BUTLER NATIONAL CORP MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)


The following Management Discussion and Analysis (MD&A) is intended to help the
reader understand our results of operations and financial condition. This MD&A
is provided as a supplement to, and should be read in conjunction with, our
consolidated financial statements and the accompanying notes to the consolidated
financial statements (Notes).

Our fiscal year ends on April 30. The 2022 and 2021 fiscal years lasted 52 weeks and ended on April 30, 2022 and April 30, 2021, respectively. Unless otherwise indicated, all references to years in this MD&A represent fiscal years.

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 revenues 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 on Exhibit 21 to this Form 10-K.

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COVID-19 Overview:



The pandemic caused by COVID-19 has caused volatility in world-wide financial
markets since 2020, primarily due to uncertainty with respect to the severity
and duration of the pandemic. Although many experts believe the pandemic has
ended in 2022, the threat of outbreaks and new variations of the virus continue
to affect operations and finances of businesses like ours.



We have experienced lower customer headcount, which has been off-set by a larger
net revenue per customer. We are experiencing, and expect to continue
experiencing, lower demand for our professional services and increased costs and
other challenges related to COVID-19 that adversely affects our business.



The COVID-19 pandemic has impacted our business operations and financial results
and continues to impact us in fiscal 2022. 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. Refer to Item 1A. "Risk Factors" for a disclosure of risk factors
related to COVID-19.



As the economy in general slowly recovers, 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.


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Results Overview

Our fiscal 2022 revenue increased 20% to $73.5 million compared to $61.5 million
in fiscal 2021. In fiscal 2022 the Professional Services revenue increased 30%.
There was an increase of 10% in the Aerospace Products revenue in fiscal 2022.

Our fiscal 2022 net income was $12.2 million compared to net income of
$2.5 million in fiscal 2021. Earnings per share was $0.14 for fiscal 2022
compared to $0.02 in fiscal 2021. We continue focusing on our margin expansion
initiatives, including efficiencies in our implementation and operational
processes and controlling general and administrative expenses. The fiscal 2022
operating income was $16.1 million, an increase from $5.9 million in fiscal
2021.

RESULTS OF OPERATIONS

Fiscal 2022 vs. Fiscal 2021

                                               Percent of                         Percent of        Percent Change
(dollars in thousands)           2022         Total Revenue         2021         Total Revenue         2021-2022
Revenue:
Professional Services         $   39,147                  53 %   $   30,205                  49 %                30 %
Aerospace Products                34,326                  47 %       31,275                  51 %                10 %

Total revenues                    73,473                 100 %       61,480                 100 %                20 %

Costs and expenses:
Cost of professional
services                          15,798                  21 %       14,214                  23 %                11 %
Cost of aerospace products        22,434                  30 %       23,293                  38 %                -4 %
Marketing and advertising          5,236                   7 %        3,752                   6 %                40 %
Employee benefits                  2,573                   4 %        2,571                   4 %                 0 %
Depreciation and
amortization                       2,815                   4 %        3,542                   6 %               -21 %
General, administrative and
other                              8,488                  12 %        8,208                  13 %                 3 %

Total costs and expenses          57,344                  78 %       55,580                  90 %                 3 %
Operating income              $   16,129                  22 %   $    5,900                  10 %               173 %



Revenue:

Revenue increased  to $73.5 million in fiscal 2022, compared to $61.5 million in
fiscal 2021. 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 through BCS Design, Inc. ("BCS").
Revenue from Professional Services increased 30% to $39.1 million in fiscal 2022
compared to $30.2 million in fiscal 2021. We increased our marketing effort into
an expanded market area. We believe this resulted in an increase in patron
visits and an increase in the average spend per visit.

Aerospace Products derives its revenue by designing, engineering, manufacturing,
installing, servicing and repairing products for classic and current production
aircraft. Aerospace Products revenue increased 10% to $34.3 million in fiscal
2022 compared to $31.3 million in fiscal 2021. The increase in revenue is
primarily due to an increase in aircraft avionics and special mission
electronics business of $3.4 million and a decrease in aircraft modification
business of $351.

