising
1,104 7
%
975 7
%
13
%
Employee benefits
547 3
%
505 4
%
8
%
Depreciation and amortization
1,239 7
%
388 3
%
219
%
General, administrative and other
1,786 10
%
1,693 12
%
5
%
Total costs and expenses
13,495 79
%
12,503 93
%
8
%
Operating income
$ 3,521 21
%
$ 901 7
%
291
%

Revenue:

Revenue increased 27% to ~~$43.0~~$17.0 million in the ~~nine~~three months ended ~~January~~July 31, 2019, compared to ~~$33.8~~$13.4 million in the ~~nine~~three months ended ~~January~~July 31, 2018. See "Operations by Segment" below for a discussion of the primary reasons for the increase in revenue.

●
Professional Services derives its revenue from (a) professional management services in the gaming industry through Butler National Service Corporation ("BNSC") and BHCMC, LLC ("BHCMC"), and (b) professional architectural, engineering and management support services. Revenue from Professional Services increased 5%2% for the ~~nine~~three months to ~~$23.4~~$8.1 million at ~~January~~July 31, 2019 compared to ~~$22.3~~$7.9 million ~~at January~~in the three months ended July 31, 2018.

●
Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft. Aerospace Products revenue increased ~~71%~~63% for the ~~nine~~three months to ~~$19.6~~$8.9 million at ~~January~~July 31, 2019 compared to ~~$11.5~~$5.5 million at ~~January~~July 31, 2018. ~~The increase is primarily due to an increase in aircraft modification revenue of $3.8 million and an increase in avionics revenue of $4.3 million.~~

Costs and expenses:

Costs and expenses related to Professional Services and Aerospace Products include the cost of engineering, labor, materials, equipment utilization, control systems, security and occupancy.

Costs and expenses increased ~~19%~~8% in the ~~nine~~three months ended ~~January~~July 31, 2019 to ~~$38.5~~$13.5 million compared to ~~$32.4~~$12.5 million in the ~~nine~~three months ended ~~January~~July 31, 2018. Costs and expenses were ~~89%~~79% of total revenue in the ~~nine~~three months ended ~~January~~July 31, 2019, as compared to ~~96%~~93% of total revenue in the ~~nine~~three months ended ~~January~~July 31, 2018.

Costs of Professional Services ~~increased 3%~~decreased 20% in the ~~nine~~three months ended ~~January~~July 31, 2019 to ~~$14.7~~$3.9 million compared to ~~$14.3~~$4.8 million in the ~~nine~~three months ended ~~January~~July 31, 2018. Costs were ~~34%~~23% of total revenue in the ~~nine~~three months ended ~~January~~July 31, 2019, as compared to ~~42%~~36% of total revenue in the ~~nine~~three months ended ~~January~~July 31, 2018.
   `
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Table of Contents

Costs of Aerospace Products increased ~~43%~~by 20% in the ~~nine~~three months ended ~~January~~July 31, 2019 to ~~$12.1~~$5.0 million compared to ~~$8.5~~$4.1 million for the ~~nine~~three months ended ~~January~~July 31, 2018. Costs were ~~28%~~29% of total revenue in the ~~nine~~three months ended ~~January~~July 31, 2019, as compared to ~~25%~~31% of total revenue in the ~~nine~~three months ended ~~January~~July 31, 2018.

Marketing and advertising expenses increased ~~12%~~by 13% in the ~~nine~~three months ended ~~January~~July 31, 2019, to ~~$3.1~~$1.1 million compared to ~~$2.7 million~~$975 in the ~~nine~~three months ended ~~January~~July 31, 2018. Expenses were 7% of total revenue in the ~~nine~~three months ended ~~January~~July 31, 2019, as compared to 9%7% of total revenue in the ~~nine~~three months ended ~~January~~July 31, 2018. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions.

Employee benefits expenses as a percent of total revenue was 3% in the ~~nine~~three months ended ~~January~~July 31, 2019, compared to 4% in the ~~nine~~three months ended ~~January~~July 31, 2018. These expenses increased 7% to ~~$1.5 million~~$547 in the ~~nine~~three months ended ~~January~~July 31, 2019, ~~compared to $1.4 million~~from $505 in the ~~nine~~three months ended ~~January~~July 31, 2018. These expenses include the employers' share of all federal, state and local taxes, paid time off for vacation, holidays and illness, employee health and life insurance programs and employer matching contributions to retirement plans.

