BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

INDEX

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

	Condensed Consolidated Balance Sheets – January 31, ~~2019 (unaudited)~~2020 and April 30, ~~2018 (audited)~~2019 (Audited)	3

	Condensed Consolidated Statements of Operations - Three Months Ended January 31, ~~2019~~2020 and ~~2018~~2019	4

	Condensed Consolidated Statements of Operations - Nine Months Ended January 31, ~~2019~~2020 and ~~2018~~2019	5

	Condensed Consolidated Statements of Stockholders' Equity - Three and Nine Months Ended January 31, 2020 and 2019	56

	Condensed Consolidated Statements of Cash Flows - Nine Months Ended January 31, ~~2019~~2020 and ~~2018~~2019	67

	Notes to Condensed Consolidated Financial Statements	78

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	1012

Item 3	Quantitative and Qualitative Disclosures about Market Risk	2120

Item 4	Controls and Procedures	21


~~PART II. OTHER INFORMATION~~

PART II. OTHER INFORMATION

Item 1	Legal Proceedings	22

Item 1A	Risk Factors	22

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 3	Defaults Upon Senior Securities	22

Item 4	Mine Safety Disclosures	22

Item 5	Other Information	22

Item 6	Exhibits	22

Signatures		23

Exhibit Index		24

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of January 31,~~2019~~ and 2020 and April 30, ~~2018~~2019

(in thousands except per share data)

January 31, 2019

April 30, 2018

(unaudited)

ASSETS

CURRENT ASSETS:

Cash
$ 8,803 $ 7,353
Accounts receivable
3,775 3,107
Income tax receivable, net
- 219
Inventories

Parts and raw materials
6,766 5,858
Work in process
1,824 1,234
Finished goods
73 27
Total inventory net of allowances
8,663 7,119
Prepaid expenses and other current assets
1,407 978
Total current assets
22,648 18,776

PROPERTY, PLANT AND EQUIPMENT:

Land and building
6,917 5,232
Aircraft
6,157 6,157
Machinery and equipment
4,001 3,922
Office furniture and fixtures
7,365 6,658
Leasehold improvements
4,032 4,032
28,472 26,001
Accumulated depreciation
(16,485
)
(15,725
)
Total property, plant and equipment
11,987 10,276

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

OTHER ASSETS:

Deferred tax asset
193 193
Other assets (net of accumulated amortization of $9,136 at January 31, 2019 and $8,213 at April 30, 2018)
4,788 5,589
Total other assets
4,981 5,782
Total assets
$ 46,126 $ 41,431

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Promissory notes
$ - $ 2,387
Current maturities of long-term debt
1,441 1,612
Current maturities of capital lease obligation
8 -
Accounts payable
1,695 2,215
Customer deposits
3,260 1,396
Gaming facility mandated payment
975 1,219
Compensation and compensated absences
1,695 1,439
Income taxes payable
996 -
Other current liabilities
310 162
Total current liabilities
10,380 10,430

Long-term debt, net of current maturities
686 1,735
Capital lease obligation, net of current maturities
1,691 -
Total long-term liabilities
2,377 1,735

Total liabilities
12,757 12,165

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
Capital contributed in excess of par
14,231 14,231
Treasury stock at cost, 2,146,346 shares at January 31, 2019 and 1,453,537 shares at April 30, 2018
(1,165
)
(951
)
Retained earnings
13,630 10,060
Total stockholders' equity Butler National Corporation
27,358 24,002
Noncontrolling interest in BHCMC, LLC
6,011 5,264
Total stockholders' equity
33,369 29,266
Total liabilities and stockholders' equity
$ 46,126 $ 41,431

	January 31, 2020			April 30, 2019
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	15,782		$	9,014
Accounts receivable, net of allowance for doubtful accounts		3,076			3,265
Asset held for sale, net of accumulated depreciation		-			447
Income tax receivable		-			27
Inventories
Parts and raw materials		6,962			7,370
Work in process		2,050			1,441
Finished goods		70			74
Total inventory, net of allowance		9,082			8,885
Prepaid expenses and other current assets		1,753			1,646
Total current assets		29,693			23,284

PROPERTY, PLANT AND EQUIPMENT:
Finance lease right-to-use assets		44,349			1,699
Land and building		5,765			5,765
Aircraft		8,859			8,467
Machinery and equipment		4,093			4,075
Office furniture and fixtures		7,802			7,487
Leasehold improvements		4,032			4,032
		74,900			31,525
Accumulated depreciation		(19,764	)		(16,714	)
Total property, plant and equipment		55,136			14,811

SUPPLEMENTAL TYPE CERTIFICATES (net of accumulated amortization of $6,782 at January 31, 2020 and $6,054 at April 30, 2019)		6,315			6,407

OTHER ASSETS:
Deferred tax asset		295			295
Other assets (net of accumulated amortization of $9,967 at January 31, 2020 and $9,370 at April 30, 2019)		3,588			4,105
Total other assets		3,883			4,400
Total assets	$	95,027		$	48,902

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	1,010		$	1,899
Current maturities of finance lease liability		1,123			8
Accounts payable		1,681			1,774
Customer deposits		1,509			2,758
Gaming facility mandated payment		1,121			1,280
Compensation and compensated absences		1,510			1,664
Deferred tax liability, current		236			236
Income taxes payable		1,794			-
Other current liabilities		395			230
Total current liabilities		10,379			9,849

LONG-TERM LIABILITIES
Long-term debt, net of current maturities		1,520			2,076
Finance lease liability, net of current maturities		42,521			1,689
Deferred tax liability		944			944
Total long-term liabilities		44,985			4,709
Total liabilities		55,364			14,558

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 71,008,122 shares, and outstanding 67,686,732 shares at January 31, 2020 and issued 71,008,122 shares, and outstanding 68,281,071 shares at April 30, 2019		710			710
Capital contributed in excess of par		14,909			14,767
Treasury stock at cost, 3,321,390 shares at January 31, 2020 and 2,727,051 shares at April 30, 2019		(1,713	)		(1,387	)
Retained earnings		19,539			13,913
Total Butler National Corporation's stockholders' equity		33,445			28,003
Noncontrolling interest in BHCMC, LLC		6,218			6,341
Total stockholders' equity		39,663			34,344
Total liabilities and stockholders' equity	$	95,027		$	48,902