Costs and expenses:

Costs and expenses related to professional services and aerospace products include the cost of engineering, labor, materials, equipment use, control systems, safety and of occupation.

Costs and expenses increased by 3% in fiscal year 2022 to $57.3 million compared to
$55.6 million in fiscal year 2021. Costs and expenses were 78% of total revenue in fiscal year 2022, compared to 90% of total revenue in fiscal year 2021.

Marketing and advertising expenses as a percent of total revenue was 7% in
fiscal 2022, as compared to 6% in fiscal 2021. These expenses increased 40% to
$5.2 million in fiscal 2022, from $3.8 million in fiscal 2021. Marketing and
advertising expenses include advertising, sales and marketing labor, gaming
development costs, and casino and product promotions. The increase is primarily
due to increasing our marketing efforts into an expanded market area.

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Employee benefits expenses as a percent of total revenue was 4% in fiscal 2022,
compared to 4% in fiscal 2021. These expenses remained constant at $2.6 million
in fiscal 2022 and fiscal 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 as a percent of total revenue was 4% in fiscal
2022, compared to 6% in fiscal 2021. These expenses decreased to $2.8 million in
fiscal 2022, from $3.5 million in fiscal 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 term of the gaming contract with
the State of Kansas. BHCMC, LLC depreciation and amortization expense for fiscal
2022 was $2.3 million compared to $3.1 million in fiscal 2021.

General, administrative and other expenses as a percentage of total revenue were 12% in fiscal year 2022, compared to 13% in fiscal year 2021. These expenses increased by 3% to reach $8.5 million during the 2022 financial year, $8.2 million during fiscal year 2021.

Other income (expenses):

Interest and other income (expense) were ($613) in fiscal 2022 compared with
interest and other income (expense) of ($3.1)million in fiscal 2021, a decrease
of $2,518, from fiscal 2021 to fiscal 2022. The decrease is due primarily to the
forgiveness of the Paycheck Protection Program loan of $2.0 million from the
Small Business Administration, a gain on the sale of an airplane of $75, and a
reduction of interest of $449.

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 fiscal years 2022 and 2021:


                                               Percent of                        Percent of        Percent Change
(dollars in thousands)           2022           Revenue            2021           Revenue             2021-2022
Professional Services
Revenue
Boot Hill Casino              $   38,769                 99 %   $   29,951                 99 %                  29 %
Management/Professional
Services                             378                  1 %          254                  1 %                  49 %
Revenue                           39,147                100 %       30,205                100 %                  30 %

Costs of Professional
Services                          15,798                 41 %       14,214                 47 %                  11 %
Expenses                          13,378                 34 %       10,945                 36 %                  22 %
Total costs and expenses          29,176                 75 %       25,159                 83 %                  16 %
Professional Services
operating income before
noncontrolling interest in
BHCMC, LLC                    $    9,971                 25 %   $    5,046                 17 %                  98 %



                                               Percent of                        Percent of       Percent Change
(dollars in thousands)           2022           Revenue            2021           Revenue            2021-2022

Aerospace Products
Revenue                       $   34,326                100 %   $   31,275                100 %                10 %

Costs of Aerospace Products       22,434                 65 %       23,293                 74 %                -4 %
Expenses                           5,734                 17 %        7,128                 23 %               -20 %
Total costs and expenses          28,168                 82 %       30,421                 97 %                -7 %

Aerospace Products
operating income              $    6,158                 18 %   $      854                  3 %               621 %




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Professional Services

? Professional Services revenue increased 30% to $39.1 million in taxation

2022 from $30.2 million in fiscal 2021. We have increased our marketing efforts

a larger market area. We believe this has led to an increase in customers

visits and an increase in average spend per visit.



