BUTLER NATIONAL CORP MANAGEMENT REPORT OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)


THROUGHOUT THIS SECTION 2, ALL NON-TABLE FINANCIAL RESULTS ARE PRESENTED IN THOUSANDS OF we DOLLARS EXCEPT WHERE MILLIONS OF DOLLARS ARE SPECIFIED.


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 companies in this group design, develop, manufacture, integrate, install, repair and maintain include:



? 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 navigational 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 capabilities? 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 services firms provide licensed architectural services, including commercial and industrial building design, and engineering services.

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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 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 nine months ended January 31, 2022 revenue increased 27% to $55.4 million
compared to $43.6 million in the nine months ended January 31, 2021. In the nine
months ended January 31, 2022 the professional services revenue was
$28.8 million compared to $20.9 million in the nine months ended January 31,
2021, an increase of 38%. In the nine months ended January 31, 2022 the
Aerospace Products revenue was $26.6 million compared to $22.7 million in the
nine months ended January 31, 2021, an increase of 17%.



The nine months ended January 31, 2022 net profit increased to $8.7 million
compared to a net income of $809 in the nine months ended January 31, 2021.

the

nine months ended January 31, 2022, operating income increased to $13.2 million
from an operating income of $3.7 million in the nine months ended January 31,
2021.



RESULTS OF OPERATIONS



NINE MONTHS ENDED JANUARY 31, 2022 COMPARED TO NINE MONTHS ENDED JANUARY 31,
2021



                                     Nine Months                           Nine Months
                                    Ended January        Percent of      

End of January Percentage change (thousands of dollars)

                 31, 2022        Total Revenue         31, 2021        Total Revenue        2021-2022
Revenue:
Professional Services               $       28,817                 52 %   $       20,901                 48 %               38 %
Aerospace Products                          26,552                 48 %           22,671                 52 %               17 %
Total revenue                               55,369                100 %           43,572                100 %               27 %

Costs and expenses:
Costs of Professional Services              11,377                 20 %           10,313                 24 %               10 %
Cost of Aerospace Products                  17,186                 31 %           16,504                 38 %                4 %
Marketing and advertising                    3,809                  7 %            2,723                  6 %               40 %
Employee benefits                            1,686                  3 %            1,696                  4 %               -1 %
Depreciation and amortization                2,106                  4 %            2,858                  7 %              -26 %
General, administrative and other            6,038                 11 %            5,795                 13 %                4 %
Total costs and expenses                    42,202                 76 %           39,889                 92 %                6 %
Operating income                    $       13,167                 24 %   $        3,683                  8 %              258 %




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Revenue:



Revenue increased 27% to $55.4 million in the nine months ended January 31,
2022, compared to $43.6 million in the nine months ended January 31, 2021. See
"Operations by Segment" below for a discussion of the primary reasons for the
increase in revenue.


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

services in the gaming industry through National Butler Service Company

(β€œBNSC”) and BHCMC, LLC (β€œBHCMC”), and (b) professional architect,

engineering and management support services. Professional income

Services increased by 38% for the nine months to $28.8 million at January 31,

    2022 compared to $20.9 million at January 31, 2021.




  ? Aerospace Products derives its revenue by designing, engineering,

manufacture, installation, maintenance and repair of conventional products and

current production aircraft. Aerospace product sales increased 17% to

nine months for $26.6 million at January 31, 2022 compared to $22.7 million at

    January 31, 2021.




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 6% in the
nine months ended January 31, 2022 to $42.2 million compared to $39.9 million in
the nine months ended January 31, 2021. Costs and expenses were 76% of total
revenue in the nine months ended January 31, 2022, as compared to 92% of total
revenue in the nine months ended January 31, 2021.

Costs of Professional Services increased 10% in the nine months ended January
31, 2022 to $11.4 million compared to $10.3 million in the nine months ended
January 31, 2021. Costs were 20% of total revenue in the nine months ended
January 31, 2022, as compared to 24% of total revenue in the nine months ended
January 31, 2021.