Depreciation and amortization expenses as a percent of total revenue was 3% in the nine months ended January 31, 2019, compared to 4% in the nine months ended January 31, 2018. These expenses decreased 11% to $1.2 million in the nine months ended January 31, 2019, from $1.3 million in the nine months ended January 31, 2018. These expenses include depreciation related to owned assets being depreciated over various useful lives and amortization of intangible items including the Kansas privilege fee related to the Boot Hill Casino being expensed over the term of the gaming contract with the State of Kansas. BHCMC, LLC depreciation and amortization expense for the nine months ended January 31, 2019 was $760 compared to $943 in the nine months ended January 31, 2018.
~~General, administrative and other expenses~~ as a percent of total revenue was 14% in the nine months ended January 31, 2019, compared to 12% in the nine months ended January 31, 2018. These expenses increased 42% to $5.9 million in the nine months ended January 31, 2019, from $4.1 million in the nine months ended January 31, 2018.
~~Other income (expense):~~
~~Interest expense and other income~~ were $1.8 million in the nine months ended January 31, 2019, compared with interest expense and other income of $(249) in the nine months ended January 31, 2018. Interest related to obligations of BHCMC, LLC was $(78) in the nine months ended January 31, 2019 compared to $(119) in the nine months ended January 31, 2018.
14
~~Table of Contents~~
~~Operations by Segment~~
We have two operating segments, Professional Services and Aerospace Products. The Professional Services segment includes revenue contributions and expenditures associated with casino management services and professional architectural, engineering and management support services. Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.
~~The following table presents a summary of our operating segment information for the nine months ended January 31, 2019 and January 31, 2018:~~
(dollars in thousands)

Nine
Months
Ended
January 31,
2019

Percent
of Total
Revenue

Nine
Months
Ended
January 31,
2018

Percent
of Total
Revenue

Percent
Change
2018-2019

Professional Services

Revenue

Boot Hill Casino
$ 23,151 99
%
$ 22,009 99
%
5
%
Management/Professional Services
272 1
%
331 1
%
-18
%
Revenue
23,423 100
%
22,340 100
%
5
%

Costs of Professional Services
14,735 63
%
14,344 64
%
3
%
Expenses
7,898 34
%
6,873 31
%
15
%
Total costs and expenses
22,633 97
%
21,217 95
%
7
%
Professional Services operating income before noncontrolling interest in BHCMC, LLC
$ 790 3
%
$ 1,123 5
%
-30
%
(dollars in thousands)

Nine
Months
Ended
January 31,
2019

Percent
of Total
Revenue

Nine
Months
Ended
January 31,
2018

Percent
of Total
Revenue

Percent
Change
2018-2019

Aerospace Products

Revenue
$ 19,570 100
%
$ 11,476 100
%
71
%

Costs of Aerospace Products
12,102 62
%
8,469 74
%
43
%
Expenses
3,726 19
%
2,728 24
%
37
%
Total costs and expenses
15,828 81
%
11,197 98
%
41
%

Aerospace Products operating income
$ 3,742 19
%
$ 279 2
%
1241
%
~~Professional Services~~
●
~~Revenue from Professional Services increased 5% for the nine months ended January 31, 2019 to $23.4 million compared to $22.3 million for the nine months ended January 31, 2018.~~

In the nine months ended January 31, 2019 Boot Hill Casino received gross receipts for the State of Kansas of $30.6 million compared to $29.3 million for the nine months ended January 31, 2018. Mandated fees, taxes and distributions reduced gross receipts by $10.1 million resulting in gaming revenue of $20.5 million for the nine months ended January 31, 2019, compared to a reduction to gross receipts of $9.9 million resulting in gaming revenue of $19.4 million for the nine months ended January 31, 2018. Non-gaming revenue at Boot Hill Casino increased 4% to $2.7 million for the nine months ended January 31, 2019, from $2.7 million for the nine months ended January 31, 2018.

