BUTLER NATIONAL CORP MANAGEMENT DISCUSSION AND ANALYSIS ON THE FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)


THROUGHOUT THIS POINT 2 ALL NON-TABULAR FINANCIAL RESULTS ARE PRESENTED IN THOUSANDS OF we DOLLARS EXCEPT O MILLIONS OF DOLLARS ARE 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) of the Annual
Report on Form 10-K for the fiscal year ended April 30, 2021, 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, 2021, including the following factors:



  ? the geographic location of our casino;
  ? customer concentration risk;


  ? executive officers are family members;


  ? industrial business cycles;


  ? fixed-price contracts;


  ? development, production, testing and marketing of new products;


  ? loss of key personnel;


  ? risks associated with international sales;


  ? future acquisitions and investments;


  ? change of control restrictions;


  ? cyber-security threats;


  ? extensive regulation across our industries;


  ? evolving government regulations and law;
  ? changes in regulations of financial reporting;


  ? the stability of credit markets;


  ? potential impairment losses;


  ? marketability restrictions of our common stock;


  ? the possibility of a reverse-stock split;


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


  ? market competition;


  ? acts of terrorism and war;


  ? inclement weather and natural disasters;
  ? pandemics or other national health crisis (including COVID-19);


  ? fluctuating fuel and energy costs;


  ? 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
2021 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 Learjet, 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.


Some products. The products that the companies in this group design, design, manufacture, integrate, install, repair and maintain:



? Aerial surveillance products            ? GARMIN GTN Global Position 

System

                                            Navigator with Communication
                                            Transceiver

? Aerodynamic improvement products? JET autopilot products

? Airspeed and altimeter systems          ? Electrical systems and switching
                                            equipment

? Avcon Fins                              ? Noise suppression systems

? ADS-B (transponder) systems             ? Rate gyroscopes

? Conversion of passenger                 ? Replacement vertical accelerometers
  configurations to cargo

? Cargo/sensor carrying pods              ? Provisions for external stores

? Electronic navigation instruments,? Attitude heading reference systems

  radios and transponders




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



? Aerial photography skills? Extended tip fuel tanks

? Aerodynamic improvements                ? Radar systems

? Avionics systems                        ? ISR - Intelligence Surveillance
                                            Reconnaissance

? Cargo doors                             ? Special mission modifications

? Conversion from passenger to            ? Stability enhancements
  freighter configuration

? Extended doors                          ? Traffic collision avoidance systems




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? Land and Sea Gun Control Units

  Blackhawk helicopters                     based military vehicles




Professional Services. The Professional Services segment includes the management
of a gaming facility and related dining and entertainment facilities in Dodge
City, Kansas. Boot Hill Casino and Resort features approximately 645 slot
machines and 20 table games. Due to COVID-19, Boot Hill Casino and Resort
currently operates 520 slot machines and 16 table games. Companies in
Professional Services also provide licensed architectural services, including
commercial and industrial building design, and engineering services.



Boot Hill. 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.



Architectural and engineering services. Professional service firms provide licensed architectural and engineering services, including the design of commercial and industrial buildings.

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COVID-19 Overview



The pandemic caused by the disease COVID-19 was first reported in Wuhan, China
in December 2019 and has since spread throughout the world. Financial markets
have been volatile in 2020 and 2021, primarily due to uncertainty with respect
to the severity and duration of the pandemic.



The pandemic resulted in federal, state and local governments around the world
implementing increasingly stringent measures to help control the spread of the
virus, including quarantines, "shelter in place" and "stay at home" orders,
travel restrictions or bans, business curtailments, school closures, and other
protective measures.



Our aerospace segment qualified as "essential" under applicable federal guidance
and state orders. The facilities have continued operations. We are enforcing
social distancing and enhanced health, safety and sanitization measures in
accordance with guidelines from the Center for Disease Control (the "CDC").



Our professional services operations at the Boot Hill Casino & Resort was forced
to close from March 18, 2020 thru May 21, 2020.  The casino reopened to the
public on May 22, 2020 with reduced hours to allow for extra time for cleaning
and sanitizing in accordance with CDC guidelines and limited number of games and
food offerings. We are also continuing to enforce social distancing measures
throughout the casino and are subject to state mandated restrictions.  Since
reopening the Boot Hill Casino & Resort we have experienced lower customer
headcount, which has been off-set by a larger net revenue per customer.