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

statements

Table of Contents

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED ~~JANUARY~~January 31,~~2019~~ 2020 AND ~~2018~~2019

(in thousands, except per share data)

(unaudited)

THREE MONTHS ENDED
January 31,

2019

2018

REVENUE:

Professional Services
$ 7,617 $ 7,559
Aerospace Products
6,675 3,451
Total revenue
14,292 11,010

COSTS AND EXPENSES:

Cost of Professional Services
4,996 4,747
Cost of Aerospace Products
3,642 2,636
Marketing and advertising
1,021 920
Employee benefits
532 480
Depreciation and amortization
415 362
General, administrative and other
1,873 1,426
Total costs and expenses
12,479 10,571

OPERATING INCOME
1,813 439

OTHER INCOME (EXPENSE):

Interest expense
(44
)
(83
)
Other income, net
- 1
Refund of sales/use tax
385 -
Total other income (expense)
341 (82
)

INCOME BEFORE INCOME TAXES
2,154 357

INCOME TAXES:

Provision for income taxes
495 10

NET INCOME
1,659 347
Net income attributable to noncontrolling interest in BHCMC, LLC
(319
)
(327
)
NET INCOME ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION
$ 1,340 $ 20

BASIC EARNINGS PER COMMON SHARE
$ 0.02 $ 0.00

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
63,976,255 64,506,986

DILUTED EARNINGS PER COMMON SHARE
$ 0.02 $ 0.00

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION
63,976,255 64,506,986

	THREE MONTHS ENDED
	January 31,
	2020			2019
REVENUE:
Professional Services	$	7,962		$	7,617
Aerospace Products		8,838			6,675
Total revenue		16,800			14,292

COSTS AND EXPENSES:
Cost of Professional Services		4,030			4,996
Cost of Aerospace Products		5,307			3,642
Marketing and advertising		983			1,021
Employee benefits		592			532
Depreciation and amortization		1,316			415
General, administrative and other		1,684			1,873
Total costs and expenses		13,912			12,479

OPERATING INCOME		2,888			1,813

OTHER INCOME (EXPENSE):
Interest expense		(1,112	)		(44	)
Refund of sales/use tax		-			385
Gain on sale of airplane		75			-
Total other income (expense)		(1,037	)		341

INCOME BEFORE INCOME TAXES		1,851			2,154

PROVISION FOR INCOME TAXES
Provision for income taxes		494			495

NET INCOME		1,357			1,659
Net income attributable to noncontrolling interest in BHCMC, LLC		(22	)		(319	)
NET INCOME ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION	$	1,335		$	1,340

BASIC EARNINGS PER COMMON SHARE	$	0.02		$	0.02

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION		67,954,200			63,976,255

DILUTED EARNINGS PER COMMON SHARE	$	0.02		$	0.02

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION		67,954,200			63,976,255

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

FOR THE ~~NINE~~ ~~MONTHS ENDED~~ ~~JANUARY~~nine months ended January 31, 2020 and 2019 ~~AND~~ ~~2018~~

(in thousands, except per share data)

(unaudited)

							NINE MONTHS ENDED
	NINE MONTHS ENDED January 31,						January 31,
	2019			2018			2020			2019
REVENUE:
Professional Services	$	23,423		$	22,340		$	24,186		$	23,423
Aerospace Products		19,570			11,476			29,068			19,570
Total revenue		42,993			33,816			53,254			42,993

COSTS AND EXPENSES:
Cost of Professional Services		14,735			14,344			11,886			14,735
Cost of Aerospace Products		12,102			8,469			16,839			12,102
Marketing and advertising		3,056			2,729			3,122			3,056
Employee benefits		1,518			1,416			1,666			1,518
Depreciation and amortization		1,198			1,344			3,832			1,198
General, administrative and other		5,852			4,112			5,273			5,852
Total costs and expenses		38,461			32,414			42,618			38,461

OPERATING INCOME		4,532			1,402			10,636			4,532

OTHER INCOME (EXPENSE):
Interest expense		(169	)		(250	)		(3,296	)		(169	)
Other income, net		-			1
Refund of sales/use tax		1,995			-			-			1,995
Gain on sale of airplanes								604			-
Total other income (expense)		1,826			(249	)		(2,692	)		1,826

INCOME BEFORE INCOME TAXES		6,358			1,153			7,944			6,358

INCOME TAXES:
PROVISION FOR INCOME TAXES
Provision for income taxes		1,320			191			2,081			1,320

NET INCOME		5,038			962			5,863			5,038
Net income attributable to noncontrolling interest in BHCMC, LLC		(1,468	)		(620	)		(237	)		(1,468	)
NET INCOME ATTRIBUTABLE TO BUTLER NATIONAL CORPORATION	$	3,570		$	342		$	5,626		$	3,570

BASIC EARNINGS PER COMMON SHARE	$	0.06		$	0.01		$	0.08		$	0.06

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION		64,356,380			64,531,138			68,109,733			64,356,380

DILUTED EARNINGS PER COMMON SHARE	$	0.06		$	0.01		$	0.08		$	0.06

WEIGHTED AVERAGE SHARES USED IN PER SHARE CALCULATION		64,356,380			64,531,138			68,109,733			64,356,380

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 STOCKHOLDERS' EQUITY

FOR THE three and nine months ended January 31, 2020 and 2019

(dollars in thousands)

(unaudited)

	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

Stock repurchase		-		-		-		480,805		(144	)		-		(144	)		-			(144	)

BHCMC distribution noncontrolling interest		-		-		-		-		-			-		-			(360	)		(360	)

Net Income		-		-		-		-		-			1,721		1,721			735			2,456

Balance, October 31, 2018		66,196,854	$	662	$	14,231		1,959,619	$	(1,101	)	$	12,290	$	26,082		$	6,052		$	32,134

Stock repurchase		-		-		-		186,727		(64	)		-		(64	)		-			(64	)

BHCMC distribution noncontrolling interest		-		-		-		-		-			-		-			(360	)		(360	)