Costs of Aerospace Products increased 4% in the nine months ended January 31,
2022 to $17.2 million compared to $16.5 million for the nine months ended
January 31, 2021. Costs were 31% of total revenue in the nine months ended
January 31, 2022, as compared to 38% of total revenue in the nine months ended
January 31, 2021.

Marketing and advertising expenses increased 40% in the nine months ended
January 31, 2022, to $3.8 million compared to $2.7 million in the nine months
ended January 31, 2021. Expenses were 7% of total revenue in the nine months
ended January 31, 2022, as compared to 6% of total revenue in the nine months
ended January 31, 2021. 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, 2022, compared to 4% in the nine months ended
January 31, 2021. These expenses decreased 1% to $1.7 million in the nine months
ended January 31, 2022, from $1.7 million in the nine months ended January 31,
2021. 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 nine months ended January 31, 2022, compared to 7% in the nine months ended
January 31, 2021. These expenses decreased 26% to $2.1 million in the
nine months ended January 31, 2022 from $2.9 million in the nine months ended
January 31, 2021. 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 nine months ended
January 31, 2022 was $1.7 million compared to $2.5 million in the nine months
ended January 31, 2021.

General, administrative and other expenses as a percent of total revenue was
11% in the nine months ended January 31, 2022, compared to 13% in the
nine months ended January 31, 2021. These expenses increased 4% to $6.0 million
in the nine months ended January 31, 2022, from $5.8 million in the nine months
ended January 31, 2021.

Other expense:

Interest expense was $2.0 million in the nine months ended January 31, 2022,
compared with interest expense of $2.4 million in the nine months ended January
31, 2021. Interest related to obligations of BHCMC, LLC was $1.8 million in the
nine months ended January 31, 2022 compared to $2.2 million in the nine months
ended January 31, 2021.

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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 operating segment information for the nine months ended January 31, 2022 and January 31, 2021:


                                Nine Months                           Nine Months
                               Ended January        Percent of       Ended January        Percent of       Percent Change
(dollars in thousands)            31, 2022        Total Revenue         31, 2021        Total Revenue        2021-2022
Professional Services
Revenue
Boot Hill Casino               $       28,551                 99 %   $       20,706                 99 %               38 %

Management/Professional

Services                                  266                  1 %              195                  1 %               36 %
Revenue                                28,817                100 %           20,901                100 %               38 %

Costs of Professional
Services                               11,377                 40 %           10,313                 49 %               10 %
Expenses                                9,852                 34 %            8,138                 39 %               21 %
Total costs and expenses               21,229                 74 %           18,451                 88 %               15 %
Professional Services
operating income before
former noncontrolling
interest in BHCMC, LLC         $        7,588                 26 %   $        2,450                 12 %              210 %






                                Nine Months                           Nine Months
                               Ended January        Percent of       Ended January        Percent of       Percent Change
(dollars in thousands)            31, 2022        Total Revenue         31, 2021        Total Revenue        2021-2022
Aerospace Products
Revenue                        $       26,552                100 %   $       22,671                100 %               17 %

Costs of Aerospace Products            17,186                 65 %           16,504                 73 %                4 %
Expenses                                3,787                 14 %            4,934                 22 %              -23 %
Total costs and expenses               20,973                 79 %           21,438                 95 %               -2 %

Aerospace Products operating
income                         $        5,579                 21 %   $        1,233                  5 %              352 %




Professional Services


? Professional services revenue increased 38% for the nine months ended

January 31, 2022 for $28.8 million compared to $20.9 million for the

nine months ended January 31, 2021.

In the nine months ended January 31, 2022 Boot Hill Casino gross receipt

received for the Kansas State of $37.0 million compared to $27.4 million

for the nine months ended January 31, 2021. Mandatory fees, taxes and

distributions reduced gross receipts by $11.7 million leading games

income from $25.3 million for the nine months ended January 31, 2022compared with

to a reduction in gross receipts of $8.8 million resulting in gambling revenue

of $18.6 million for the nine months ended January 31, 2021. Non-game

income to Boot Hill Casino increased to $3.2 million for nine months

ended January 31, 2022compared to $2.1 million for the nine months ended

    January 31, 2021.