The COVID-19 pandemic impacted our business operations and financial results
beginning in the fourth quarter of fiscal 2020 and continues to impact us. We
face numerous uncertainties in estimating the direct and indirect effects on our
present and future business operations, financial condition, results of
operations, and liquidity. Due to several rapidly changing variables related to
the COVID-19 pandemic, we cannot reasonably estimate future economic trends and
the timing of when stability will return.



As schools, businesses and the economy in general have slowly reopened, and
vaccinations rates in our operating territory improve and new infections
decline, we have continued to see improvements in customer headcount. However,
the unpredictable nature of the pandemic could again lead to closures, decreased
traffic and demand, and increased COVID-19- related operating expenses, for the
foreseeable future. While COVID-19 has resulted in, and will continue to bring,
significant challenges and uncertainty to our operating environment, we believe
that our resilient business model and the strength of our brand and balance
sheet position us well to emerge from the pandemic.



Results Overview



The six months ended October 31, 2021 revenue increased 29% to $37.2 million
compared to $29.0 million in the six months ended October 31, 2020. In the six
months ended October 31, 2021 the professional services revenue was
$19.4 million compared to $13.0 million in the six months ended October 31,
2020, an increase of 49%. In the six months ended October 31, 2021 the Aerospace
Products revenue was $17.8 million compared to $16.0 million in the six months
ended October 31, 2020, an increase of 12%.



The six months ended October 31, 2021 net income increased to $6.1 million
compared to a net income of $306 in the six months ended October 31, 2020.  The
six months ended October 31, 2021, operating income increased to $8.8 million
from an operating income of $1.8 million in the six months ended October 31,
2020.



RESULTS OF OPERATIONS



SIX MONTHS ENDED OCTOBER 31, 2021 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 2020



                                      Six Months                            Six Months
                                    Ended October        Percent of      

End of October Percentage change in percentage (in thousands of dollars)

                 31, 2021        Total Revenue         31, 2020        Total Revenue        2020-2021
Revenue:
Professional Services               $       19,401                 52 %   $       13,001                 45 %               49 %
Aerospace Products                          17,836                 48 %           15,960                 55 %               12 %
Total revenue                               37,237                100 %           28,961                100 %               29 %

Costs and expenses:
Costs of Professional Services               7,578                 20 %            6,828                 24 %               11 %
Cost of Aerospace Products                  11,939                 32 %           11,788                 41 %                1 %
Marketing and advertising                    2,471                  6 %            1,845                  6 %               34 %
Employee benefits                            1,121                  3 %            1,151                  4 %               -3 %
Depreciation and amortization                1,407                  4 %            2,118                  7 %              -34 %
General, administrative and other            3,956                 11 %            3,416                 12 %               16 %
Total costs and expenses                    28,472                 76 %           27,146                 94 %                5 %
Operating income                    $        8,765                 24 %   $        1,815                  6 %              383 %




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Revenue:



Revenue increased 29% to $37.2 million in the six months ended October 31, 2021,
compared to $29.0 million in the six months ended October 31, 2020. See
"Operations by Segment" below for a discussion of the primary reasons for the
increase in revenue.


? Professional services derive their income (a) from professional management

services in the gaming industry through National Butler Service Company

(“BNSC”) and BHCMC, LLC (“BHCMC”), and (b) professional architects,

engineering and management support services. Professional turnover

Services increased 49% for the six months for $ 19.4 million at October 31, 2021

    compared to $13.0 million at October 31, 2020.




  ? Aerospace Products derives its revenue by designing, engineering,

manufacture, install, maintain and repair conventional products and

current production aircraft. Aerospace Products revenue increased 12% for the

six months to $ 17.8 million at October 31, 2021 compared to $ 16.0 million at

    October 31, 2020.




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 5% in the
six months ended October 31, 2021 to $28.5 million compared to $27.1 million in
the six months ended October 31, 2020. Costs and expenses were 76% of total
revenue in the six months ended October 31, 2021, as compared to 94% of total
revenue in the six months ended October 31, 2020.



Costs of Professional Services increased 11% in the six months ended October 31,
2021 to $7.6 million compared to $6.8 million in the six months ended October
31, 2020. Costs were 20% of total revenue in the six months ended October 31,
2021, as compared to 24% of total revenue in the six months ended October 31,
2020.



Costs of Aerospace Products increased 1% in the six months ended October 31,
2021 to $11.9 million compared to $11.8 million for the six months ended October
31, 2020. Costs were 32% of total revenue in the six months ended October 31,
2021, as compared to 41% of total revenue in the six months ended October 31,
2020.