Net Income		-		-		-		-		-			1,340		1,340			319			1,659

Balance, January 31, 2019		66,196,854	$	662	$	14,231		2,146,346	$	(1,165	)	$	13,630	$	27,358		$	6,011		$	33,369

	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

Stock repurchase		-		-		-		206,050		(95	)		-		(95	)		-			(95	)

Deferred compensation, restricted stock		-		-		48		-		-			-		48			-			48

Net Income		-		-		-		-		-			2,230		2,230			85			2,315

Balance, October 31, 2019		71,008,122	$	710	$	14,862		3,053,922	$	(1,525	)	$	18,204	$	32,251		$	6,556		$	38,807

Stock repurchase		-		-		-		267,468		(188	)		-		(188	)		-			(188	)

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

BHCMC distribution noncontrolling interest		-		-		-		-		-			-		-			(360	)		(360	)

Net Income		-		-		-		-		-			1,335		1,335			22			1,357

Balance, January 31, 2020		71,008,122	$	710	$	14,909		3,321,390	$	(1,713	)	$	19,539	$	33,445		$	6,218		$	39,663

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 CASH FLOWS

FOR THE ~~NINE~~ ~~MONTHS ENDED~~ ~~JANUARY~~nine months ended January 31, 2020 and 2019 ~~AND~~ ~~2018~~

(in thousands)

(unaudited)

							NINE MONTHS ENDED
	NINE MONTHS ENDED January 31,						January 31,
	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,038		$	962		$	5,863		$	5,038
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		2,377			2,608			4,770			2,377
Gain on sale of airplane								(604	)		-
Deferred compensation, restricted stock								142			-

Changes in assets and liabilities
Accounts receivable		(668	)		2,151			189			(668	)
Income tax receivable								27			219
Inventories		(1,544	)		(1,163	)		(197	)		(1,544	)
Prepaid expenses and other current assets		(431	)		(124	)		(107	)		(431	)
Deferred tax asset		-			274
Income tax receivable		219			-
Accounts payable		(520	)		(494	)		(93	)		(520	)
Customer deposits		1,864			(150	)		(1,249	)		1,864
Accrued liabilities		1,252			(909	)		(154	)		1,252
Gaming facility mandated payment		(244	)		(322	)		(159	)		(244	)
Income tax payable								1,794			-
Other current liabilities		147			139			165			147
Net cash provided by operating activities		7,490			2,972			10,387			7,490

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(1,499	)		(1,834	)		(1,835	)		(1,499	)
Proceeds from sale of airplanes								1,050			-
Net cash used in investing activities		(1,499	)		(1,834	)		(785	)		(1,499	)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of promissory notes, net		(2,387	)		(109	)		-			(2,387	)
Repayments of long-term debt		(1,220	)		(1,795	)		(1,445	)		(1,220	)
Reduction of finance lease liability								(703	)		-
Distribution to non-controlling member		(720	)		(360	)		(360	)		(720	)
Purchase of common stock		(214	)		(142	)
Repurchase of common stock								(326	)		(214	)
Net cash used in financing activities		(4,541	)		(2,406	)		(2,834	)		(4,541	)

NET INCREASE (DECREASE) IN CASH		1,450			(1,268	)
NET INCREASE IN CASH								6,768			1,450

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

CASH, end of period	$	8,803		$	5,121		$	15,782		$	8,803

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	172		$	250		$	3,295		$	172
Income taxes paid	$	105		$	609		$	259		$	105

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							$	42,650		$	1,699

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 31, ~~2019~~2020 are not indicative of the results of operations that may be expected for the fiscal year ~~ended~~ ending 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 three and nine months ended January 31, ~~2019~~2020 is ~~64,050,508.~~67,686,732.

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.

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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 31, ~~2019~~2020 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 months ended January 31, ~~2019~~2020 and ~~2018~~2019 was ~~$1,233~~$1,701 and ~~$1,336~~$1,233 respectively.

6.7. Debt: At January 31, ~~2019,~~2020, the Company was utilizing a promissory note in the form of a line of credit totaling $5,000. The unused line at January 31, ~~2019~~2020 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.~~$5,000. 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 31, ~~2019,~~2020, there was one note with an interest rate of ~~5.75%~~6.25% collateralized by aircraft security agreements totaling ~~$158.~~$1,843. 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.

~~Table of Contents~~2020

~~At January 31, 2019,~~, there is one note totaling ~~$246~~$229 collateralized by real estate in Dodge City, Kansas. The interest rate on this note is 6.25%. This note matures in June ~~2019.~~2024.

At January 31, ~~2019,~~2020, there is one note collateralized by equipment with a balance of ~~$66.~~$47. The interest rate on this note is 4.5%. This note matures in April 2022.

At January 31, ~~2019,~~2020, there is one note at a bank totaling ~~$1,606~~$411 with an interest rate of 4.89%. The proceeds were used primarily to ~~pay off~~refinance 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 31, ~~2019.~~2020.

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~~2020 and beyond.

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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~~$5,723 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.~~$915. BHCMC expects the $5,500 privilege fee to have a value over the remaining life of the initial Management Contract with the State of Kansas which will end in December 2024. ~~There is no assurance~~The State of Kansas approved a renewal management contract and an amendment to the ~~Management Contract renewal.~~current management contract for our Professional Services company BNSC via BHCMC. The renewal will take effect December 15, 2024, and continue to 2039, another 15 years. 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 nine months ended January 31, 2020 and January 31, 2019, the Company expensed $142 and $0, respectively.

9.10. Stock Repurchase Program

The Board of Directors approved a stock purchase program authorizing the repurchase of up to ~~$750~~$4,000 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.~~2021.

The table below provides information with respect to common stock purchases by the Company through January 31, ~~2019.~~2020.

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
Quarter ended October 31, 2017		8,607	$	0.30		8,607	$	715
Quarter ended January 31, 2018 (a)		536,058	$	0.26		536,058	$	576
Shares purchased in prior periods										675,011	$	0.26		675,011	$	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
Increase in program authorization October 2019 (d)										-	$	-		-	$	3,301
Quarter ended October 31, 2019 (a)										206,050	$	0.46		206,050	$	3,206
Quarter ended January 31, 2020 (a)										267,468	$	0.70		267,468	$	3,019
Total		1,546,346	$	0.28		1,546,346				2,721,390	$	0.36		2,721,390

~~(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
(d)	Board of Directors increased program authorization from $2,225 to $4,000

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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.