    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 increased by 36% for $266 for the nine months ended January 31, 2022,

    compared to $195 for the nine months ended January 31, 2021.



? Professional services costs increased 10% in the nine months ended January

31, 2022 to $11.4 million compared to $10.3 million in the nine months ended

January 31, 2021. Costs represented 40% of total segment revenue in the nine months

ended January 31, 2022compared to 49% of total segment revenue

    nine months ended January 31, 2021.




  ? Expenses increased 21% in the nine months ended January 31, 2022 to

$9.9 million compared to $8.1 million in the nine months ended January 31,

2021. Expenses represented 34% of total segment revenue in the nine months ended

    January 31, 2022, as compared to 39% of segment total revenue in the
    nine months ended January 31, 2021.




Aerospace Products



? Turnover increased by 17% to reach $26.6 million in the nine months ended January 31,

2022, compared to $22.7 million in the nine months ended January 31, 2021. the

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

electronics company $2.1 million and an increase in aircraft modification

    business of $1.9 million.



? Aerospace product costs increased 4% in the nine months ended January 31,

2022 to $17.2 million compared to $16.5 million for the nine months ended

January 31, 2021. Costs represented 65% of total segment revenue in the nine months

ended January 31, 2022vs. 73% of total segment revenue

    nine months ended January 31, 2021.




  ? Expenses decreased 23% in the nine months ended January 31, 2022 to

$3.8 million compared to $4.9 million in the nine months ended January 31,

2021. Expenses represented 14% of total segment revenue in the nine months ended

    January 31, 2022, as compared to 22% of segment total revenue in the
    nine months ended January 31, 2021.




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THIRD QUARTER FISCAL 2022 COMPARED TO THIRD QUARTER 2021


                               Three Months                           Three Months
                               Ended January        Percent of        Ended January        Percent of       Percent Change
(dollars in thousands)           31, 2022         Total Revenue         31, 2021         Total Revenue        2021-2022
Revenue:
Professional Services         $         9,416                 52 %   $         7,901                 54 %               19 %
Aerospace Products                      8,716                 48 %             6,711                 46 %               30 %
Total revenue                          18,132                100 %            14,612                100 %               24 %

Costs and expenses:
Costs of Professional
Services                                3,799                 21 %             3,485                 24 %                9 %
Cost of Aerospace Products              5,247                 29 %             4,717                 32 %               11 %
Marketing and advertising               1,338                  7 %               877                  6 %               53 %
Employee benefits                         565                  3 %               546                  4 %                3 %
Depreciation and
amortization                              699                  4 %               740                  5 %               -6 %
General, administrative and
other                                   2,082                 12 %             2,379                 16 %              -12 %
Total costs and expenses               13,730                 76 %            12,744                 87 %                8 %
Operating income              $         4,402                 24 %   $         1,868                 13 %              136 %




Revenue:



Revenue increased 24% to $18.1 million in the three months ended January 31,
2022, compared to $14.6 million in the three months ended January 31, 2021. See
"Operations by Segment" below for a discussion of the primary reasons for the
increase in revenue.


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

services in the gaming industry through National Butler Service Company

(β€œBNSC”) and BHCMC, LLC (β€œBHCMC”), and (b) professional architect,

engineering and management support services. Professional income

Services increased by 19% for the three months to $9.4 million at January 31,

    2022 compared to $7.9 million at January 31, 2021.




  ? Aerospace Products derives its revenue by designing, engineering,

manufacture, installation, maintenance and repair of conventional products and

current production aircraft. Sales of aerospace products increased by 30% for

three months for $8.7 million at January 31, 2022 compared to $6.7 million at

    January 31, 2021.




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 8% in the
three months ended January 31, 2022 to $13.7 million compared to $12.7 million
in the three months ended January 31, 2021. Costs and expenses were 76% of total
revenue in the three months ended January 31, 2022, as compared to 87% of total
revenue in the three months ended January 31, 2021.

Costs of Professional Services increased 9% in the three months ended January
31, 2022 to $3.8 million compared to $3.5 million in the three months ended
January 31, 2021. Costs were 21% of total revenue in the three months ended
January 31, 2022, as compared to 24% of total revenue in the three months ended
January 31, 2021.