In fiscal 2022 Boot Hill Casino received gross receipts for the State of Kansas
of $50.2 million compared to $39.3 million in fiscal 2021. Mandated fees, taxes
and distributions reduced gross receipts by $15.8 million resulting in gaming
revenue of $34.4 million in fiscal 2022 compared to $26.8 million in fiscal
2021, an increase of 28%.  Non-gaming revenue at Boot Hill Casino was $4.4
million in fiscal 2022 compared to $3.1 million in fiscal 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 49% to $378
in fiscal 2022 compared to $254 in fiscal 2021.

? Costs increased by 11% in fiscal 2022 to $15.8 million compared to $14.2 million

    in fiscal 2021. Costs were 41% of segment total revenue in fiscal 2022,
    compared to 47% of segment total revenue in fiscal 2021.



  ? Expenses increased 22% in fiscal 2022 to $13.4 million compared to

$10.9 million in fiscal year 2021. Expenditure represented 34% of the total revenue of the

for fiscal year 2022, compared to 36% of total segment revenue for fiscal year 2021.

the increase is mainly due to 1) an increase in marketing efforts in a

expanded market area and 2) professional services are growing at a faster pace

than Aerospace Products and were awarded a larger share of the share capital

    allocation pool.



Aerospace Products

? Revenues increased by 10% to reach $34.3 million in fiscal year 2022 compared to

$31.3 million in fiscal year 2021. This $3.1 million increase was due to a

increased our aircraft avionics and special mission electronics business by

$3.4 million and a decrease in our aircraft modification activities $351. We

have invested in the development of several STCs. These STCs are the state of the

    art avionics and we are aggressively marketing both domestically and
    internationally.


? Costs decreased by 4% for $22.4 million in fiscal year 2022 compared to $23.3 million

in fiscal 2021. Costs represented 65% of total segment revenue in fiscal 2022,

compared to 74% of total segment revenue in fiscal 2021. Lower costs

is mainly due to a change in the product mix in the modification of the aircraft

    business.


? Expenses decreased by 20% in fiscal year 2022 to $5.7 million compared to $7.1 million

in fiscal year 2021. Spending represented 17% of total segment revenue in fiscal year 2022,

compared to 23% of total segment revenue for fiscal 2021. The decline is due

mainly to the turnover of Aerospace Products, which is growing at a slower rate than

Professional Services and were allocated a smaller portion of the company’s budget

    allocation pool.



Liquidity and capital resources (in thousands)

At April 30, 2022, the Company has a line of credit with Kansas State Bank in
the form of a promissory note with an intereset rate 3.65% totaling $2,000. The
unused line at April 30, 2022 was $2,000. There were no advances made on the
line of credit during the year ended April 30, 2022. The line of credit is due
on demand and is collateralized by a first and second position on all assets of
the Company.

One note with Academy Bank, N.A. for $32,667 collateralized by all of BHCMC's
assets and compensation under the State management contract with an interest
rate of 5.32% payable over seven years with an initial twenty-year amortization
and a balloon payment of $19,250 at the end of seven years. The second note with
Academy Bank, N.A. for $12,721 collateralized by all of BHCMC's assets and
compensation under the State management contract with an interest rate of 5.75%
payable in full over five years. These notes contain a covenant to maintain a
debt service coverage ratio of 1.3 to 1.0. These notes also contain a liquidity
covenant requiring the Company to maintain an aggregate sum of $1.5 million of
unrestricted cash. We are in compliance with these covenants at April 30, 2022.

At April 30, 2022, there is one note with 1st Source Bank with an interest rate
of 6.25% collateralized by an aircraft security agreement totaling $534. This
note was used to purchase an aircraft. This note matures in January 2023.

A note with Fidelity State Bank and trust company for $181 remains for real estate purchased in Dodge City, Kansas. The interest rate on this note is 6.25%. This note matures in June 2024.

To April 30, 2022there is a ticket to pay with Bank of America, North America. secured by real estate with a balance of $1,106. The interest rate on this note is SOFR plus 1.75%. This note matures in March 2029.