Marketing and advertising expenses increased 34% in the six months ended October
31, 2021, to $2.5 million compared to $1.8 million in the six months ended
October 31, 2020. Expenses were 6% of total revenue in the six months ended
October 31, 2021, as compared to 6% of total revenue in the six months ended
October 31, 2020. 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
six months ended October 31, 2021, compared to 4% in the six months ended
October 31, 2020. These expenses decreased 3% to $1.1 million in the six months
ended October 31, 2021, from $1.2 million in the six months ended October 31,
2020. 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 4% in
the six months ended October 31, 2021, compared to 7% in the six months ended
October 31, 2020. These expenses decreased 34% to $1.4 million in the six months
ended October 31, 2021 from $2.1 million in the six months ended October 31,
2020. 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 initial term of the gaming contract with the State of Kansas.
BHCMC, LLC depreciation and amortization expense for the six months ended
October 31, 2021 was $1.2 million compared to $1.8 million in the six months
ended October 31, 2020.



General, administrative and other expenses as a percent of total revenue was
11% in the six months ended October 31, 2021, compared to 12% in the six months
ended October 31, 2020. These expenses increased 16% to $4.0 million in the
six months ended October 31, 2021, from $3.4 million in the six months ended
October 31, 2020.



Other expense:



Interest expense was $1.3 million in the six months ended October 31, 2021,
compared with interest expense of $1.7 million in the six months ended October
31, 2020. Interest related to obligations of BHCMC, LLC was $1.1 million in the
six months ended October 31, 2021 compared to $1.5 million in the six months
ended October 31, 2020.



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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 segment information for the half-year ended. October 31, 2021 and October 31, 2020:


                                 Six Months                            Six Months
                               Ended October        Percent of       Ended October        Percent of       Percent Change
(dollars in thousands)            31, 2021        Total Revenue         31, 2020        Total Revenue        2020-2021
Professional Services
Revenue
Boot Hill Casino               $       19,237                 99 %   $       12,863                 99 %               50 %

Management / Professional

Services                                  164                  1 %              138                  1 %               19 %
Revenue                                19,401                100 %           13,001                100 %               49 %

Costs of Professional
Services                                7,578                 39 %            6,828                 52 %               11 %
Expenses                                6,464                 33 %            5,446                 42 %               19 %
Total costs and expenses               14,042                 72 %           12,274                 94 %               14 %
Professional Services
operating income before
former noncontrolling
interest in BHCMC, LLC         $        5,359                 28 %   $          727                  6 %              637 %






                                 Six Months                            Six Months
                               Ended October        Percent of       Ended October        Percent of       Percent Change
(dollars in thousands)            31, 2021        Total Revenue         31, 2020        Total Revenue        2020-2021
Aerospace Products
Revenue                        $       17,836                100 %   $       15,960                100 %               12 %

Costs of Aerospace Products            11,939                 67 %           11,788                 74 %                1 %
Expenses                                2,491                 14 %            3,084                 19 %              -19 %
Total costs and expenses               14,430                 81 %           14,872                 93 %               -3 %

Aerospace Products operating
income                         $        3,406                 19 %   $        1,088                  7 %              213 %




Professional Services


? Professional Services revenue increased 49% for the half-year ended

October 31, 2021 at $ 19.4 million compared to $ 13.0 million for six months

ended October 31, 2020.

In the past six months October 31, 2021 Boot Hill Casino gross receipt

received for the Kansas State of $ 25.0 million compared to $ 17.1 million

for the six months ended October 31, 2020. Mandatory fees, taxes and

distributions reduced gross receipts by $ 7.9 million resulting in a game

income from $ 17.1 million for the six months ended October 31, 2021, compared

to a reduction in gross receipts of $ 5.5 million resulting in gaming revenue

of $ 11.6 million for the six months ended October 31, 2020. No game

income to Boot Hill Casino increased to $ 2.2 million for the six months ended

October 31, 2021, compared to $ 1.3 million for the six months ending in October

    31, 2020.

    The remaining management and Professional Services revenue includes
    professional management services in the gaming industry, and licensed

architectural services. Revenue from Professional Services excluding Boot Hill

    Casino increased 19% to $164 for the six months ended October 31, 2021,
    compared to $138 for the six months ended October 31, 2020.