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

	January 31, 2019		January 31, 2020
Building	$	1,699
Right-of-use assets			$	44,349
Less accumulated depreciation		3		2,130
Total	$	1,696	$	42,219

Future minimum lease payments for assets under capital leases at January 31, ~~2019~~2020 are as follows:

2020	$	93
2021		93	$	5,223
2022		93		5,243
2023		93		5,273
2024		93		5,328
2025				5,292
Thereafter		4,159		60,937
Total minimum lease payments		4,624		87,296
Less amount representing interest		2,925		43,652
Present value of net minimum lease payments		1,699		43,644
Less current maturities of capital lease obligation		8
Long-term capital lease obligation	$	1,691
Less current maturities of finance lease liability				1,123
Finance lease liability, net of current maturities			$	42,521

~~11. Contingency~~

~~On December 29, 2017, BHCMC, received~~The adoption of ASU 2016-02 had a ~~ruling from~~negative impact on our financial statements for the Kansas Supreme Court in the Matter of the Appeal of BHCMC, LLC d/b/a Boot Hill Casino & Resort, concerning the request 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 31, 2019, in the consolidated statement of operations in connection with the above ruling.2020. The impact is summarized below:

Increase in depreciation	$	2,118
Increase in interest expense		3,128
Decrease in rent expense		(3,845	)
Decrease in net income for the nine months ended January 31, 2020	$	1,401

12. Subsequent Events:

The Company evaluated its January 31, ~~2019~~2020 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.

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.

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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

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

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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

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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~~645 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 months ~~ending~~ended January 31, 2020 revenue increased 24% to $53.3 million compared to $43.0 million in the nine months ended January 31, 2019 ~~revenue increased 27% to $43.0 million compared to $33.8 million in~~. In the nine months ~~ending~~ended January 31, ~~2018. In the nine months ending January 31, 2019~~2020 the professional services revenue was ~~$23.4~~$24.2 million compared to ~~$22.3~~$23.4 million in the nine months ~~ending~~ended January 31, ~~2018,~~ 2019, an increase of 5%3%. In the nine months ~~ending~~ended January 31, ~~2019~~2020 the Aerospace Products revenue was ~~$19.6~~$29.1 million compared to ~~$11.5~~$19.6 million in the nine months ~~ending~~ended January 31, ~~2018,~~ 2019, an increase of ~~71%~~49%.

The nine months ~~ending~~ended January 31, ~~2019~~2020 net income increased to ~~$3.6~~$5.6 million compared to a net income of ~~$342~~$3.6 million in the nine months ~~ending January 31, 2018. The nine months ending~~ended January 31, 2019. The nine months ended January 31, 2020, operating income increased to ~~$4.5~~$10.6 million, from an operating income of ~~$1.4~~$4.5 million in the nine months ~~ending~~ended January 31, ~~2018.~~2019.

RESULTS OF OPERATIONS

~~NINE~~Nine MONTHS ENDING ~~JANUARY~~January 31,~~2019~~ 2020 COMPARED TO ~~NINE~~Nine MONTHS ENDING ~~JANUARY~~January 31,~~2018~~ 2019

(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)	Nine Months Ended January 31, 2020		Percent of Total Revenue			Nine Months Ended January 31, 2019		Percent of Total Revenue			Percent Change 2019-2020
Revenue:
Professional Services	$	24,186		45	%	$	23,423		54	%		3	%
Aerospace Products		29,068		55	%		19,570		46	%		49	%
Total revenue		53,254		100	%		42,993		100	%		24	%

Costs and expenses:
Costs of Professional Services		11,886		22	%		14,735		34	%		-19	%
Cost of Aerospace Products		16,839		32	%		12,102		28	%		39	%
Marketing and advertising		3,122		6	%		3,056		7	%		2	%
Employee benefits		1,666		3	%		1,518		4	%		10	%
Depreciation and amortization		3,832		7	%		1,198		3	%		220	%
General, administrative and other		5,273		10	%		5,852		14	%		-10	%
Total costs and expenses		42,618		80	%		38,461		90	%		11	%
Operating income	$	10,636		20	%	$	4,532		10	%		135	%

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Revenue:

Revenue increased ~~27%~~24% to ~~$43.0~~$53.3 million in the nine months ended January 31, 2020, compared to $43.0 million in the nine months ended January 31, 2019 ~~compared to $33.8 million~~. See "Operations by Segment" below for a discussion of the primary reasons for the increase in ~~the nine months ended January 31, 2018.~~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%3% for the nine months to $24.2 million at January 31, 2020 compared to $23.4 million in the nine months ~~to $23.4 million at~~ended January 31, 2019 ~~compared to $22.3 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 ~~71%~~49% for the nine months to $29.1 million at January 31, 2020 compared to $19.6 million in the nine months ~~to $19.6 million at~~ended January 31, 2019 ~~compared to $11.5 million at January 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%~~11% in the nine months ended January 31, 2020 to $42.6 million compared to $38.5 million in the nine months ended January 31, 2019 ~~to $38.5 million compared to $32.4 million~~. Costs and expenses were 80% of total revenue in the nine months ended January 31, ~~2018. Costs and expenses were 89%~~2020, as compared to 90% of total revenue in the nine months ended January 31, 2019 ~~as compared to 96% of total revenue in the nine months ended January 31, 2018.~~.

Costs of Professional Services ~~increased 3%~~decreased 19% in the nine months ended January 31, 2020 to $11.9 million compared to $14.7 million in the nine months ended January 31, 2019 ~~to $14.7 million compared to $14.3 million~~. Costs were 22% of total revenue in the nine months ended January 31, ~~2018. Costs were~~ 2020, as compared to 34% of total revenue in the nine months ended January 31, 2019 as.