Costs of Aerospace Products increased 11% in the three months ended January 31,
2022 to $5.2 million compared to $4.7 million for the three months ended January
31, 2021. Costs were 29% of total revenue in the three months ended January 31,
2022, as compared to 32% of total revenue in the three months ended January 31,
2021.

Marketing and advertising expenses increased 53% in the three months ended
January 31, 2022, to $1.3 million compared to $877 in the three months ended
January 31, 2021. Expenses were 7% of total revenue in the three months ended
January 31, 2022, as compared to 6% of total revenue in the three months ended
January 31, 2021. 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 January 31, 2022, compared to 4% in the three months ended January
31, 2021. These expenses increased 3% to $565 in the three months ended January
31, 2022, from $546 in the three months ended January 31, 2021. 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 January 31, 2022, compared to 5% in the three months
ended January 31, 2021. These expenses decreased 6% to $699 in the three months
ended January 31, 2022 from $740 in the three months ended January 31, 2021.
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 January 31,
2022 was $561 compared to $615 in the three months ended January 31, 2021.

General, administrative and other expenses as a percent of total revenue was
12% in the three months ended January 31, 2022, compared to 16% in the three
months ended January 31, 2021. These expenses decreased 12% to $2.1 million in
the three months ended January 31, 2022, from $2.4 million in the three months
ended January 31, 2021.

Other expense:

Interest expense was $725 in the three months ended January 31, 2022, compared
with interest expense of $758 in the three months ended January 31,
2021. Interest related to obligations of BHCMC, LLC was $665 in the three months
ended January 31, 2022 compared to $679 in the three months ended January 31,
2021.

Operations by Segment



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



The following table presents a summary of our operating segment information for the three months ended January 31, 2022 and January 31, 2021:


                                Three Months                            Three Months
                               Ended January         Percent of       

End of January Percentage change (thousands of dollars)

            31, 2022         Total Revenue          31, 2021         Total Revenue         2021-2022
Professional Services
Revenue
Boot Hill Casino              $          9,314                 99 %   $          7,843                 99 %                 19 %
Management/Professional
Services                                   102                  1 %                 58                  1 %                 76 %
Revenue                                  9,416                100 %              7,901                100 %                 19 %

Costs of Professional
Services                                 3,799                 40 %              3,485                 44 %                  9 %
Expenses                                 3,388                 36 %              2,692                 34 %                 26 %
Total costs and expenses                 7,187                 76 %              6,177                 78 %                 16 %
Professional Services
operating income before
former noncontrolling
interest in BHCMC, LLC        $          2,229                 24 %   $          1,724                 22 %                 29 %




                                Three Months                            Three Months
                               Ended January         Percent of       

End of January Percentage change (thousands of dollars)

            31, 2022         Total Revenue          31, 2021         Total Revenue        2021-2022
Aerospace Products
Revenue                       $          8,716                100 %   $          6,711                100 %               30 %

Costs of Aerospace Products              5,247                 60 %              4,717                 70 %               11 %
Expenses                                 1,296                 15 %              1,850                 28 %              -30 %
Total costs and expenses                 6,543                 75 %              6,567                 98 %                0 %

Aerospace Products
operating income              $          2,173                 25 %   $            144                  2 %             1409 %




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  Table of Contents



Professional Services


? Professional services revenue increased 19% for the three months ended

January 31, 2022 for $9.4 million compared to $7.9 million for three months

ended January 31, 2021.

Within three months January 31, 2022 Boot Hill Casino gross receipt

received for the Kansas State of $12.1 million compared to $10.3 million

for the three months ended January 31, 2021. Mandatory fees, taxes and

distributions reduced gross receipts by $3.8 million leading games

income from $8.3 million for the three months ended January 31, 2022compared with

to a reduction in gross receipts of $3.3 million resulting in gambling revenue

of $7.0 million for the three months ended January 31, 2021. Non-game

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

ended January 31, 2022compared to $842 for the three months ended January

    31, 2021.