? Professional services costs increased 11% during the six-month period ended October

31 2021 to $ 7.6 million compared to $ 6.8 million in the past six months

October 31, 2020. Costs represented 39% of total segment revenue over the six-month period

ended October 31, 2021, compared to 52% of total segment sales in the

    six months ended October 31, 2020.




  ? Expenses increased 19% in the six months ended October 31, 2021 to

$ 6.5 million compared to $ 5.4 million in the past six months October 31,

2020. Spending represented 33% of total segment revenue for the six months ended

    October 31, 2021, as compared to 42% of segment total revenue in the
    six months ended October 31, 2020.




Aerospace Products



? Turnover increased by 12% for $ 17.8 million in the past six months October 31,

2021, compared to $ 16.0 million in the past six months October 31, 2020. the

the increase in income is mainly due to an increase in special missions

electronics company $ 918 and an increase in aircraft modification activities

    of $957.



? Aerospace product costs increased 1% in the end of the six-month period October 31,

2021 to $ 11.9 million compared to $ 11.8 million for the six months ended

October 31, 2020. Costs represented 67% of total segment revenue over the six-month period

ended October 31, 2021, compared to 74% of total segment sales in the

    six months ended October 31, 2020.




  ? Expenses decreased 19% in the six months ended October 31, 2021 to

$ 2.5 million compared to $ 3.1 million in the past six months October 31,

2020. Spending represented 14% of total segment revenue for the six months ended

    October 31, 2021, as compared to 19% of segment total revenue in the
    six months ended October 31, 2020.




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SECOND QUARTER OF FISCAL 2022 COMPARED TO SECOND QUARTER OF FISCAL 2021


                               Three Months                           Three Months
                               Ended October        Percent of        Ended October        Percent of       Percent Change
(dollars in thousands)           31, 2021         Total Revenue         31, 2020         Total Revenue        2020-2021
Revenue:
Professional Services         $         9,676                 51 %   $         7,648                 48 %               27 %
Aerospace Products                      9,417                 49 %             8,324                 52 %               13 %
Total revenue                          19,093                100 %            15,972                100 %               20 %

Costs and expenses:
Costs of Professional
Services                                3,877                 20 %             3,418                 21 %               13 %
Cost of Aerospace Products              5,927                 31 %             6,687                 42 %              -11 %
Marketing and advertising               1,267                  7 %               893                  6 %               42 %
Employee benefits                         546                  3 %               566                  3 %               -4 %
Depreciation and
amortization                              705                  4 %             1,075                  7 %              -34 %
General, administrative and
other                                   2,028                 10 %             1,646                 10 %               23 %
Total costs and expenses               14,350                 75 %            14,285                 89 %                0 %
Operating income              $         4,743                 25 %   $         1,687                 11 %              181 %




Revenue:



Revenue increased 20% to $19.1 million in the three months ended October 31,
2021, compared to $16.0 million in the three months ended October 31, 2020. See
"Operations by Segment" below for a discussion of the primary reasons for the
increase in revenue.


? Professional services derive their income (a) from professional management

services in the gaming industry through National Butler Service Company

(“BNSC”) and BHCMC, LLC (“BHCMC”), and (b) professional architects,

engineering and management support services. Professional turnover

Services increased by 27% for the three months for $ 9.7 million at October 31,

    2021 compared to $7.6 million at October 31, 2020.




  ? Aerospace Products derives its revenue by designing, engineering,

manufacture, install, maintain and repair conventional products and

current production aircraft. Aerospace Products revenue increased 13% for the

three months at $ 9.4 million at October 31, 2021 compared to $ 8.3 million at

    October 31, 2020.




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 0% in the
three months ended October 31, 2021 to $14.4 million compared to $14.3 million
in the three months ended October 31, 2020. Costs and expenses were 75% of total
revenue in the three months ended October 31, 2021, as compared to 89% of total
revenue in the three months ended October 31, 2020.



Costs of Professional Services increased 13% in the three months ended October
31, 2021 to $3.9 million compared to $3.4 million in the three months ended
October 31, 2020. Costs were 20% of total revenue in the three months ended
October 31, 2021, as compared to 21% of total revenue in the three months ended
October 31, 2020.



Costs of Aerospace Products decreased 11% in the three months ended October 31,
2021 to $5.9 million compared to $6.7 million for the three months ended October
31, 2020. Costs were 31% of total revenue in the three months ended October 31,
2021, as compared to 42% of total revenue in the three months ended October 31,
2020.