Costs of Aerospace Productsincreased 39% in the nine months ended January 31, 2020 to $16.8 million compared to ~~42%~~$12.1 million for the nine months ended January 31, 2019. Costs were 32% of total revenue in the nine months ended January 31, ~~2018.~~

2020, as compared to ~~Table~~28% of ~~Contents~~

~~Costs of Aerospace Products~~ ~~increased 43%~~total revenue 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 28% of total revenue in the nine months ended January 31, 2019, as compared to 25% of total revenue in the nine months ended January 31, 2018..

Marketing and advertising expenses increased ~~12%~~ by 2% in the nine months ended January 31, 2020, to $3.1 million compared to $3.1 million in the nine months ended January 31, 2019 ~~to $3.1 million compared to $2.7 million~~. Expenses were 6% of total revenue in the nine months ended January 31, ~~2018. Expenses were~~ 2020, as compared to 7% of total revenue in the nine months ended January 31, 2019 ~~as compared to 9% of total revenue in the nine 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 3% in the nine months ended January 31, 2020, compared to 4% in the nine months ended January 31, 2019 ~~compared~~. These expenses increased to 4%$1.7 million in the nine months ended January 31, ~~2018. These expenses increased 7% to $1.5~~2020, from $1.5 million in the nine months ended January 31, 2019 ~~compared to $1.4 million in the nine 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%7% in the nine months ended January 31, 2020, compared to 3% in the nine months ended January 31, 2019 ~~compared~~. These expenses increased 220% to 4%$3.8 million in the nine months ended January 31, ~~2018. These expenses decreased 11% to $1.2~~2020, from $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, 2020 was $2.8 million compared to $760 in 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%~~10% in the nine months ended January 31, 2020, compared to 14% in the nine months ended January 31, 2019 ~~compared~~. These expenses decreased 10% to ~~12%~~$5.3 million in the nine months ended January 31, ~~2018. These expenses increased 42% to $5.9~~2020, from $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~~was ($3.3) million in the nine months ended January 31, 2020, compared with interest expense of ($169) 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)~~($3.1) million in the nine months ended January 31, 2020 compared to ($78) in the nine months ended January 31, 2019 ~~compared to $(119)~~.

Other income on the sale of airplanes was $604 in the nine months ended January 31, ~~2018.~~2020, compared with $0 in the nine months ended January 31, 2019. Refund of sales/use tax related to BHCMC, LLC was $0 in the nine months ended January 31, 2020 compared to $2.0 million in the nine months ended January 31, 2019.

1415

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~~2020 and January 31, ~~2018:~~2019:

(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			Nine Months Ended January 31, 2020		Percent of Total Revenue			Nine Months Ended January 31, 2019		Percent of Total Revenue			Percent Change 2019-2020
Professional Services
Revenue
Boot Hill Casino	$	23,151		99	%	$	22,009		99	%		5	%	$	24,010		99	%	$	23,151		99	%		4	%
Management/Professional Services		272		1	%		331		1	%		-18	%		176		1	%		272		1	%		-35	%
Revenue		23,423		100	%		22,340		100	%		5	%		24,186		100	%		23,423		100	%		3	%

Costs of Professional Services		14,735		63	%		14,344		64	%		3	%		11,886		49	%		14,735		63	%		-19	%
Expenses		7,898		34	%		6,873		31	%		15	%		8,789		36	%		7,898		34	%		11	%
Total costs and expenses		22,633		97	%		21,217		95	%		7	%		20,675		85	%		22,633		97	%		-9	%
Professional Services operating income before noncontrolling interest in BHCMC, LLC	$	790		3	%	$	1,123		5	%		-30	%	$	3,511		15	%	$	790		3	%		344	%

(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
%

(dollars in thousands)	Nine Months Ended January 31, 2020		Percent of Total Revenue			Nine Months Ended January 31, 2019		Percent of Total Revenue			Percent Change 2019-2020
Aerospace Products
Revenue	$	29,068		100	%	$	19,570		100	%		49	%

Costs of Aerospace Products		16,839		58	%		12,102		62	%		39	%
Expenses		5,104		17	%		3,726		19	%		37	%
Total costs and expenses		21,943		75	%		15,828		81	%		39	%

Aerospace Products operating income	$	7,125		25	%	$	3,742		19	%		90	%

Professional Services

●

Revenue from Professional Services increased 5%3% for the nine months ended January 31, 2020 to $24.2 million compared to $23.4 million for the nine months ended January 31, 2019 ~~to $23.4 million compared to $22.3 million for~~.

In the nine months ended January 31, ~~2018.~~

~~In the nine months ended January 31, 2019~~2020 Boot Hill Casino received gross receipts for the State of Kansas of ~~$30.6~~ $30.6million compared to ~~$29.3~~$30.6 million for the nine months ended January 31, ~~2018.~~2019. Mandated fees, taxes and distributions reduced gross receipts by ~~$10.1~~$9.8 million resulting in gaming revenue of ~~$20.5~~$20.8 million for the nine months ended January 31, ~~2019,~~2020, compared to a reduction to gross receipts of ~~$9.9~~$10.1 million resulting in gaming revenue of ~~$19.4~~$20.5 million for the nine months ended January 31, ~~2018.~~2019. Non-gaming revenue at Boot Hill Casino increased 4% to ~~$2.7~~$3.2 million for the nine months ended January 31, 2020, compared 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%~~ 35%to ~~$272~~$176 for the nine months ended January 31, 2020, compared to $272 for the nine months ended January 31, 2019 ~~compared to $331 for~~. The decrease is due primarily from the ~~nine months ended January 31, 2018.~~Company not renewing the Stables Agreement.


	●	Costs of Professional Services ~~increased 3%~~decreased in the nine months ended January 31, 2020 to $11.9 million compared to $14.7 million 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%~~49% of segment total revenue in the nine months ended January 31, ~~2019,~~2020, as compared to ~~64%~~63% 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~~.

●

Expenses increased 11% in the nine months ended January 31, ~~2018.~~2020 to $8.8 million compared to $7.9 million in the nine months ended January 31, 2019. Expenses were ~~34%~~36% of segment total revenue in the nine months ended January 31, ~~2019,~~2020, as compared to ~~31%~~34% of segment total revenue in the nine months ended January 31, ~~2018.~~2019.