    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 increased by 76% for $102 for the three months ended January 31, 2022,

    compared to $58 for the three months ended January 31, 2021.



? Professional services costs increased 9% in the three months ended January

31, 2022 to $3.8 million compared to $3.5 million within three months

January 31, 2021. Costs represented 40% of total segment revenue in the three months

ended January 31, 2022vs. 44% of total segment revenue

    three months ended January 31, 2021.




  ? Expenses increased 26% in the three months ended January 31, 2022 to

$3.4 million compared to $2.7 million within three months January 31,

2021. Expenses represented 36% of total segment revenue in the three months ended

January 31, 2022against 34% of total segment revenue over the three

    months ended January 31, 2021.




Aerospace Products



? Revenues increased by 30% to reach $8.7 million within three months January 31,

2022, compared to $6.7 million within three months January 31, 2021. the

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

electronics company $1.2 million and an increase in aircraft modification

    buisiness of $922.



? Aerospace product costs rose 11% in the three months ended January

31, 2022 to $5.2 million compared to $4.7 million for the three months ended

January 31, 2021. Costs represented 60% of total segment revenue in the three months

ended January 31, 2022vs. 70% of total segment revenue

    three months ended January 31, 2021.




  ? Expenses decreased 30% in the three months ended January 31, 2022 to

$1.3 million compared to $1.9 million within three months January 31,

2021. Expenses represented 15% of total segment revenue in the three months ended

January 31, 2022against 28% of total segment revenue over the three

    months ended January 31, 2021.




Employees



Other than persons employed by our gaming subsidiaries there were 110 full time
and 6 part time employees on January 31, 2022, compared to 115 full time and
5 part time employees on January 31, 2021. As of March 11, 2022, staffing is
110 full time and 6 part time employees. Our staffing at Boot Hill Casino &
Resort on January 31, 2022 was 165 full time and 54 part time employees compared
to 172 full time and 54 part time employees on January 31, 2021. At March 11,
2022 there are 172 full time and 54 part time employees. None of the employees
are subject to any collective bargaining agreements.



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Contents

Cash 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.



Cash flow analysis and discussion



During the nine months ended January 31, 2022 our cash position decreased by
$7.5 million. Net income was $10.6 million for the nine months ended January 31,
2022. Cash flows provided by operating activities was $8.6 million for the nine
months ended January 31, 2022. Non-cash activities consisting of depreciation
and amortization provided $3.9 million, while deferred compensation provided
$456, gain on the sale of an airplane used $75, deferred income tax expense
provided $234, and forgiveness of debt used $2.0 million. Contract
assets decreased our cash position by $1.2 million. Contract liability decreased
our cash position by $4.7 million. Inventories decreased our cash position by
$81. Accounts receivable decreased our cash position by $211. Gaming facility
mandated payments decreased our cash position by $117. Prepaid expenses and
other assets increased our cash by $208. An increase in accounts payable, a
decrease in accrued liabilities, and an increase in other current liabilities
increased our cash by $502. Income tax payable increased our cash position by
$1.2 million.



Cash used in investing activities was $5.2 million for the nine months ended
January 31, 2022. We invested $827 towards STCs, and $1.1 million on equipment
and furnishings and $3.4 million on the construction of new hangers. We received
$75 in proceeds from the sale of an airplane.



Cash used by financing activities was $10.9 million for the nine months ended
January 31, 2022. We made repayments on our debt of $3.1 million. We used $7.7
million to purchase the noncontrolling interest of BHCMC, LLC. We reduced our
lease liability by $82. We purchased company stock of $4. The stock acquired was
placed in treasury.


Significant 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 of the condensed consolidated financial statements.

Right of use lease: See Note 13 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
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 (STCs) are authorizations granted by Federal Aviation Administration (FAA) for the specific modification of a certain aircraft. The STC authorizes us to carry out modifications, installations and assemblies on the concerned aircraft belonging to the customer. The costs incurred to obtain STCs are capitalized and then amortized over a period of seven years. The legal life of an STC 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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Contents

Off-balance sheet arrangements

We have no off-balance sheet arrangements.

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