Marketing and advertising expenses increased 42% in the three months ended
October 31, 2021, to $1.3 million compared to $0.9 million in the three months
ended October 31, 2020. Expenses were 7% of total revenue in the three months
ended October 31, 2021, as compared to 6% of total revenue in the three months
ended October 31, 2020. 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 three
months ended October 31, 2021, compared to 3% in the three months ended October
31, 2020. These expenses decreased 4% to $546 in the three months ended October
31, 2021, from $566 in the three months ended October 31, 2020. 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.



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Depreciation and amortization expenses as a percent of total revenue was 4% in
the three months ended October 31, 2021, compared to 7% in the three months
ended October 31, 2020. These expenses decreased 34% to $705 in the three months
ended October 31, 2021 from $1.1 million in the three months ended October 31,
2020. 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 initial term of the gaming contract with the State of Kansas.
BHCMC, LLC depreciation and amortization expense for the three months ended
October 31, 2021 was $575 compared to $954 in the three months ended October 31,
2020.



General, administrative and other expenses as a percent of total revenue was
10% in the three months ended October 31, 2021, compared to 10% in the three
months ended October 31, 2020. These expenses increased 23% to $2.0 million in
the three months ended October 31, 2021, from $1.6 million in the three months
ended October 31, 2020.



Other expense:



Interest expense was $640 in the three months ended October 31, 2021, compared
with interest expense of $1.1 million in the three months ended October 31,
2020. Interest related to obligations of BHCMC, LLC was $576 in the three months
ended October 31, 2021 compared to $1.0 million in the three months ended
October 31, 2020.



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 segment information for the three months ended. October 31, 2021 and October 31, 2020:


                                Three Months                            Three Months
                               Ended October         Percent of       

End of October Percentage change in percentage (in thousands of dollars)

            31, 2021         Total Revenue          31, 2020         Total Revenue         2020-2021
Professional Services
Revenue
Boot Hill Casino              $          9,573                 99 %   $          7,555                 99 %                 27 %
Management/Professional
Services                                   103                  1 %                 93                  1 %                 11 %
Revenue                                  9,676                100 %              7,648                100 %                 27 %

Costs of Professional
Services                                 3,877                 40 %              3,418                 45 %                 13 %
Expenses                                 3,433                 36 %              2,714                 35 %                 26 %
Total costs and expenses                 7,310                 76 %              6,132                 80 %                 19 %
Professional Services
operating income before
former noncontrolling
interest in BHCMC, LLC        $          2,366                 24 %   $          1,516                 20 %                 56 %




                                Three Months                            Three Months
                               Ended October         Percent of       

End of October Percentage change in percentage (in thousands of dollars)

            31, 2021         Total Revenue          31, 2020         Total Revenue        2020-2021
Aerospace Products
Revenue                       $          9,417                100 %   $          8,324                100 %               13 %

Costs of Aerospace Products              5,927                 63 %              6,687                 80 %              -11 %
Expenses                                 1,113                 12 %              1,466                 18 %              -24 %
Total costs and expenses                 7,040                 75 %              8,153                 98 %              -14 %

Aerospace Products
operating income              $          2,377                 25 %   $            171                  2 %             1290 %




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Professional Services


? Professional Services revenue increased 27% for the quarter ended

October 31, 2021 at $ 9.7 million compared to $ 7.6 million for the three months

ended October 31, 2020.

During the three months ended October 31, 2021 Boot Hill Casino gross receipt

received for the Kansas State of $ 12.4 million compared to $ 9.8 million for

the three months have ended October 31, 2020. Mandatory fees, taxes and

distributions reduced gross receipts by $ 3.9 million resulting in a game

income from $ 8.5 million for the three months ended October 31, 2021, compared

to a reduction in gross receipts of $ 3.0 million resulting in gaming revenue

of $ 6.8 million for the three months ended October 31, 2020. No game

income to Boot Hill Casino increased to $ 1.1 million for the three months

ended October 31, 2021, compared to $ 784 for the three months ending in October

    31, 2020.

    The remaining management and Professional Services revenue includes
    professional management services in the gaming industry, and licensed

architectural services. Revenue from Professional Services excluding Boot Hill

Casino grew 11% for $ 103 for the three months ended October 31, 2021,

    compared to $93 for the three months ended October 31, 2020.