~~Table of Contents~~

Aerospace Products

●

Revenue increased ~~71%~~49% to ~~$19.6~~$29.1 million in the nine months ended January 31, 2020, compared to $19.6 million in the nine months ended January 31, 2019 ~~compared to $11.5 million~~. The increase in ~~the nine months ended January 31, 2018. The increase~~revenue is primarily due to an increase in avionics business of $4.4 million and an increase in aircraft ~~modification revenue~~modification business of ~~$3.8 million and an increase in avionics of $4.3~~$5.1 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%~~39% in the nine months ended January 31, 2020 to $16.8 million compared to $12.1 million for 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%~~58% of segment total revenue in the nine months ended January 31, ~~2019,~~2020, as compared to ~~74%~~62% 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~~.

●

Expenses increased 37% in the nine months ended January 31, ~~2018.~~2020 to $5.1 million compared to $3.7 million in the nine months ended January 31, 2019. Expenses were ~~19%~~17% of segment total revenue in the nine months ended January 31, ~~2019,~~2020, as compared to ~~24%~~19% of segment total revenue in the nine months ended January 31, ~~2018.~~2019.

Table of Contents

~~THIRD~~Third QUARTER FISCAL ~~2019~~2020 COMPARED TO ~~THIRD~~Third QUARTER FISCAL ~~2018~~2019

(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
%

(dollars in thousands)	Three Months Ended January 31, 2020		Percent of Total Revenue			Three Months Ended January 31, 2019		Percent of Total Revenue			Percent Change 2019-2020
Revenue:
Professional Services	$	7,962		47	%	$	7,617		53	%		5	%
Aerospace Products		8,838		53	%		6,675		47	%		32	%
Total revenue		16,800		100	%		14,292		100	%		18	%

Costs and expenses:
Costs of Professional Services		4,030		24	%		4,996		35	%		-19	%
Cost of Aerospace Products		5,307		31	%		3,642		25	%		46	%
Marketing and advertising		983		6	%		1,021		7	%		-4	%
Employee benefits		592		4	%		532		4	%		11	%
Depreciation and amortization		1,316		8	%		415		3	%		217	%
General, administrative and other		1,684		10	%		1,873		13	%		-10	%
Total costs and expenses		13,912		83	%		12,479		87	%		11	%
Operating income	$	2,888		17	%	$	1,813		13	%		59	%

Revenue:

Revenue increased ~~30%~~18% to ~~$14.3~~$16.8 million in the three months ended January 31, ~~2019,~~2020, compared to ~~$11.0~~$14.3 million in the three months ended January 31, ~~2018.~~2019. 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 1%5% for the three months to ~~$7.6~~$8.0 million at January 31, 2020 compared 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%~~32% for the three months to ~~$6.7~~$8.8 million at January 31, 2020 compared 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.~~.

~~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%~~11% in the three months ended January 31, ~~2019~~2020 to ~~$12.5~~$13.9 million compared to ~~$10.6~~$12.5 million in the three months ended January 31, ~~2018.~~2019. Costs and expenses were ~~87%~~83% of total revenue in the three months ended January 31, ~~2019,~~2020, as compared to ~~96%~~87% of total revenue in the three months ended January 31, ~~2018.~~2019.

Costs of Professional Services ~~increased 5%~~decreased 19% in the three months ended January 31, ~~2019~~2020 to ~~$5.0~~$4.0 million compared to ~~$4.7~~$5.0 million in the three months ended January 31, ~~2018.~~2019. Costs were ~~35%~~24% of total revenue in the three months ended January 31, ~~2019,~~2020, as compared to ~~43%~~35% of total revenue in the three months ended January 31, ~~2018.~~2019.

Costs of Aerospace Products increased ~~38%~~46% in the three months ended January 31, ~~2019~~2020 to ~~$3.6~~$5.3 million compared to ~~$2.6~~$3.6 million for the three months ended January 31, ~~2018.~~2019. Costs were ~~25%~~31% of total revenue in the three months ended January 31, ~~2019,~~2020, as compared to ~~24%~~25% of total revenue in the three months ended January 31, ~~2018.~~2019.

Marketing and advertising expenses ~~increased 11%~~decreased 4% in the three months ended January 31, ~~2019,~~2020, to ~~$1.0~~$1.0 million compared to ~~$920~~$1.0 million in the three months ended January 31, ~~2018.~~2019. Expenses were 7%6% of total revenue in the three months ended January 31, ~~2019,~~2020, as compared to 9%7% of total revenue in the three months ended January 31, ~~2018.~~2019. 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,~~2020, compared to 4% in the three months ended January 31, ~~2018.~~2019. These expenses increased 11% to ~~$532~~$592 in the three months ended January 31, ~~2019,~~2020, from ~~$480~~$532 in the three months ended January 31, ~~2018.~~2019. 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%8% in the three months ended January 31, ~~2019,~~2020, compared to 3% in the three months ended January 31, ~~2018.~~2019. These expenses increased ~~15%~~217% to ~~$415~~$1.3 million in the three months ended January 31, ~~2019,~~2020 from ~~$362~~$415 in the three months ended January 31, ~~2018.~~2019. 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 31, ~~2019~~2020 was ~~$265~~$935 compared to ~~$229~~$265 in the three months ended January 31, ~~2018.~~2019.

General, administrative and other expenses as a percent of total revenue was ~~13%~~10% in the three months ended January 31, ~~2019,~~2020, compared to 13% in the three months ended January 31, ~~2018.~~2019. These expenses ~~increased 31%~~decreased 10% to ~~$1.9~~$1.7 million in the three months ended January 31, ~~2019,~~2020, from ~~$1.4~~$1.9 million in the three months ended January 31, ~~2018.~~2019.

Table of Contents

Other income (expense):

Interest ~~Expense and other income~~expense ~~were $341~~was ($1.1) million in the three months ended January 31, ~~2019,~~2020, compared with interest expense ~~and other income~~ of ~~$(82)~~($44) million in the three months ended January 31, ~~2018.~~2019. Interest related to obligations of BHCMC, LLC was ~~$(22)~~($1.0) million in the three months ended January 31, ~~2019~~2020 compared to ~~$(37)~~($22) in the three months ended January 31, ~~2018.~~ 2019.