To April 30, 2022there is a ticket to pay with Bank of America, North America. secured by real estate with a balance of $507. The interest rate on this note is SOFR plus 1.75%. This note matures in March 2029.

At April 30, 2022, there is a note payable with Patriots Bank with an interest
rate of 4.35% collateralized by aircraft security agreements totaling $1,197.
This note matures in March 2029.

To April 30, 2022there is a note payable with an interest rate of 8.13% totaling $52 guaranteed by the equipment. This note matures in October 2025.

We are not in default of any of our tickets at April 30, 2022 Where July 15, 2022.

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 2022 and beyond.

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During fiscal 2022 our cash position decreased by $9.5 million. Net income was
$12.2 million. Cash flows from operating activities provided $11.0 million.
Non-cash activities consisting of depreciation and amortization contributed
$5.3 million, 401(k) stock issues contributed $807, gain on sale of airplanes
used $75, forgiveness of debt used $2.0 million and deferred compensation
contributed $585. Deferred income taxes increased our cash position by $174.
Accounts receivable decreased our cash position by $1.7 million.
Inventories decreased our cash position by $304. Accounts payable and contract
liability decreased our cash position by $4.1 million. Contract assets decreased
our cash position by $1.0 million. Prepaid expenses and other assets
increased our cash by $141, while gaming facility mandated payments increased
our cash by an additional $172. Accrued liabilities, other liabilities and
income tax payable increased our cash position by $832.

Cash allocated to investing activities was $9.5 million. We have invested $1.1 million
towards the STCs, $5.2 million in the construction of a new shed, $1.2 million buy a new shed, and $2.0 million on equipment and furnishings. We received $75 proceeds from the sale of an aircraft.

Cash used in financing activities was $11.1 million. We increased our debt by
$1.3 million. We made repayments on our debt of $4.4 million. We used $7.7
million to purchase the noncontrolling interest of BHCMC, LLC. We reduced our
lease liability by $108. We purchased company stock of $168. The stock acquired
was placed in treasury.

The Company anticipates capital expenditures in fiscal year 2023 to be
approximately $4.8 million, consisting of $1.3 million on STC's, $700 on the
construction of a new hangar, $2.0 million on equipment and furnishings, and
$800 on the implementation of sports wagering. We anticipate our cash balance
will be sufficient to cover cash requirements through the current fiscal year.


The COVID pandemic caused a global recession and the sustainability of the
economic recovery remains unclear. The COVID pandemic has also significantly
increased economic and demand uncertainty, has caused inflationary pressure in
the U.S. and elsewhere, and has led to disruption and volatility in demand for
our services. The COVID pandemic may negatively affect our capital resources and
operations.



The Bureau of Labor Statistics reported that the Consumer Price Index increased
7 percent in 2021, indicating the largest increase since 1982. Many of our
operating expenses are sensitive to increases in inflation including equipment
prices, fuel costs, and employee-related costs. Insurance costs have also
significantly increased with most major carriers. Furthermore, inflationary
pressures the market is currently experiencing may increase costs for materials,
supplies, and services. Rising inflation may also drive demand for increases in
compensation for employees which may result in increase in labor costs. With
increasing costs, we may have to increase our prices to maintain the same level
of profitability.


Critical accounting 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
Discussion and Analysis of Financial Condition and Results of Operations." In
addition, Note 1 to the consolidated financial statements expands upon
discussion of our accounting policies.

Revenue recognition: Revenue recognition: ASC Topic 606, “Revenues from Contracts with Customers”

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:


1) Identify the contract(s) 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.

2) Identification of 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.

3) 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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4) 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 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.



5) Recognition of revenue when, or over time, 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.
Using direct labor best represents the progress on a contract.

Revenues from avionics products are recognized when they are shipped. Payment for these Avionics products is due within 30 days of the invoice date after shipment. Revenues from gaming management and other general/professional services are 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.

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 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. We believe any changes in these estimates will not result in a
materially adverse affect to the Company's financial position or results of
operations.

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.

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