The remaining management and Professional Services revenue includes professional management services in the gaming industry, and licensed architectural services. Professional Services revenue excluding Boot Hill Casino decreased 19% to $272 for the nine months ended January 31, 2019, compared to $331 for the nine months ended January 31, 2018.
●
Costs of Professional Services increased 3% in the nine months ended January 31, 2019 to $14.7 million compared to $14.3 million in the nine months ended January 31, 2018. Costs were 63% of segment total revenue in the nine months ended January 31, 2019, as compared to 64% of segment total revenue in the nine months ended January 31, 2018.
●
Expenses increased 15% in the nine months ended January 31, 2019 to $7.9 million compared to $6.9 million in the nine months ended January 31, 2018. Expenses were 34% of segment total revenue in the nine months ended January 31, 2019, as compared to 31% of segment total revenue in the nine months ended January 31, 2018.
15
~~Table of Contents~~
~~Aerospace Products~~
●
Revenue increased 71% to $19.6 million in the nine months ended January 31, 2019, compared to $11.5 million in the nine months ended January 31, 2018. The increase is primarily due to an increase in aircraft modification revenue of $3.8 million and an increase in avionics of $4.3 million. We have invested in the development of several STCs. These STCs are state of the art avionics and we are aggressively marketing both domestically and internationally.
●
Costs of Aerospace Products increased by 43% in the nine months ended January 31, 2019 to $12.1 million compared to $8.5 million for the nine months ended January 31, 2018. Costs were 62% of segment total revenue in the nine months ended January 31, 2019, as compared to 74% of segment total revenue in the nine months ended January 31, 2018.
●
Expenses increased 37% in the nine months ended January 31, 2019 to $3.7 million compared to $2.7 million in the nine months ended January 31, 2018. Expenses were 19% of segment total revenue in the nine months ended January 31, 2019, as compared to 24% of segment total revenue in the nine months ended January 31, 2018.
~~THIRD~~ ~~QUARTER FISCAL~~ ~~2019~~ ~~COMPARED TO~~ ~~THIRD~~ ~~QUARTER FISCAL~~ ~~2018~~
(dollars in thousands)

Three
Months
Ended
January 31,
2019

Percent
of Total
Revenue

Three
Months
Ended
January 31,
2018

Percent
of Total
Revenue

Percent
Change
2018-2019

Revenue:

Professional Services
$ 7,617 53
%
$ 7,559 69
%
1
%
Aerospace Products
6,675 47
%
3,451 31
%
93
%
Total revenue
14,292 100
%
11,010 100
%
30
%

Costs and expenses:

Costs of Professional Services
4,996 35
%
4,747 43
%
5
%
Cost of Aerospace Products
3,642 25
%
2,636 24
%
38
%
Marketing and advertising
1,021 7
%
920 9
%
11
%
Employee benefits
532 4
%
480 4
%
11
%
Depreciation and amortization
415 3
%
362 3
%
15
%
General, administrative and other
1,873 13
%
1,426 13
%
31
%
Total costs and expenses
12,479 87
%
10,571 96
%
18
%
Operating income
$ 1,813 13
%
439 4
%
313
%
~~Revenue:~~
~~Revenue~~ ~~increased 30% to $14.3 million~~7% in the three months ended ~~January 31, 2019, compared to $11.0 million in the three months ended January 31, 2018.~~
●
Professional Services derives its revenue from (a) professional management services in the gaming industry through Butler National Service Corporation ("BNSC") and BHCMC, LLC ("BHCMC"), and (b) professional architectural, engineering and management support services. Revenue from Professional Services increased 1% for the three months to $7.6 million at January 31, 2019 compared to $7.6 million at January 31, 2018.
●
Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft. Aerospace Products revenue increased 93% for the three months to $6.7 million at January 31, 2019 compared to $3.5 million at January 31, 2018. The increase is primarily due to an increase in aircraft modification revenue of $1.7 million and an increase in avionics revenue of $1.5 million.
16
~~Table of Contents~~
~~Costs and expenses:~~
~~Costs and expenses~~ ~~related to Professional Services and Aerospace Products include the cost of engineering, labor, materials, equipment utilization, control systems, security and occupancy.~~
Costs and expenses increased 18% in the three months ended January 31, 2019 to $12.5 million compared to $10.6 million in the three months ended January 31, 2018. Costs and expenses were 87% of total revenue in the three months ended January 31, 2019, as compared to 96% of total revenue in the three months ended January 31, 2018.
~~Costs of Professional Services~~ increased 5% in the three months ended January 31, 2019 to $5.0 million compared to $4.7 million in the three months ended January 31, 2018. Costs were 35% of total revenue in the three months ended January 31, 2019, as compared to 43% of total revenue in the three months ended January 31, 2018.
~~Costs of Aerospace Products~~ increased 38% in the three months ended January 31, 2019 to $3.6 million compared to $2.6 million for the three months ended January 31, 2018. Costs were 25% of total revenue in the three months ended January 31, 2019, as compared to 24% of total revenue in the three months ended January 31, 2018.
~~Marketing and advertising expenses~~ increased 11% in the three months ended January 31, 2019, to $1.0 million compared to $920 in the three months ended January 31, 2018. Expenses were 7% of total revenue in the three months ended January 31, 2019, as compared to 9% of total revenue in the three months ended January 31, 2018. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions.
~~Employee benefits expenses~~ as a percent of total revenue was 4% in the three months ended January 31, 2019, compared to 4% in the three months ended January 31, 2018. These expenses increased 11% to $532 in the three months ended January 31, 2019, from $480 in the three months ended January 31, 2018. These expenses include the employers' share of all federal, state and local taxes, paid time off for vacation, holidays and illness, employee health and life insurance programs and employer matching contributions to retirement plans.
~~Depreciation and amortization expenses~~ ~~as a percent of total revenue was 3% in the three months ended January~~July 31, 2019, compared to 3% in the three months ended ~~January~~July 31, 2018. These expenses increased ~~15%~~219% to ~~$415~~$1.2 million in the three months ended ~~January~~July 31, 2019, from ~~$362~~$388 in the three months ended ~~January~~July 31, 2018. These expenses include depreciation related to owned assets being depreciated over various useful lives and amortization of intangible items including the Kansas privilege fee related to the Boot Hill Casino being expensed over the term of the gaming contract with the State of Kansas. BHCMC, LLC depreciation and amortization expense for the three months ended ~~January~~July 31, 2019 was ~~$265~~$938 compared to ~~$229~~$245 in the three months ended ~~January~~July 31, 2018.