~~Table~~

Other income was on the sale of ~~Contents~~an airplane was $75

in the three months ended January 31, 2020, compared to $0 in the three months ended January 31, 2019. Refund of sales/use tax related to BHCMC, LLC was $0 in the three months ended January 31, 2020 compared to $385 in the three months ended January 31, 2019.

Operations by Segment

The following table presents a summary of our operating segment information for the three months ended January 31, 2020 and January 31, 2019 ~~and January 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 January 31, 2020		Percent of Total Revenue			Three Months Ended January 31, 2019		Percent of Total Revenue			Percent Change 2019-2020
Professional Services
Revenue
Boot Hill Casino	$	7,564		99	%	$	7,483		99	%		1	%	$	7,898		99	%	$	7,564		99	%		4	%
Management/Professional Services		53		1	%		76		1	%		-30	%		64		1	%		53		1	%		21	%
Revenue		7,617		100	%		7,559		100	%		1	%		7,962		100	%		7,617		100	%		5	%

Costs of Professional Services		4,996		65	%		4,747		63	%		5	%		4,030		51	%		4,996		65	%		-19	%
Expenses		2,420		32	%		2,256		30	%		7	%		2,861		36	%		2,420		32	%		18	%
Total costs and expenses		7,416		97	%		7,003		93	%		6	%		6,891		87	%		7,416		97	%		-7	%
Professional Services operating income before noncontrolling interest in BHCMC, LLC	$	201		3	%	$	556		7	%		-64	%	$	1,071		13	%	$	201		3	%		433	%

(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 January 31, 2020		Percent of Total Revenue			Three Months Ended January 31, 2019		Percent of Total Revenue			Percent Change 2019-2020
Aerospace Products
Revenue	$	6,675		100	%	$	3,451			100	%		93	%	$	8,838		100	%	$	6,675		100	%		32	%

Costs of Aerospace Products		3,642		55	%		2,636			76	%		38	%		5,307		60	%		3,642		55	%		46	%
Expenses		1,421		21	%		932			27	%		52	%		1,714		19	%		1,421		21	%		21	%
Total costs and expenses		5,063		76	%		3,568			103	%		42	%		7,021		79	%		5,063		76	%		39	%

Aerospace Products operating income (loss)	$	1,612		24	%	$	(117	)		-3	%		N/A
Aerospace Products operating income															$	1,817		21	%	$	1,612		24	%		13	%

Professional Services

●

Revenue from Professional Services increased 1%5% for the three months ended January 31, ~~2019~~2020 to ~~$7.6~~$8.0 million compared to ~~$7.6~~$7.6 million for the three months ended January 31, ~~2018.~~2019.

In the three months ended January 31, ~~2019~~2020 Boot Hill Casino received gross receipts for the State of Kansas of ~~$10.0~~$10.1 million compared to ~~$10.0~~$10.0 million for the three months ended January 31, ~~2018.~~2019. Mandated fees, taxes and distributions reduced gross receipts by ~~$3.4~~$3.3 million resulting in gaming revenue of ~~$6.6~~$6.8 million for the three months ended January 31, ~~2019,~~2020, compared to a reduction to gross receipts of ~~$3.4~~$3.4 million resulting in gaming revenue of ~~$6.6~~$6.6 million for the three months ended January 31, ~~2018.~~2019. Non-gaming revenue at Boot Hill Casino increased to ~~$935~~$1.1 million for the three months ended January 31, ~~2019,~~2020, compared to ~~$872~~$935 for the three months ended January 31, ~~2018.~~2019.

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%~~increased 21% to ~~$53~~$64 for the three months ended January 31, ~~2019,~~2020, compared to ~~$76~~$53 for the three months ended January 31, ~~2018.~~2019.


	●	Costs of Professional Services ~~increased 5%~~decreased 19% in the three months ended January 31, ~~2019~~2020 to ~~$5.0~~$4.0 million compared to ~~$4.7~~$5.0 million in the three months ended January 31, ~~2018.~~2019. Costs were ~~65%~~51% of segment total revenue in the three months ended January 31, ~~2019,~~2020, as compared to ~~63%~~65% of segment total revenue in the three months ended January 31, ~~2018.~~2019.


	●	Expenses increased 7%18% in the three months ended January 31, ~~2019~~2020 to ~~$2.4~~$2.9 million compared to ~~$2.3~~$2.4 million in the three months ended January 31, ~~2018.~~2019. Expenses were ~~32%~~36% of segment total revenue in the three months ended January 31, ~~2019,~~2020, as compared to ~~30%~~32% of segment total revenue in the three months ended January 31, ~~2018.~~2019.

Table of Contents

Aerospace Products

●

Revenue increased ~~93%~~32% to ~~$6.7~~$8.8 million in the three months ended January 31, ~~2019,~~2020, compared to ~~$3.5~~$6.7 million in the three months ended January 31, ~~2018.~~2019. The increase in revenue is primarily due to an increase in avionics business of $548 and an increase in aircraft modification ~~revenue~~business of ~~$1.7 million and an increase in avionics revenue of $1.5~~$1.6 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 ~~38%~~46% in the three months ended January 31, ~~2019~~2020 to ~~$3.6~~$5.3 million compared to ~~$2.6~~$3.6 million for the three months ended January 31, ~~2018.~~2019. Costs were ~~55%~~60% of segment total revenue in the three months ended January 31, ~~2019,~~2020, as compared to ~~76%~~55% of segment total revenue in the three months ended January 31, ~~2018.~~2019.


	●	Expenses increased ~~52%~~21% in the three months ended January 31, ~~2019~~2020 to ~~$1.4~~$1.7 million compared to ~~$932~~$1.4 million in the three months ended January 31, ~~2018.~~2019. Expenses were ~~21%~~19% of segment total revenue in the three months ended January 31, ~~2019,~~2020, as compared to ~~27%~~21% of segment total revenue in the three months ended January 31, ~~2018.~~2019.