? Professional services costs increased 13% in the quarter ended in October

31 2021 to $ 3.9 million compared to $ 3.4 million during the three months ended

October 31, 2020. Costs represented 40% of total segment revenue over the three months

ended October 31, 2021, compared to 45% of total segment sales in the

    three months ended October 31, 2020.




  ? Expenses increased 26% in the three months ended October 31, 2021 to

$ 3.4 million compared to $ 2.7 million during the three months ended October 31,

2020. Spending represented 36% of total segment revenue for the three months ended

October 31, 2021, compared to 35% of total segment sales in the three

    months ended October 31, 2020.




Aerospace Products



? Turnover increased by 13% for $ 9.4 million during the three months ended October 31,

2021, compared to $ 8.3 million during the three months ended October 31, 2020. the

    increase in revenue is primarily due to an increase in special mission
    electronics business of $1.1 million.



? Aerospace product costs fell 11% in the quarter ended October

31 2021 to $ 5.9 million compared to $ 6.7 million for the three months ended

October 31, 2020. Costs represented 63% of total segment revenue in the three months

ended October 31, 2021, compared to 80% of total segment sales in the

    three months ended October 31, 2020.




  ? Expenses decreased 24% in the three months ended October 31, 2021 to

$ 1.1 million compared to $ 1.5 million during the three months ended October 31,

2020. Spending represented 12% of total segment revenue for the three months ended

October 31, 2021, compared to 18% of total segment sales in the three

    months ended October 31, 2020.




Employees



Other than persons employed by our gaming subsidiaries there were 115 full time
and 4 part time employees on October 31, 2021, compared to 111 full time and
5 part time employees on October 31, 2020. As of December 10, 2021, staffing is
112 full time and 5 part time employees. Our staffing at Boot Hill Casino &
Resort on October 31, 2021 was 172 full time and 48 part time employees compared
to 166 full time and 66 part time employees on October 31, 2020. At December 10,
2021 there are 174 full time and 50 part time employees. None of the employees
are subject to any collective bargaining agreements.



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Liquidity and capital resources



We believe that our current banks will provide the necessary capital for our
business operations. However, we continue to maintain contact with other banks
that have an interest in funding our working capital needs to continue our
growth in operations in fiscal 2022 and beyond.



Analysis and discussion of cash flow



During the six months ended October 31, 2021 our cash position decreased by
$9.1 million. Net income was $7.9 million for the six months ended October 31,
2021. Cash flows provided by operating activities was $3.7 million for the six
months ended October 31, 2021. Non-cash activities consisting of depreciation
and amortization provided $2.6 million, while deferred compensation provided
$297, gain on the sale of an airplane provided $75, and forgiveness of debt used
$2.0 million. Contract assets decreased our cash position by $680. Contract
liability decreased our cash position by $4.6 million. Inventories increased our
cash position by $109. Accounts receivable decreased our cash position by
$1.6 million. Gaming facility mandated payments increased our cash position by
$100. Prepaid expenses and other assets decreased our cash by $296. An increase
in accounts payable, a decrease in accrued expenses, and an increase in other
current liabilities increased our cash by $993. Income tax payable increased our
cash position by $710. A decrease in lease liability decreased our cash position
by $57.


Cash used in investing activities has been $ 3.3 million for the six months ended
October 31, 2021. we have invested $ 467 towards STCs, and $ 888 on equipment and furnishings and $ 2.0 million on the construction of new hangars. We received $ 75
proceeds from the sale of an aircraft.

The cash used by financing activities was $ 9.5 million for the six months ended
October 31, 2021. We paid off our debt of $ 1.9 million. We used $ 7.7 million buy the non-controlling interest of BHCMC, LLC. We bought shares of the company from $ 4. The shares acquired were placed in cash.

Critical accounting conventions 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 of the condensed consolidated financial statements.

Lease-use rights: See note 13 of 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
percentage-of-completion, 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 (CTS) are authorizations granted by the Federal Aviation Administration (FAA) for the specific modification of a certain aircraft. The STC authorizes us to make modifications, installations and assemblies on applicable customer-owned aircraft. The costs incurred to obtain STCs are capitalized and subsequently amortized over a period of seven years. The legal lifespan of a CTS is indefinite.


Changing Prices and Inflation



We have experienced upward pressure from inflation in fiscal year 2022. From
fiscal year 2021 to fiscal year 2022 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 2022 and 2023.



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Off-balance sheet provisions

We do not have off-balance sheet arrangements.

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