General, administrative and other expenses as a percent of total revenue was ~~13%~~10% in the three months ended ~~January~~July 31, 2019, compared to ~~13%~~12% in the three months ended ~~January~~July 31, 2018. These expenses increased ~~31%~~5% to ~~$1.9~~$1.8 million in the three months ended ~~January~~July 31, 2019, from ~~$1.4~~$1.7 million in the three months ended ~~January~~July 31, 2018.

Other income (expense):

Interest ~~Expense~~expense and other incomewere ~~$341~~$(568) in the three months ended ~~January~~July 31, 2019, compared with interest expense and other income of ~~$(82)~~$209 in the three months ended ~~January~~July 31, 2018. Interest related to obligations of BHCMC, LLC was ~~$(22)~~$1.0 million in the three months ended ~~January~~July 31, 2019 compared to ~~$(37)~~$29 in the three months ended ~~January~~July 31, 2018.

1715
Table of Contents

Operations by Segment

We have two operating segments, Professional Services and Aerospace Products. The Professional Services segment includes revenue contributions and expenditures associated with casino management services and professional architectural, engineering and management support services. Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.

The following table presents a summary of our operating segment information for the three months ended ~~January~~July 31, 2019 and ~~January~~July 31, 2018:

(dollars in thousands)

Three
Months
Ended
January 31,
2019

Percent
of Total
Revenue

Three
Months
Ended
January 31,
2018

Percent
of Total
Revenue

Percent
Change
2018-2019

Three
Months
Ended
July 31,
2019

Percent
of Total
Revenue

Three
Months
Ended
July 31,
2018

Percent
of Total
Revenue

Percent
Change
2018-2019

Professional Services

Revenue

Boot Hill Casino
$ 7,564 99
%
$ 7,483 99
%
1
%
$ 8,069 99
%
$ 7,841 99
%
3
%
Management/Professional Services
53 1
%
76 1
%
-30
%
47 1
%
107 1
%
-56
%
Revenue
7,617 100
%
7,559 100
%
1
%
8,116 100
%
7,948 100
%
2
%

Costs of Professional Services
4,996 65
%
4,747 63
%
5
%
3,850 48
%
4,812 60
%
-20
%
Expenses
2,420 32
%
2,256 30
%
7
%
3,017 37
%
2,592 33
%
16
%
Total costs and expenses
7,416 97
%
7,003 93
%
6
%
6,867 85
%
7,404 93
%
-7
%
Professional Services operating income before noncontrolling interest in BHCMC, LLC
$ 201 3
%
$ 556 7
%
-64
%
$ 1,249 15
%
$ 544 7
%
130
%

(dollars in thousands)