Employees

Other than persons employed by our gaming subsidiaries there were ~~101~~106 full time and 35 part time employees on January 31, ~~2019,~~2020, compared to 9096 full time and 3 part time employees on January 31, ~~2018.~~2019. As of March ~~8, 2019,~~6, 2020, staffing is ~~101~~107 full time and 35 part time employees. Our staffing at Boot Hill Casino & Resort on January 31, ~~2019~~2020 was ~~185~~200 full time and 6266 part time employees compared to ~~174~~194 full time and 7263 part time employees on January 31, ~~2018.~~2019. At March ~~8, 2019~~6, 2020 there ~~were 184~~are 189 full time and 69 part time employees. None of the employees are subject to any collective bargaining agreements.

Liquidity and Capital Resources

The ownership structure of BHCMC, LLC is now:

							Members of
							Board of	Equity	Income
Membership Interest	Members of Board of Managers		Equity Ownership		Income (Loss) Sharing		Managers	Ownership	(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.

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Analysis and Discussion of Cash Flow

During the nine months ended January 31, ~~2019~~2020 our cash position increased by ~~$1.5~~$6.8 million. Net income was ~~$5.0~~$5.9 million for the nine months ended January 31, ~~2019.~~2020. Cash flows provided by operating activities was ~~$7.5~~$10.4 million for the nine months ended January 31, ~~2019. For the nine months ended January 31, 2019, non-cash~~2020. Non-cash activities consisting of depreciation and amortization provided ~~$2.4 million.~~$4.8 million, while a gain on sale of airplanes used $604. Customer deposits ~~increased~~decreased our cash position by ~~$1.9 million while inventories~~ $1.2 million. Inventories decreased our cash position by ~~$1.5 million.~~$197. Accounts receivable ~~decreased~~increased our cash position by ~~$668. A decrease in income tax receivable increased~~$189. Gaming facility mandated payments decreased our cash position by ~~$219. Gaming facility mandated payments decreased our cash position by $244.~~$159. Prepaid expenses and other assets decreased our cash by ~~$431.~~$107. 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.~~$82. Income tax payable increased our cash position by $1.8 million.

Cash used in by investing activities was ~~$1.5 million~~$785 for the nine months ended January 31, ~~2019.~~2020. We invested ~~$36 in building additions, $199~~$786 to purchase aircraft, $636 towards STCs, and $413 on equipment ~~$707~~and furnishings. We received $1.1 million in ~~furniture and fixtures and $557 to develop and enhance STCs.~~proceeds for the sale of airplanes.

Cash used in financing activities was ~~$4.5~~$2.8 million for the nine months ended January 31, ~~2019.~~2020. We made repayments on our debt of ~~$1.2 million and decreased promissory notes~~$1.4 million. We reduced our financed lease liability by ~~$2.4 million.~~$703. We made a distribution to our non-controlling member of ~~$720, and~~$360. We purchased company ~~common~~ stock of ~~$214~~$326. The stock was acquired and placed ~~such stock~~ in treasury.

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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.

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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.

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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 31, ~~2019.~~2020. 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 31, ~~2019.~~2020.

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~~nine months ended January 31, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.			LEGAL PROCEEDINGS.
			As of January 31, ~~2019,~~2020, 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.
			In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. In subsequent months, this coronavirus spread to other countries, including the United States, and efforts to contain the spread of this coronavirus intensified. The outbreak and any preventative or protective actions that governments or we may take in respect of this coronavirus may result in a period of business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. There are no other 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 third 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
November 1, 2019 - November 30, 2019		-	$	-		-	$	3,206,000
December 1, 2019 - December 31, 2019		6,745	$	0.72		6,745	$	3,202,000
January 1, 2020 - January 31, 2020		260,723	$	0.70		260,723	$	3,019,000
Total		267,468	$	0.70		267,468

(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.~~$4,000,000. 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.~~

2021.

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.

	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~~incorporated by reference to Exhibit 4.1 of our 10-Q filed on December 13, 2016.

	10.1	Renewal of Lottery Gaming Facility Management Contract, incorporated by reference to the ~~form~~Company's Form 8-K filed on December 9, 2019.

	10.2	Third Amendment to Lottery Gaming Facility Management Contract, incorporated by reference to the Company's Form 8-K filed on December 9, 2019.

	10.3	Written Consent for Renewal of ~~Certificate of Designations, setting forth~~Lottery Gaming Facility Management Contract, incorporated by reference to 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.~~Company's Form 8-K filed on December 9, 2019.

	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 31, ~~2019,~~2020, formatted in XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of January 31, ~~2019~~2020 and April 30, ~~2018,~~2019, (ii) Condensed Consolidated Statements of Operations for the three months ended January 31, ~~2019~~2020 and ~~2018~~2019 and nine months ended January 31, 2020 and 2019, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended January 31, ~~2019~~2020 and ~~2018, (iii)~~2019, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended January 31, ~~2019~~2020 and ~~2018,~~2019, and ~~(iv)~~(v) the Notes to Consolidated Financial Statements, with detail tagging.

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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, 2019~~12, 2020	/s/ Clark D. Stewart
Date	Clark D. Stewart
	(President and Chief Executive Officer)

March ~~15, 2019~~ 12, 2020	/s/ Tad M. McMahon
Date	Tad M. McMahon
	(Chief Financial Officer)

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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.

10.1	Renewal of Lottery Gaming Facility Management Contract, incorporated by reference to the Company's Form 8-K filed on December 9, 2019.

10.2	Third Amendment to Lottery Gaming Facility Management Contract, incorporated by reference to the Company's Form 8-K filed on December 9, 2019.

10.3	Written Consent for Renewal of Lottery Gaming Facility Management Contract, incorporated by reference to the Company's Form 8-K filed on December 9, 2019.

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 31, ~~2019,~~2020, formatted in XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Balance Sheets as of January 31, ~~2019~~2020 and April 30, ~~2018,~~2019, (ii) Condensed Consolidated Statements of Operations for the three months ended January 31, ~~2019~~2020 and ~~2018~~2019 and nine months ended January 31, 2020 and 2019, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended January 31, ~~2019~~2020 and ~~2018, (iii)~~2019, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended January 31, ~~2019~~2020 and ~~2018,~~2019, and ~~(iv)~~(v) the Notes to Consolidated Financial Statements, with detail tagging.

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