Three
Months
Ended
January 31,
2019

Percent
of Total
Revenue

Three
Months
Ended
January 31,
2018

Percent
of Total
Revenue

Percent
Change
2018-2019

Three
Months
Ended
July 31,
2019

Percent
of Total
Revenue

Three
Months
Ended
July 31,
2018

Percent
of Total
Revenue

Percent
Change
2018-2019

Aerospace Products

Revenue
$ 6,675 100
%
$ 3,451 100
%
93
%
$ 8,900 100
%
$ 5,456 100
%
63
%

Costs of Aerospace Products
3,642 55
%
2,636 76
%
38
%
4,969 56
%
4,130 75
%
20
%
Expenses
1,421 21
%
932 27
%
52
%
1,659 18
%
969 18
%
71
%
Total costs and expenses
5,063 76
%
3,568 103
%
42
%
6,628 74
%
5,099 93
%
30
%
2,272
2,272 26
%
$ 357 7
%
536
%
Aerospace Products operating income (loss)
$ 1,612 24
%
$ (117
)
-3
%
N/A


Professional Services

●
Revenue from Professional Services increased 1%2% for the three months ended ~~January~~July 31, 2019 to ~~$7.6~~$8.1 million compared to ~~$7.6~~$7.9 million for the three months ended ~~January~~July 31, 2018.

In the three months ended ~~January~~July 31, 2019 Boot Hill Casino received gross receipts for the State of Kansas of ~~$10.0~~$10.3 million compared to ~~$10.0~~$10.4 million for the three months ended ~~January~~July 31, 2018. Mandated fees, taxes and distributions reduced gross receipts by ~~$3.4~~$3.3 million resulting in gaming revenue of ~~$6.6~~$7.0 million for the three months ended ~~January~~July 31, 2019, compared to a reduction to gross receipts of $3.4 million resulting in gaming revenue of ~~$6.6~~$7.0 million for the three months ended ~~January~~July 31, 2018. Non-gaming revenue at Boot Hill Casino increased to ~~$935~~$1.0 million for the three months ended ~~January~~July 31, 2019, compared to ~~$872~~$876 for the three months ended ~~January~~July 31, 2018.

The remaining management and Professional Services revenue includes professional management services in the gaming industry, and licensed architectural services. Professional Services revenue excluding Boot Hill Casino decreased ~~30%~~56% to ~~$53~~$47 for the three months ended ~~January~~July 31, 2019, compared to ~~$76~~$107 for the three months ended ~~January~~July 31, 2018.

●
Costs of Professional Services ~~increased 5%~~decreased in the three months ended ~~January~~July 31, 2019 to ~~$5.0~~$3.9 million compared to ~~$4.7~~$4.8 million in the three months ended ~~January~~July 31, 2018. Costs were ~~65%~~48% of segment total revenue in the three months ended ~~January~~July 31, 2019, as compared to ~~63%~~60% of segment total revenue in the three months ended ~~January~~July 31, 2018.
16
Table of Contents

●
Expenses increased 7%16% in the three months ended ~~January~~July 31, 2019 to ~~$2.4~~$3.0 million compared to ~~$2.3~~$2.6 million in the three months ended ~~January~~July 31, 2018. Expenses were ~~32%~~37% of segment total revenue in the three months ended ~~January~~July 31, 2019, as compared to ~~30%~~33% of segment total revenue in the three months ended ~~January~~July 31, 2018.
18
~~Table of Contents~~

Aerospace Products

●
Revenue increased ~~93%~~63% to ~~$6.7~~$8.9 million in the three months ended ~~January~~July 31, 2019, compared to ~~$3.5~~$5.5 million in the three months ended ~~January~~July 31, 2018. The increase ~~is primarily~~in revenue was due to an increase of $2.7 million in ~~aircraft modification revenue of $1.7 million~~avionics business and ana $782 increase in ~~avionics revenue of $1.5 million.~~modification business. We have invested in the development of several STCs. These STCs are state of the art avionics and we are aggressively marketing both domestically and internationally.

●
Costs of Aerospace Products increased ~~38%~~by 20% in the three months ended ~~January~~July 31, 2019 to ~~$3.6~~$5.0 million compared to ~~$2.6~~$4.1 million for the three months ended ~~January~~July 31, 2018. Costs were ~~55%~~56% of segment total revenue in the three months ended ~~January~~July 31, 2019, as compared to ~~76%~~75% of segment total revenue in the three months ended ~~January~~July 31, 2018.

●
Expenses increased ~~52%~~71% in the three months ended ~~January~~July 31, 2019 to ~~$1.4~~$1.7 million compared to ~~$932~~$969 in the three months ended ~~January~~July 31, 2018. Expenses were ~~21%~~18% of segment total revenue in the three months ended ~~January~~July 31, 2019, as compared to ~~27%~~18% of segment total revenue in the three months ended ~~January~~July 31, 2018.

Employees

Other than persons employed by our gaming subsidiaries there were ~~101~~102 full time and 35 part time employees on ~~January~~July 31, 2019, compared to 9093 full time and 36 part time employees on ~~January~~July 31, 2018. As of ~~March 8,~~September 6, 2019, staffing is ~~101~~99 full time and 35 part time employees. Our staffing at Boot Hill Casino & Resort on ~~January~~July 31, 2019 was ~~185~~192 full time and 6267 part time employees compared to ~~174~~186 full time and 7266 part time employees on ~~January~~July 31, 2018. At ~~March 8,~~September 6, 2019 there ~~were 184~~are 197 full time and 6963 part time employees. None of the employees are subject to any collective bargaining agreements.

Liquidity and Capital Resources

We believe that our current banks will provide the necessary capital for our business operations. However, we continue to maintain contact with other banks that have an interest in funding our working capital needs to continue our growth in operations in fiscal 2019 and beyond.

The ownership structure of BHCMC, LLC is now:

Membership Interest

Members of
Board of
Managers

Equity
Ownership

Income
(Loss)
Sharing

Members of
Board of
Managers

Equity
Ownership

Income
(Loss) Sharing

Class A
3 20% 40%

3

20%

40%

Class B
4 80% 60%

4

80%

60%


Our wholly owned subsidiary, Butler National Service Corporation continues friendly discussions with the other member of BHCMC, LLC to explore the possible acquisition by Butler National Service Corporation of the other member's 20% equity interest in BHCMC, LLC.   If and when a definitive agreement is reached, such definitive agreement and a press release concerning the acquisition will be issued to describe the terms of the agreement and the intentions of the members.   We have not set a definitive timetable for our discussions and there can be no assurances that the process will result in any transaction being announced or completed. At present there is no disagreement between the members of BHCMC, LLC.   We do not plan to disclose or comment on developments until further disclosure is deemed appropriate.

BHCMC, LLC, rents the casino building under the terms of a 25 year lease from BHC Development L.C. ("BHCD"). Butler National Service Corporation continues friendly discussions with BHC Development L.C. to explore the possible acquisition by Butler National Service Corporation of the casino building and related land. If and when a definitive agreement is reached, such definitive agreement and press release concerning the acquisition will be issued to describe the terms of the agreement and the intentions of the members. Butler National Corporation, its management, and its subsidiaries have no ownership interest in BHCI or BHCD.

19
~~Table of Contents~~

Analysis and Discussion of Cash Flow

During the ~~nine~~three months ended ~~January~~July 31, 2019 our cash position increased by ~~$1.5~~$1.2 million. Net income was ~~$5.0~~$2.2 million for the ~~nine~~three months ended ~~January~~July 31, 2019. Cash flows provided by operating activities was ~~$7.5~~$1.1 million for the ~~nine~~three months ended ~~January~~July 31, 2019. ~~For the nine months ended January 31, 2019, non-cash~~Non-cash activities consisting of depreciation and amortization provided ~~$2.4 million.~~$1.6 million, while a gain on sale of an airplane used $529. Customer deposits increased our cash position by ~~$1.9 million while inventories~~$190. Inventories decreased our cash position by ~~$1.5 million.~~$374. Accounts receivable decreased our cash position by ~~$668. A decrease in income tax receivable increased our cash position by $219.~~$2.1 million. Gaming facility mandated payments decreased our cash position by ~~$244.~~$305. Prepaid expenses and other assets decreased our cash by ~~$431.~~$100. A decrease in accounts payable, a decrease in accrued expenses, and an increase in ~~accrued expenses and~~ other current liabilities ~~increased~~decreased our cash by an additional ~~$879.~~$179. Income tax payable increased our cash position by $735.
17
Table of Contents

Cash ~~used in~~provided by investing activities was ~~$1.5 million~~$917 for the ~~nine~~three months ended ~~January~~July 31, 2019. We invested ~~$36 in building additions, $199 to purchase equipment, $707~~$58 in furniture and ~~fixtures and $557 to develop and enhance STCs.~~fixtures. We received $975 in proceeds for the sale of an airplane.

Cash used in financing activities was ~~$4.5 million~~$823 for the ~~nine~~three months ended ~~January~~July 31, 2019. We made repayments on our debt of ~~$1.2 million and decreased promissory notes~~$556. We reduced our financed lease liability by ~~$2.4 million.~~$224. We ~~made a distribution to our non-controlling member of $720, and~~ purchased company ~~common~~ stock of ~~$214~~$43. The stock was acquired and placed ~~such stock~~ in treasury.

Critical Accounting Policies and Estimates:

We believe that there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amount of revenue and other significant areas involving management judgments and estimates. These significant accounting policies relate to revenue recognition, the use of estimates, long-lived assets, and Supplemental Type Certificates. These policies and our procedures related to these policies are described in detail below and under specific areas within this "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Revenue Recognition: See footnote 3 to the condensed consolidated financial statements.

Finance Lease Right-of-Use: See footnote 11 to the condensed consolidated financial statements.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our financial statements.

Significant estimates include assumptions about collection of accounts receivable, inventory obsolescence, the valuation of long-lived assets, including the STC’s, valuation for deferred tax assets and useful life of fixed and other long-term assets.

Long-lived Assets: The Company accounts for its long-lived assets in accordance with ASC Topic 360-10, "Accounting for the Impairment or Disposal of Long-Lived Assets." ASC Topic 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value or disposable value.

Supplemental Type Certificates: Supplemental Type Certificates (STCs) are authorizations granted by the Federal Aviation Administration (FAA) for specific modification of a certain aircraft. The STC authorizes us to perform modifications, installations, and assemblies on applicable customer-owned aircraft. Costs incurred to obtain STCs are capitalized and subsequently amortized over a seven year life. The legal life of an STC is indefinite.

Changing Prices and Inflation

We have experienced upward pressure from inflation in fiscal year ~~2019.~~2020. From fiscal year ~~2018~~2019 to fiscal year ~~2019 a majority~~2020 most of the increases we experienced were in material costs. This additional cost may not be transferable to our customers resulting in lower income in the future. We anticipate fuel costs and possibly interest rates to rise in fiscal ~~2019~~2020 and ~~2020.~~2021.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.
20
~~Table of Contents~~

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting Company as defined by Rule 12b-2 under the Securities Exchange Act of 1934 and are not required to provide the information required under this item.
18
Table of Contents

Item 4. CONTROLS AND PROCEDURES

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Our principal executive and financial officers have evaluated our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q and have determined that such disclosure controls and procedures are effective, based on criteria in the Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

Evaluation of disclosure controls and procedures: Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this Form 10-Q, our Chief Executive Officer and our Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~January~~July 31, 2019. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of ~~January~~July 31, 2019.

Internal Control Over Financial Reporting

Limitations on Controls

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all ~~errors~~error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control Over Financial Reporting: In our opinion there were no changes in the Company's internal control over financial reporting during the three months ended ~~January~~July 31, 2019 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

2119
Table of Contents

PART II. OTHER INFORMATION
Item 1.

LEGAL PROCEEDINGS.

As of ~~January~~July 31, 2019, there are no significant known legal proceedings pending against us. We consider all such unknown proceedings, if any, to be ordinary litigation incident to the character of the business. We believe that the resolution of any claims will not, individually or in the aggregate, have a material adverse effect on the financial position, results of operations, or liquidity of the Company.

Item 1A.

RISK FACTORS.

There are no material changes to the risk factors disclosed under Item 1A of our Form 10-K for the fiscal year ended April 30, ~~2018.~~2019.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The table below provides information with respect to common stock purchases by the Company during the first quarter of fiscal 2020.
~~The table below provides information with respect to common stock purchases by the Company during the third fiscal quarter of 2019.~~
Period

Total Number
of Shares
Purchased (a)

Average
Price Paid
per Share

Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs

Approximate Dollar Value of
Shares That May Yet Be
Purchased Under the Plans or
Programs (b)
November 1, 2018 - November 30, 2018
- $ - - $ 381,000
December 1, 2018 – December 31, 2018
- $ - - $ 381,000
January 1, 2019 - January 31, 2019
186,727 $ 0.34 186,727 $ 317,000
Total
186,727 $ 0.34 186,727
Period

Total Number
of Shares
Purchased (a)

Average
Price Paid
per Share

Total Number of Shares Purchased
as Part of Publicly Announced
Plans or Programs

Approximate Dollar Value of
Shares That May Yet Be Purchased
Under the Plans or Programs

May 1, 2019 - May 31, 2019
- $ - - $ 1,569,000
June 1, 2019 – June 30, 2019
- $ - - $ 1,569,000
July 31, 2019 - July 31, 2019
120,821 $ 0.35 120,821 $ 1,526,000
Total
120,821 $ 0.35 120,821
(a) ~~All of the 186,727 shares of common stock purchased were purchased through private transactions~~
~~(b)~~ Our Board of Directors authorized the repurchase of shares of Butler National common stock in the open market or otherwise, at an aggregate purchase price of ~~$750,000.~~$2,225,000. The timing and amount of any share repurchases will be determined by Butler National's management based on market conditions and other factors. The program is currently authorized through May 1, ~~2019.~~
2020.
Item 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

Item 4.

MINE SAFETY DISCLOSURES.

Not applicable.

Item 5.

OTHER INFORMATION.

Based upon the Company’s discussions with shareholders related to the 2016 Equity Incentive Plan, the Compensation Committee of the board sought input from the Committee’s independent compensation consultant on compensation practices, including the use of the 2016 Equity Incentive Plan. Consequently, the Company believes the Committee will issue significant awards to eligible employees in early calendar 2019 from the 2016 Equity Incentive Plan. The Company intends to announce the issuance of such awards pursuant to a Current Report on Form 8-K at the appropriate time.None.


Item 6.	~~EXHIBITS.~~	EXHIBITS.

	3.1	Articles of Incorporation, as amended and restated are incorporated by reference to Exhibit 3.1 of our Form DEF 14A filed on December 26, 2001.

	4.1	Rights Agreement, dated August 2, 2011, by and between Butler National Corporation and UMB Bank, N.A., as Rights Agent, incorporated by reference to Exhibit 4.1 of our 10-Q filed on December 13, 2016.

	3.2	Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form 10-Q filed on March 14, 2013.

	~~4.1~~	Rights Agreement, dated August 2, 2011, by and between Butler National Corporation and UMB Bank, N.A., as Rights Agent, which includes the form of Certificate of Designations, setting forth the terms of the Series C Participating Preferred Stock, par value $5.00 per share, as Exhibit A, the form of Right Certificate as Exhibit B and the summary of the rights as Exhibit C.

	31.1	Certificate of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a).

	31.2	Certificate of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).

	32.1	Certifications of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Certifications of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	~~99.1~~	Investor Presentation for the 2018 Annual Meeting of Shareholders of Butler National Corporation, which is incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K dated October 11, 2018.

	101	The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~January~~July 31, 2019, formatted in XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of ~~January~~July 31, 2019 and April 30, ~~2018,~~2019, (ii) Condensed Consolidated Statements of Operations for the three months ended ~~January 31, 2019 and 2018 and nine months ended January~~July 31, 2019 and 2018, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three months ended July 31, 2019 and 2018, (iv) Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~January~~July 31, 2019 and 2018, and ~~(iv)~~(v) the Notes to Condensed Consolidated Financial Statements, with detail tagging.

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BUTLER NATIONAL CORPORATION
	(Registrant)

~~March 15,~~September 13, 2019	/s/ Clark D. Stewart
Date	Clark D. Stewart
	(President and Chief Executive Officer)

~~March 15,~~September 13, 2019	/s/ Tad M. McMahon
Date	Tad M. McMahon
	(Chief Financial Officer)

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Table of Contents

Exhibit Index

Exhibit Number	Description of Exhibit
3.1	Articles of Incorporation, as amended and restated are incorporated by reference to Exhibit 3.1 of our Form DEF 14A filed on December 26, 2001.

3.2	Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form 10-Q filed on March 14, 2013.

4.1	Rights Agreement, dated August 2, 2011, by and between Butler National Corporation and UMB Bank, N.A., as Rights Agent, incorporated by reference to Exhibit 4.1 of our 10-Q filed on December 13, ~~2017~~2016.

31.1	Certificate of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a).

31.2	Certificate of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).

32.1	Certifications of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certifications of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~99.1~~	Investor Presentation for the 2018 Annual Meeting of Shareholders of Butler National Corporation, which is incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K dated October 11, 2018.

101	The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~January~~July 31, 2019, formatted in XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of ~~January~~July 31, 2019 and April 30, ~~2018,~~2019, (ii) Condensed Consolidated Statements of Operations for the three months ended ~~January 31, 2019 and 2018 and nine months ended January~~July 31, 2019 and 2018, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three months ended July 31, 2019 and 2018, (iv) Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~January~~July 31, 2019 and 2018, and ~~(iv)~~(v) the Notes to Condensed Consolidated Financial Statements, with detail tagging.

2422

Kansas		41-0834293
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None